Words and Phrases - "one of the main purposes"
Revenue & Customs v Burlington Loan Management DAC, [2024] UKUT 152
BLM was a substantial Irish-resident investment company, which started acquiring proved claims in the administration of Lehman Brothers International (Europe) ("LBIE" – a UK resident) in 2011 and came to own 443 such claims. In February 2018, a Caymans company (“SICL”), which was unrelated to BLM and was then in liquidation, instructed a third-party broker to market its claim for post-administration interest from LBIE (the “SAAD Claim”). As a result, BLM purchased the SAAD Claim for a cash amount which exceeded what it expected to receive from LBIE after taking into account UK withholding tax of 20% but, after receiving a refund of such withholding tax pursuant to Art. 12(1) of the UK-Ireland Treaty, would generate an 8% profit. Art. 12(1) provided:
Interest derived and beneficially owned by a resident of a Contracting State shall be taxable only in that State.
There would have been no refund of the UK withholding tax had the SAAD Claim continued to be held by SICL.
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].”
In confirming the conclusion of the First-tier Tribunal (Tax Chamber) (the "FTT") that the assignment did not engage Art. 12(5), the Upper Tribunal (“UTT”) indicated that it did not discern reviewable errors in the findings of the FTT, which most relevantly, and as summarized by the UTT, were that:
- It was evident from the OECD commentaries that Art. 12(5) should be regarded as aimed at transactions involving conduits or treaty shopping (see paras. 114-115).
- Here, by contrast, SICL did not retain any direct or indirect entitlements in respect of the SAAD Claim, and it “was Ireland who had full taxing rights over the interest beneficially owned by BLM [and] BLM assumed that those taxing rights would be engaged” (para. 100), and "for BLM the existence of the UK-Ireland treaty was simply the setting in which the Assignment took place” (para. 100).
- Furthermore, “from BLM's perspective, it regarded its beneficial ownership of the interest in respect of the SAAD Claim in the same way as it regarded its beneficial ownership of all the other interest in respect of all the other debt claims in the LBIE administration” which it had acquired and whose eligibility for the Treaty reduction had not been challenged (para. 99).
- “It was appropriate for the FTT to have had regard to the fact that there were potential purchasers of the SAAD Claim for whom UK WHT would not have been an issue and for whom the UK-Ireland treaty would not have been relevant [e.g., UK purchasers with tax losses] … 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” (para. 78).
- “SICL's only purpose in entering into the transaction was to sell the SAAD Claim for the best available price” (para. 37), and similarly the “’SICL's only purpose in entering into the transaction was to sell the SAAD Claim for the best available price;’” (quoting the FTT at para. 32).
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Treaties - Multilateral Instrument - Article 7 - Article 7(1) | accessing Irish-UK treaty dividend-withholding reduction was not abusive given that not a treaty-shopping or conduit transaction | 514 |
Travel Document Service & Ladbroke Group International v Revenue & Customs (Rev 1), [2018] EWCA Civ 549
A British taxpayer (TDS) used a total return swap to cause its share investment in a subsidiary (LGI) to be deemed to be a loan. However, its hoped-for tax benefit was denied by an anti-avoidance provision that applied if “one of the main purposes” for being a party to a loan relationship was to secure relief from tax. In this regard, TDS emphasized that it had held its TDS shares long before entering into the swap and a related novation contract. In rejecting this contention, Lord Justice Newey stated (at para. 46):
Had the tax advantage in view been small, there might have been scope for argument as to whether an intention to use the shares to achieve it implied that obtaining the advantage was now a main purpose of holding the shares. In fact, however, the hoped-for gain was large both in absolute terms (more than £70 million) and relative to the apparent value of TDS (some £280 million).
After so concluding against TDL, Lord Justice Newey stated (at para. 48):
I would add, however, that I do not accept that, as was submitted by Mr Ghosh [for HMRC], "main" … means "more than trivial". A "main" purpose will always be a "more than trivial" one, but the converse is not the case. A purpose can be "more than trivial" without being a "main" purpose. "Main" has a connotation of importance.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Statutory Interpretation - Interpretation/Definition Provisions | where an anti-avoidance provision’s application depended on the purpose of being a creditor, that purpose was the one for holding shares which were a deemed loan | 379 |
Mady v. The Queen, 2017 TCC 112
As a result of a rule change of the Dental College, it was necessary for ownership of all the voting common shares of the professional corporation through which the taxpayer carried on his dental practice (“MDPC”) to be transferred from a family trust to him. This was accomplished by those shares being distributed out of the trust to his wife qua capital beneficiary in 2002, followed by their immediate gifting to him. Dividends paid by MDPC to the taxpayer in 2010 and 2011 were reported as his wife’s income under s. 74.1(1), but the Minister assessed to include those dividends in his income under s. 74.5(11).
Hogan J first noted (at paras 111-112):
… The Appellant observes that subsection 74.5(11) does not refer to a “series” of transactions ... [and] that subsection 74.5(11) dictates that the purpose of the transfer from Mrs. Mady to Dr. Mady must be determined solely by reference to that transaction. …
[T]he transfer of the shares from her to Dr. Mady could not have been intended to reduce tax payable on the dividends received on the shares. She was already the shareholder and the lower income earner.
In rejecting this argument, he stated (at paras. 114-116):
…[Lehigh Cement] accepts that, even in the absence of a “series of transactions” concept, the entire series of transactions may form part of the relevant circumstances in determining the purpose of the transfer of property.
… The rules of the Royal College of Dental Surgeons prohibited Mrs. Mady from owning the shares. If she could not own the shares she could not receive dividend income thereon. Therefore, dividends could not be subject to tax in her hands at a lower tax rate than that which applied to Dr. Mady. …
… [Per] Groupe Honco … “one of the main purposes” … “…implies that a taxpayer may have more than one main motive in acquiring shares”. Even if I accept that one of the purposes of the transfer from Mrs. Mady to Dr. Mady was to ensure compliance with the new [Dental College] share ownership restriction…, this does not override…that the other main purpose of structuring the transaction … was to trigger the application of the attribution rules… .
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - General Concepts - Ownership | wife and children did not acquire beneficial interest in shares the taxpayer was to transfer to them, under tax plan, until the share transfer occurred | 263 |
| Tax Topics - Income Tax Act - Section 86 - Subsection 86(2) | family members did not acquire beneficial interest in new shares until after completion of s. 86 reorg | 297 |
| Tax Topics - General Concepts - Fair Market Value - Shares | arm’s length sales price established FMV for closing-date internal transfer of same shares | 482 |
| Tax Topics - Income Tax Act - Section 69 - Subsection 69(1) - Paragraph 69(1)(b) - Subparagraph 69(1)(b)(i) | contemporaneous arm’s length sale price established that shares previously transferred at undervalue | 478 |
| Tax Topics - Income Tax Act - Section 163 - Subsection 163(2) | was not responsible under s. 163(2) for the unbeknownst sharp practice of his tax advisor | 692 |
| Tax Topics - General Concepts - Price Adjustment Clause | no jurisdiction to comment on application of price adjustment clause where the affected taxpayers are not appellants | 233 |
May 2016 Alberta CPA Roundtable, Income Tax Q.9
When asked to comment on factors taken into account in deciding if “one of the main purposes” of a transfer or loan is reasonably considered to benefit a designated person, CRA stated:
In…2001-0067725…we stated that in a situation where a trust of which the beneficiary is a minor child of the freezor acquires common shares of the freezor’s Holdco on an estate freeze, the provisions of subsection 74.4(2) will generally apply, subject to subsection 74.4(4). The taxpayer would have to rebut the presumption that “one of main purposes” of the transfer was not to reduce the income of the individual and benefit a designated person.
Neal Armstrong. Summary of May 2016 Alberta CPA Roundtable, Income Tax Q.9 under s. 74.4(2).
Groupe Honco Inc. v. Canada, 2014 DTC 5006, 2013 FCA 128, aff'g 2013 DTC 1032 [at 149], 2012 TCC 305, infra
Trudel JA stated (at para. 24) that:
[C]ounsel for the appellants is ignoring the purpose and spirit of subsection 83(2.1) of the Act in attempting to persuade us that the word "main" does not leave open the possibility of having two or three motivations that explain a transaction or series of transactions.
An argument that the exception in s. 83(2.1) applied was not raised with sufficient notice.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 248 - Subsection 248(10) | sometimes elapsed time will be relevant to series determination | 206 |