In HMRC v Aozora GMAC Investment Limited [2022] UKUT258, the Upper Tribunal (UT) agreed that unilateral double tax credit relief was available for US source interest under the UK/US tax treaty. The terms of the treaty did not expressly preclude relief so UK domestic law could not operate to prevent it either.

  • The interest clause (article 11) of the UK/US tax treaty states that “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”.
  • S.793A(3) ICTA 1988 provided that where arrangements made in relation to a territory outside the UK contain an express provision to the effect that relief by way of credit shall not be given under the arrangements in cases or circumstances specified or described in the arrangements, then neither shall credit by way of unilateral relief be allowed in those cases or circumstances.

Aozora GMAC Investment Limited (Aozora) was a UK-incorporated and resident company with two US subsidiaries.

  • Aozora loaned $217,770,000 to one of its US subsidiaries (Aozora US) at an interest rate of 12% per annum.
  • Aozora US withheld US tax from the payment of interest over a three-year period.
  • Aozora applied to the US Internal Revenue Service (IRS) for access to the benefits of the UK/US tax treaty which was denied on the grounds that they were not a ‘qualified person’, as was their application for discretionary treatment under Article 23(6) (the limitation of benefits clause) of the treaty. They could not, therefore, benefit from the treaty benefits of relief from withholding tax under Article 11.
  • Aozora submitted its Corporation Tax returns for the years in question claiming unilateral relief under s.790 ICTA 1988 against the UK tax due on the interest, which reduced the company’s Corporation Tax liabilities for these periods to nil.
  • HMRC issued closure notices on the basis that s.793A(3) ICTA prevented unilateral relief because Article 23 of the treaty was an express provision to the effect that relief by credit should not be given. This resulted in additional Corporation Tax of £4,463,497. Aozora Appealed.
  • The First Tier Tribunal (FTT) allowed the appeal, finding that the treaty did not explicitly set out the cases and circumstances in which relief was not available and Article 23 is not “an express provision to the effect that relief by way of credit shall not be given”. HMRC appealed.

The UT granted leave to appeal on the basis that the case raised an important point of principle of general importance that had not previously been considered by the courts. They agreed with the FTT and allowed the appeal:

  • The purpose of section 793A(3) is to prevent a claim to unilateral relief where a certain type of provision is included in double taxation arrangements. It does not, for example, prevent a claim for unilateral relief simply because there is a treaty in force between the relevant States which addresses double tax relief
  • HMRC’s interpretation of s.793A(3) put disproportionate weight on the word 'effect'.
    • The entire subsection must be construed in its wider context, and on this basis, Article 23 did not fit the requirements of s.793(A)(3) and could not prevent unilateral relief.
    • Credit relief for non-qualified persons who do not obtain benefits as a result of the Article 23 process is simply outside the scope of the Tax Treaty, rather than 'expressly precluded'.


Aozora had relied on a statement in HMRC’s manuals, which was later removed, when making the claims for credit relief and had previously sought judicial review on this point. The Court of Appeal ruled against them in that case however it seems that they did not need to win on this point to achieve the unilateral credit relief claimed, assuming of course that HMRC does not now take this case to the Court of Appeal, which they may well do given the amounts involved.

In any event, this is a reminder that double tax relief is not automatically given in all cases where a UK resident taxpayer has suffered overseas tax at source, and a review of the relevant treaty is always advisable.

Useful guides on this topic

Withholding tax
When is Withholding Tax (WHT) paid? What are the applicable rates? Are there any exemptions?

Certificates of residence
What is a certificate of residence? Why are they needed? How can I get one? 

External link

UT decision: HMRC v Aozora GMAC Investment Limited [2022] UKUT258 

FTT decision: Aozora GMAC Investments Limited v HMRC [2021] TC8171 

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