Lords Ruling On Group Litigation Orders Has Bearing On EU Tax Claims

by Robert Lee, Tax-News.com, London

01 August 2005

The House of Lords has ruled that companies seeking to make tax claims against the government in cross-border tax relief cases must do so through appeals to tax officers and appeals commissioners where available, rather than through a Group Litigation Order before the High Court.

The ruling, which came in a 3-2 majority vote in the Lords last week, is being viewed as a victory for HM Customs and Revenue, and overturns a previous decision by the Court of Appeal. Under English law, Group Litigation Orders are the broad equivalent of US Class Actions.

The ruling has special relevance in the event that the British retail group Marks & Spencer wins its case for cross border tax relief in the European Court of Justice. M&S is arguing that UK provisions on group tax relief are in breach of European law, as they prevent an EU-based parent company from offsetting losses incurred by subsidiary companies in other member states, thus violating the principle of freedom of establishment.

The ECJ's decision is expected in the Autumn, and a ruling in favour of M&S is likely to lead to claims against EU national governments totalling billions of euros, and may result in new legislation at national level to counter a significant potential loss in tax revenues.

However, tax experts at the accounting firm Deloitte also warn that the Lords ruling will have knock-on effects for other Group Litigation Orders concerning thin capitalisation, foreign source dividends, dividend tax credits, franked investment income and foreign income dividends.

“UK groups who wish to make claims are now likely to have to follow two separate routes to make EU tax claims”, explained Bill Dodwell, Head of Deloitte’s Tax Policy Group.

“This is likely to increase their costs in so doing. Companies able to make claims in tax returns, which have not yet done so, will need to act quickly to file their claims," he added.

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