The Court ruled that the withdrawal of the Kleinwort Benson
cause of action – allowing the recovery of tax paid
under a mistake of law – should have included
transitional arrangements, adding that the UK legislation also
infringes the principles of legal certainty and the protection
of legitimate expectations.
In his opinion in the case in September, Advocate General
Wathelet, a former president of the ECJ,
had sided with the taxpayer – UK-based media
multinational Aegis – in a case that the UK Supreme
Court had referred to the European Court after
a split decision in May 2012.
"HMRC is studying the CJEU opinion carefully, but we must now
wait for the Supreme Court’s ruling," said a HMRC
"This result is potentially an expensive blow to HMRC. This
is because many of the claimants in the FII GLO have lodged
claims in the High Court for repayments of tax that run back
until the beginning of the Advance Corporation Tax (ACT) regime
in 1973," said Chris Morgan, head of tax policy and head of the
EU law group at KPMG in the UK.
"This is not unexpected," said Peter Cussons, head of
PwC’s EU tax group. "It would have been a bit
surprising if the Court had gone against its former
Advance corporation tax
Advance corporation tax, in force in the UK from 1973
to 1999, was a tax on company profits payable in advance by a
company as soon as it paid a dividend.
Where a company paying the dividend had a UK parent and they
opted for group taxation, they were treated for ACT purposes as
a single company and the ACT was no longer payable by the
subsidiary but by the parent company, as soon as that company
in turn distributed dividends. However, the exception was
available only to companies whose parent company was resident
in the UK.
The FII GLO arose after the UK enacted law on June 24 2004
that said that, from September 8 2003, the Kleinwort Benson
cause of action would not apply in relation to a mistake of law
concerning UK tax. September 8 2003 was the date on which
Aegis, the multinational communications group, introduced a
claim on the basis of the Kleinwort Benson cause of action,
seeking to recover ACT paid between 1973 and 1999.
The law, which introduced section 320 into Finance Act
2004, limiting the UK’s obligation to refund the
advance corporation tax paid but not due, came three years
after the ECJ decided in its judgment in
Metallgesellschaft and Others in March 2001 that the ACT
system was incompatible with EU freedom of establishment and
free movement of capital principles and a year after a July
2003 UK High Court ruling in Deutsche
Morgan Grenfell that said the Kleinwort
Benson cause of action could be used to obtain restitution
of tax paid under a mistake of law.
"This is the third ECJ verdict in the FII GLO and could have
general application across all GLOs, for example, those on
stamp taxes and cross-border loss relief" said Cussons. "Now
the case goes back to the domestic courts and I would be
gobsmacked if there weren’t appeals and
cross-appeals to the Court of Appeal and the Supreme Court, so
we could be looking at 2016 for finality."
The case has been listed for four weeks in May 2014 in the
High Court, when all outstanding issues, including how to
quantify claims, are due to be litigated.
Joseph Hage Aaronson are the solicitors representing the
claimants in this case.
More to follow...