Historic tax claims for multi-national groups

Before 1999 when a UK company paid a dividend to its shareholders it had to pay tax to the Inland Revenue. This tax was called advance corporation tax (ACT). If the company had received dividends from other UK companies its own ACT bill was reduced. However the ACT bill was not reduced if the dividends had come from companies that were resident in other member states of the EU. Many multi-nationals claimed that this disparity of treatment of dividends received was discriminatory under EU law. The Courts have confirmed that the UK law was discriminatory.

In 2003 in an attempt to reduce the size of claims, the Government legislated to limit claims to income received in the six years before a company made its repayment claim. In 2012 the Supreme Court agreed with the companies that this limitation was itself incompatible with rights granted by EU law. Last week the Advocate General of the Court of Justice (CJEU) issued an opinion, which if it is adopted by the CJEU will confirm that the UK legislative cut off date for claims is unenforceable. As a result companies’ claims are otherwise validly made could potentially apply as far back as 1973, subject to the final outcome of other UK litigation.

This is one of several UK legislative provisions being challenged on the ground of incompatibility with EU law and yet again this shows that viable challenges can be made based on EU treaty privileges that the UK is bound to grant.