HMRC has successfully resisted the taxpayer’s appeal to the Upper Tribunal in Royal Bank of Canada v HMRC [2022] UKUT 45 (TCC). The case concerns the construction of article 6 of the UK / Canada double tax treaty (immovable property) and the scope of the UK’s ring fence corporation tax regime.
The taxpayer was a Canadian bank. It received income from payments relating to oil produced from the Bucan North Sea oil field in the UK Continental Shelf. HMRC concluded (and the First-tier Tribunal agreed: [2020] UKFTT 267 (TC)) that the payments were subject to UK corporation tax.
The first issue was whether the payments were income from immovable property within the meaning of article 6 of the UK / Canada double tax treaty (in which case the UK would have taxing rights in respect of the payments). Under article 6(2) the concept of “immovable property” includes “rights to variable or fixed payments as consideration for the working of, or the right to work, mineral deposits, sources and other natural resources”. The Upper Tribunal held that on the true construction of article 6(2) the payments were income from immovable property. Accordingly, the UK had taxing rights in respect of the payments.
The second issue was whether the UK had exercised those taxing rights. The Upper Tribunal held that the payments were taxable under section 1313(2)(b) Corporation Tax Act 2009 as profits “from exploration or exploitation rights” because the right to the royalty payments gave the bank “rights to … the benefit of” the oil won from the Buchan Field within the meaning of section 1313(3).
The payments were therefore (as HMRC contended) taxable in full as ring fence profits of a deemed permanent establishment of the bank in the UK.
A copy of the full Decision can be found here.
Jonathan Bremner QC acted for HMRC.