Aozora GMAC Investment Ltd vs HMRC [2017] EWHC 2881

Relying on HMRC guidance – Interest withholding tax under the UK/US double tax agreement

This case relates to an ongoing disagreement between Aozora and HMRC relating to interest withholding tax ('WHT'). Aozora is a Japanese commercial bank with operations worldwide. The case concerns a loan from Aozora UK to Aozora US, on which interest was payable over three years from 2007 to 2009.

Article 11(1) of the UK/US double tax agreement ('DTA') provides:

"Interest arising in a Contracting State and beneficially owned by a resident of the other Contracting State shall be taxable only in that other State."

In this case the interest arose in the US, and was beneficially owned in the UK. Therefore, it would be taxable in the UK if all other requirements of Article 11 and the DTA in general were met. Otherwise, 30% US WHT would apply.

HMRC vs Joint Administrators of Lehman Brothers International (Europe) (In Administration)) [2017] EWCA Civ 2124

Withholding tax on yearly interest - companies in administration

This case concerns interest withholding tax, in particular, whether interest imposed by law or by a court is 'yearly interest' or 'short interest' - the former is subject to withholding tax. While a UK company can offset withholding tax against it's tax bill for the year, non UK-resident recipients of a liquidation may not have any UK income tax to offset the withholding tax against - and they would have no other recourse (the money would thus remain with HMRC).¹

Irish Bank Resolution Corporation Limited vs HMRC [2017] UKFTT 702

Multinational banks often trade through branches, which equate to 'permanent establishments' ('PEs') under tax law. 

The branch will often be allocated some level of capital backing with which it can offer banking services (i.e. deposit taking or lending). Regulated banks are required to keep around 10-15% of 'regulatory capital' in relation to their loan portfolio, meaning that for every £100 they lend, they must have £10-15 of assets in reserve.

Bank branches might be fully funded via loans from their head office, or they might be funded with 10-15% of equity - it will depend on the local regulations and the bank's operations policy.

Where a branch is funded with 100% debt, as opposed to 85% debt and 15% equity - its interest payments to head office will be proportionately higher than interest payments of comparable branches which are funded with 10-15% of equity. Where interest payments are higher, tax deductions are higher for the branch and therefore its taxable income would be lower. While it's true that the taxable income of the head office will be higher and therefore there is no net advantage governments generally want their share of the branch's taxable income.

Archer vs HMRC [2017] EWHC 296

The impact of defects on HMRC Closure Notices

Section 114 of the Taxes Management Act 1970 provides that an action taken in pursuance of any provision of the tax acts cannot be invalidated on the basis of a mistake or defect. The High Court has used this provision to rule that a Closure Notice which failed to specify the amount of tax due, was still valid if the taxpayer receiving it could have easily calculated the tax payable at the time.

Whether or not a person is able to calculate tax due on their account would be determined according to the ordinary principles of law.

B & K Lavery Property Trading Partnership vs HMRC [2016] UKUT 525 (TCC)

The 'B&K Lavery Property Trading Partnership' purchased properties before the global credit crunch in 2008. The partnership was required to reduce the value of those investments on its books shortly afterwards in 2009 and 2010. The partnership claimed tax losses in the 2009/10 tax year in accordance with their accounting loss for that period.

Will there be VAT on Juventus' sale of Paul Pogba for €100m?

In August 2016 Juventus will release Paul Pogba from his contract to play for Manchester United.  In return for Juventus' withdrawal of their right to hold Mr Pogba on their roster, Juventus will accept a one-time transfer fee of €100m from Manchester United - a new world record.  How VAT will ultimately be charged on this transaction is only known to the VAT departments of each club - but those of us on the outside can still make a reasonable guess based on the well known VAT laws and principles.

Brisal v Fazenda Pública [2016] EUECJ C-18/15

Brisal - Auto Estradas do Litoral SA & KBC Finance Ireland v Fazenda Pública - In the European Court of Justice (ECJ)

Brisal, a Portuguese resident company manages a large highway in Portugal and earns revenue from the associated tolls.  In 2004 the company entered into a financing arrangement with a large number of financial institutions, in particular the co-litigant in this case KBC Finance Ireland (an Irish resident company).  The financing amounted to €262m, so was presumably related to the construction of the highway itself.