Anti-abuse provision in UK/Ireland double tax treaty

The taxpayer an Irish tax resident company bought a debt claim which gave it the right to receive interest in the administration of Lehman Brothers International (Europe) which was a company resident in the UK. It claimed a repayment of the UK income tax withheld from the interest under article 12(1) of the UK/Ireland double tax treaty.

HMRC refused the claim on the basis the anti-avoidance provision in article 12(5) applied. It said the taxpayer’s main purpose in taking an assignment of the debt claim was to take advantage of the treaty. The First-tier Tribunal allowed the taxpayer’s appeal. HMRC appealed.

The Upper Tribunal said the correct starting point was that unless there was an abusive arrangement falling within article 12(5) the taxpayer was to be taxed only in Ireland on the interest. HMRC’s argument in effect turned the provision into ‘something fundamentally different’ by suggesting...