Royal Bank of Canada v Commissioners for His Majesty’s Revenue and Customs

This appeal concerned whether payments (the "Payments") made by BP (and successors) to Sulpetro and subsequently to the Royal Bank of Canada (RBC) were taxable in the United Kingdom under the UK/Canada Double Taxation Convention (the "Convention") as "income from immovable property" within Article 6(2) or, alternatively, under domestic law by virtue of section 1313 of the Corporation Tax Act 2009. The majority held that the Payments were not caught by Article 6(2) because the legal right to work the Buchan Field at all times rested with Sulpetro (UK) as licence holder and not with Sulpetro (or RBC), and the structure of the Illustrative Agreement could not be ignored. Because Article 6 did not apply, the Court did not need to decide the primary issue of the domestic taxing power, although a majority obiter view was expressed that, had Article 6 applied, section 1313 would have caught such Payments. Lord Briggs dissented, taking a realistic view of the commercial arrangements and concluding that Sulpetro did have the right to work and that the Payments were consideration for that right.

The respondent bank (RBC) received periodic variable payments originally payable under a sale and purchase agreement between Sulpetro and BP that related to rights under an "Illustrative Agreement" between Sulpetro and its UK subsidiary Sulpetro (UK), which held a licence to exploit the Buchan Field in the UK Continental Shelf. HMRC issued discovery assessments for corporation tax on the Payments for multiple accounting periods (2008–2015) asserting that the UK had taxing rights under Article 6(2) of the UK/Canada Convention; the First-tier Tribunal and Upper Tribunal upheld HMRC but the Court of Appeal allowed RBC’s appeal. HMRC appealed to the Supreme Court.

Nature of the proceedings: appeal by HMRC against the Court of Appeal decision that the Payments were not taxable in the UK under Article 6(2) of the Convention.

Key issues:

• Whether the contractual rights Sulpetro held under the Illustrative Agreement amounted to the "right to work" the Buchan Field within Article 6(2) (Issue 1).
• If so, whether the Payments made by BP constituted "consideration for" that right within Article 6(2) (Issue 2).
• If Article 6(2) applied, whether UK domestic law (section 1313 CTA 2009) had in fact imposed a charge so that the Payments would be taxable in the UK (Issue 3).

Court’s reasoning:

• On Issue 1 the majority applied treaty interpretation principles (Vienna Convention Articles 31–33 and the OECD Model context) and placed weight on the legal form: the licence to exploit was vested in Sulpetro (UK) and remained so; the Illustrative Agreement did not transfer the legal right to work the field to Sulpetro. The separate legal personality of Sulpetro (UK) could not be disregarded; therefore Sulpetro (and later RBC) did not hold the "right to work" for the purposes of Article 6(2).
• On Issue 2 the majority held that Article 13(4) and the Commentaries supported a narrower construction of Article 6(2): payments for an outright assignment or transfer of rights are conceptually different from payments that are "consideration for the right to work", and comparison with Article 12 (royalties) supported limiting Article 6(2)’s scope. The majority therefore concluded that the Payments were not "consideration for" the right to work within Article 6(2).
• On Issue 3 the majority observed obiter that, had Article 6(2) applied, the Payments would also have fallen within section 1313 CTA 2009 as profits arising from rights to the benefit of assets to be produced by exploitation activities. The majority also explained limits to section 1313 so as not to catch merely price‑linked payments.

Disposition: Appeal dismissed (majority). Lord Briggs dissented, preferring a purposive, realistic analysis of the commercial arrangements and would have allowed HMRC’s appeal.

Appeal dismissed. The majority concluded that Article 6(2) of the UK/Canada Convention did not apply because the legal right to work the Buchan Field was vested in Sulpetro (UK) (the licensed UK company) and not in Sulpetro or RBC; accordingly the Payments were not "consideration for" the right to work and fell outside Article 6(2). The court therefore did not need to decide the primary UK/Canada Convention taxing question under domestic law, although it stated obiter that section 1313 CTA 2009 would have taxed such Payments if Article 6(2) had applied. Lord Briggs dissented and would have allowed the appeal on a realistic view of the arrangements.

First-tier Tribunal: Royal Bank of Canada v HMRC [2020] UKFTT 267 (TC) (FTT dismissed RBC's appeal). Upper Tribunal: [2022] UKUT 45 (TCC) (Upper Tribunal dismissed RBC's appeal). Court of Appeal: [2023] EWCA Civ 695 (Court of Appeal allowed RBC's appeal). Supreme Court: appeal by HMRC dismissed ([2025] UKSC 2).