UK Inland Revenue Left With Huge Bill After Losing Test Case

by Jason Gorringe, Tax-News.com, London

22 July 2003

The Inland Revenue may be compelled to pay millions of pounds in refunds to European-based multinationals as a result of a ruling in a recent test case brought by Deutsche Morgan Grenfell, concerning EU 'freedom of establishment' and anti-discrimination laws.

Mr Justice Park's decision in the High Court is the conclusion of a case first initiated when 50 companies submitted a group claim in the English courts as the result of an European Court of Justice precedent which ruled that the British government had illegally imposed advance corporation tax. Under the rules which applied until recent reforms of corporation tax, UK subsidiaries of European firms were wrongly made to pay tax on dividends repatriated to their continental parent companies.

Although tax law in this area has since changed, the UK investment banking arm of the German bank was attempting to establish how far claims of wrongly paid tax can be backdated. The Inland Revenue argued that the claims are restricted to a six year period by the 1980 Limitation Act. However, Justice Parks ruled otherwise, announcing that such claims were not time-barred by the 1980 Act. However, he added that: "This is not a result which I reach with much enthusiasm."

Some tax experts now believe that firms will be able to make claims stretching back to the 1970s, a scenario which would potentially leave the Revenue with a huge refund bill running in to the hundreds of millions. However, the IR is expected to appeal the ruling - which may go straight to the House of Lords - although it is likely the case will not be heard until next year.

Recommended