The Commissioners for HMRC v Burlington Loan Management DAC

Article 12(5) of a double taxation treaty is an anti-abuse provision. The words “to take advantage of” do not mean merely obtaining the benefit of Article 12(1). They require obtaining that benefit in a way contrary to the treaty’s object and purpose. An assignment of a debt claim to an independent, arm’s-length purchaser is not abusive merely because the purchaser relies on the treaty exemption and the assignment reduces source-state withholding tax. Artificial features and the absence of genuine commercial rationale remain relevant indicators, but neither is a condition of applying the provision. The purchaser’s purposes are assessed subjectively, while inevitable and inextricable consequences may amount to purposes. The treaty’s purpose is not to maximise source-state tax revenues.

The respondent, an Irish-resident investment company, acquired rights to post-administration interest on a debt claim in the English administration of Lehman Brothers International (Europe) from a Cayman Islands company through a broker. The respondent expected to reclaim UK withholding tax under Article 12(1) of the UK-Ireland double taxation treaty. The First-tier Tribunal held that neither the seller nor the purchaser had a main purpose of taking advantage of Article 12(1) within Article 12(5), and the Upper Tribunal dismissed HMRC’s appeal: [2024] UKUT 00152 (TCC). HMRC appealed on the proper construction of Article 12(5) and the purchaser’s purposes. The respondent filed a notice contending that Article 12(5) was confined to artificial transactions. The central issue was whether an arm’s-length purchaser’s reliance on the treaty exemption, where economically significant to the transaction, constituted taking advantage of the treaty within Article 12(5).

1. Appeal and respondent’s notice dismissed. The Court of Appeal upheld the FTT and UT conclusions.
2. Article 12(5) is an anti-abuse provision. “To take advantage of” Article 12(1) means obtaining its benefit in a manner contrary to the object and purpose of the treaty, not merely obtaining the benefit which Article 12(1) expressly confers. The contrary interpretation would make the treaty self-defeating.
3. Article 12(5) is not limited to artificial transactions and may apply despite genuine commercial reasons. The deletion in 1998 of the former requirement that an assignment be not for bona fide commercial reasons supported that conclusion. Artificial features and a lack of real business purpose remain relevant evidence, but are not conditions of application.
4. The purposes of a person are ordinarily determined subjectively, distinguishing purpose from effect. A consequence so inevitably and inextricably involved in an activity that it cannot be otherwise regarded may constitute a purpose even if it was not a conscious motive. Appellate interference with factual purpose findings requires an identifiable flaw amounting to an error of law.
5. On the facts, SICL’s liquidators did not have a purpose of taking advantage of Article 12(1). They knew that a purchaser would pay more because UK withholding tax would not be a permanent cost, but did not know whether that resulted from Article 12(1), another treaty, domestic exemption or tax losses. Article 12(5) was therefore not engaged as regards SICL.
6. Even assuming that reclaiming UK withholding tax was one of BLM’s main purposes, BLM was an independent, arm’s-length market purchaser. Its reliance on Article 12(1) was consistent with the treaty’s object of avoiding double taxation and promoting movement of capital between the contracting states. The fact that the assignment reduced HMRC’s withholding-tax receipts did not establish abuse. The analysis did not begin from the counterfactual that SICL retained the claim and paid UK withholding tax.
7. The conduit-company examples were materially different. They involved a person in a non-treaty jurisdiction using a controlled entity in a treaty jurisdiction to obtain and transmit the economic benefit of treaty relief. No such arrangement existed here.

• Court of Appeal (Civil Division) — dismissed HMRC’s appeal and BLM’s respondent’s notice: [2026] EWCA Civ 461.
• Upper Tribunal (Tax and Chancery Chamber) — upheld the FTT’s conclusion that Article 12(5) did not disapply Article 12(1): [2024] UKUT 00152 (TCC).
• First-tier Tribunal — held that neither BLM nor SICL had a main purpose of taking advantage of Article 12(1).