Burlington and treaty purpose tests

The First-tier Tribunal in Burlington Loan Management DAC v HMRC upheld the taxpayer’s appeal, holding that HMRC was wrong to assert that there was a ‘main purpose’ of taking advantage of the interest exemption in a tax treaty. The judgment is helpful, in that it suggests that knowledge of a tax benefit arising from a taxpayer’s status can be merely part of the ‘scenery’ than a predominant motive, and it provides a dividing line between vanilla sales and more complex structures where the seller retains an economic interest. However, due to the parties having conceded that UK domestic law applied, the confused approach to domestic purpose tests appears now to be extending to treaty purpose tests, the impact of which will be increasingly important in a post-MLI world given its principal purpose test.