Midweek Tax News

In the case of GE Financial Investments Limited (GEFI), the Court of Appeal has considered whether a UK resident company – which was deemed to be US resident because its shares were ‘stapled’ to the shares of a US corporation – was also US resident for the purposes of the UK/US double tax treaty (the Treaty). GEFI and a US corporation were members of a group and partners in a Delaware limited partnership which made income-generating loans to US group members. GEFI and the US corporation were regarded as being ‘stapled entities’. Due to the staple, GEFI was treated (under section 269B of the US Internal Revenue Code) as if it were a domestic corporation under US tax law and was liable to US tax on its worldwide income.

HMRC denied GEFI’s claim, under Article 24 of the Treaty, for credit against UK corporation tax in respect of the US tax suffered, on the basis that the company was not a resident of the US for the purposes of Article 4.

The key issue considered by the Court was whether the share staple between GEFI and GEFI Inc had the effect that GEFI was a resident of the United States for the purposes of the Treaty. The first sentence of Article 4(1) provides that for the purposes of the Treaty, the term “resident of a Contracting State” means any person who is liable to tax under the laws of that state by reason of “domicile, residence, citizenship, place of management, place of incorporation, or any other criterion of a similar nature”.

GEFI’s primary argument was the fact that GEFI was taxed on a worldwide basis, as a result of the application of section 269B, was sufficient for Article 4(1) to apply in this case. Its secondary argument was that, in any case, the requirements of section 269B amount to a criterion “of a similar nature” to the other criteria listed in Article 4(1).

However the Court rejected both these arguments. Based on the ordinary meaning of the words used in their context, and in the light of the object and purpose of the Convention, it concluded that the first sentence of Article 4(1) requires the existence of a local connection falling within the listed criteria, or of a similar nature to those criteria, and also that the connection attracts worldwide taxation. Furthermore, GEFI’s status as a stapled entity under s.269B did not amount to a criterion “of a similar nature”.

The Court went on to dismiss GEFI’s appeal in relation to a second issue, with regard to whether GEFI was carrying on a business in the US – it agreed with the Upper Tribunal that the First-tier Tribunal (FT) had made no material error of law in concluding that the company was not doing so.

The effect of the decision is to reinstate the conclusion reached by the FT that the UK is not required to confer double tax relief in respect of US tax paid on GEFI’s interest income for the periods in dispute.

We have included links to a selection of our tax alerts below. Additional articles are available in our global tax alert library.

Canada: The Canada Revenue Authority (CRA) has announced that fees paid by a Canadian resident corporation to a non-resident corporation as a reimbursement of subcontractor fees for services performed in Canada are subject to withholding tax, reversing its previous position published in 2008. The CRA's new position applies to reimbursements of subcontractor fees made after 30 September 2024 (though the conditions set out by the CRA in 2008 will still have to be met up to that point).

United States: The US has published final regulations on the treatment of property used to acquire parent stock or securities in connection with certain cross-border triangular reorganisations and inbound non-recognition transactions. The final regulations adopt the October 2023 proposed regulations without any substantive changes.

Poland: The Polish implementation of the EU DAC7 Mandatory Disclosure Rules Directive for digital platform operators has been amended to introduce data protection and reporting requirements in line with GDPR.

Türkiye: Türkiye has published draft legislation to introduce the Pillar Two rules, with an Income Inclusion Rule (IIR) and a Qualifying Domestic Minimum Top-Up Tax (QDMTT) applying to fiscal years starting from 1 January 2024, and an Undertaxed Profits Rule (UTPR) applying to fiscal years starting from 1 January 2025.

Türkiye: Türkiye has also published further draft legislation affecting companies and individuals. Among the proposals are new reporting and withholding obligations in relation to e-commerce and the extension of the 30% corporate tax rate to certain other additional entities.

Ghana: Upstream petroleum contractors/operators in Ghana are now required to complete Additional Oil Entitlement returns.

Peru: Peru has published an updated version of the list of high-risk schemes for tax planning that could be challenged under the Peruvian General Anti-Avoidance Rule.

Peru: Peru has published guidelines establishing that digital services income may qualify as ‘business profits’ or as ‘services, technical services, technical assistance, and consulting services’ under the Andean Community multilateral double taxation agreement.

Singapore: As part of a package of tax changes, Singapore has introduced a new Refundable Investment Credit. The new credit, which is compliant with the Global Anti-Base Erosion (GloBE) rules, is intended to encourage investments that bring substantive economic activities to Singapore in key economic sectors and new growth areas.