School of Law

LL.M. Assignment Submission Form 2023/2024

Student Name: Zalan Tamas Nemeth

Student ID Number:
LL.M Course Title:
Module Title:
Assignment Title:
19334301
International Business Law LLM
International Business Tax Law
“Mummery J’s Interpretive Legacy in the Evolving Arena of
International Tax Treaties”

Lecturer(s): Professor Sara-Jane O’Brien

Date Submitted: 23/03/2024
Word Count/Page Count: 2,997 words & 12 pages

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“Mummery J’s Interpretive Legacy in the Evolving
Arena of International Tax Treaties”
 Contents

Cover Sheet ...............................................................................................................................1

Title Page ..................................................................................................................................2
Table of Contents .....................................................................................................................3
Chapter I. – Introduc on ........................................................................................................................4
Chapter II. – Background & History of Commerzbank ............................................................................5
Chapter III. – UK's Methodology in Tax Treaty Interpreta on: Explora on of Jus ce Mummery's
Insigh ul Judgement ..............................................................................................................................6
Chapter IV. – Recent Case Law ...............................................................................................................8
Chapter V. – Cri que & Analysis ...........................................................................................................10
Chapter VI. – Conclusion ......................................................................................................................11
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Chapter I. – Introduction

In the intricate tapestry of international business tax law, the adjudicative paradigms for
interpreting tax treaties has been subject to rigorous re-evaluation and refinement. Notably,
these progressive transformations have led to the development of the doctrinal axioms
elucidated by Mummery J in the landmark adjudications of IRC v Commerzbank AG, IRC v
Banco Do Brasil SA (hereinafter Commerzbank).1 These judgments precipitated a pivotal
shift from a myopic inclination towards textualism and domestic legislative intents,
advocating instead for a panoramic interpretation that embraces the treaties’ operational
context within the global fiscal ecosystem. Underscoring the imperative to anchor the
hermeneutics of tax treaties in the objectives they aspire to serve in this case, the obviation of
double taxation and the promotion of unfettered international commerce and investment
whilst respecting the standard principles of treaty interpretation.

This jurisprudential cornerstone has retained its pertinence as legal systems worldwide
confront emergent quandaries spawned by the digitalization of economic activities, the
proliferation of aggressive fiscal strategems, and the attenuation of taxable bases. The
adjudication in Fowler v HMRC by the Supreme Court of England and Wales exemplifies the
ongoing resonance of Mummery J’s tenets, demonstrating an enduring commitment to a
rigorous and intentionalist treaty interpretation amidst the rapidly evolving economic and
technological paradigms.2

Yet, this methodological steadfastness is not devoid of critique or challenges. In an era

marked by an intensified quest for global tax law harmonization to thwart evasion and base
erosion, the delicate balance between treaty sovereignty and the exigencies of a coherent
international tax regime is ever more precarious. A critical disquisition of the recent English
and Welsh jurisprudence, vis-à-vis Mummery J's seminal precepts, unveils the complex
dialectics of treaty interpretation in a milieu where the demarcations of fiscal jurisdiction and
global commerce are incessantly reconfigured. This essay endeavours to interrogate whether

1 IRC v Commerzbank AG, IRC v Banco Do Brasil SA [1990] STC 285.

2 Fowler v Commissioners for Her Majesty’s Revenue and Customs [2020] UKSC 22.
the interpretive paradigm propounded in the twilight of the 20th century possesses the
requisite adaptability to underpin the contemporary global economy’s fiscal architecture or if
an incipient interpretive paradigm is burgeoning within the corpus of UK tax treaty
jurisprudence.

Chapter II. – Background & History of Commerzbank

In 1973, Commerzbank AG, a German banking institution, set up a branch in the UK,
engaging in lending activities to US corporations and earning interest. This interest, part of
the UK branch's profits, was subject to UK corporation tax. The bank, however, sought an
exemption from this tax under Article XV of the 1945 UK-US Double Taxation Convention,
arguing that the interest it earned should be exempt since it was paid by a US corporation and
Commerzbank was neither a UK citizen, resident, nor corporation.3

The bank's argument hinged on a simplistic and literal interpretation of the treaty's
provisions, diverging from expectations set by standard OECD Model conventions.4 The
issue escalated to a Special Commissioner, who, while acknowledging the bank's
straightforward entitlement under a literal reading of Article XV, declined to rule on the
interest refund claim due to procedural issues. The Inland Revenue contended that treaty
benefits should not extend to non-resident entities like Commerzbank. Without persuasive
preparatory work or evidence of a contrary general principle in double taxation treaties, the
Commissioner ruled in favour of Commerzbank for the tax exemption but against it for the
interest refund. Both parties escalated the dispute, leading to a hearing by Mummery J in the
Chancery Division where Mummery J, relatively new to such cases, sided with
Commerzbank regarding the exemption, not addressing the interest refund.5 This decision
stood unchallenged, leading to a substantial tax refund for Commerzbank.

3United States-United Kingdom Double Taxation Convention 16 April 1945, as amended by

Supplementary Protocol of 17 March 1966.

4 Draft Double Taxation Convention on Income and Capital, OECD, Paris (1963).

5 Philip Baker, ‘The Commerzbank Litigation (1990)’ (2018) (15) Tax Treaty Law and EU Law 331.
The unresolved issue of the interest refund led to further judicial review in the Queen’s Bench
Division, culminating in a referral to the ECJ6 Who ruled in favour of Commerzbank, finding
that restricting interest refunds to UK residents breached the EU's freedom of establishment
principles. This protracted legal journey, spanning over two decades, underscores the
complexity of international tax law and the pivotal role of judicial interpretation and its
relevant principles to international business tax law as outlined by Mummery J in his seminal
judgement.

Chapter III. – UK's Methodology in Tax Treaty Interpretation:

Exploration of Justice Mummery's Insightful Judgement

The profound insights of Justice Mummery into the realm of tax treaty interpretation within
the framework of the United Kingdom's legal system are meticulously encapsulated in his
judgement’s six-bullet-point summary on the matter, which has over time become a
cornerstone for subsequent judicial references.7 This summary through its expansion and
agglomeration of principles for international treaty interpretation seminally delineated a
sophisticated and structured methodology for dissecting and comprehending the intricate
provisions of tax treaties. Most notably, it illuminated the critical necessity of initially
pursuing a lucid comprehension of the linguistic constructs employed within the treaty's text,
whilst issuing a cautionary note against succumbing to a simplistic and overly literal
exegesis. Justice Mummery posited that the underlying intentions and broader context
enveloping the treaty's clauses are paramount in unlocking their true meaning, hence
advocating for an initial purposive interpretational stance that may transcend any superficial
flaws stemming from an overly rigid textual interpretation.8

Furthermore, Mummery J expounded upon the cautionary note left by Lord Wilberforce in
Buchanan & Company Ltd v Babco Forwarding & Shipping by stating that the language of
treaties extends beyond the conventional confines of English jurisprudence and legislative

6Case C-330/91 The Queen v Inland Revenue Commissioners, ex parte Commerzbank AG [1993] ECR
1993 I-04017.

7 See IRC V COMMERZBANK AG [1990] STC 285, at 297.

8 See Fothergill v Monarch Airlines Ltd [1981] AC 251, at 272.

idiom.9 Thereby, underscoring the imperative for an interpretation that is both globally
comprehensible and universally acceptable, predicated on the foundation of wide-ranging
principles as opposed to the constrictive norms of legal precedents. Additionally, noting the
doctrine espoused by the Vienna Convention, advocating that treaties be interpreted with
integrity and in good faith, anchoring their interpretation to the ordinary significance of their
terms, whilst considering their context and overarching aims.10 Thereby underscoring the
salience of mirroring the genuine intentions of the treaty's signatories, prioritizing an
interpretation that encapsulates the collective consensus of the parties involved over a rigid
adherence to the textual facade.

Nevertheless, in instances where the text's meaning remains nebulous or precipitates

outcomes that are patently unreasonable or devoid of sense, as noted by Mummery J one is
bound to venture beyond the confines of the treaty itself, seeking enlightenment through
supplementary interpretative avenues such as the preparatory works (travaux préparatoires).
This perspective is harmonious with the notion that subsequent scholarly commentaries and
judgments from foreign jurisdictions can furnish invaluable perspectives, though the weight
of their contribution is contingent upon the robustness of their analytical reasoning and their
esteemed standing.

Moreover, while ancillary resources like preparatory documents and the rich tapestry of
jurisprudence can enrich the interpretation of a treaty, they should not detract from or
overshadow the primacy of the treaty's own stipulations. Their utilization is a matter of
discretion, predicated on their pertinence and their capacity to enhance the comprehension of
the treaty's stipulations. This stance as we shall see from recent case law has been reinforced
by later judgements not only in the UK but amongst others in Spain and Italy as well.11
Justice Mummery's discerning judgment transcended the immediate boundaries of the case at
hand, heralding a pivotal moment in the articulation of the principles underpinning tax treaty
interpretation within the UK. This methodology has not merely guided subsequent judiciaries

9 Buchanan (James) & Company Ltd v Babco Forwarding & Shipping (U.K.) Ltd [1976] EWCA
Civ J1202-2.

10 Vienna Convention on the Law of Treaties, 1155 UNTS 331 (1969), see Art 24, 31, 32, 34.

11Ellis M, ‘The Influence of the OECD Commentaries on Treaty Interpretation – Response to Prof Dr
Klaus Vogel’ (2000) IBFD Bulletin, page 618.
but has also forged a comprehensive framework for treaty interpretation, melding the
venerable principle of legal precedent with the nuanced demands of international tax law.

Nonetheless, it is pertinent to acknowledge that the summary, despite its depth, is not all-
encompassing, particularly in its lack of reference to the contemporary Commentaries of the
OECD Model an arguably indispensable modern interpretative aid.12 This omission can be
partially attributed to the specific nature of the treaties under consideration, which antedated
the OECD Model and consequently do not directly incorporate its provisions. Subsequent
legal discourse has endeavoured to address and elaborate on the utilization of these
Commentaries in the sphere of treaty interpretation and shall be discussed in the context of
the following chapters of this paper.

Chapter IV. – Recent Case Law

To delineate the evolution of tax treaty interpretation principles in the United Kingdom, a
closer inspection of seminal cases reveals how domestic courts have delicately balanced
national legislation with the dictates of international tax treaties, particularly under the
guidance of the OECD Model Tax Convention on Income and on Capital.13 These landmark
decisions collectively deepen our understanding of treaty interpretation, demonstrating
judicial shifts towards accommodating both the letter and spirit of international agreements
alongside national tax laws.

The Memec case served as a crucible for the UK courts' approach to tax treaty interpretation,
specifically concerning the tax treatment of dividends and the entitlement to relief under
double taxation agreements.14 This judicial examination underscored the necessity of a broad,
internationally-minded interpretation of treaties, advocating for an expansive reading that
captures the essence of the treaty's language and the mutual objectives of the contracting

12 OECD, Model Tax Convention on Income and Capital (2022).

13I Du Plessis, ‘The Interpretation of Double Taxation Agreements: A Comparative Evaluation of

Recent South African Case Law’ (2016) (3) TSAR 484 at 486.

14 Memec Plc v CIR [1998] AC 123.

entities. Although the judgment in Memec did not explicitly anchor its findings in the OECD
Model, it paved the way for a jurisprudential outlook that values international consensus and
the intentions behind tax treaty provisions, setting a precedent for future cases to consider the
principles outlined in the OECD Model as instrumental in interpreting bilateral tax
agreements.

The adjudication in Smallwood revolved around tax residency and the intricacies of a double
taxation agreement between the UK and Mauritius, bringing to the fore the issues of treaty
shopping and the emphasis on substance over form.15 The court's discourse, especially on
"beneficial ownership," echoed the OECD Model's stance on mitigating treaty abuse,
advocating for a thorough assessment of the actual substance of transactions and
arrangements. The significance ascribed to the OECD Model in this context was evident, as
the court aligned its reasoning with the Model's objectives to counteract tax avoidance and
evasion, signalling a judicial appreciation for the substantive essence of tax obligations and
entitlements under international treaties.

Anson v HMRC explored the taxation implications for income derived from foreign entities
and the applicability of tax treaty reliefs.16 The Supreme Court's decision marked a departure
towards a more literal and autonomous interpretation of treaty terms, particularly concerning
the definition of "income" within the scope of a double taxation agreement. This stance
implicitly acknowledged the OECD Model's directive that treaty terms should be interpreted
based on their treaty-specific meanings rather than being conflated with domestic law
definitions. This case illustrated a judicial inclination towards valuing the OECD Model's
guidance on maintaining the integrity and autonomy of treaty language, thereby reinforcing
the importance of an internationally coherent interpretation of tax treaties.

In Fowler v HMRC, the focus was on delineating the categorization of employment income
versus business profits under the UK-South Africa double taxation agreement.17 The Supreme

15 Smallwood v HMRC [2010] EWCA Civ 778.

16 Anson v HMRC [2015] UKSC 44.

17 Fowler v Commissioners for Her Majesty’s Revenue and Customs [2020] UKSC 22.
Court's analysis clarified the interplay between domestic legislative provisions and treaty
obligations, particularly highlighting the limits of domestic "deeming" provisions in the
context of international tax treaty interpretation. This judgment resonated with the principles
advocated by the OECD Model, particularly in its caution against allowing domestic statutory
fictions to unduly influence the application of treaty terms. The court's reasoning underscored
a commitment to treaty interpretation that is firmly rooted in the actual circumstances and
factual realities, aligning with the OECD Model's admonishments against distorting treaty
applications through domestic legislative constructs.

Each of these cases, through its unique contribution to the fabric of tax treaty interpretation in
the UK, underlines a gradual yet discernible shift towards a jurisprudence that deeply
respects the principles encapsulated in the OECD Model Tax Convention. The nuanced
engagement with the Model across these decisions showcases a judicial effort to harmonize
the interpretation of bilateral tax agreements with international norms, emphasizing the
importance of an interpretation that is at once globally informed and sensitive to the specifics
of each case.

Chapter V. – Critique & Analysis

The Commerzbank case, adjudicated by Mummery J, stands as a foundational yet contentious

point in the trajectory of tax treaty interpretation within the United Kingdom's legal
landscape. This critical analysis aims to unravel the case's nuanced implications, particularly
highlighting its shortcomings and the resultant ripple effects across subsequent jurisprudence.

At the heart of the critique is the apparent oversight in Mummery J's summary regarding the
weightage accorded to the unenumerated intentions of the treaty itself and, crucially, the
commentary of competent authorities. One glaring omission is the lack of engagement with
the Commentaries to the OECD Model, which, for many, constitute a primary resource in
treaty interpretation endeavours. This oversight is not entirely unexpected, given that the
1945 UK–US double taxation convention predated the OECD Model and lacked direct
correspondence with some of its provisions. Nevertheless, this gap significantly undermines
the summary's comprehensiveness, particularly in light of the evolving recognition of the
OECD Model's provisions as reflecting general principles applicable to all tax treaties.18

Moreover, the decision's engagement with the concept of competent authority agreements
was arguably superficial. Mummery J's dismissal of a joint statement by the US Internal
Revenue Service and the Inland Revenue highlights a potentially myopic view of the
authoritative value such agreements might hold in the interpretative process, especially when
considered through the lens of the Vienna Convention.

Despite these critiques, it is imperative to acknowledge the methodological rigor and

foundational importance of Mummery J's approach. The case set a precedent that has
underpinned the interpretative strategies in a myriad of subsequent cases, such as Smallwood
v HMRC. Its significance is further magnified by the fact that it was adjudicated by a High
Court judge, thus offering a malleable yet authoritative framework for future courts to refine
and adapt tax treaty interpretation without drastic deviations from established principles.

This intricate interplay between criticism and acknowledgment underscores a paradoxical

appreciation for Commerzbank. While the decision's potential missteps in not fully embracing
the OECD Model's Commentaries and competent authorities' inputs mark it as a missed
opportunity for a more nuanced treaty interpretation, its overarching methodological
contribution cannot be understated. It laid the groundwork for an evolving jurisprudence that,
while imperfect, has enabled the UK courts to navigate the complex terrain of tax treaty
interpretation with a degree of sophistication and adaptability. This duality encapsulates the
essential nature of Commerzbank within the broader discourse on tax treaty interpretation in
the UK, heralding it as both a critical juncture and a stepping stone towards a more refined
and globally coherent interpretative paradigm.

Chapter VI. – Conclusion

18Heidemann et al., ‘Double Taxation Treaties: The Autonomous Interpretation Method in German
and English Law’ (2009) (38) 13 Intertax 136.
The elucidation of tax treaty interpretation within the United Kingdom, particularly through
the prism of a seminal case such as Commerzbank, alongside the more recent Fowler v
HMRC, encapsulates a shift from textualism and a domestic-centric view towards a holistic
understanding that encompasses the global fiscal ecosystem. This transition, championed by
Mummery J, heralded the interpretation of tax treaties within their operational context,
aiming to mitigate double taxation and foster commerce. Such a paradigm, while enduringly
relevant in addressing contemporary fiscal dilemmas, invites both critique and re-evaluation
in its application amid the complexities of the modern economic landscape. This analysis,
traversing the historical backdrop of the Commerzbank case to the intricate deliberations in
subsequent jurisprudence, underscores the pivotal role of judicial interpretation in navigating
the multifaceted domain of international business tax law. The critical insights derived from
Justice Mummery's judgment have laid a robust methodological foundation, guided the
interpretative strategies of subsequent cases and ensuring the resilience of these principles
against the vicissitudes of economic and technological advancements. Notwithstanding, the
quest to curb tax evasion and erosion of taxable bases, necessitates a delicate balance
between respecting treaty sovereignty and addressing the exigencies of the international fiscal
order, as exemplified by the Commerzbank case. In light of these considerations, the critique
of Mummery J’s approach regarding its lack of engagement with the OECD Model's
Commentaries and the concept of competent authority agreements—spotlights potential
avenues for enriching the interpretative framework, and though these are being progressively
filled, some still persist. Despite these criticisms, the foundational value of Mummery J's
methodology cannot be overstated; it has not only influenced the trajectory of tax treaty
jurisprudence in the UK but also offered a flexible yet principled approach for courts to
navigate the evolving contours of treaty interpretation ensuring this duality reflects the
nuanced discourse on tax law in the UK, creating both a cornerstone and a conduit for future
jurisprudential evolution.