© 2025 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
Article 6: Income from immoveable property
ARTICLE 6: INCOME FROM IMMOVEABLE PROPERTY
Right of source State to tax resident of other State
"(1) Income derived by a resident of a Contracting State from immovable property (including income from agriculture or forestry) situated in the other Contracting State may be taxed in that other State." (Model Article 6)
Income from immoveable property
(3) The provisions of paragraph 1 shall apply to income derived from the direct use, letting, or use in any other form of immovable property.
(4) The provisions of paragraphs 1 and 3 shall also apply to the income from immovable property of an enterprise." (Model Article 6)
IMMOVEABLE PROPERTY
"(2) The term “immovable property” shall have the meaning which it has under the law of the Contracting State in which the property in question is situated. The term shall in any case include
[1] property accessory to immovable property,
[2] livestock and equipment used in agriculture and forestry,
[3] rights to which the provisions of general law respecting landed property apply,
[4] usufruct of immovable property and
[5] rights to variable or fixed payments as consideration for the working of, or the right to work, mineral deposits, sources and other natural resources;
ships and aircraft shall not be regarded as immovable property." (Model Article 6 - formatting added)
- Court rejecting interpretation of immoveable property that would render related provisions otiose
"[103]...If the concept of immovable property is given the very wide construction supported by HMRC, then the question would arise whether the rights mentioned in Article 13(4) specifically for hydrocarbons actually are caught by Article 13(1) regardless of what natural resource they relate to because they are immovable property and hence fall within Article 13(1)." (HMRC v. Royal Bank of Canada [2025] UKSC 2, Lady Rose)
Rights to payments as consideration for working natural resources
- Right to work is autonomous concept
"[93] RBC accepted that the concept of the "right to work" in Article 6(2) of the UK/Canada Convention is an autonomous concept. It is clear that the language of an international treaty must not be interpreted by technical rules of English law: see per Lord Diplock in Fothergill v Monarch Airlines Ltd [1981] AC 251, 281H–282B. However, the UK/Canada Convention is an instrument firmly in the taxing realm. The Contracting States must have agreed its terms on the understanding that those terms would then need to be reflected in their respective domestic laws and would impose tax charges which must be expressed, so far as possible, in precise terms so that it is reasonably clear who is subject to the taxing charge and who is not." (HMRC v. Royal Bank of Canada [2025] UKSC 2, Lady Rose)
- It is the right to payment that is treated as being immoveable property
"[41] The definition of immovable property in Article 6(2) applies to all the provisions of the UK/Canada Convention where that term is used. The words underlined above have been referred to as the "fifth limb" of Article 6(2) and are the words on which HMRC rely to establish the UK's ability to tax the Payments. The fifth limb treats the right to receive the payment as being the immovable property rather than treating the right to work itself as being immovable property. HMRC contend therefore that RBC's rights under the SPA to receive the Payments were "rights to variable ... payments as consideration for the working of, or the right to work," the Buchan Field." (HMRC v. Royal Bank of Canada [2025] UKSC 2, Lady Rose)
- Situs of a right to payment treated as immoveable property: place where the actual immoveable property to which they relate is
"[49] I accept Mr Prosser's submission that there is no such difficulty created by Article 6. By deeming the rights described in Article 6(2) to be immovable property, the Article also deems those rights to be located in the State where the immovable property is located. I did not understand Mr Peacock KC, appearing for RBC, to challenge that conclusion. If the rights are sufficiently closely connected with the land to be treated as immovable property themselves then they are sufficiently closely connected with the land to be treated as located where the land is located." (HMRC v. Royal Bank of Canada [2025] UKSC 2, Lady Rose)
- Right to direct person with the right to work the natural resources does not give right to work the resources
"[82] That legal reality is acknowledged in clause 2 which confirms that it is Sulpetro (UK) and not Sulpetro which is responsible for working the field. The wording of clause 2 seems to me to say the opposite of what HMRC need it to say if they are to succeed in an argument that Sulpetro (UK) conferred or transferred the rights the UK Government granted to it under the licence. The promise by Sulpetro (UK) to Sulpetro that it will do what it has already promised the Government to do under the licence does not change that. There is a legal difference between someone having a right to work natural resources and someone having a right to require another person to work those natural resources. Sulpetro has the latter but not the former." (HMRC v. Royal Bank of Canada [2025] UKSC 2, Lady Rose)
- Payment to acquire rights not consideration for the working of that right
"[108] To dispose of this issue in the appeal it is only necessary to decide that if the bundle of rights that Sulpetro acquired under the Illustrative Agreement and which it effectively surrendered to BP in return for the Payments had amounted to the right to work, those rights would still have been too remote to fall within the definition of immovable property within Article 6(1) of the UK/Canada Convention.
[109] I agree that this interpretation derives some support from the similar wording of Article 12 of the UK/Canada Convention. Article 12(4) defines "royalties" as any payment received "as a consideration for the use of, or the right to use, any copyright, patent, trade mark...". Para 8 of the Commentaries on Article 12 states that the Article includes both payments made under a licence and also payments made to compensate the owner for an infringement of the right. But it does not cover a payment that "whilst based on the number of times a right belonging to someone is used, are made to someone else who does not himself own the right or the right to use it". The Commentaries give as an example of the distinction being drawn a situation where an artist receives both a fee for performing and also, if the performance is recorded, a royalty for each sale of the recording. The performance fee would fall under Article 17 which deals with income of performers and athletes but royalties for each sale of the recording will fall within Article 12 where the artist is the holder of the copyright. But where the copyright in the sound recording belongs to a third party, the payments made under the contract fall under Articles 7 or 17 rather than under Article 12 even if the payments are contingent on the sale of the recordings. Further, the 2017 Commentaries make clear that where payments are made in exchange for an outright transfer of the rights, those payments do not fall within Article 12 because "the payment is not in consideration 'for the use of, or the right to use' that property and cannot therefore represent a royalty" (para 8.2). The payment will instead be a business profit within Article 7 or a capital gain within Article 13..." (HMRC v. Royal Bank of Canada [2025] UKSC 2, Lady Rose)
- Payment for right to oil is not payment for right to work the oil
"[113] On this point I prefer RBC's construction. What is caught by Article 6(2) and treated as immovable property is the contractual right to the variable or fixed payments. The right to be paid the consideration is undoubtedly held by Sulpetro but that is different from the rights for which that consideration is paid. Further, the right to the oil is clearly a right to be paid for the sale of the oil itself. That is not caught by Article 6 because the oil is a movable and not deemed to be immovable property. The purpose of the additional words is to ensure that the recipient of the payments could not escape the tax charge by saying that until it actually starts extracting the minerals, the payments it receives could not properly be described as payments "for the working" of the minerals. These additional words do not have the significance that HMRC seek to ascribe to them. They do not further extend the reach of Article 6(2)." (HMRC v. Royal Bank of Canada [2025] UKSC 2, Lady Rose)
- Query whether it is necessary to have held an interest in the land containing the minerals
"[108] To dispose of this issue in the appeal it is only necessary to decide that if the bundle of rights that Sulpetro acquired under the Illustrative Agreement and which it effectively surrendered to BP in return for the Payments had amounted to the right to work, those rights would still have been too remote to fall within the definition of immovable property within Article 6(1) of the UK/Canada Convention.
[109] I agree that this interpretation derives some support from the similar wording of Article 12 of the UK/Canada Convention..." (HMRC v. Royal Bank of Canada [2025] UKSC 2)
"[97] Applying this conclusion to the facts of this case, RBC does not hold, and indeed has never held, an interest in the Buchan field. It cannot therefore be taxed under the fifth limb. What it acquired was a contractual right to receive payments calculated by reference to the sale proceeds derived from sales of oil, to the extent that the price obtained exceeded $20 a barrel. Although RBC accepted that it "stood in the shoes" of Sulpetro as regards its entitlement to the Payments, that cannot alter the fact that it has at no stage held an interest in the Buchan field.
[98] In contrast, Sulpetro would have been within the scope of UK tax on its disposal of its interest in the Buchan field under Article 13, and in particular under the express provisions of Article 13(4) and (5)..." (Royal Bank of Canada v. HMRC [2023] EWCA Civ 695, Falk, Asplin, Nugee LJJJ)
INCOME FROM IMMOVEABLE PROPERTY
RELATIONSHIP TO OTHER ARTICLES
- If treaty renders sum eligible for taxation as gain, cannot be taxed as income
"[140] At this point it is convenient to deal with an additional argument of Mr Bremner QC that the Revenue could still tax the Payments as income, even if they only became eligible for taxation in the UK as a gain within the meaning of Article 13. We reject this argument. It seems wrong that a sum of money which becomes eligible for taxation within the UK as a gain within the meaning of Article 13 can then be taxed in the UK in whatever way the Revenue wishes, regardless of the status of the relevant sum of money. Such an analysis seems to extend too far the flexibility given to the contracting parties, when it comes to the taxation of sums which are rendered eligible for taxation in one contracting state by a particular Article of the Treaty." (Royal Bank of Canada v. HMRC [2022] UKUT 45 (TCC), Edwin Johnson J and Judge Rupert Jones)