United Kingdom vs Burlington Loan Management DAC, April 2026, Court of Appeal, Case No CA-2024-001809 ([2026] EWCA Civ 461)
Table of Contents
Case Information
Court: Court of Appeal (Civil Division)
Case number: CA-2024-001809
Citation: [2026] EWCA Civ 461
Applicant: The Commissioners for His Majesty's Revenue and Customs
Respondent: Burlington Loan Management DAC
Jurisdiction: England and Wales
Judgment date: 20 April 2026
Judgment Summary
This appeal concerned whether approximately £90.8 million of post-administration interest received by Burlington Loan Management DAC ('BLM'), a company tax-resident in Ireland, in respect of a debt claim purchased in the administration of Lehman Brothers International (Europe) ('LBIE'), was exempt from UK withholding tax ('UK WHT') under Article 12(1) of the UK-Ireland double taxation treaty signed on 2 June 1976 (the 'UK-Ireland Treaty') [paragraphs 1, 3].
BLM had purchased the debt claim (the 'SAAD Claim') in February 2018 by way of assignment from SAAD Investments Company Ltd ('SICL'), a company resident in the Cayman Islands and in liquidation there since 2009 [paragraph 2].
The central question was whether Article 12(5) of the UK-Ireland Treaty disapplied the Article 12(1) exemption on the basis that it was the main purpose, or one of the main purposes, of any person concerned with the assignment of the SAAD Claim to take advantage of Article 12 by means of that assignment [paragraphs 3, 5].
The First-tier Tribunal ('FTT') and the Upper Tribunal ('UT') had both found in favour of BLM. HMRC appealed. The Court of Appeal dismissed HMRC's appeal and also dismissed a respondent's notice filed by BLM [paragraphs 5, 6].
Background
LBIE went into administration in England and Wales on 15 September 2008. Because LBIE had a surplus of assets over admitted claims, creditors holding admitted claims became entitled to post-administration interest under The Insolvency (England and Wales) Rules 2016 [paragraph 8].
SICL was the original holder of the SAAD Claim. On 31 August 2016 the principal amount of the SAAD Claim was agreed at just over £142 million and was paid in full by LBIE's administrators to SICL's liquidators on 7 September 2016. Post-administration interest of approximately £90 million remained outstanding [paragraphs 9, 10].
At the end of 2017, three risks affected the value of the remaining interest: (i) the 'liquidation lacuna' risk that LBIE might go into liquidation, eliminating any entitlement to post-administration interest; (ii) the 'late termination' risk that interest might be calculated from 21 October 2011 rather than 15 September 2008, reducing the interest by about £10 million; and (iii) uncertainty about whether section 874 of the Income Tax Act 2007 imposed UK WHT on post-administration interest payments, which was resolved against creditors by the Court of Appeal on 19 December 2017 in HMRC v Lomas [2017] EWCA Civ 2124 [paragraph 10].
SICL was resident in the Cayman Islands. The UK-Cayman Islands double tax arrangement signed on 15 June 2009 did not exempt interest from UK WHT but provided only for a credit against Cayman Islands tax. Given SICL's financial position, this meant that if UK WHT applied, SICL would face an irrecoverable tax cost of 20% of the post-administration interest [paragraph 11].
In early February 2018, SICL's liquidators instructed a third-party broker, Jefferies, to market the rights to receive any further monies payable on the SAAD Claim [paragraph 12].
BLM is a substantial investment company tax-resident in Ireland. It had been acquiring admitted claims in the LBIE administration since 2011 and by 2018 held an interest in 443 such claims [paragraph 13].
Jefferies approached BLM's investment manager, Davidson Kempner Capital Management ('DKCM'). Commercial terms were agreed on 8 February 2018 and a trade was confirmed by email on 12 February 2018 (the 'Trade Date'). Formal written agreements were executed on 9 March 2018 [paragraph 14].
Completion occurred in two stages on 9 March 2018. SICL assigned the SAAD Claim to Jefferies for £82,400,000 and Jefferies assigned it to BLM for £83,550,000 [paragraph 17].
On 25 July 2018 the gross amount of post-administration interest payable on the SAAD Claim was £90.7 million. LBIE's administrators paid 80% (£72.6 million) to BLM and withheld 20% (£18.1 million) under section 874, paying that sum to HMRC in September 2018. On the basis of those figures, SICL sold the claim for 90.81% of the total interest, Jefferies earned a commission of 1.27%, and BLM paid approximately 92.08% of the total interest [paragraphs 18, 19].
Core Dispute
The dispute concerned whether Article 12(5) of the UK-Ireland Treaty disapplied the Article 12(1) exemption from UK WHT on the approximately £90.8 million of post-administration interest received by BLM [paragraph 3].
Article 12(1) provided that interest derived and beneficially owned by a resident of a contracting state shall be taxable only in that state. Article 12(5) provided that Article 12(1) shall not apply if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the debt-claim in respect of which the interest is paid to take advantage of Article 12 by means of that creation or assignment [paragraph 4].
HMRC contended before the FTT that both SICL and BLM had a main purpose of taking advantage of Article 12(1) by means of the assignment. Before the Court of Appeal, HMRC no longer pursued the point in relation to SICL and focused solely on BLM's purposes [paragraphs 20, 39].
HMRC argued that because BLM's assumed ability to reclaim UK WHT under Article 12(1) was the only basis on which the acquisition was economically viable for BLM, obtaining the benefit of Article 12(1) must have been a main purpose of BLM. HMRC contended that 'to take advantage of' Article 12(1) meant no more than 'to obtain the benefit of' that article [paragraphs 41, 42].
BLM's respondent's notice argued that, contrary to the UT's finding, Article 12(5) is limited in scope to transactions involving artificial steps or arrangements, and that the assignment was a genuine commercial transaction at arm's length [paragraph 43].
Court Findings
The court rejected BLM's respondent's notice. It held that Article 12(5) is not limited to artificial transactions or transactions lacking a genuine commercial purpose. The deletion in 1998 of the original requirement in Article 12(5) that an assignment should not be 'for bona fide commercial reasons' showed that the UK and Ireland intended Article 12(5) to be capable of applying to genuine commercial transactions. However, the presence or absence of artificial features remained highly relevant to the assessment of whether a party had a requisite purpose [paragraphs 49 to 59].
The court held, following Vietjet Aviation JSC v FW Aviation (Holdings) Limited [2025] EWCA Civ 783, that 'to take advantage of' Article 12(1) within the meaning of Article 12(5) does not simply mean 'to obtain the benefit of' that article. It means obtaining the benefit of the article in a way that is contrary to the object and purpose of the treaty. The court relied on paragraph 9.5 of the 2014 OECD Commentary on the Model Tax Convention, which states that treaty benefits should not be available where a main purpose for entering into certain transactions was to secure a more favourable tax position and obtaining that treatment would be contrary to the object and purpose of the relevant provisions [paragraphs 90, 93 to 95].
The court held that BLM's reliance on Article 12(1) was not contrary to the object and purpose of the UK-Ireland Treaty. The principal purpose of double tax conventions is to promote commerce between contracting states by eliminating double taxation. BLM, as a long-established Irish-resident company, was entitled to acquire the SAAD Claim on the basis that it would only be taxed on the interest in Ireland, and that was precisely in line with the objects and purposes of the treaty [paragraphs 96 to 103].
The court rejected HMRC's submission that the analysis should start from the position prior to the assignment, under which interest on the SAAD Claim in the hands of SICL would have been subject to UK WHT. It agreed with the UT that the correct starting point was that, by Article 12(1), the UK agreed that BLM as a resident of Ireland and beneficial owner of the claim should only be taxed on the interest in Ireland [paragraphs 98 to 101].
The court held that the conduit company cases described in the OECD Conduit Report illustrated the type of abuse Article 12(5) was intended to catch: arrangements in which a person not entitled to treaty benefits creates or uses a subsidiary in a treaty country to channel income back to itself, thereby retaining the economic benefit of the treaty relief. That was not what occurred in the present case, where BLM was an independent entity dealing at arm's length with SICL and acquired the SAAD Claim for its own commercial account [paragraphs 105 to 119].
The court declined to resolve the conflict between the approaches in Fisher v HMRC [2021] EWCA Civ 1438 and IRC v Kleinwort Benson [1969] 2 Ch 221 on the question whether making a profit can displace other purposes, because the resolution of BLM's appeal turned on the meaning of 'take advantage of' rather than on the identification of BLM's main purposes [paragraph 89]. Falk LJ added that where a tax advantage is specifically conferred by a treaty, it cannot have been intended that the advantage should inevitably be denied by an anti-abuse rule merely because it forms part of the economics of a transaction; something more is needed [paragraphs 133, 134].
Both Falk LJ and Snowden LJ noted that it was far from clear that the expression 'main purpose or one of the main purposes' in Article 12(5) is a 'term' to which Article 3(2) of the treaty applies, or that the contracting states intended this expression to be interpreted solely by reference to domestic English law authorities [paragraphs 61 footnote 2, 135].
Outcome
The Court of Appeal dismissed HMRC's appeal and dismissed BLM's respondent's notice [paragraph 120]. The decisions of the FTT and the UT that the interest received by BLM was taxable only in Ireland by reason of Article 12(1) of the UK-Ireland Treaty were upheld.
Major Issues / Areas of Contention
- Whether Article 12(5) of the UK-Ireland double taxation treaty disapplied the Article 12(1) exemption from UK withholding tax on approximately £90.8 million of post-administration interest received by BLM in respect of the SAAD Claim [paragraphs 3, 5].
- Whether the phrase 'to take advantage of' Article 12(1) in Article 12(5) means simply 'to obtain the benefit of' that article, or whether it means obtaining the benefit in a way that is contrary to the object and purpose of the treaty [paragraphs 90, 95].
- Whether Article 12(5) is limited in scope to transactions involving artificial steps or arrangements, or whether it can also apply to genuine commercial transactions [paragraphs 49 to 58].
- Whether BLM's assumed ability to reclaim UK WHT under Article 12(1), which was an essential component of the economics of the acquisition, constituted a main purpose of taking advantage of Article 12(1) within the meaning of Article 12(5) [paragraphs 73, 74, 104].
- Whether SICL's purposes in agreeing to sell the SAAD Claim engaged Article 12(5), given that SICL did not know the identity or tax position of the purchaser at the time it agreed in principle to sell [paragraphs 27, 69 to 72].
- Whether the correct analytical starting point is the position prior to the assignment, in which interest was subject to UK WHT, or the position following the assignment, in which BLM as an Irish resident was entitled to rely on Article 12(1) [paragraphs 98 to 101].
- Whether the transaction resembled the conduit company and treaty shopping arrangements identified in the OECD Conduit Report as the paradigm abuse targeted by Article 12(5) [paragraphs 105 to 118].
- Whether the expression 'main purpose or one of the main purposes' in Article 12(5) should be interpreted solely by reference to domestic English law authorities, or by reference to broader principles applicable to international treaties [paragraphs 61 footnote 2, 135].