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 set by reference to the overseas tax actually paid, as HMRC submit, or by reference to the foreign nominal tax rate (‘FNR’), as PAC submits?
Held: HMRC Appeal dismissed: credit for foreign dividends should be by reference to the FNR, rather than by reference to the actual or effective tax incurred overseas.
Issue II: Was compound interest payable on tax levied in breach of EU law, on the basis that HMRC were unjustly enriched by the opportunity to use the money in question?
Held: HMRC’s appeal Allowed. Sempra Metals Ltd v IRC failed to allow for several features, and there were later inconsistent developments and cases.
Issue III: does a claim in restitution lie to recover lawful ACT which was set against unlawful mainstream corporation tax?
Held: No. HMRC’s appeal was allowed. Setting the unlawful MCT against the lawful ACT was not enough to qualify as a ‘San Giorgio’ claim.
Following Issue I, Issue IV did not arise.
Issue V(a): where ACT from a pool including unlawful and lawful ACT is set against an unlawful MCT liability, is the unlawful ACT regarded as a pre-payment of the unlawful MCT liability or is the ACT so utilised regarded as partly lawful and unlawful pro rata?
Held: PAC’s cross-appeal was allowed. . Unlawful ACT is set first against unlawful MCT. Because unlawful MCT is a nullity, the unlawful ACT is recoverable unless it has been set against a lawful MCT charge.
Issue V(b): Is domestic FII when carried back to an earlier quarter, to be treated as having been applied to relieve the lawful and unlawful ACT pro rata, or only lawful ACT?
Held: PAC’s cross-appeal allowed. Domestic FII carried back to an earlier quarter is to be applied to relieve only lawful ACT. HMRC’s pro rata approach would deprive a company of the tax credit at the FNR required under EU law.

Lord Mance, Lord Sumption, Lord Reed, Lord Carnwath, Lord Hodge
[2018] UKSC 39, [2018] WLR(D) 527, [2018] STC 1657, [2019] AC 929, [2018] 3 WLR 652, [2018] BTC 31, [2018] STI 1499, UKSC 2016/0102
Bailii, Bailii Summary, WLRD, SC, SC Summary, SC Summary Video, SC 2018 Feb 20 am Video, SC 2018 Feb 20 pm Video, SC 2018 Feb 21 am Video, SC 2018 Feb 21 pm Video
Income and Corporation Taxes Act 1988 231(1) 238(1) 239
England and Wales
At CAThe Prudential Assurance Company Ltd v HM Revenue and Customs CA 19-Apr-2016
The issues on this appeal all relate to what have been called ‘portfolio holdings’; that is to say dividends paid on shares in foreign companies held as investments, where the investor holds less than 10 per cent of the voting power in the company . .
CitedMetallgesellschaft Ltd and Others v Inland Revenue Commissioners and Another Hoechst Ag and Another v Same ECJ 8-Mar-2001
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 . .
CitedTest Claimants In The FII Group Litigation v CIR ECJ 12-Dec-2006
ECJ (Opinion of Geelhoed AG) Interpretation of Articles 43 and 56 EC and Articles 4(1) and 6 of Council Directive 90/435/EEC of 23 July 1990 on the common system of taxation applicable in the case of parent . .
CitedAmministrazione Delle Finanze Dello Stato v Spa San Giorgio ECJ 9-Nov-1983
ECJ Questions submitted for a preliminary ruling – reference to the court – right of every national court – stage of the proceedings before the national court – nature of the decision to be given by the national . .
CitedThe Test Claimants In The CFC and Dividend Group Litigation v Inland Revenue ECJ 23-Apr-2008
First subparagraph of Article 104(3) of the Rules of Procedure – Freedom of establishment – Free movement of capital – Direct taxation – Corporation tax – Share dividends paid to a resident company by a non-resident company – Rules on controlled . .
CitedHaribo Lakritzen Hans Riegel BetriebsgmbH and Another v Linz ECJ 10-Feb-2011
Free movement of capital – Corporation tax – Exemption of nationally-sourced dividends – Exemption of foreign-sourced dividends only if certain conditions are complied with – Application of an imputation system to non’exempt foreign’sourced . .
CitedTest Claimants In the FII Group Litigation v HM Revenue and Customs ChD 27-Nov-2008
The claimants were companies with parent companies in the UK and other subsidiaries not so resident, both in the EU and outside. They complained of the differences in treatment under corporation tax of the payment of dividends between the . .
CitedTest Claimants in the FII Group Litigation v Commissioners of Inland Revenue and Another ECJ 13-Nov-2012
Articles 49 TFEU and 63 TFEU – Payment of dividends – Corporation tax – Case C-446/04 – Test Claimants in the FII Group Litigation – Interpretation of the judgment – Prevention of economic double taxation – Equivalence of the exemption and . .
Overruled in PartSempra 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 . .
CitedWestdeutsche Landesbank Girozentrale v Islington London Borough Council HL 22-May-1996
Simple interest only on rate swap damages
The bank had paid money to the local authority under a contract which turned out to be ultra vires and void. The question was whether, in addition to ordering the repayment of the money to the bank on unjust enrichment principles, the court could . .
CitedKleinwort Benson Ltd v Lincoln City Council etc HL 29-Jul-1998
Right of Recovery of Money Paid under Mistake
Kleinwort Benson had made payments to a local authority under swap agreements which were thought to be legally enforceable when made. Subsequently, a decision of the House of Lords, (Hazell v. Hammersmith and Fulham) established that such swap . .
CitedMorris-Garner and Another v One Step (Support) Ltd SC 18-Apr-2018
The Court was asked in what circumstances can damages for breach of contract be assessed by reference to the sum that the claimant could hypothetically have received in return for releasing the defendant from the obligation which he failed to . .
CitedJohnson v Unisys Ltd HL 23-Mar-2001
The claimant contended for a common law remedy covering the same ground as the statutory right available to him under the Employment Rights Act 1996 through the Employment Tribunal system.
Held: The statutory system for compensation for unfair . .
CitedFleming (T/A Bodycraft) v Revenue and Customs HL 23-Jan-2008
The transitional rules introducing time limits for failing to deduct VAT inputs made insufficient allowance for the decisions in Marks and Spencer and Grundig.
Held: Lord Hope said: ‘To be compatible with EU law, taxpayers were entitled to be . .
CitedLittlewoods 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 . .
CitedRevenue and Customs v The Investment Trust Companies SC 11-Apr-2017
Certain investment trust companies (ITCs) sought refunds of VAT paid on the supply of investment management services. EU law however clarified that they were not due. Refunds were restricted by the Commissioners both as to the amounts and limitation . .
CitedLittlewoods Retail Ltd and Others v HM Revenue and Customs (No 2) ChD 28-Mar-2014
The claimants had recovered very substantial overpayments made of VAT. They sought recovery of compound interest. The ECJ, on reference, said that this was a matter for national law.
Held: The claim succeeded. The sections of the 1994 Act were . .
CitedLittlewoods Ltd and Others v HM Revenue and Customs CA 21-May-2015
The company sought repayment by way of restitution for overpaid taxes. The tax had been repaid, but only as simple interest, and not compounded. Both parties now appealed from a decision that the Act did not apply to exclude under sections 78 and 80 . .
CitedMoses v Macferlan KBD 1760
An action for money had and received will only lie where it is inequitable for the defendant to retain the money. The defendant in an action for money had and received ‘can be liable no further than the money he has received’. . .
CitedWalker v Constable 20-Jun-1798
. .
CitedBanque Financiere De La Cite v Parc (Battersea) Ltd and Others HL 16-Apr-1998
The making of an order for restitution after finding an unjust enrichment by subrogation, is not dependant upon having found any common or unilateral intention of the parties. The House distinguished between contractual subrogation of the kind most . .
CitedWalker v Constable 20-Jun-1798
. .
CitedDepcke v Munn And Another 4-Feb-1828
Lord Tenterden CJ said: ‘the courts have held again and again that interest cannot be recovered in an action for money had and received . . This has been decided so often, that I cannot now venture to allow the question to be agitated.’ . .
CitedFibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd HL 15-Jun-1942
A contract for the supply by the respondents of special machinery to be manufactured by them was treated as an ordinary contract for the sale of goods. It began valid, but suffered frustration by the outbreak of war.
Held: Lord Wright restated . .
CitedBP Exploration Co (Libya) Ltd v Hunt (No 2) 1979
The contract between the parties relating to an oil concession in Libya had been frustrated by the nationalisation of the field.
Held: The court considered the setting of damages where the plaintiff had delayed in notifying the defendant of . .
CitedRiches v Westminster Bank Ltd HL 1947
The amount of interest payable on compulsory purchase of land depends upon the value given to the land and the length of the period from the time of entry until reinstatement, the period during which the claimant is dispossessed. During that time, . .

Lists of cited by and citing cases may be incomplete.

Company, European, Corporation Tax

Updated: 17 January 2022; Ref: scu.620139