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      The Court of Appeal has dismissed HMRC’s appeal in HMRC v Burlington Loan Management DAC [2026] EWCA Civ 461, confirming that treaty relief from UK withholding tax on interest was not denied by the anti‑avoidance provision in the UK-Ireland tax treaty.

      The case concerned interest paid on a debt claim arising from the administration of Lehman Brothers International (Europe). Burlington Loan Management DAC (BLM), an Irish‑resident company, acquired the right to receive that interest at an arm’s‑length price that reflected the fact that, unlike the seller, it could reclaim UK withholding tax under Article 12 of the treaty. HMRC argued that the assignment was caught by Article 12(5), which denied relief where a main purpose of a person concerned with the assignment was to ‘take advantage’ of the Article.

      That argument failed at every stage. The Court of Appeal agreed with the First‑tier Tribunal and Upper Tribunal that Article 12(5) did not apply on the facts.

      What does ‘take advantage’ mean?

      The Court held that ‘taking advantage’ of a treaty provision is not the same as simply obtaining its benefit. Drawing on its earlier decision in VietJet Aviation, the Court said that, in this context, to take advantage of Article 12 means “obtaining the benefit of the article in a way that is contrary to the object and purpose of the treaty”. Treating ‘taking advantage’ as synonymous with obtaining relief would make the treaty self‑defeating, because this simply flowed from the allocation of taxing rights which was itself the treaty’s purpose.

      Applying that approach, the Court accepted that BLM entered into the transaction expecting to benefit from the exemption from UK withholding tax, but accepted that that expectation alone was not abusive. BLM was a long‑established Irish‑resident investor, acquiring claims as part of its ordinary business, and it dealt with the seller at arm’s length. In the absence of ‘anything more’, that was consistent with, rather than contrary to, the object and purpose of the treaty.

      Image of Paul Freeman
      Paul Freeman

      Partner, Head of Corporate Tax Central Technical

      KPMG in the UK

      Louise McCarroll
      Louise McCarroll

      Director, Tax

      KPMG in the UK

      Purpose tests in context

      Although questioning whether ‘purpose’ in the treaty should necessarily be understood in the same way as in UK domestic anti-avoidance provisions, the decision does provide a helpful reminder of how the latter should be approached. The Court emphasised that ascertaining purpose requires a factual, subjective inquiry and cannot simply be equated with economic effects or consequences. The fact that a transaction would not have been profitable without the availability of treaty relief did not, of itself, mean that obtaining that relief was a main purpose.

      In a concurring judgment, Falk LJ stressed the importance of legislative context. Where a tax advantage is specifically conferred by legislation (or, here, by a treaty), it cannot have been intended that it should inevitably be denied by a ‘purpose’ test merely because it forms part of the economics of a transaction. Something more is required before an inference of abuse can properly be drawn.

      Why the facts mattered

      The Court contrasted the facts before it with typical ‘treaty shopping’ or conduit scenarios. It noted that Article 12(5) would plainly have been engaged if the seller (not resident in a treaty jurisdiction) had interposed a controlled Irish subsidiary to channel the interest back to itself while retaining the economic benefit. By contrast (and cautioning that ‘artificiality’ was not required for the rules to bite), it was reasonable to conclude that an outright market sale to an independent purchaser, with no retained interest and no artificial steps, fell outside the mischief at which the provision was aimed.

      Practical takeaways

      Although the specific version of Article 12(5) considered in Burlington has since been replaced by the Multilateral Instrument’s principal purpose test (PPT), the Court’s reasoning still merits attention. The PPT similarly turns on whether obtaining treaty benefits is one of the principal purposes of an arrangement and whether granting those benefits would be contrary to the object and purpose of the relevant treaty provisions.

      The decision underlines that mere reliance on treaty relief, even where it is economically significant, is not inherently abusive – hence the focus is on whether the arrangement involves misuse of the treaty, not simply on the tax outcome. It also provides comfort that arm’s‑length dealings with third parties and genuine commercial transactions remain important indicators that treaty benefits are being used as intended.

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