Royal Bank of Canada v The Commissioners for HM Revenue and Customs [2022] UKUT 00045 (TCC)
| Jurisdiction | UK Non-devolved |
| Judge | Mr Justice Edwin Johnson,Judge Rupert Jones |
| Neutral Citation | [2022] UKUT 00045 (TCC) |
| Subject Matter | 17 February 2022 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
| Published date | 17 February 2022 |
[2022] UKUT 00045 (TCC)
Appeal number:UT/2020/000371
CORPORATION TAX – income received by a Canadian bank from payments
relating to oil produced by the Buchan oil field in the UK Continental Shelf – whether
the UK has taxing rights as income from immovable property for the purposes of
Article 6 of the UK / Canada Double Taxation Convention – whether the payments
are liable to corporation tax under section 1313(2)(b) of the Corporation Tax Act
2009 as the right to benefit of exploration or exploitation activities
UPPER TRIBUNAL
TAX AND CHANCERY CHAMBER
ROYAL BANK OF CANADA
Appellant
- and -
THE COMMISSIONERS FOR HER
MAJESTY’S
Respondents
REVENUE & CUSTOMS
TRIBUNAL:
Mr Justice Edwin Johnson
Judge Rupert Jones
Sitting in public at The Rolls Building, 7 Rolls Buildings, London EC4A 1NL on
7-9 December 2021
Jonathan Peacock QC and Sarah Black, Counsel, instructed by Norton Rose
Fulbright LLP, Solicitors, for the Appellant
Jonathan Bremner QC and Michael Ripley, Counsel, instructed by the General
Counsel and Solicitor to HM Revenue and Customs, for the Respondents
© CROWN COPYRIGHT 2022
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DECISION
Introduction
1. This appeal concerns the liability of the Appellant (Royal Bank of Canada or
“RBC”), a publicly owned bank incorporated and tax resident in Canada, to UK
corporation tax on certain payments (the “Payments”) received by it in its accounting
periods ended 31 October 2008-2015 inclusive.
2. The appeal raises three broad issues:
i) The first issue is whether the rights to the Payments were consideration
for the right to work the Buchan oil field (the “Buchan Field”) within the
UK sector of the Continental Shelf. If so, the UK has the right to tax the
Payments as income from ‘immovable property’ within the definition of
Article 6(2) of the UK / Canada Double Taxation Convention of 8
September 1978 (the “Treaty”).
ii) The second issue is whether the rights to the Payments constitute “rights
to … the benefit of” the oil for the purposes of section 1313(2)(b)
Corporation Tax Act 2009 (“CTA 2009”) because they give the recipient
part of the commercial benefit of the oil won from the Buchan Field. If
so, the Payments are chargeable to UK corporation tax.
iii) The third issue is, even if the Payments are chargeable to corporation tax
in principle, whether the Appellant is entitled to a deduction for the loss
it made on the original loan to the Canadian company from whom it had
inherited the right to receive the Payments.
3. In summary, RBC, acting through its head office in Canada, lent monies to a
Canadian oil company, Sulpetro Ltd (“Sulpetro”), which, together with its UK
subsidiary, had originally exploited oil from the Buchan Field. Sulpetro subsequently
went into receivership, leaving an outstanding amount owed to RBC. By virtue of asset
disposals entered in to by Sulpetro, with the UK resident and unrelated third-party, BP
Petroleum Development Ltd ("BP”), Sulpetro was entitled to certain contractual
payments (the Payments) from BP. In due course the right to those contractual
payments passed from Sulpetro to RBC as creditor under the original loan made by
RBC. On receipt of the Payments by RBC from BP (and, later, Talisman a party
standing in BP’s shoes), the Respondents (Her Majesty’s Revenue & Customs or
“HMRC”) contended that RBC was taxable in the UK as the recipient of income from
“immovable property” in the UK. HMRC issued RBC closure notices and assessments
between 31 October 2014 and 3 October 2017 for the accounting periods 2008-2015.
4. The FTT dismissed the Appellant’s appeal against the closure notices and
assessments. The FTT agreed with the substance of HMRC’s arguments on the three
issues which are the subject of this appeal, in a decision released on 30 June 2020 (“the
Decision”) released as [2020] UKFTT 267 (TC). The FTT held on each of the three
issues that are now in dispute that:
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i) The Treaty confers taxing rights on the UK in respect of the Payments on
the basis that they are income from “immovable property” for the
purposes of Article 6(2) (FTT [54]-[66] and [169]);
ii) Section 1313(2)(b) of the Corporation Tax Act 2009 applies so as to
charge the Payments to corporation tax because the Appellant had rights
to the benefit of the oil won from the Buchan field (FTT [83]-[96] and
[170]);
iii) The Appellant had no right to offset any losses incurred by it in its loan to
Sulpetro against the Payments in the computation of the corporation tax
chargeable (FTT [96]-[102]).
5. At the hearing before us, the Appellant was represented by Jonathan Peacock QC
leading Sarah Black and HMRC was represented by Jonathan Bremner QC leading
Michael Ripley. We are grateful to all counsel and their solicitors for the high quality
of the presentation and preparation of this appeal.
Grounds of Appeal and issues to be determined
6. With the permission of the FTT, the Appellant appeals to the Upper Tribunal on
five grounds (permission was also granted by the FTT for a sixth ground of appeal,
which was not pursued):
(1) The FTT failed to address and give proper weight to the purpose of Article
6(2) of the Treaty and its correlation to other articles within the Treaty,
particularly in light of other double tax treaties entered into by the UK or Canada
(“Ground 1”).
(2) The FTT wrongly dismissed arguments based on the equally authoritative
French language version of the Treaty with insufficient, if any, consideration,
resulting in a potentially contradictory interpretation. This is contrary to the
Vienna Convention on the Law of Treaties (1969) (“the Vienna Convention”) and
established general principles of treaty interpretation (“Ground 2”).
(3) The FTT’s analysis of both the Treaty, and s.1313 CTA 2009, disregarded,
or failed to appreciate, the true contractual position between the various parties
(“Ground 3”).
(4) The FTT failed properly to construe the reference to the “benefit of the oil”
for the purposes of s.1313 CTA 2009 and failed properly to identify the nature of
the rights held by RBC in this regard (“Ground 4”).
(5) The FTT erred in holding that, if the Payments were within s.1313 CTA
2009, RBC could not deduct the costs it incurred in acquiring the contractual right
to the Payments (“Ground 5”).
7. Grounds 1-3 argue that the FTT erred in law in deciding the first issue and
concluding that the UK had taxing rights over the Payments under the Treaty. The
Appellant argues that the Payments do not represent income from immovable property
for the purposes of Article 6(2) of the Treaty – income from ‘rights to variable …
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