Royal Bank of Canada v HMRC

The Court of Appeal allowed the appeal and set aside the Upper Tribunal's decision and related assessments. The court held that the disputed payments did not fall within the fifth limb of Article 6(2) of the UK/Canada Double Tax Convention (the definition of immovable property) because that limb is best read as applying to rights to payments held by a person who has a continuing legal interest in the land or resource to which the payments are attributable. The payments in issue were contractual rights acquired by RBC which never conferred on it any interest in the Buchan field; accordingly they were not "rights to variable or fixed payments as consideration for the working of, or the right to work" the resource within Article 6(2).

The court further held that the Treaty’s specific provisions addressing offshore hydrocarbon activities (notably Article 13(4) and Article 27A) supported a narrower construction of the fifth limb and that Sulpetro’s separate legal position from SUKL was legally significant: SUKL held the licence and the right to work the field, whereas Sulpetro (and thus RBC as its assignee) held contractual rights to proceeds. Because RBC never held an interest in the field, Article 13 could not be used to tax the Payments in RBC’s hands and the domestic provision (s.1313 CTA 2009) need not be finally determined in this appeal.

Background and parties. The appellant, Royal Bank of Canada (RBC), acquired in 1993 from the receiver of Sulpetro Limited contractual rights to receive periodic "royalty" payments tied to the market price of oil produced from the Buchan field. HM Revenue & Customs assessed RBC for UK corporation tax on those receipts on the basis that they were profits from exploration/exploitation rights or activities within the UK sector of the continental shelf and therefore taxable under domestic law and/or the UK/Canada Treaty.

Nature of the claim and procedural history. RBC appealed against the FTT and Upper Tribunal decisions upholding HMRC. The Court of Appeal heard an appeal from the Upper Tribunal (UT) decision of Mr Justice Edwin Johnson and UT Judge Rupert Jones ([2022] UKUT 00045 (TCC)). The sums at stake (exclusive of interest) were approximately £19m for the accounting periods in issue.

Issues framed by the court.

• whether the Payments fell within the definition of immovable property in Article 6(2) of the Treaty (in particular the fifth limb: "rights to variable or fixed payments as consideration for the working of, or the right to work, mineral deposits...");
• whether the French text and the context of the Treaty support a narrower interpretation of the fifth limb;
• whether Sulpetro (rather than SUKL) held the right to work the Buchan field; and
• whether the relevant domestic provision (s.1313 CTA 2009) renders the Payments taxable in the United Kingdom.

Courts reasoning and outcome. The court applied the Vienna Convention interpretive framework and relevant Strasbourg/House of Lords/Supreme Court authorities and OECD Commentary. It concluded the better interpretation of the fifth limb confines it to rights to payments held by a person who has some form of continuing legal interest in the land or resource (a landowner or equivalent). The court relied on (i) the ordinary meaning of the Treaty provision in context, (ii) the Treatys bespoke provisions for offshore hydrocarbons (Article 13(4) and Article 27A) which create a coherent allocation of taxing rights, and (iii) the French text which uses terminology consistent with a grant/concession rather than a general transfer of purely personal contractual rights. The court further held that SUKL, not Sulpetro, held the licence and the right to work the field; Sulpetros rights were distinct contractual entitlements to proceeds. Because RBC never held an interest in the Buchan field, the Payments did not fall within Article 6(2) or Article 13 in respect of RBC, and the appeal was allowed. The court declined to give a final ruling on the scope of s.1313 CTA 2009, preferring that issue be decided only if necessary in future proceedings.

Appeal allowed. The Court of Appeal concluded that (1) the fifth limb of Article 6(2) (the definition of immovable property) should be read narrowly to cover rights to payments held by a person with a continuing legal interest in the land or resource; (2) RBC never acquired an interest in the Buchan field and therefore its contractual rights to payments did not fall within Article 6(2) or Article 13; and (3) the Upper Tribunals decision was set aside and the assessments cancelled. The court further held that the issue under s.1313 CTA 2009 need not be determined on this appeal.