GE FINANCIAL INVESTMENTS v THE COMMISSIONERS FOR HER MAJESTY'S REVENUE AND CUSTOMS [2023] UKUT 00146 (TCC)
| Jurisdiction | UK Non-devolved |
| Judge | Mr Justice Richard Smith,Judge Andrew Scott |
| Subject Matter | 23 June 2023 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
| Published date | 29 June 2023 |
Neutral Citation: [2023] UKUT 00146 (TCC)
Case Number: UT/2021/000165
UPPER TRIBUNAL
(Tax and Chancery Chamber)
The Royal Courts of Justice, Rolls Building, Fetter Lane, London EC4A 1NL
CORPORATION TAX – UK/USA double tax convention – meaning of a “resident of Contracting State” for purposes of convention – whether UK resident company with shares stapled to those of US company treated as domestic corporation for purposes of US federal tax law also resident for purposes of convention – yes – whether First-tier Tribunal erred in deciding that appellant was not carrying on business in USA – no – appeal allowed
Heard on: 28 February, 1 and 2 March 2023
Judgment date: 29 June 2023
Before
MR JUSTICE RICHARD SMITH
JUDGE ANDREW SCOTT
Between
GE FINANCIAL INVESTMENTS
Appellant
and
THE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMS
Respondents
Representation:
For the Appellant: Philip Baker KC and John Brinsmead-Stockham KC, instructed by Slaughter and May
For the Respondents: Hui Ling McCarthy KC and Barbara Belgrano, instructed by the General Counsel and Solicitor to His Majesty’s Revenue and Customs
DECISION
Introduction
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This appeal concerns the interpretation of the UK/USA double tax convention and its application to GE Financial Investments (“GEFI Ltd”) for its accounting periods ending 31 December 2003 to 31 December 2008.
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GEFI Ltd filed company tax returns for each of those periods in which it claimed a credit for US federal income tax paid on interest income it was beneficially entitled to as a limited partner in a Delaware limited partnership. The credit in question was against UK corporation tax paid by GEFI Ltd on the same income. HMRC refused the claims.
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It was not in dispute that GEFI Ltd was resident in the United Kingdom for the relevant period and that it was consequently liable to corporation tax on its worldwide income.
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The total amount of the relief denied was £124,913,161.86. The tax assessed in the UK was paid by the appellant in November 2021 in order to stop the accrual of further interest. The interest accrued up to that time was £63,717,137. GEFI Ltd has, therefore, paid just under £189 million in total in respect of the disputed claims to double taxation relief.
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GEFI Ltd appealed to the First-tier Tribunal (“the FTT”) against the denial by HMRC of the relief. The FTT dismissed the appeal in a decision dated 8 June 2021. GEFI Ltd appeals to this Tribunal against that decision with the permission of the FTT.
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There were two principal issues before the FTT.
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The first (“issue 1”) was whether GEFI Ltd was a resident of the USA for the purposes of Article 4 of the UK/USA double tax convention. If it was, it would be entitled to the double taxation relief it had claimed.
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GEFI Ltd had amended its articles of association restricting the transfer of its ordinary dollar shares unless all the common stock in an affiliate company incorporated in Delaware (GE Financial Investments, Inc (“GEFI Inc”)) was transferred to the transferee at the same time. A similar amendment was made to the certificate of incorporation of GEFI Inc. In consequence of these amendments, the shares of GEFI Ltd were “stapled” to the stock of GEFI Inc. One effect of this stapling was that, for US federal income tax purposes, GEFI Ltd was treated as a domestic corporation and was liable to tax there on its worldwide income.
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The FTT held that, despite the fact that GEFI Ltd was liable to federal tax in the US in that way, it was not resident in the USA for treaty purposes.
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Having found against the appellant on that issue, the FTT then considered a second issue, whether GEFI Ltd carried on business in the USA through a permanent establishment there for the purposes of Article 7 of the UK/USA double tax convention (“issue 2(a)”). If it did, it would be entitled to double taxation relief in the UK in respect of the US tax payable if (but only if) the UK was required, pursuant to Article 24(4)(a) of the convention, to give relief against US tax (“issue 2(b)”).
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The FTT decided issue 2(a) against GEFI Ltd and, having also held against the appellant on issue 1, consequently dismissed the appeal. However, in the event that its conclusion on issue 2(a) was wrong, the FTT went on to consider issue 2(b) and found in favour of the appellant.
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GEFI Ltd appeals against the FTT decision in respect of both issues 1 and 2(a). HMRC challenges the FTT decision in respect of issue 2(b) by way of a respondents’ notice. It was common ground that if GEFI Ltd succeeds on issue 1, the appeal must be determined in its favour. If it does not succeed on issue 1, it needs to be successful on both aspects of issue 2 in order for its claims to double taxation relief to be made out.
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For the reasons given below, we consider that the FTT was wrong to conclude that GEFI Ltd was not resident in the USA for the purposes of the UK/USA double tax convention (and hence the appeal is determined in favour of GEFI Ltd on issue 1). Nonetheless, we go on to consider issue 2(a) as we heard very detailed argument on it occupying a substantial portion of the hearing and in the event of an appeal against our decision.
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However, we have not considered it appropriate to make findings in relation to issue 2(b). This was a complex issue, which was dealt with relatively briefly by both parties. It would be relevant only if we are wrong on both issue 1 and issue 2(a). It would, in our view, be better for that issue to be considered in a case where it is determinative. For that reason, we say no more about issue 2(b) in the remainder of this decision.
Summary of the relevant facts
Relevant group structure
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The relevant transactions giving rise to the income taxed in the UK and USA involved a number of General Electric group companies.
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GEFI Ltd was a private limited company incorporated under the Companies Act 1985. It was a subsidiary of GE Capital Investments (“GECI”), which was a UK resident private unlimited company. GEFI Inc, a Delaware corporation, was also a subsidiary of GECI.
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In turn GECI was a subsidiary of General Electric Capital Corporation (“GECC”), a company incorporated in the USA and a wholly-owned member of the group of companies headed by the General Electric Company, also incorporated in the US.
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A simplified diagrammatic representation of the group structure is included in an Annex to this judgment, which also includes reference to loans made by the limited partnership that are central to this appeal and are summarised below.
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GEFI Ltd was dormant from 31 August 1997 to June 2003. On 27 June 2003 it adopted a new memorandum and articles of association by special resolution. The objects included:
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the objects, at (A), “to carry on business as a general commercial company and to carry on any trade or business whatsoever;
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the object, at (B), to hold “directly or indirectly financial receivables and other assets including (but not limited to) shares or stock in any company carrying on a financial trade”;
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the objects, at (D), “to advance, deposit or lend money”;
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the object, at (E), “to carry on any other trade or business whatever”; and
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the objects, at (L), to “lend and advance money or give credit … and to receive money on deposit or loan …”.
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The articles of association also provided at Article 8.3A that:
“no Ordinary Dollar Shares in the capital of the Company shall be transferred unless there are transferred to the transferee at the same time all of such Ordinary Dollar Shares for the time being in issue and all of the Common Stock in [GEFI Inc] for the time being outstanding.”
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GEFI Inc had (on the previous day – 26 June 2003) amended its certificate of incorporation so as to provide a similar restriction on the transfer of its shares.
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These changes to GEFI Ltd’s articles of association and GEFI Inc’s certificate of incorporation constituted the share staple, which is, as noted above, relevant to the operation of US federal tax law.
The formation of a limited partnership
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A limited partnership, GE Financial Investments (USA) LP, was formed on 27 June 2003 pursuant to an agreement between GEFI Inc as general partner and GEFI Ltd as limited partner. The formation was in accordance with the Delaware Revised Uniform Limited Partnership Act.
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Under that Act, the general partner is an agent of the partnership for the purposes of its business or activities and is liable for all its obligations, and a limited partner is not liable for the obligations of the partnership unless it is also a general partner or, in addition to the exercise of the rights and powers of a limited partner, it participates in the control of the business. Unlike a limited partnership formed in the UK, there is no requirement under Delaware law for the limited partnership to carry on a business.
The provisions of the limited partnership agreement recited, at [2], its purposes as “to (i) hold directly or indirectly financial receivables and other assets, and companies carrying on a financial...
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