Revenue & Customs v Burlington Loan Management DAC, [2024] UKUT 152, aff'd [2026] EWCA Civ 461

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).

BLM was a substantial Irish-resident investment company, which had been acquiring proved claims in the administration of Lehman Brothers International (Europe) ("LBIE" – a UK resident) since 2011. In 2018, an unrelated Caymans company (“SICL”), which was 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 the expected cash payment from LBIE as reduced by the 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. There would have been no refund of the UK withholding tax had the SAAD Claim continued to be held by SICL when paid.

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 that the assignment did not engage Art. 12(5), the Upper Tribunal 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” (para. 100) and “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).
• Furthermore, "for BLM the existence of the UK-Ireland treaty was simply the setting in which the Assignment took place” (para. 100).
• “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 “’sole purpose of BLM in acquiring each such claim, including the SAAD Claim, was to realise a profit by reference to the difference between its purchase price and the cash flows that it received as result of its acquisition of the relevant claim’” (quoting the FTT at para. 32).