‘1. A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose. … 4. A special meaning shall be given to a term if it is established that the parties so intended.’
“(1) For the purposes of this Convention, the term “resident of a Contracting State” means any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of management or any other criterion of a similar nature, and also includes that State and any political subdivision or local authority thereof. This term, however, does not include any person who is liable to tax in that State in respect only of income from sources in that State or capital situated therein.”
“ Preliminary Remarks 1. The concept of “resident of a Contracting State” has various functions and is of importance in three cases: a) in determining a convention’s personal scope of application; b) in solving cases where double taxation arises in consequence of double residence; c) in solving cases where double taxation arises as a consequence of taxation in the State of residence and in the State of source or situs. … 3. Generally the domestic laws of the various States impose a comprehensive liability to tax — “full tax liability” — based on the taxpayers' personal attachment to the State concerned (the “State of residence”). This liability to tax is not imposed only on persons who are “domiciled” in a State in the sense in which “domicile” is usually taken in the legislations (private law). The cases of full liability to tax are extended to comprise also, for instance, persons who stay continually, or maybe only for a certain period, in the territory of the State. Some legislations impose full liability to tax on individuals who perform services on board ships which have their home harbour in the State. 4. Conventions for the avoidance of double taxation do not normally concern themselves with the domestic laws of the Contracting States laying down the conditions under which a person is to be treated fiscally as “resident” and, consequently, is fully liable to tax in that State. They do not lay down standards which the provisions of the domestic laws on “residence” have to fulfil in order that claims for full tax liability can be accepted between the Contracting States. In this respect the States take their stand entirely on the domestic laws. 5. This manifests itself quite clearly in the cases where there is no conflict at all between two residences, but where the conflict exists only between residence and source or situs. But the same view applies in conflicts between two residences. The special point in these cases is only that no solution of the conflict can be arrived at by reference to the concept of residence adopted in the domestic laws of the States concerned. In these cases special provisions must be established in the Convention to determine which of the two concepts of residence is to be given preference.” 41. In relation to paragraph 4(1) of the MTC the OECD Commentary states: “8 Paragraph 1 provides a definition of the expression “resident of a Contracting State” for the purposes of the Convention. The definition refers to the concept of residence adopted in the domestic laws (cf Preliminary remarks). As criteria for the taxation as a resident the definition mentions: domicile, residence, place of management or any other criterion of a similar nature. As far as individuals are concerned, the definition aims at covering the various forms of personal attachment to a State which, in the domestic taxation laws, form the basis of a comprehensive taxation (full liability to tax). It also covers cases where a person is deemed, according to the taxation laws of a State, to be a resident of that State and on account thereof is fully liable to tax therein (eg diplomats or other persons in government service). In accordance with the provisions of the second sentence of paragraph 1, however, a person is not to be considered a “resident of a Contracting State” in the sense of the Convention if, although not domiciled in that State, he is considered to be a resident according to the domestic laws but is subject only to a taxation limited to the income from sources in that State or to capital situated in that State. That situation exists in some States in relation to individuals, eg in the case of foreign diplomatic and consular staff serving in their territory. According to its wording and spirit the provision would also exclude from the definition of a resident of a Contracting State foreign-held companies exempted from tax on their foreign income by privileges tailored to attract conduit companies. This, however, has inherent difficulties and limitations. Thus it has to be interpreted restrictively because it might otherwise exclude from the scope of the Convention all residents of countries adopting a territorial principle in their taxation, a result which is clearly not intended. … 8.2 Paragraph 1 refers to persons who are “liable to tax” in a Contracting State under its laws by reason of various criteria. In many States, a person is considered liable to comprehensive taxation even if the Contracting State does not in fact impose tax. …” 42. Paragraphs 27 to 32 of the OECD Commentary set out ‘Reservations on the Article’ by various countries. Canada reserves the right to use the place of incorporation or organisation with respect to company and failing that deny dual resident companies the benefits under the Convention (paragraph 27). Japan and Korea reserve their position on the rights under Article 34 and other Articles in the MTC and instead of “place of effective management” wish to use in their conventions the term “head or main office” (paragraph 28). France reserves the right to amend the Article in its tax conventions to specify that French partnerships must be considered as residents of France (paragraph 29). Turkey reserves the right to use the “registered office” criterion in addition to the “place of effective management” for determining the residence of a person other than an individual (paragraph 30). Mexico and the US reserve the right to use a place of incorporation test and failing that they deny dual resident companies benefits (paragraph 31). Germany reserves the right in relation to a partnership that is deemed to be a resident of the Contracting State where its effective management is situated (paragraph 32). 43. The expression “ any other criterion of a similar nature ” has been the subject to academic consideration. 44. Marcel Widrig, in the chapter “ The Expression ‘by reason of His Domicile, Residence, Place of Management ….’ As Applied to Companies ” in Guglielmo Maisto’s Residence of Companies under Tax Treaties and EC Law (BFD, 2009), refers to the three criteria specified in the OECD MTC rather than those of the Convention and states: “ 8.1 Introduction … Since the concept of residence in the OECD M[T]C refers to the concept of residence adopted in the domestic laws, the OECD M[T]C lists a number of connecting criteria that are typically used in the domestic laws for defining residence. These criteria are domicile, residence, place of management or any other criterion of similar nature. However, there are countries that provide for different connecting criteria in their domestic laws that may result in amendments in their respective double tax treaties compared to the OECD M[T]C. … 8.2. Role of domestic law in connection with connecting factors … Generally speaking, residence for the purpose of the OECD M[T]C means a personal attachment to a State which leads to a comprehensive, or “full tax liability”. … 8.2.4. Meaning of "other criteria of similar nature" The term ‘other criteria of similar nature’ has to be interpreted in the context of the other examples of connection criteria referring to domestic tax laws. Any other criterion next to domicile, residence or place of management which leads to unlimited liability to tax according to domestic law has to be similar to one of these three connecting criteria. All the three connecting criteria have to a certain extent a local connection, meaning that the term ‘other criteria of similar nature’ has to have a certain local character of a factual nature. … On the other hand, a criterion which leads to taxation but not on a comprehensive basis may not be considered as criterion of similar nature. As such, being engaged in a trade or business in the United States leads to taxation of income related thereto but the engagement in a trade or business is not considered a criterion of similar nature since no full tax liability results thereof.” 45. Having discussed the position in France and Italy, Widrig continues: “Contrary to this, the law of incorporation of a company is according to doctrine not a criterion similar to one of the listed connection criteria of Art. 4(1) OECD M[T]C because it lacks the effective personal attachment to a territory. The place of incorporation is similar to nationality, which does not need to have any personal connection with a given territory contrary to the connecting criteria of residence, domicile and place of management. … Finally, the mere recognition of a company by the international private law of the country of activity is not a criterion of similar nature, either.” 46. Widrig concludes the chapter by stating: “The connecting criteria “domicile, residence, place of management or any criterion of a similar nature” in the OECD M[T]C ensure that only companies that have unlimited liability to tax based on sufficient local connection are entitled to double tax treaty benefits. Since these connecting criteria refer directly to domestic tax laws, they have to be interpreted according to domestic rules. … It is a generally accepted view that the term “or any criterion of a similar nature” includes the statutory seat or a criterion with a similar factual nature. This holds also true in case of deemed residence rules to the extent the underlying connecting criterion has a certain local nexus. The place of incorporation alone, however, is typically not considered as a criterion of sufficient local connection. Accordingly, the United States as well as Canada, which both connect unlimited liability to tax to the place of incorporation, reserved their right to use this criterion as well in their double tax treaties. With the limitation on benefits tests introduced in its double tax treaties, the United States achieves a local connection of the company applying for double tax treaties as well.” 47. Klaus Vogel on Double Taxation Conventions , which like Widrig refers to the OECD MTC criteria, states: “56. Domestic tax provisions contain several further connecting factors that also give rise to full liability to tax (eg, nationality, unlimited tax liability on request, deemed full liability to tax of diplomats, place of incorporation or even marriage to a resident). However, as mentioned before (at m.no. 49), the reference in Article 4(1) OECD and UN MC to the domestic laws of the Contracting States is not unqualified (ie, not all connecting factors giving rise to full liability to tax are sufficient). Rather, the connecting factors have to be ‘of a similar nature’ to the listed connecting factors: domicile, residence and place of management. 57. There are two possibilities for interpreting the term ‘of a similar nature’: Under a (broader) functional interpretation, any domestic feature triggering unlimited tax liability is sufficient. In contrast, a (narrower) territorial understanding requires both unlimited liability to tax and a territorial connection between the taxpayer and the State concerned. In our view the territorial interpretation is preferable. All other connecting factors listed in Article 4(1) OECD and UN MC contain a territorial link between the taxpayer and the State taxing his worldwide income. Furthermore, the functional interpretation would reduce the listed connecting factors to mere examples of ‘liable to tax’ without any additional merit Not requiring a territorial connection of any kind between the taxpayer and the State would also blur the line between the source State and the residence State.”
“60. cc . Not Optional Unlimited Tax Liability . Provisions of domestic law that deem a person to be fully liable to tax generally do not qualify as a similar criterion. They cover cases in which a person generates no income in his residence State, but derives income in another State, which may be taxed there in an unlimited manner. In such circumstances, the residence State may find itself unable to take the personal circumstances into account for taxation purposes. Such provisions are contained in the domestic laws of EU Member States as a result of the ECJ’s judgments in Schumacker and Gerritsse . The link is established through income derived rather than a personal connection to a State so that there is no sufficient territorial link to the State concerned. Moreover, the provisions often do not give rise to comprehensive taxation, but are limited to taxation from a ‘source’ in any such State. 61. dd. Neither Nationality/Citizenship nor Listing in an Official Register nor Marriage to a Resident . Some States, like the US, base overall taxation on nationality. Admittedly. nationality constitutes a strong connection between a country and an individual: It is a long-standing link, not easy to acquire anew and several civil rights, such as the right to vote, are based on it. However, it does not create a territorial link. A national of a country may never have set foot on that State’s territory (eg, when born in a foreign country). Therefore, nationality often is referred to as the prototype of a personal or legal - but not territorial - link to a State. This means that nationality - unless stated otherwise in the treaty - is insufficient for establishing residence. Indeed, the US does not consider nationality as a territorial criterion. It instead establishes an alternative connecting factor in addition to residence, which is mentioned expressly in Article 4(1) [of the MTC]. 62. In some countries, residence status may stem from registration in an official register (eg, in Italy, residence can be based on a listing in the official register of the Italian resident population, creating an irrebuttable presumption of tax residence for direct tax purposes). Registration does not qualify as a criterion ‘of a similar nature’ because there is no effective personal attachment to the territory of the State. Neither can the spouse of a taxpayer be considered a resident for tax treaty purposes simply because he is married to a resident of one Contracting State. Just like nationality, it establishes merely a legal or personal rather than a territorial link. 63. ee. Not Place of Incorporation . The place of incorporation as well as other strictly formal connecting factors, like the recognition of a company by the international private law of a country, lack a territorial link and therefore do not qualify as criteria ‘of a similar nature’. Similar to nationality with respect to individuals, corporate entities can be incorporated according to the laws of a country where it had no factual presence of any kind (operational, management, etc.). Again, it is a purely legal criterion.” 48. I should also mention the 1992 MOU. Mr Miller drew attention to this in his expert report (see paragraphs 30 and 31, above) concluding that it appears to presuppose that a stapled Dutch corporation is a resident of the US for the purposes of the US-Netherlands treaty. 49. Mr Baker submits that the 1992 MOU is clarificatory and confirms that the US authorities regarded such a stapled corporation to be a resident of the US, a position accepted by the Dutch revenue authorities. However, I agree with Ms McCarthy that, in the absence of any similar memorandum between the UK and US, it is not possible to derive any assistance from the 1992 MOU (which was specifically negotiated between the US and the Netherlands), in interpretingArticle 4(1) of the Convention . 50. Neither, for that matter, can I derive any assistance from the view of the IRS which would appear, from correspondence referred to me by Mr Baker, to be that it considered GEFI was resident in the US. The correspondence, as Mummery J observed in Inland Revenue Comrs v Commerzbank AG[1990] STC 285 , at 301-302, in relation to a joint statement issued in 1977 by the IRS and the Board of Inland Revenue setting out their agreement on the treatment of dividends and interest as commercial profits under the Convention: “… has no authority in the English courts. It expresses the official view of the Revenue authorities of the two countries. That view may be right or wrong. Although art XXA authorises the competent authorities to communicate with each other directly to implement the provisions of the convention and 'to assure its consistent interpretation and application' it does not confer any binding or authoritative effect on the views or statements of the competent authorities in the English courts.” 51. In the absence of any domestic authority in relation to the expression “ any other criterion of a similar nature ”, I was referred to a decision of the Supreme Court of Canada, Crown Forest Industries v Canada[1995] 2 SCR 802 . This case concerned a company, Norsk, incorporated in the Bahamas which had a place of management in the US and contended that it was resident of the US for the purposes of the 1980 Canada-US Income Tax Convention. Article 4 of that Convention provided: “For the purposes of this Convention, the term “resident of a Contracting State” means any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of management, place of incorporation or any other criterion of a similar nature, but in the case of an estate or trust, only to the extent that income is derived by such estate or trust is liable to tax in that State, either in its hands or in the hands of its beneficiaries. It should be noted that this is different fromArticle 4 of the Convention as, unlike the Convention, it does not exclude from the definition of “resident of a Contracting State” any person who is liable to tax in respect only of income from sources or capital in that State. 52. The Court held that Norsk’s liability to US tax did not emanate from its place of management but by its engagement in a trade or business effectively connected to the US. In relation to whether this was a “criterion of a similar nature”
“39. Nevertheless, the analysis does not end here. Should the respondent successfully demonstrate that “engaged in a business in the US” is a criterion of a nature similar to the enumerated grounds, then Norsk will be deemed to be a resident under the Convention. I agree with the appellant that the most similar element among the enumerated criteria is that, standing alone, they would each constitute a basis on which states generally impose full tax liability on world-wide income: Klaus Vogel on Double Taxation Conventions (1991), at pp. 154-59; Joseph Isenbergh, International Taxation: U.S. Taxation of Foreign Taxpayers and Foreign Income , vol. I (1990), at pp. 326-27. In this respect, the criteria for determining residence in Article IV, paragraph 1 involve more than simply being liable to taxation on some portion of income (source liability); they entail being subject to as comprehensive a tax liability as is imposed by a state. In the United States and Canada, such comprehensive taxation is taxation on worldwide income. However, tax liability for the income effectively connected to a business engaged in the US, pursuant to s. 882 of the Internal Revenue Code, amounts simply to source liability. Consequently, the “engaged in a business in the US” criterion is not of a similar nature to the enumerated grounds since it is but a basis for source taxation. In sum, I endorse the following excerpt of the judgement of Décary JA (at p. 6115): ‘To say that Norsk, which is not liable to tax by reason of its place of management, is liable to tax by reason of a criterion of a similar nature because its place of management is one of the factors to be considered in determining the very reason of its liability to tax, ie the conduct of a business ..., is to beg the question and try to enter through a door that has already been closed.’” 53. He continued: “45. I accept the appellant and intervener's [the US Government] submission that, since the application of the Convention is to be limited to taxpayers bearing full tax liability in one of the contracting parties, then Norsk cannot benefit from the Convention and is consequently not to be characterized as a resident under Article IV, paragraph 1. As shall become apparent in the discussion infra , the courts below departed from the historical raison d' être of international tax treaties when proposing that the Canada-United States Income Tax Convention (1980) , covers taxpayers liable only to source taxation in one of the contracting parties.” 54. Iacabucci J, after noting the importance of isolating “exactly whom the Convention was intended to benefit” and having considered various Canadian authorities, said: “50. … Naturally, were Norsk to be a domestic corporation, it could properly benefit from the Convention since it would be subject to double taxation on the rental income in the U.S. (by virtue of its residency) as well as in Canada (by virtue of the “source” principle). … 57. The Commentaries to the OECD Model Convention as well as academic sources indicate that generally the domestic laws of the contracting states employ residence to apply on “full-tax liability”: paragraphs 3 and 8 to the Commentary to Article IV in Nathan Boidman, L. Frank Chopin and Alan W. Granwell, “Tax Effects for Canadians of the New US Code and Treaty Residency Rules (Part Two)” (1985), 14 Tax Mgmt. Int ’ l ' J 183, at pp. 184-85. So, too, does the American Law Institute, Federal Income Tax Project - International Aspects of United States Income Taxation II - Proposals on United States Income Tax Treaties (1992), at pp. 127-28: Under the prevailing practice, a country entering into an income tax treaty extends the benefits of the treaty to a person or entity that is a “resident of (the other) Contracting State”. “Residence”, in turn, is defined in terms of taxing jurisdiction. A person or entity is considered resident in a country if that country asserts an unlimited right to tax his or its income - that is, a right based upon the taxpayer’s personal connection with the country (as opposed to the source of the income or other income or asset-related factors). The test of residence requires that the person or entity claiming treaty benefits be “fully taxable” in the residence country, in the sense of being fully subject to its plenary taxing jurisdiction. Full tax liability is not satisfied in a case where an entity is liable to tax in a jurisdiction only on a part of its income. 58. The authority for the proposition that only those who are liable to tax on their world-wide income can be justifiably considered residents for the purposes of international taxation conventions is found in the first sentence in Article 4 of the OECD Model Convention and the absence of the second sentence in the Canada-United States Income Tax Convention (1980) does not detract therefrom. This is because the second sentence is relevant to a situation in which a person is considered a resident under domestic law but where that person, by reason of a special privilege, nevertheless is not subject to tax on the basis of world-wide income. Paragraph 8 of the Commentary on Article 4 of the OECD Model Convention addresses this point” 55. The material parts of paragraph 8 of the OECD commentary to which Iacabucci J, referred are set out above (in paragraphs 41). Having then discussed the UN Model Convention, he continued: “62. … In this connection, I find persuasive the submission that only those corporations that are liable to taxation for the full amount of their world-wide income meet the definition of “resident" in the Canada-United States Income Tax Convention (1980) . This appears to me to be the intention of the contracting parties. 56. Iacabucci J concluded, at [68]: “2. As such, the only way for Norsk to benefit from residency status under the Convention is if source taxation on a business effectively connected with the contracting party constitutes a criterion similar to the other enumerated criteria in Article IV (residence, place of management, place of incorporation, domicile). It is not similar, since all of the other criteria constitute grounds for taxation on world-wide income, not just source income. 3, The parties to the Convention intended only that persons who were resident in one of the contracting states and liable to tax in one of the contracting states on their “world-wide income” be considered “residents” for purposes of the Convention.”
“… we would say that, although HMRC has, with caveats, accepted that there was space available to the LP in GE’s offices, we cannot see that there was any activity there that amounted to carrying on a business.”
“In the present case, HMRC contends that even if the GE offices in Stamford qualify as the only viable candidate for a US fixed place of business of the LP (because GE staff there acted on behalf of the General Partner of the LP), [GE]FI’s activities in the US were too limited to amount to carrying on a “ business ” there.”
“10.2 The Convention does not contain an exhaustive definition of the term “business”, which under paragraph 2, should generally have the meaning which is has under the domestic law of the State that applies the Convention.” 73. Therefore, as it is the UK that is applying the Convention in this case, it is necessary to consider the meaning of “business” as understood in UK law. In relation to this Lord Diplock as observed in Town Investments Ltd v Department of the Environment[1978] AC 359 , at 383: “The word ‘business’ is an etymological chameleon; it suits its meaning to the context in which it is found. It is not a term of legal art and its dictionary meanings, as Lindley LJ pointed out in Rolls v Miller(1884) 27 Ch D 71 , 88, embrace ‘almost anything which is an occupation, as distinguished from a pleasure - anything which is an occupation or duty which requires attention is a business.’” 74. In South Behar Railway Company Ltd v Inland Revenue Comrs[1925] AC 476 Lord Sumner, at 487, who considered that a company which received an annuity and declared dividends was “carrying on any trade or business or any undertaking of a similar character, including the holding of investments” within the meaning of thes 52(2)(a) of the Finance Act 1920 , did not attach “much importance to the domestic operations of declaring and paying dividends, remunerating directors and presenting reports, but the operation of receiving and thus discharging the annuity payments goes on continuously, and, however simple, it is not a mere passive acquiescence.” 75. The issue of whether a company (“MML”) had carried on any business “within the ordinary meaning of the word” arose in Salaried Persons Postal Loans Ltd v HMRC [2005] STC (SCD) 851. The Special Commissioner (Dr Avery Jones), having reviewed the relevant authorities, said, at [10]: “I derive the following principles from the authorities. (1) A company need not carry on a business (indeed that is assumed by s 13) but there is a prima facie inference that it does so when it puts its property to gainful use by letting it out for rent ( American Leaf ). The inference is a strong one, see the first paragraph from the quotation from American Leaf. (2) It may be relevant that the company was carrying out one of the principal objects stated in its memorandum ( American Leaf in distinguishing an observation of Pollock MR in IRC v Westleigh Estates Co Ltd[1924] 1 KB 390 at 409, 12 TC 657 at 686; Land Management Ltd [2002] STC (SCD) 152 at [24] where the Special Commissioner took into account that the company was incorporated for carrying on a business of an investment nature). (3) The act of receiving bank deposit interest having ceased one trade before starting another was not the carrying on of a business ( Jowett ). (4) In a case such as the present the only business that MML might be carrying on is that of investment ( Jowett ). Applying these principles, the Special Commissioner concluded that the merely renting out property in that case was not a business. 76. In an appeal against that decision ( HMRC v Salaried Persons Postal Loans Ltd[2006] STC 1315 ), which was essentially on Edwards v Bairstow grounds, Lawrence Collins J, observed: “54. Whether or not a business is carried on is a question of fact, and the fact that the company receiving rents in American Leaf was held to be carrying on a business does not mean that MML is carrying on a business or that the Special Commissioner should have decided that the facts of this case were closer to those of Land Management Ltd than to those of Jowett v O'Neill . ‘Rents’ may constitute income from a source consisting of a business; and will do if they are received in the course of carrying on a business of putting the taxpayer’s property to profitable use by letting it out for rent (see American Leaf Blending Co Sdn Bhd v Director-General of Inland Revenue[1978] STC 561 at 564-565,[1979] AC 676 at 683). The Special Commissioners’ conclusion in American Leaf – that, in carrying out the object set out in its memorandum, a company was, as a matter of law, conclusively carrying on a business - was not a conclusion of fact, but of law. The Privy Council would not endorse the view that any isolated act of a kind that is authorised by a memorandum if done by a company necessarily constitutes the carrying on of a business:[1978] STC 561 at 564-565,[1979] AC 676 at 683. The Special Commissioner properly considered the effect of MML's memorandum of association and correctly concluded that it was a relevant but (implicitly) not a determinative factor: see also John M Harris (Design Partnership) Ltd v Lee (Inspector of Taxes) [1997] STC (SCD) 240 at 243. In the case of a company (by way of contrast with an individual) letting out property for rent, it may not be easy to envisage circumstances, in practice, which would displace the prima facie inference that the company was carrying on a business (see[1978] STC 561 at 565,[1979] AC 676 at 684). The Privy Council did not say that this inference could not be displaced and, indeed, envisaged that it might be rebutted (ibid). In MML's case, the facts are strong enough to and do rebut the prima facie inference; and having properly considered all the relevant facts and the strength of the inference from American Leaf , the Special Commissioner was entitled to decide the issue in the respondent's favour.” … 59. The terms and expressions ‘trading’ and ‘carrying on business’ used in s 13 are not used or used only in contradistinction to dormancy. The heads of business envisaged by tax law are ‘trades, professions, vocations and investment’; and there is not a general head of business which falls within (in whole or in part) the alleged lacuna between trading, carrying on business or dormancy: Jowett (Inspector of Taxes) v O'Neill and Brennan Construction Ltd[1998] STC 482 at 487 and 489. But there may be the receipt of income or gain otherwise than from a trade, profession, vocation or investment and outside the context of dormancy. In the circumstances, the Special Commissioner considered the correct question and he arrived at the correct answer.” 77. Having noted, at [69], that the fact that its memorandum permitted the letting of property was not determinative and did not, “necessarily lead to the conclusion that MML carries on or has carried on a business”, Lawrence Collins J continued: “70 … The Special Commissioner was entitled to take into account that the lettings of the West Regent Street premises took place in 1966 ( over 30 years before the years under consideration) and, since cessation of the money lending trade on November 30, 1995, there had been nothing indicative of business in MML. … 73. The Special Commissioner was entitled, in my judgment, to come to the view on the facts that MML did not carry on an investment (or any other) business, especially in the light of the following matters: MML did not purchase the West Regent Street premises as an investment; it did nothing in the relevant years except receive the rents from its agent, and authorise a rent review; and the premises were a small part of its assets. This was a case of a company left with former trading premises which it let out without any active participation or management.” 78. In Jowett (HM Inspector of Taxes) v O’Neill & Brennan Construction Ltd (1988) 70 TC 566, a case cited by the Special Commissioner, a company had ceased a business and had, before the commencement of a new activity, deposited£100,000 at a bank. The issue before Park J, on appeal from the Special Commissioner (Mr Shirley), was whether the company was carrying on a business given its counsel had conceded that it was not carrying on an investment business merely by having its money on deposit at the bank. At 575 Park J said: “I have already referred to the American Leaf Blending case[1979] AC 676 . There is nothing in that case which means that Mr Shirley must have misdirected himself in law. The effect of the particular sentence on which the Revenue principally rely (which I have quoted earlier in this judgment) both taken by itself and read with the surrounding passages, all of which Mr Shirley sets out in his decision, is that although the normal conclusion when a company lays out its assets and earns an income return is that it is carrying on a business, that is not inevitably so as a matter of law. There can be exceptional cases where it is not. Mr Shirley did not expressly say that this was one of them, but that is clearly implicit in his decision. In my judgment, it was a view which, on the facts of the case, he was entitled to take. Indeed, I would have taken the same view myself.” 79. In Ramsay v HMRC[2013] UKUT 226 (TCC) Judge Berner considered what was meant by “business” in relation to the transfer to a company of a business as a going concern in exchange for shares in order to qualify for roll-over relief in accordance withs 162 of the Taxation of Chargeable Gains Act 1992 (“TCGA”). It was not disputed that Mrs Ramsay and her husband spent around 20 hours a week on various activities in connection with the letting of a property. At [32] he said: “Mr Richard Ramsay, appearing for Mrs Ramsay, argued that the reference to “some” activity in this passage indicated that only a modest degree of activity was required. I do not accept that submission. The Privy Council was making the point, simply, that mere passive receipt of rent would not normally be regarded as the carrying on of a business, and that it had to be accompanied by some activity, even if that activity were not continuous. It was not setting a quantitative test as to the degree of activity required to cross the threshold; that remains a question of fact.” 80. Having noted, at [61] that it “is the degree of activity as a whole which is material to the question whether there is a business, and not the extent of that activity”, Judge Berner continued: “64. As I have described it earlier, in my judgment the word “business” in the context ofs 162 TCGA should be afforded a broad meaning. Regard should be had to the factors referred to in Lord Fisher , which in my view (with the exception of the specific references to taxable supplies, which are relevant to VAT) are of general application to the question whether the circumstances describe a business. Thus, it falls to be considered whether Mrs Ramsay’s activities were a “serious undertaking earnestly pursued” or a “serious occupation”, whether the activity was an occupation or function actively pursued with reasonable or recognisable continuity, whether the activity had a certain amount of substance in terms of turnover, whether the activity was conducted in a regular manner and on sound and recognised business principles, and whether the activities were of a kind which, subject to differences of detail, are commonly made by those who seek to profit by them. 65. In my judgment, taking the activities of Mrs Ramsay as a whole, I am satisfied that these tests are satisfied. Certain of the individual activities by themselves have little impact on the issue, but overall, taking account both of the day-to-day activities, and the work undertaken by Mrs Ramsay in respect of the early refurbishment and redevelopment proposals, I conclude that the activities fall within the tests described in Lord Fisher . 66. There remains, however, the question of degree. That is relevant to the equation because of the fact that in the context of property investment and letting the same activities are equally capable of describing a passive investment and a property investment or rental business. Although resolution of that issue will be assisted by consideration of the Lord Fisher factors, to those there must be added the degree of activity undertaken. There is nothing in the TCGA which can colour the extent of the activity which for the purpose of s 162 may be regarded as sufficient to constitute a business, and so this must be approached in the context of a broad meaning of that term. 67. Applying these principles, in this case I am satisfied that the activity undertaken in respect of the Property, again taken overall, was sufficient in nature and extent to amount to a business for the purpose ofs 162 TCGA . Although each of the activities could equally well have been undertaken by someone who was a mere property investor, where the degree of activity outweighs what might normally be expected to be carried out by a mere passive investor, even a diligent and conscientious one, that will in my judgment amount to a business. I find that was the case here”
“… is not concerned to alter the basis of taxation adopted in each of the contracting states as such or to dictate to each contracting state how it should tax particular forms of receipts. Its purpose is to set out rules for resolving issues of double taxation which arise from the tax treatment adopted by each country's domestic legislation by reference to a series of tests agreed by the contracting states under the [ Double Tax Treaty ].”