Autologic Holdings Plc and Others v Commissioners of Inland Revenue; Test Claimants in Loss Relief Group Litigation v Commissioners of Inland Revenue

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLord Justice Peter Gibson,Lord Justice Longmore
Judgment Date28 May 2004
Neutral Citation[2004] EWCA Civ 680
Docket NumberCase No: C3/2004/0820

[2004] EWCA Civ 680





Park J.

Royal Courts of Justice


London, WC2A 2LL


Lord Justice Peter Gibson and

Lord Justice Longmore

Case No: C3/2004/0820

HC 02C03865

The Test Claimants In The Loss Relief Group Litigation
Commissioners of Inland Revenue

Mr. Graham Aaronson Q.C., Mr. David Cavender and Mr. Paul Farmer (instructed by Messrs Dorsey & Whitney of Finsbury Square) for the Appellants

Mr. Richard Plender Q.C. and Mr. David Ewart (instructed by the Solicitor of Inland Revenue) for the Respondents

Lord Justice Peter Gibson

In Metallgesellschaft Ltd. v CIR and Hoechst v CIR [2001] ECR I– 1727 (I will call the joined cases " Hoechst") the European Court of Justice ("the ECJ") has held that it is contrary to Art. 43 of the EC Treaty (relating to freedom of establishment) for a member state by its tax legislation, which affords subsidiaries resident in the member state the possibility of obtaining a benefit where their parent company is also so resident, to deny that possibility where their parent company is resident in another member state. In Hoechst the benefit was the payment of dividends by the subsidiaries to their parent company without having to pay Advance Corporation Tax ("ACT") on those dividends. The ECJ further held that Art. 43 requires that resident subsidiaries and their non-resident parent companies which have suffered loss in consequence should have an effective legal remedy to obtain reimbursement of or compensation for that loss from which the member state has benefited.


The decision in Hoechst has spawned a huge number of claims against the Revenue totalling many billions of pounds as international groups of companies seek to take advantage of the implications of the decision. Those implications have been seen to go beyond the type of relief in issue in Hoechst. Many cases have been brought in the High Court. We are told that a Group Litigation Order ("GLO") has been made for each of five different classes of cases.


We are concerned with what is known as the Loss Relief GLO. There are currently 59 claimants in this GLO. They have brought proceedings in the Chancery Division claiming against the defendants, the Commissioners of Inland Revenue, restitution and damages. They say that the U.K. tax rules relating to group loss relief contravene Art. 43 and Art. 56 (relating to freedom of movement of capital) of the EC Treaty. They also claim that those rules contravene the non-discrimination articles in the relevant double taxation treaties because those rules confine group loss relief to cases where all the resident companies are resident in the U.K. or, after 2000, are subject to U.K. corporation tax in respect of activities carried on in the U.K. They say that Arts. 43 and 56 and the non-discrimination articles require group relief to be available irrespective of the place of incorporation, residence or business activities of the companies in the group. We are told that a further 140 companies have made claims in respect of group loss relief which are outside the Loss Relief GLO. Those claims have not been brought in the High Court.


Six test claimants in the Loss Relief GLO have been selected for the purpose of the determination of a procedural dispute which has arisen between the GLO claimants and the Revenue. That dispute is as to whether the claims, so far as they relate to group loss relief, should have been brought pursuant to the ordinary statutory procedure for the determination of tax disputes, that is to say that there should have been a quantified claim made by the appropriate company to the appropriate Inspector of Taxes and, if the claim is not allowed, the company should appeal to the General Commissioners or, at the company's option, to the Special Commissioners (I will call the General or Special Commissioners hearing such appeal "the Commissioners"), with a right of appeal from the Commissioners' decision to the High Court in the ordinary way. It is common ground that the other parts of the claims are correctly brought in the High Court as the Commissioners do not have jurisdiction to deal with them. The Revenue applied to strike out those parts of the claims which relate to group loss relief on the basis that the High Court either lacked jurisdiction or, if it had jurisdiction, it should exercise it by refusing to entertain those claims.


Park J. (see Re Claimants under Loss Relief Group Litigation Order [2004] STC 594) on 3 March 2004 acceded to that application and refused permission to appeal. The claimants applied for permission to appeal to this court. Chadwick L.J., considering the application on paper, adjourned the application to a with notice hearing, with the appeal to follow, if permission were granted. At the outset of the hearing we indicated that we gave permission. This hearing has therefore been the hearing of the appeal.


I must now refer briefly to the statutory provisions in point. Corporation tax is assessed and charged for any accounting period of a company on its profits arising in that period (ss. 6 and 12 of the Income and Corporation Tax Act 1988 ("the 1988 Act"). If a company has trading losses, it may set off those losses against its profits (s. 393 of the 1988 Act). Chapter IV of Part X of the 1988 Act contains rules for group loss relief, extending the relief for a company's own losses to be set off against its profits, so that when one company in a group suffers losses, it may surrender those losses to another company in the same group, if the other company makes a claim so as to set off the losses against its profits. For accounting periods ended before 1 April 2000 the conditions for claims for group loss relief were governed by ss. 402 (2) and 413 (3) and (5) of the 1988 Act. They provide:

"402(2) Group relief shall be available where the surrendering company and the claimant company are both members of the same group.

413(3) For the purposes of this Chapter –

(a) two companies shall be deemed to be members of a group of companies if one is the subsidiary of the other or both are 75% subsidiaries of a third company; …

413(5) References in this Chapter to a company apply only to bodies corporate resident in the United Kingdom; and in determining for the purposes of this Chapter whether one company is a 75% subsidiary of another, the other company shall be treated as not being the owner –


(c) of any share capital which it owns directly or indirectly in a body corporate not resident in the United Kingdom."

For accounting periods ending after 31 March 2000 the following conditions, in s. 402 (3A) and (3B), apply:

"402(3A) Group relief is not available unless the following condition is satisfied in the case of both the surrendering company and the claimant company.

(3B) The condition is that the company is resident in the United Kingdom or is a non-resident company carrying on a trade in the United Kingdom through a branch or agency."


Schedule 17A to the 1988 Act contains other detailed provisions relating to the making of group loss claims. It was originally provided by s. 412 of the 1988 Act that such a claim in respect of an accounting period of a company had to be made within two years from the end of that period. That limitation period was later extended to 6 years for accounting periods ending after 30 September 1993. The claim must be for a quantified amount to be included in a corporation tax return. Throughout the Schedule the provisions are worded on the footing that both the surrendering company and the claimant company are companies resident in the U.K. Thus by para. 10 a claim requires the consent of the surrendering company and consent to surrender is to be of no effect unless notice of consent is given by the consenting company to the Inspector to whom the surrendering company makes its returns, and notice of consent to surrender is to be of no effect unless it contains particulars including the accounting period of the surrendering company to which the surrender relates and the tax district references of the surrendering company and the company to which relief is being surrendered.


By para. 12 of Sch. 17A all such assessments or adjustments of assessments shall be made as may be necessary to give effect to a claim. Appeals against assessments are governed by s. 31 Taxes Management Act 1970 which, by subs. (4), provides for appeals to go to the Commissioners.


At the date of the hearing before Park J. the six test claimants were all at different stages in making claims for loss relief to the Inspector. (I will refer to the claimants by the abbreviated names by which they have been known in the proceedings.)

(i) Autologic: there was an appeal pending before the Commissioners.

(ii) Future Network: there was a claim made to the Inspector which had been refused although not yet the subject of an appeal.

(iii) BT: claims had been made to the Inspector but had not yet been determined.

(iv) Caterpillar: a claim had been made to the Inspector but had subsequently been withdrawn.

(v) Heinz: no claim had been made to the Inspector, but time had not expired for making claims for some accounting periods.

(vi) BNP Paribas: no claim had yet been made to the Inspector and the statutory time limit for making a claim had expired.


In the High Court proceedings all the claimants have claims for group loss relief to reduce the amount of corporation tax payable. They are the primary claims, but there are also other claims for damages or restitution. The various claims were summarised by the...

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