The recent case of Carulla v HMRC [2025] EWHC 3057 serves as a clear example of the high stakes involved in a double taxation dispute. The legal issue was twofold: first, whether HMRC was right to consider the Claimant a Spanish tax resident rather than a UK one for the years 2009/10 and 2015/16 (involving a €18.5 million liability); second, whether the Court should grant permission for a Judicial Review (JR) of HMRC’s decision.
For high-net-worth individuals, this case draws crucial attention to how residency conflicts under a double taxation treaty can trigger massive cross-border liabilities.
HMRC’s Stance in this Double Taxation Dispute
In this double taxation dispute, both parties held opposing views on which jurisdiction should prevail. HMRC’s position was that the Claimant was deemed a resident in Spain between the tax years 2009/2010 and 2015/2016. On that basis, they posited that Spain, as the competent authority, should determine the matter rather than the UK tax authorities.
To support this, HMRC relied on expert evidence from Mr. Joan Hortalà i Vallvé, who explained that Spanish Personal Income Tax Law deems an individual a “Spanish Tax Resident” if they meet either of these criteria:
- The 183-day rule: Spending more than 183 days in Spain during a calendar year (including sporadic absences).
- Economic interests: Having the main source of professional activities or economic interests in Spain, directly or indirectly.
HMRC argued that the Claimant’s lifestyle and cost of living, especially after 2016, were funded by returns from a family business headquartered in Spain. Consequently, they contended he fell squarely into the second category.
Furthermore, the Defendant argued that the court should refuse Judicial Review. Since the resolution of this double taxation dispute depends fundamentally on foreign tax law application, they maintained there was no arguable basis for a UK Judicial Review.
The Claimant’s Position: Arguing UK Tax Residency
In contrast, the Claimant argued that HMRC had erred in its conclusion and that he was, in fact, a UK tax resident, thereby justifying the use of JR to challenge the decision.
The Claimant emphasised that in a complex double taxation dispute, “residence status” must be determined under the specific tie-breaker tests covered by double taxation agreements, rather than by referring solely to an individual’s physical or superficial residential status.
Accordingly, it was necessary for the Court to grant the Claimant permission to Judicially Review the standing decision and overturn HMRC´s position based on the fact that he was a UK tax resident. Thereby confirming from the Claimants perspective, that the Defendants arguments were untenable either in law or on the facts before the court.
JR Applicability: Why Judicial Review Was Denied
The Judge concluded that HMRC’s decision in this cross-border tax conflict was not amenable to Judicial Review, basing the ruling on three pivotal aspects:
- Alternative Remedies: The Court held that the Claimant had adequate alternative avenues. Judicial Review is a remedy of last resort, reserved exclusively for cases where negative effects cannot be resolved through any other legal channel.
- Foreign Jurisdiction Sovereignty: The Court deemed that British courts should not determine a dispute that fundamentally concerns the application of foreign tax law. The judgment stated:“Where the substance concerns application of foreign tax law [it] should be left to the Court of the relevant jurisdiction. That is where, if the point arises, the Claimant should litigate his treaty residence for the Relevant UK Tax Years.”
- Intermediary Stage of the Case: The Judge highlighted that the current stage is an intermediary step subject to mutual agreement procedures between the Spanish Competent Authority and HMRC. Because this double taxation dispute has not yet been fully determined, the Court refused to entertain anticipatory claims.
Consequently, the Court found in favour of HMRC and refused permission to apply for JR.
Key Takeaways to Prevent a Cross-Border Double Taxation Dispute
This judgment demonstrates that while resolving an international tax process is inherently convoluted, managing a double taxation dispute across two distinct jurisdictions adds an extreme layer of complexity.
Navigating the English and Spanish tax authorities requires proactive planning. For individuals who live, work, or hold assets in more than one country, understanding treaty residence tests is essential to avoid unexpected multi-million-euro liabilities.
How Del Canto Chambers Can Help
At Del Canto Chambers, we offer dual-qualified legal and tax advice in both the UK and Spain. We specialize in cross-border tax conflicts and are committed to delivering the best possible outcomes for international clients undergoing tax investigations.
