The Commissioners for HMRC v Aozora GMAC Investment Limited

Section 793A(3) of the Income and Corporation Taxes Act 1988 applies only where a double taxation arrangement contains an express provision stating, or conveying in equivalent terms, that credit relief is unavailable in specified cases or circumstances.

A limitation-on-benefits article which defines the persons entitled to treaty benefits does not satisfy that description merely because its practical effect is to deny treaty relief to other persons. It does not expressly deny unilateral domestic credit relief. The provision is not a general anti-circumvention rule designed to align treaty relief and unilateral relief in every case.

HMRC appealed, with permission, against the First-tier Tribunal’s decision released on 12 April 2021, which allowed Aozora’s appeals against closure notices for accounting periods ending in 2007, 2008 and 2009.

Aozora had claimed unilateral double taxation relief under section 790 of the Income and Corporation Taxes Act 1988 for US tax withheld from interest paid by its US subsidiary. The IRS denied treaty benefits because Aozora was not a qualified person under Article 23 of the US/UK Tax Treaty. HMRC contended that Article 23 engaged section 793A(3) and prevented the claims. The central issue was whether Article 23 was an express provision to the effect that credit relief shall not be given.

1. Appeal dismissed. The First-tier Tribunal had correctly allowed Aozora’s appeals.
2. The statutory meaning of section 793A(3) had to be determined primarily from the words enacted by Parliament, read in their statutory context. A purposive construction remained necessary, but it could not displace clear statutory language. Explanatory material and other external aids had only a secondary role.
3. The words “express provision to the effect that relief by way of credit shall not be given” required a treaty provision which stated in terms, or conveyed the same message in equivalent wording, that credit relief was unavailable in specified cases or circumstances.
4. Article 23 did not meet that description. It regulated the circumstances in which treaty benefits were available to qualified persons and certain other persons. It did not expressly refer to credit relief or state that credit relief was denied to non-qualified persons. Its operation could also depend on exceptions or the exercise of discretion under Article 23(6).
5. Article 23 therefore did not engage section 793A(3). The Tax Treaty did not generally prevent unilateral relief under domestic law where treaty relief was unavailable. Article 24(4)(c), concerning certain sale and repurchase transactions, illustrated the type of express provision which could engage section 793A(3).
6. The Tribunal rejected HMRC’s arguments based on Article 4(5), treaty balance and the prevention of circumvention. The alternative argument based on Article 1(2) was not necessary to the decision, which was based on the proper construction of section 793A(3).

• Upper Tribunal (Tax and Chancery Chamber) — Appeal by HMRC dismissed: [2022] UKUT 258 (TCC).
• First-tier Tribunal — Appeals by Aozora against closure notices allowed; decision released on 12 April 2021.