UK vs Royal Bank of Canada: CASE SUMMARY

Case Information

  • Court: Supreme Court of the United Kingdom
  • Case Number: [2023] EWCA Civ 695
  • Applicant: Royal Bank of Canada
  • Defendant: Commissioners for His Majesty’s Revenue and Customs
  • Judgment Date: 12 February 2025
  • Download the FULL JUDGMENT

Judgment Summary

This case examines whether payments received by the Royal Bank of Canada (RBC) under an oil exploration agreement were subject to UK taxation. The core issue concerns the interpretation of Article 6(2) of the UK/Canada Double Taxation Convention 1978, which governs the taxation of income derived from immovable property, including natural resources.

The case originates from Sulpetro Ltd, a Canadian corporation, which owned a subsidiary, Sulpetro (UK), licensed to explore and extract oil from the Buchan Field in the North Sea. In 1986, BP acquired Sulpetro’s rights under a sale and purchase agreement (SPA), agreeing to make contingent payments based on oil prices (“the Payments”). RBC, as Sulpetro’s creditor, later acquired the right to receive these Payments.

HMRC contended that these Payments fell under Article 6(2) of the UK/Canada Convention, allowing the UK to tax them. RBC challenged this, arguing that the Payments were not consideration for “the right to work” the Buchan Field and were outside the UK’s taxing jurisdiction.

The First-tier Tribunal and Upper Tribunal upheld HMRC’s position. However, the Court of Appeal reversed this, ruling that the Payments did not arise from a “right to work” within the meaning of Article 6(2). HMRC appealed to the Supreme Court.

The Supreme Court upheld the Court of Appeal’s decision, affirming that:

  1. The “right to work” under Article 6(2) refers to a direct operational entitlement, which Sulpetro never had.
  2. RBC’s entitlement to the Payments was not in exchange for any such right.
  3. The UK/Canada Convention did not permit taxation of these Payments in the UK.

VIEW THE FULL CASE SUMMARY (WEB)

File Type: pdf
File Size: 214 KB
Countries: United Kingdom
Tags: Double Tax Treaty, DTA, Permanent Establishment, Tax Treaty Interpretation, Transfer Pricing