In an article first published by International Tax Review, Matthew Greene (Partner) and Guy Bud (Associate Barrister) claim that The UK Upper Tribunal’s pragmatic approach to anti-abuse provisions will be welcomed by the secondary debt market.

Double tax treaties are a fundamental part of the international tax landscape. As practitioners will be aware, they can sometimes produce results which at least one of the contracting states does not like.

The recent decision of the UK Upper Tribunal in HM Revenue and Customs (HMRC) v Burlington Loan Management DAC (BLM) raises important issues around the proper interpretation of “anti-abuse” or “treaty shopping” clauses included in the context of a provision dealing with relief from withholding taxes (WHT) on interest payments.



After the collapse of Lehman Brothers in 2008, the holders of a “proved claim” against its former UK subsidiary were entitled to receive payments of post-administration interest under rule 14.23(7) of the Insolvency Rules 2016.

As a matter of UK tax law, such payments were treated as “yearly interest” and subject to WHT at 20% when payable to a person outside the UK.

A Cayman-based company called SAAD Investments Company Ltd (SICL) had a proven claim and therefore stood to receive post-administration interest. The UK–Cayman double tax treaty (DTT) gave taxing rights over the interest to the source state (the UK), although any UK tax paid could in principle be credited against Cayman tax.

By contrast, Article 12 of the UK–Ireland DTT provided that interest derived and beneficially owned by a resident in a contracting state would be taxable only in that state and therefore the UK would not be permitted to levy UK WHT on the interest. This was subject to an anti-abuse provision in Article 12(5) which read at the material time:

“The provisions of [Article 12] shall not apply if it was the main purpose of one of the main purposes of any person concerned with the creation or assignment of the debt-claim in respect of which the interest is paid to take advantage of this Article by means of that creation or assignment.”

SICL sold the claim in 2018 to an Irish-based company, Burlington Loan Management DAC (BLM), at about 90% of the value of the post-administration interest. As such, the transaction made commercial sense for BLM largely because it would be able to benefit from the applicability of Article 12 of the UK–Ireland DTT.


The dispute

HMRC concluded that the arbitrage element meant that both parties to the transaction were aware that it was primarily intended to secure a tax advantage resulting from Article 12 of the UK–Ireland DTT. As such, it considered it an abusive form of tax arbitrage falling within Article 12(5).

The First-Tier Tribunal (FTT) disagreed with HMRC. Although the DTT provided “the setting” for the transaction, it determined that neither SICL nor BLM had a main purpose of obtaining its benefit on the facts.

It rejected HMRC’s economic approach to Article 12(5) since:

“In order for a person to be said to have a main purpose of ‘taking advantage’ of a treaty relief…something more is required than simply selling the claim outright, for a market price, which happens to reflect the fact that certain potential purchasers of the debt claim have tax attributes which the seller does not have, to a purchaser who happens to be able to pay the market price because it has those tax attributes by virtue of being entitled to relief under a treaty”.

HMRC appealed to the Upper Tribunal (UT).


The meaning of the treaty abuse clause

Although the judgment is detailed and runs to 26 pages, the approach adopted by the UT to the question of how to interpret Article 12(5) was disarmingly simple. In so doing, it has arguably also made it easier for a taxpayer to make a reasonable assessment of their own position in future cases.

The UT began by reemphasising that treaties are not provisions of national law and must be interpreted in accordance with the relevant provisions of the Vienna Convention on the Laws of Treaties.

In practice, this meant it should be read “in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and the light of its object and purpose” (Article 31(1)).

Considering the “object and purpose” of Article 12 before passing to the ordinary meaning of the terminology, the UT concluded that the starting point” should be that the DTT was intended to allocate taxing rights over UK post-administration interest to Ireland. This is unless “there is something abusive, in the particular circumstances of the case, for Ireland alone to tax interest beneficially owned by a company resident in its territory”.

Although noting that abuse was not limited to artificiality as the taxpayers had argued, the UT emphasised that a multi-factorial analysis was required since “it is a question for the FTT to determine the subjective purposes of both the seller and the purchaser and, in so doing, to consider all the circumstances of the case”.

The UT rejected HMRC’s more policy-focused interpretation that the purpose should be seen solely as a means to facilitate lending arrangements between the two countries.

In the UT’s view, the arbitrage element of the transaction was something which the FTT could reasonably have considered as “an indicator of purpose”. It nonetheless rejected the idea (implicit in HMRC’s arguments) that this arbitrage could be decisive on its own.

The UT deemed it appropriate to consider that there were potential purchasers of the SAAD Claim for whom UK WHT was not an issue and for whom the UK–Ireland DTT was irrelevant.

It held that: “The existence of other potential purchasers with different tax attributes who were prepared to pay a price higher than 80% of the interest on the SAAD Claim for reasons wholly unconnected to the UK–Ireland treaty was plainly of relevance to both SICL and BLM. The weight to be given to that factor was a matter for the FTT.”

The appeal was dismissed.



Anti-abuse rules are a common feature of tax law in the UK and are often drafted to catch arrangements in which a “main purpose” is to secure a tax advantage. These have been subject to a very expansive interpretation by UK courts and tribunals.

The UT’s approach in Burlington is therefore a salutary reminder that DTTs are not domestic law and that different rules of interpretation apply which reflect the different context in which DTTs operate.

This litigation has been watched closely by those working in the secondary debt market, for whom interest clauses in DTTs comparable with Article 12 are highly relevant. The UT’s approach to anti-abuse clauses will be broadly welcomed by many.



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