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Where Taxpayers and Advisers Meet
UK Resident Former World Bank Group Employees' Pensions Should be Tax-Free says Upper Tribunal
28/02/2015, by Jonathan Schwarz, Tax Articles - International Tax
Rating: 5/5 from 7 people

World Bank Group employees who retire to the UK qualify for exemption from UK income tax on their pensions under the US-UK tax treaty holds the UK Tax Tribunal. In Macklin v HM Revenue and Customs [2015] UKUT 39,  the Upper Tribunal (Tax and Chancery) over-ruled the First-Tier Tribunal on 3 February 2015 and concluded that the exemption that non-US citizens resident in the US enjoy on their World Bank pensions must also be given to UK resident non-US citizens by reason of article 17(1)(b) of  the US-UK double tax treaty.

In coming to this conclusion, the Tribunal ruled that the World Bank Staff Retirement Plan (SRP) is a pension scheme established in the US within the definition in article 3(1)(o) of the treaty. The SRP was set up and is fully managed and administered by the World Bank at its headquarters in Washington DC. A ruling from the IRS confirms that the SRP largely conforms with US pension plan rules and, accordingly, non-US citizens resident in the US are exempt from US income tax to the extent of both contributions made by the World Bank as employer and by the employee.

The Tribunal rejected the HMRC contention that only a pension plan that meets all US tax rules on pension plans can be “established in” the US. It also rejected the HMRC contention that the SRP was not “generally exempt from income tax” in the US because it was exempt under immunities from tax contained in the treaty establishing the World Bank as an international organisation, rather than under the US tax rules  on pension plans. The Tribunal ruled that these terms in the US-UK tax treaty must be given their ordinary meaning in context, and in light of the object of the treaty, as required by the Vienna Convention on the Law of Treaties. 

About The Author

Jonathan Schwarz FTII is a barrister at Temple Tax Chambers and author of 'Booth & Schwarz: Residence, Domicile and UK Taxation'.
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