Tax Treaty Case Law around the Globe 2023

1. Introduction

This case concerns the interpretation and applicability of a specific anti-avoidance provision in the Ireland-UK double taxation convention. The case is of particular significance because the anti-avoidance provision in question was a precursor to the principal purpose test (PPT) now contained in the OECD Model and inserted into many existing treaties by the BEPS Multilateral Instrument.

2. Facts of the case

Following the collapse of Lehman Brothers during the financial crisis, a secondary market arose in respect of debts owed by that company. While it had originally been thought that the company would be unable to pay the debts, assets recovered during the liquidation were sufficient to repay the capital of the debt and interest as well in most cases. This case concerned a debt originally owed to a Cayman Island company, SICL, where the claim for the repayment of the capital of the debt had been satisfied, and a claim for payment of interest was separated and was outstanding.

Burlington Loan Management (BLM) was an Irish resident company that specialized in investing in distressed debt. It had purchased similar liabilities of Lehman Brothers on a number of occasions. O...