The First-tier Tax Tribunal (FTT) in Aozora GMAC Investments (Aozora) v HMRC has allowed the taxpayer’s appeal, ruling that the Limitation of Benefits clause in the US-UK double tax treaty was not an ‘express provision’ that relief by way of credit was not to be given under the treaty and therefore that Aozora was not prevented from claiming unilateral credit relief in the UK by s11(3) TIOPA 2010.
The taxpayer in this case was Aozora, a UK-incorporated and UK-tax resident company, wholly owned by a Japanese company. As a result of its ownership, Aozora failed the limitation of benefits article in the US-UK double tax treaty (Article 23), so was not entitled to claim relief under that treaty. When the company advanced interest-bearing loans to a US subsidiary during the three years ending 31 March 2007 to 31 March 2009, it therefore suffered US withholding tax at 30% on the interest paid and sought unilateral credit relief for that tax in its UK tax return.
HMRC denied Aozora credit relief on the basis that it considered the claimant’s failure to access treaty relief due to the limitations of benefits provision in Article 23 constituted an ‘express provision’ that relief was not to be given under the treaty and therefore that credit relief was not available in the for this tax by virtue s11(3) TIOPA 2010.
The tribunal judge considered the key to whether Article 23 constituted an ‘express provision’ under UK domestic law (and therefore whether Article 23 would trigger the denial of credit relief in the UK under s11(3)) was the use of the adjective “express” to qualify “provision”. As the word is not defined and does not bear any technical meaning in this section, he concluded that it takes its normal meaning as defined in the Oxford English Dictionary. The judge therefore found that:
The FTT drew a distinction between Article 23 of the UK/US treaty and Article 24(4)(c), stating that the latter article specifically denies credit relief under the treaty for underlying tax on dividends paid under certain hybrid financing arrangements whereas Article 23 does not explicitly state the circumstances under which credit relief is not available.
