Multinationals Dealt Tax Blow By House Of Lords

by Jason Gorringe, Tax-News.com, London

30 May 2007

A group of foreign multinational companies based outside the European Union have been refused the right to claim back tax from the UK government in a key test case ruling by the House of Lords.

The five-member panel of law lords ruled 5-0 against the companies' arguments that the UK had violated anti-discrimination clauses in double taxation treaties by making them pay advanced corporation tax on dividends paid to foreign parents from UK subsidiaries when similar dividends paid to UK parents did not attract the tax, which was abolished in 1999.

The group litigation, led by some 50 companies from Japan, Switzerland and the US in the action which became known as the Boake-Allen case, effectively reverses decisions made by the Court of Appeal and the High Court and will be considered a major victory for the UK government after a similar claim was partially upheld by the European Court of Justice last year.

According to the law lords' verdict, the scope of the group's claim was much narrower than that of cases based on EU law, and while UK advanced corporation tax may have breached the anti-discrimination clauses set out in the relevant double tax avoidance treaties, those provisions had not been implemented in the UK.

Commenting on the verdict, Bill Dodwell, head of tax policy at business services firm Deloitte, noted that the outcome would be likely to "make it very much harder for foreign multinationals to make claims based on EU tax cases."

However, Simon Whitehead of Dorsey and Whitney, which represented the claimants in the Boake-Allen case, says that multinationals hoping for a more favourable ruling can still take some solace from the law lords' verdict.

"This could interestingly make other claims seeking to enforce such articles beyond the context of ACT look more attractive," he was quoted as observing by the Financial Times.

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