The British law which meant that non-resident parent companies of British based businesses were not able to recover interest on payments of advance corporation tax, was discriminatory against other European based companies. Accordingly the law was contrary to Community law: ‘it is contrary to Community law for a national court to refuse or reduce a claim brought before it by a resident subsidiary and its non-resident parent company for reimbursement or reparation of the financial loss which they have suffered as a consequence of the advance payment of corporation tax by the subsidiary, on the sole ground that they did not apply to the tax authorities in order to benefit for the taxation regime which would have exempted the subsidiary from making payments in advance and that they therefore did not make use of the legal remedies available to them to challenge the refusals of the tax authorities, by invoking the primacy and direct effect of the provisions of Community law, where upon any view national law denied resident subsidiaries and their non-resident parent companies the benefit of that taxation regime.’
Europa It is contrary to Article 52 of the Treaty (now, after amendment, Article 43 EC) for the tax legislation of a Member State to afford subsidiary companies resident in that Member State the possibility of benefiting from a taxation regime (group income election) allowing them to pay dividends to their parent company without having to pay advance corporation tax where their parent company is also resident in that Member State but to deny them that possibility where their parent company has its seat in another Member State.
Where a subsidiary resident in one Member State has been obliged to pay advance corporation tax in respect of dividends paid to its parent company having its seat in another Member State even though, in similar circumstances, the subsidiaries of parent companies resident in the first Member State were entitled to opt for a taxation regime that allowed them to avoid that obligation, Article 52 of the Treaty (now, after amendment, Article 43 EC) requires that resident subsidiaries and their non-resident parent companies should have an effective legal remedy in order to obtain reimbursement or reparation of the financial loss which they have sustained and from which the authorities of the Member State concerned have benefited as a result of the advance payment of tax by the subsidiaries.
The mere fact that the sole object of such an action is the payment of interest equivalent to the financial loss suffered as a result of the loss of use of the sums paid prematurely does not constitute a ground for dismissing such an action, for the award of interest represents the reimbursement of that which was improperly paid and would appear to be essential in restoring the equal treatment guaranteed by Article 52 of the Treaty.
While, in the absence of Community rules, it is for the domestic legal system of the Member State concerned to lay down the detailed procedural rules governing actions for repayment of taxes levied in breach of Community law or for reparation of loss caused by breach of Community law, including ancillary questions such as the payment of interest, those rules must not render practically impossible or excessively difficult the exercise of rights conferred by Community law.
Actions brought by individuals before the courts of a Member State for repayment of national taxes levied in breach of Community law or for reparation of the loss caused in breach of Community law are subject to national rules of procedure which may, in particular, require applicants to act with reasonable diligence in order to avoid loss or damage or to limit its extent.
It is, however, contrary to Community law for a national court to refuse or reduce a claim brought before it by a subsidiary resident in that Member State and its non-resident parent company for reimbursement or reparation of the financial loss which they have suffered as a consequence of the advance payment of corporation tax by the subsidiary, on the sole ground that they did not apply to the tax authorities in order to benefit from the taxation regime which would have exempted the subsidiary from making payments in advance and that they therefore did not make use of the legal remedies available to them to challenge the refusals of the tax authorities, by invoking the primacy and direct effect of the provisions of Community law, where upon any view national law denied resident subsidiaries and their non-resident parent companies the benefit of that taxation regime.
Times 20-Mar-2001, C-397/98, C-410/98, [2001] Ch 620, [2001] STC 452, [2001] EUECJ C-397/98, [2001] EUECJ C-410/98, [2001] ECR I-1727
Bailii, Bailii
Income and Corporation Taxes Act 1988 247
European
Citing:
Reference from – ICI Plc v Colmer (Inspector of Taxes) HL 15-Mar-1996
A ‘Holding company’ under the Act meant a company resident in the UK; A reference was made of the issues to the European Court. . .
Cited by:
Cited – Pirelli Cable Holding NV and Others v Inland Revenue Commissioners ChD 22-Jan-2003
The Metallgesellschaft case had established that it was contrary to European law to withhold the right to ACT on dividends paid by a UK holding company to a non-Uk subsidiary. The Revenue claimed that that rule did not apply here because the non-Uk . .
Cited – Deutsche Morgan Grenfell Group Plc v The Commissioners of Inland Revenue, HM Attorney General ChD 18-Jul-2003
The taxpayer sought to bring an action for restitution by the revenue of sums paid under a mistake of law. Under the Metallgesellschaft decision, rights of election for recovery of overpaid tax applied only between UK resident companies.
Held: . .
Cited – Inland Revenue and Another v Deutsche Morgan Grenfell Group Plc CA 4-Feb-2005
The company sought repayment of excess advance corporation tax payments made under a mistake of law. The question was the extent of the effect of the ruling in Klienwort Benson, in particular whether it covered sums paid as taxation, and how the law . .
Cited – Marks and Spencer Plc v Halsey (Inspector of Taxes) 2003
Marks and Spencer Plc appealed against the refusal of group relief, on the ground that the statutory limitations on the territorial scope of group relief were incompatible with, and overridden by, Community law. The Special Commissioners dismissed . .
Cited – Autologic Holdings Plc and others v Commissioners of Inland Revenue HL 28-Jul-2005
Taxpayer companies challenged the way that the revenue restricted claims for group Corporation Tax relief for subsidiary companies in Europe. The issue was awaiting a decision of the European Court. The Revenue said that the claims now being made by . .
Cited – Foulser and Another v HM Inspector of Taxes ChD 20-Dec-2005
The taxpayer company entered into an arrangement in which shares were purchased by a company based in Ireland and resold. A claim was made for holdover relief.
Held: The scheme failed. The restriction imposed did not infringe the right of . .
Cited – Boake Allen Ltd and others v HM Revenue and Customs CA 31-Jan-2006
The claimant companies had paid corporation tax under rules which had later been found to be discriminatory. They now sought repayment by virtue of double taxation agreements with the countries in which the parent companies were based.
Held: . .
Cited – Pirelli Cable Holding Nv and others v Inland Revenue HL 8-Feb-2006
Under s247 of the 1988 Act, a company paying dividends to a parent company need not withhold ACT. This option was not offered where either subsidiary or parent was not UK resident until the decision in Hoechst which found the restriction contrary to . .
Cited – Deutsche Morgan Grenfell Group Plc v Inland Revenue and Another HL 25-Oct-2006
The tax payer had overpaid Advance Corporation Tax under an error of law. It sought repayment. The revenue contended that the claim was time barred.
Held: The claim was in restitution, and the limitation period began to run from the date when . .
Cited – Sempra Metals Ltd v Inland Revenue Commissioners and Another HL 18-Jul-2007
The parties agreed that damages were payable in an action for restitution, but the sum depended upon to a calculation of interest. They disputed whether such interest should be calculated on a simple or compound basis. The company sought compound . .
Cited – Littlewoods Ltd and Others v Commissioners for Her Majesty’s Revenue and Customs SC 1-Nov-2017
The appellants had overpaid under a mistake of law very substantial sums in VAT over several years. The excess had been repaid, but with simple interest and not compound interest, which the now claimed (together with other taxpayers amounting to 17 . .
Cited – Prudential Assurance Company Ltd v Revenue and Customs SC 25-Jul-2018
PAC sought to recover excess advance corporation tax paid under a UK system contrary to EU law. It was now agreed that some was repayable but now the quantum. Five issues separated the parties.
Issue I: does EU law require the tax credit to be . .
Lists of cited by and citing cases may be incomplete.
Updated: 10 August 2021; Ref: scu.83672
