Burlington Loan – English Court of Appeal finds that purchasing an interest claim on the basis of treaty exemption did not indicate a purposes of “taking advantage” of that exemption

BLM, a substantial Irish-resident investment company, purchased a proved claim to post-administration interest in the administration of Lehman Brothers International (Europe) ("LBIE" – a UK resident) from an unrelated Caymans company (“SICL”) for a cash purchase price which exceeded what SICL would have received in light of UK withholding tax of 20% but generated an 8% profit to BML because of the withholding tax exemption under the UK-Ireland treaty. Art. 12(1) provided:

Interest derived and beneficially owned by a resident of a Contracting State shall be taxable only in that State.

HMRC denied BLM’s refund claim on the basis of Art. 12(5) of that Treaty, which excluded the application of Art. 12 “if it was the main purpose or one of the main purposes of any person concerned with the … assignment … to take advantage of … Article [12].

Snowden LJ found that although BLM was relying on Art. 12(1), the Art. 12(5) exclusion nonetheless was not engaged. He stated:

[T]o "take advantage" of a provision such as Article 12(1), within the meaning of an anti-abuse provision such as Article 12(5), cannot simply be synonymous with to "obtain the benefit" of that provision. That would have the result that the treaty would be self-defeating. …"[T]o take advantage of" the article in question must mean obtaining the benefit of the article in a way that is contrary to the object and purpose of the treaty. …

[G]enerally, one of the principal objectives of the UK-Ireland Treaty was to promote the movement of capital between the UK and Ireland by the elimination of double taxation. In the current context, the movement of capital in question was the payment of interest on the SAAD Claim from a source in the UK. …[E]nabling BLM, as a resident of Ireland, to bid a higher price to acquire the SAAD Claim on the assumption that it would only be taxed on those monies in Ireland and not also in the UK was precisely in line with the objects and purposes of the UK-Ireland Treaty.

Snowden LJ went on to indicate that “Article 12(1) would plainly have been engaged” if, instead, SICL had, for instance, incorporated a wholly-owned Irish subsidiary and had contributed the SAAD Claim to it so as to allow the subsidiary to claim the Art. 12(1) exemption.

Neal Armstrong. Summary of Revenue and Customs v Burlington Loan Management DAC [2026] EWCA Civ 461 under Treaties – Income Tax Conventions – Art. 12, Art. 3.