First published: February 23, 2010
Source: Times Online
The Treasury may escape a bill for billions of pounds in tax refunds after winning the latest round of a closely followed test case against British American Tobacco (BAT).
The UK’s Court of Appeal said today that companies seeking refunds for taxes that were unlawfully imposed by HMRC must do so within six years of the taxes being collected.
The finding was part of a wider judgment in a long-running battle in which BAT, the tobacco group, has challenged HRMC’s previous policy of taxing dividend payments from foreign subsidiaries.
The Treasury’s liability has been estimated at up to £5 billion. However, accountants said that the Court of Appeal’s ruling will dramatically reduce the size of any payout, even if it ultimately loses to BAT.
“It’s a big win for the Government,” Bill Dodwell, a tax partner at Deloitte, said. “It limits their liability in a massive way.”
HMRC welcomed today’s judgment but said that it may be appealed.
The case is likely to head to either the European Court of Justice (ECJ) or the UK’s Supreme Court for further argument.
BAT, which brought the test case on behalf of 20 companies, argued that HMRC’s taxation of foreign dividends was inconsistent with European law, as payments by UK subsidiaries were not subjected to a similar tax.
BAT succeeded at earlier stages of its fight, winning favourable rulings in the ECJ and the High Court in London.
However, lawyers said that the Court of Appeal’s complex 180-page judgment was more favourable to HMRC than to the tobacco company.
Lady Justice Arden, Lord Justice Stanley Burnton and Lord Justice Etherton referred the matter of the legality of the tax on foreign dividends back to the ECJ to decide.
The judges’ decision to restrict HRMC’s liability to payments within six years was more significant, lawyers said.
Unless it is overturned by the Supreme Court on appeal, the finding will render the bulk of claims for refunds on tax paid on foreign dividends invalid, accountants said, as they relate to payments dating back more than six years. Some claims date back to the 1970s.
In July, the Government changed the law on foreign dividend payments so that they are no longer subject to tax, in line with payments from UK subsidiaries.
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