UK has no taxing rights over oil profits

In the 1980s the UK government granted Sulpetro (UK) a wholly owned subsidiary of Canadian oil company Sulpetro a licence to explore in the UK continental shelf. Royal Bank of Canada (RBC) made loans through its Canadian head office to Sulpetro to enable this. In 1986 BP group acquired from Sulpetro the share capital in Sulpetro (UK) and the rights to any oil from the continental shelf. A year later Sulpetro went into receivership and its rights to future payments were assigned to RBC.

The issue under appeal was whether the UK had the right to tax those payments made by BP first to Sulpetro and now to RBC – as asserted by HMRC which considered the payments were taxable as profits of a ring-fence trade.

The First-tier and Upper Tribunals dismissed the bank’s appeal. The Court of Appeal allowed RBC’s appeal. HMRC appealed to...