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