European Court Of Justice Sets Precedent For Multinationals' Advance Corporate Tax Claims

Mandy Robinson, Tax-news.com, London

16 March 2001

The UK came off worse last week in a court case concerning the country's corporate tax regime when the European Court of Justice decided to find in favour of two German companies, Hoechst and Metallgesellschaft. The court case concerned a dispute over whether the now defunct Advance Corporation Tax (ACT) should have been paid by a UK subsidiary in respect of a dividend paid to its German parent company, when no such payment would have been due if the dividend had been paid to a UK parent company. It is a decision, according to European tax experts at PricewaterhouseCoopers, that could prove very costly for the UK government.

Metallgesellschaft, a technology-based engineering and chemicals group, and pharmaceuticals giant Hoechst (now called Aventis), both claimed that the corporate tax was against the principle of 'freedom of establishment' enshrined in the Treaty of Amsterdam (formerly Rome).

Peter Cussons, international tax partner at PricewaterhouseCoopers, said that the European Court of Justice's decision on the Hoechst/Metallgesellschaft case could have implications for any UK subsidiary of parent companies resident in the European Economic Area (EEA) which includes all EU Member States, Norway, Iceland and Liechtenstein. He said: 'The decision enables other UK subsidiaries of EEA parents to consider claims for compensation for the cashflow disadvantage they suffered from paying ACT. Any such company would be wise to consider making a claim immediately, especially if they had surplus ACT at the time they paid out the dividend.'

PricewaterhouseCoopers says it has already issued claims going back six years against the Inland Revenue on behalf of a number of major multinationals and expects a flood of further claims as companies realise the implications of the court case's outcome.

Mr Cussons said: 'It is difficult at this stage to predict accurately the likely size of the claims against the government but it could be closer to hundreds of millions of pounds than tens of millions. In principle it makes sense for any company with a non-EEA parent who either has surplus ACT and/or suffered a cashflow disadvantage through paying ACT, to put in a compensation claim, however small.'

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