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

A contractual right to require a licensed company to exploit natural resources is distinct from the licensed right to work those resources. A tax treaty does not permit separate corporate personalities and the legal allocation of rights within a group to be disregarded merely because another group company bears the economic risks and receives the rewards.

Under Article 6(2) of the UK/Canada Double Taxation Convention 1978, rights to payments arising from the surrender of arrangements which did not confer a right to work are not rights to consideration for working, or the right to work, natural resources. Taxing rights must be allocated by construing the treaty’s language, context, object and purpose. There is no presumption favouring taxation by the state where the resources are situated.

Sulpetro, a Canadian company, financed the exploitation of the Buchan oilfield through its UK subsidiary, Sulpetro (UK). The subsidiary held the government licence, while Sulpetro supplied the funds and equipment and received the oil. Sulpetro later sold its subsidiary and procured the novation of the relevant agreement to BP in return for variable payments. Sulpetro’s right to those payments was subsequently assigned to the Royal Bank of Canada.

The First-tier Tribunal and Upper Tribunal held that the payments were taxable in the United Kingdom. The Court of Appeal allowed the bank’s appeal in [2023] EWCA Civ 695. HMRC appealed to the Supreme Court.

The principal questions were whether Sulpetro possessed a “right to work” the oilfield under Article 6(2) of the UK/Canada Double Taxation Convention 1978, whether the payments were consideration for such a right, and whether section 1313 of the Corporation Tax Act 2009 would impose a domestic charge.

1. By a majority, the appeal was dismissed. Lady Rose, with whom Lord Lloyd-Jones, Lord Hamblen and Lord Leggatt agreed, held that Sulpetro (UK) remained the exclusive holder of the government licence and therefore of the right to work the Buchan Field. Sulpetro’s contractual right to require its subsidiary to perform the licensed work was legally distinct from possessing the right to work itself. The payments were consequently not consideration for such a right within Article 6(2) of the UK/Canada Double Taxation Convention 1978.

2. The Convention had to be interpreted in accordance with Articles 31 and 32 of the Vienna Convention on the Law of Treaties 1969. Its language, context, object and purpose did not justify attributing the right to work to the company which supplied the investment and received the oil rather than to the licensed company. The Convention allocated taxing powers between Canada and the United Kingdom. It created no presumption that income economically connected with UK natural resources must be taxable in the United Kingdom.

3. The separate legal personality of Sulpetro (UK) could not be ignored in favour of a broader concept of commercial or economic reality. The structure was deliberately adopted to keep the licence and its obligations with a UK-resident company. The Ramsay principle was not invoked and did not undermine the ordinary recognition of distinct corporate taxpayers.

4. Article 6(2) required a sufficiently close connection between the payment right and the land or natural resources. Read with Articles 13 and 27A, it did not extend to the remote rights surrendered by Sulpetro. The expressions “the working of” and “the right to work” ensured coverage both before and after extraction began; they did not further extend the provision to rights at an additional remove. The right to oil was also distinct from a right to payments for working the oil.

5. Although unnecessary to the result, the majority held that the payments would have fallen within section 1313(2)(b) of the Corporation Tax Act 2009 if Article 6(2) had allocated taxing rights to the United Kingdom. Their amount depended on both the actual volume of oil extracted and its price and was therefore a benefit of the produced assets. A payment does not qualify merely because it is funded from oil sales or calculated by reference to an oil price.

6. Lord Briggs dissented. On a realistic and purposive appraisal, Sulpetro possessed the right to work because it bore all risks and costs, controlled the operations and received all the oil through its wholly owned subsidiary. He would have held that the payments were part of the price for placing BP in Sulpetro’s position, allowed the appeal and restored the tribunal decisions.

1. United Kingdom Supreme Court: HMRC’s appeal was dismissed by a majority of four to one. The decision of the Court of Appeal was upheld: [2025] UKSC 2.

2. Court of Appeal: The bank’s appeal was allowed. The court held that Sulpetro lacked a right to work the oilfield and that the payments were outside Article 6(2): [2023] EWCA Civ 695, [2023] STC 1205.

3. Upper Tribunal: The bank’s appeal was dismissed. The tribunal held that Sulpetro had sold BP the right to work and that section 1313(2)(b) applied: [2022] UKUT 45 (TCC), [2022] STC 406.

4. First-tier Tribunal: The tribunal held that the payments fell within Article 6(2) and section 1313(2)(b): [2020] UKFTT 267 (TC), [2020] SFTD 898.