Methanex Trinidad (Titan) Unlimited v The Board of Inland Revenue (Trinidad and Tobago), [2025] UKPC 20

The appellant (Methanex Trinidad) paid U.S.$85.4 million in dividends to its Barbados parent (Methanex Barbados), which promptly paid dividends to its Caymans parent which, in turn, promptly paid dividends to the ultimate Canadian parent (Methanex Canada).

The Board of Inland Revenue (the “Board”) submitted that the avoidance of Trinidad withholding tax on the dividend from Methanex Trinidad to Methanex Barbados, which benefited from the treaty between the two countries, resulted in an “artificial or fictitious” reduction in Trinidad (withholding) tax pursuant to s. 67(1) of the Income Tax Act (Trinidad) having regard inter alia to the back-to-back character of the dividends, which occurred at the instigation of Methanex Barbados, and the immediate deposit of the dividend from Methanex Trinidad into a Vancouver bank account of Methanex Barbados which was managed by Methanex Canada. In rejecting these submissions, Lord Richards stated (at para 48):

Far from being abnormal, the payment of dividends up a corporate chain at the request of the ultimate holding company is a commercial commonplace in national and international groups, not least because it is the only lawful means by which distributable profits can be brought up from subsidiaries.

Turning then to treaty interpretation issues, Lord Richards found that Methanex Barbados was a resident of Barbados for purposes of the treaty, stating that in this regard, although Methanex Barbados had been incorporated under the International Business Companies Act (Barbados), so that it was subject to a very low rate of tax on its income, it nonetheless was subject to tax in Barbados on its worldwide income. He further stated (at para 70) that "[i]rrespective of the rate at which tax was charged, Barbados asserted jurisdiction to impose tax on all the income of Methanex Barbados as a resident of Barbados."

Furthermore, there was no basis for the submission of the Board that there should be an implied exclusion, from those persons who may qualify as residents, for those which are subject to a generally low rate of tax on worldwide income.

Regarding the Board's submission that the dividends should not be regarded as having been paid to a resident of Barbados for treaty purposes, Lord Richards distinguished Aiken Industries on the basis that there, the taxpayer was contractually obliged to pay interest payments it received to its creditor without any profit on the transaction, whereas here, "not only did Methanex Barbados make a profit as a result of the payment of the Dividends to it, but the profit thereby accruing to it was essential to the legality of the dividends which it then paid to Methanex Cayman." (para 89).

Methanex Trinidad paid U.S.$85.4 million in dividends to its Barbados parent (Methanex Barbados), which promptly paid dividends to its Cayman parent which, in turn, promptly paid dividends to the ultimate Canadian parent (Methanex Canada).

After rejecting the submission of the Board of Inland Revenue (the “Board”) that the avoidance of Trinidad withholding tax on the dividend from Methanex Trinidad to Methanex Barbados, which benefited from the treaty between the two countries, resulted in an “artificial or fictitious” reduction in Trinidad (withholding) tax pursuant to s. 67(1) of the Income Tax Act (Trinidad), Lord Richards then turned to treaty-interpretation issues.

After reviewing Crown Forest, he found that Methanex Barbados was a resident of Barbados for purposes of the treaty, stating that in this regard, although Methanex Barbados had been incorporated under the International Business Companies Act (Barbados), so that it was subject to a very low rate of tax on its income, it nonetheless was subject to tax in Barbados on its worldwide income.

Regarding the Board's submission that the dividends should not be regarded as having been paid to a resident of Barbados for treaty purposes, Lord Richards distinguished Aiken Industries on the basis that there, the taxpayer was contractually obliged to pay interest payments it received to its creditor without any profit on the transaction, whereas here, "not only did Methanex Barbados make a profit as a result of the payment of the Dividends to it, but the profit thereby accruing to it was essential to the legality of the dividends which it then paid to Methanex Cayman." (para 89).