High Court Finds UK ACT Provisions In Contravention Of Non-EU Tax Treaties

by Robin Pilgrim, LawAndTax-News.com, London

28 November 2003

The UK High Court on Monday ruled that the country's now-repealed group income provisions with regard to taxation represented a breach of several double tax treaties held with non-EU countries.

Under the disputed tax legislation, group income provisions allowed wholly UK-based groups to make a 'group income election', and thus avoid paying Advance Corporation Tax (ACT) on the distribution of dividends.

However, this choice was not available to foreign-parented groups. The High Court on Monday argued that this represented a breach of the non-discrimination articles contained in tax treaties between the UK and Japan, the United States and various other non-EU countries, as non-resident UK subsidiaries were required to pay ACT on dividends to their parents when UK-based subsidiaries of the UK parents were not required to pay.

Speaking following the ruling, Peter Cussons, international corporate tax partner at PricewaterhouseCoopers announced that:

"The non-EU tax treaty breach decision is helpful and indeed good news for both existing and future group litigation order actions." He added that:

"What is significant is that in reaching its decision, the High Court chose to compare this case with a UK subsidiary of a UK parent as opposed to the Inland Revenue's position of comparing with a UK subsidiary of another third country parent. This overturns an Inland Revenue position which has stood for more than 20 years."

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