From courts to consequences: the key tax rulings driving international policy

A report on a session at the IBA’s 15th Annual London Finance and Capital Markets Conference held on 26 and 27 January 2026

Chair

Jonathan S Schwarz, Temple Tax Chambers, London

Panellists

Caroline D Ciraolo, Kostelanetz, Washington, DC, and Baltimore

Liesl Fichardt, Quinn Emanuel Urquhart & Sullivan, London

Michael Molenaars, Stibbe, Amsterdam

Luca Romanelli, AndPartners, Milan

Christopher Slade, Aird & Berlis, Toronto

Reporter

Karanjot Singh Khurana, DMD Advocates, Delhi

Overview

The session brought together leading tax litigators and academics from multiple jurisdictions to examine recent landmark judgments shaping contemporary tax policy. The session evaluated seminal rulings cutting across themes including taxpayer rights, anti‑abuse doctrines, treaty interpretation, international administrative cooperation and the interaction between domestic appeals and mutual agreement procedure (MAP)/BEPS multilateral instrument (MLI) frameworks.

Panel discussion

United States

Liberty Global Inc v Commissioner

Caroline D Ciraolo examined the Tenth Circuit’s affirmation of the US Tax Court decision in Liberty Global, a case turning on the sourcing of the gain from the sale of controlled foreign company (CFC) shares. Liberty Global had argued for full foreign‑source characterisation to optimise its foreign tax credit (FTC) position following the sale of a Japanese telecom subsidiary. The Court rejected this view and applied the default rule under Internal Revenue Code (IRC) Section 865(a), concluding that the gain of a US resident from the sale of personal property is US sourced, except to the limited extent required for overall foreign loss (OFL) recapture. She explained that the judgment narrows a taxpayer’s ability to optimise FTCs and reinforces congressional intent that FTCs shield only foreign‑source income from double taxation. The ruling is expected to influence future cross‑border mergers and acquisitions (M&A) transactions involving CFC share disposals.

Center for Taxpayer Rights et al v Internal Revenue Service (IRS)

Ciraolo highlighted this significant case concerning the disclosure of taxpayer information by the IRS to other regulators. Under a memorandum of understanding (MoU) between the IRS and the Department of Homeland Security (DHS), the IRS began sharing taxpayer data with US Immigration and Customs Enforcement (ICE) to support criminal immigration enforcement.

The plaintiffs challenged the legality of this information exchange, especially as Congress had repeatedly rejected proposals to expand Section 6103 exceptions for immigration enforcement. While the matter was sub judice, the IRS disclosed the confidential information of over 47,000 taxpayers to ICE.

The District Court issued a preliminary injunction prohibiting further disclosures by the IRS. Ciraolo explained that the case underscores the continuing judicial emphasis on taxpayer privacy and statutory limits on administrative information sharing.

United States v Sagoo

The Sagoo ruling involves the constitutionality of foreign bank and financial accounts reports (FBAR) penalty assessments. Explaining the contentions advanced, Ciraolo explained that while the US Department of Justice (DOJ) accepted that the Seventh Amendment right to a jury trial is implicated, it argued that taxpayers ultimately have access to a jury trial in federal court to determine de novo liability for wilful FBAR penalties.

The Court held that an after‑the‑fact opportunity for a jury trial is constitutionally insufficient. Thus, because IRS assessments occur without a neutral fact finder and trigger immediate adverse consequences (offsets, levies and garnishments), the procedure violates the Seventh Amendment.

Ciraolo stated that the ruling, although now subject to an appeal, may have far‑reaching consequences for the US civil penalty regime, particularly in the international information reporting context.

The European Union

Nordcurrent group UAB v Valstybinė mokesčių inspekcija

Michael Molenaars discussed the Court of Justice of the European Union’s (CJEU) judgment concerning the application of the EU Parent–Subsidiary Directive’s (Council Directive 2011/96/EU) (PSD) anti‑abuse rule to dividend exemptions. Nordcurrent had received dividends from its UK subsidiary, which possessed minimal substance and was later liquidated. The Lithuanian authorities denied the participation exemption on grounds of it being considered to be a non‑genuine arrangement.

The CJEU held the following:

• the PSD’s anti‑abuse provision applies not only to conduit companies, but also to structures where the subsidiary performs the activity under its own name but lacks substance;
• such an assessment is not limited to the point of dividend payment but to the entire lifecycle, including the commercial rationale at formation and any subsequent changes; and
• the ‘tax advantage’ test must be interpreted broadly, considering the overall tax effect, including the tax rate applied in the subsidiary’s jurisdiction.

Molenaars noted that the ruling expands the anti‑abuse doctrine established in the well-known Danish beneficial ownership cases from the recipient side. It also raises questions about proportionality and alignment with national participation exemptions.

Mediolanum S.p.A. v Italian Revenue Agency

Luca Romanelli presented the landmark CJEU judgment addressing whether Italy’s corporate tax (Imposta Regionale sulle Attivita Produttive or IRAP) rules (according to which 50 per cent of dividends received by financial intermediaries were included in the taxable base) were compatible with Article 4 of the PSD.

The CJEU ruled that:

• the Directive’s protections apply irrespective of how a Member State categorises a tax (income tax versus regional tax), so long as the tax targets distributed profits.
• Member States may tax up to five per cent of dividends to reflect administrative expenses, but Italy’s combined 55 per cent effective inclusion under the corporate income tax rules (Imposta sul Reddito delle Societa or IRES) (five per cent) plus IRAP (50 per cent) breached this cap; and
• claims of reverse discrimination vis‑à‑vis domestic groups are irrelevant to EU law compliance.

Romanelli explained, as per the ruling, that the 50 per cent inclusion rule for financial intermediaries is incompatible with EU law. He also said that the ruling has resulted in legislative change through Italy’s 2026 Budget Law, which now excludes qualifying PSD dividends from the IRAP tax base, restoring Italy’s conformity with EU law.

UK

Vietjet Aviation Joint Stock Company v FW Aviation (Holdings) 1 Limited

Liesl Fichardt analysed the English Commercial Court and Court of Appeal’s treatment of treaty entitlement under the UK–Japan Tax Treaty, focusing on the interest withholding exemptions critical to cross‑border aviation financing. Two core issues from the judgment were discussed as follows.

The ‘exempt resident’ requirement (Article 22(5))

Vietjet argued that FW Aviation (FWC) was not a qualifying resident because it engaged mainly in investment activity. The Court of Appeal clarified the criteria for ‘exempt resident’ status under Article 22(5) of the Treaty, focusing on the distinction between passive investment and active trade. The Court rejected the argument that FWC was merely managing investments for its own account. Instead, the Court observed that FWC was purchasing loans specifically to enforce security and realise their value. This activity, the Court held, constituted a ‘trade’ for UK tax purposes. By establishing that a person carrying on a trade is not engaged in the ‘business of making or managing investments’ under this Article, the Court ensured that treaty benefits are preserved for entities performing genuine economic business activity, while still preventing ‘treaty shopping’ by those with no substantive presence.

The anti‑abuse purpose test (Article 11(7))

The Court rejected arguments that FWC was established in the UK merely to obtain treaty benefits. Importantly, by the time FWC acquired the debt, the loan had already been accelerated and no further interest payments were expected. Thus, it could not have had a main purpose of exploiting the interest withholding exemption.

Fichardt explained that this ruling offers important guidance on treaty entitlement for investment funds, particularly in regard to distressed asset transactions.

Canada

Canada (National Revenue) v Shopify Inc

Christopher Slade examined the case concerning the scope of Canada’s ability to comply with foreign information requests under the Convention on Mutual Administrative Assistance in Tax Matters. According to the facts, Slade explained that Australia requested user information relating to Shopify merchants with Australian‑based customers. The Canada Revenue Agency (CRA) sought judicial authorisation for an unnamed persons requirement (UPR). However, Canadian domestic law currently permits UPRs only when used to verify compliance with Canadian tax obligations.

Slade explained the rationale to the Federal Court’s refusal to give authorisation:

• the Convention (in contrast to Canada’s bilateral income tax treaties) is not self‑executing and, without domestic implementation, it does not expand the CRA’s audit powers; and
• the statutory requirement for a purpose to exist to verify Canadian tax compliance was not met.

The ruling, Slade explained, highlights the limits on administrative cooperation and may influence how Canada handles future multilateral information exchange requests.

Australia

Oracle Corporation Australia Pty Ltd v Commissioner of Taxation

Jonathan S Schwarz discussed this important ruling on the interaction between domestic tax appeals and procedures under the MLI (Articles 16 on MAP and arbitration). The dispute involved the classification of software distribution payments. While the Australian Taxation Office (ATO) treated the sums paid as royalties, the taxpayer argued that they were business profits. During the MAP, the taxpayer sought a stay of domestic litigation.

The key findings were that:

• the first instance court refused a stay owing to the existence of 15 similar cases requiring judicial guidance;
• on appeal, the full court disagreed, emphasising international best practices where MAP ordinarily precedes domestic litigation; and
• the Court ordered a stay, allowing MAP (including arbitration) to proceed first, noting that the Oracle ruling would not necessarily provide guidance for other fact‑specific software cases.

The judgment reinforces MAP effectiveness under the MLI as an international dispute resolution mechanism and provides an important precedent on the coordination of parallel dispute resolution pathways.

Conclusion

The session underscored how courts across major jurisdictions are shaping global tax governance. From taxpayer rights and privacy protections in the US, to expansive anti‑abuse doctrines in EU law, to treaty interpretation refinements in the UK, limits on administrative cooperation in Canada and taxpayer’s MAP/MLI procedural rights in Australia, a wide spectrum of cases was discussed by the panel.

Collectively, these rulings highlight the increasing interdependence between domestic tax systems, EU directives, multilateral conventions and tax treaties, while also reinforcing the judiciary’s role in balancing enforcement objectives with taxpayer protections.