Court chucks out HMRC double tax treaty case against RBC
The UK Supreme Court has, by a majority, dismissed HMRC’s appeal against RBC over a double tax treaty linked to North Sea oil production.
Royal Bank of Canada’s (RBC) loaned UK entity of Canadian oil company Sulpetro $450m (£347.1m) in the early 1980s after it was granted a licence by the UK government to explore and exploit the Buchan field.
The Canadian company then sold its interest in the Buchan field to BP Petroleum Development (BP) in 1986. This saw Sulpetro transferring BP 100 per cent of the issued share capital of its UK entity, as well as all beneficial rights and interests it held in the licence.
BP was making royalty payments to Sulpetro in respect of the Buchan field, which were payable when the market price per barrel of oil exceeded $20.
But by the early 1990s, Sulpetro was in financial difficulties and went into receivership, and as a creditor RBC was assigned the right to receive the Buchan field payments.
BP sold its interest in the Buchan field to Taslisman Energy that assumed the obligation to make the payments to RBC.
HMRC “became aware of the payments” in 2014, and determined them to be chargeable under UK corporation tax.
RBC’s position is under the terms of the UK/Canada double tax convention, it does not permit the UK to exercise taxing rights over the profits nor to render those profits chargeable to UK tax.
The Court of Appeal allowed RBC’s appeal and held that the rights that BP acquired and for which it was paying RBC did not amount to a “right to work” the Buchan Field.
Its ruling cast doubt on the reasoning of the First-tier Tribunal and the Upper Tribunal as regards the interpretation of the domestic provision, which is why HMRC appealed to the Supreme Court.
The case went to court last November, and the judges issued their ruling today, dismissing the appeal by the tax agency.