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Decision sets precedent and paves way for further claims from World Bank pensioners, say Thomas Westcott

Former World Bank employees resident in the UK can now claim partial exemption from income tax on their pensions following an important precedent set by the Tax Tribunal.

In the case of Macklin v HM Revenue and Customs (2015) the Upper Tribunal, which has equivalent status to the High Court, overruled an earlier decision by the First Tier Tribunal.

 

The case was brought by a former employee of US-headquartered World Bank who is now a pensioner and UK resident.

The Tribunal ruled that the exemption, which is enjoyed by non-US citizens resident in that country, must also be given to their equivalents in the UK as defined in the US-UK double tax treaty.

The World Bank Staff Retirement Plan (SRP) was set up and is fully managed and administered by the bank at its headquarters in Washington DC.

However HMRC had contended that only pension plans that meet all US tax rules on such schemes can be “established” in the US and that the SRP was not “generally exempt from income tax” in the US because of its international status.

But a ruling from the IRS confirmed that the scheme “largely conformed” with US pension plan rules, meaning non-US citizens resident in the US are exempt from US income tax, both on contributions made by the World Bank as employer and by the employees.

The Tribunal rejected HMRC’s arguments against the former World Bank employee, a client of Thomas Westcott Accountants, who was represented by Jonathan Schwarz, tax counsel at Temple Tax Chambers.

“This decision equalises the position for UK and US pensioners under the UK-US double tax agreement,” said Sarah Watts, partner at Thomas Westcott.

 “The case has been a long journey from our original claim to this decision and to finally get the result we wanted for our client is a great coup for the firm.”

Sarah added: “We could not have won without the expertise of our counsel, Jonathan Schwartz of Temple Tax Chambers, who is a leader in the field of international tax.”