Axa Sun Life Plc v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judge | Mr Justice Richards |
| Judgment Date | 26 April 2023 |
| Neutral Citation | [2023] EWHC 944 (Ch) |
| Docket Number | Case No: RL-2003-000002 |
| Court | Chancery Division |
[2023] EWHC 944 (Ch)
Mr Justice Richards
Case No: RL-2003-000002
CFC AND DIVIDEND GLO
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
REVENUE LIST (ChD)
Rolls Building
Fetter Lane
London, EC4A 1NL
Jonathan Bremner KC (instructed by Joseph Hage Aaronson LLP) for the Claimants
David Ewart KC, Barbara Belgrano, Laura Ruxandu and Frederick Wilmot-Smith instructed by the General Counsel and Solicitor for HM Revenue & Customs for the Defendants
Hearing dates: 15 to 17 February 2023
Further written submissions: 21 March 2023
Approved Judgment
I direct that no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
This judgment was handed down remotely at 10.00 am on 26 April 2023 by circulation to the parties or their representatives by email and by release to the National Archives.
INTRODUCTION
Overview of the nature of the underlying claims of AXAIUK and GREA
C6 and C7 (together the “Claimants”) appear on the register of the CFC and Dividend Group Litigation Order (the “CFC/Dividend GLO”) which is discussed further below. C6 and C7 have very similar names. To avoid confusion, I will refer to C6 as “AXAIUK” and will refer to C7 as “GREA” (since its former name was Guardian Royal Exchange Assurance plc).
The CFC/Dividend GLO was established in 2003. Litigation on the issues it raises has thus been going on for nearly 20 years. I will not endeavour to provide a comprehensive summary of the history of the CFC/Dividend GLO or other group litigation orders under CPR 19.11 (“GLOs”) by which taxpayers have sought to make claims against the Defendants (together “HMRC”). I will assume that any reader of this judgment has a good grounding in the general issues to which the CFC/Dividend GLO gives rise so far as relevant to this application.
I will also assume that any reader of this judgment has a secure grasp of the following concepts:
i) the difference, in domestic law, between on the one hand, a claim for restitution of tax paid in consequence of a mistake of law and, on the other, a claim for tax paid or overpaid as a consequence of an unlawful demand (often referred to as a Woolwich claim); and
ii) the difference, as a matter of EU law, between a claim for damages against a member state that has acted in breach of EU law obligations (often referred to as a Francovich claim) and a claim for refund of tax levied by in the UK in breach of EU law rules (often referred to as a San Giorgio claim).
Since the litigation concerning the UK's tax treatment of overseas dividends has been going on for so long, it has generated a number of judgments, both of the domestic courts and of the Court of Justice of the European Union and its predecessor, the European Court of Justice (together the “CJEU”). I will use the naming convention commonly used in cases of this kind of referring to the applicable group litigation order (or representative taxpayer), the court and the number of the judgment in that court. The principal judgments in GLO cases referred to in this judgment are as follows. Other cases will be introduced as the discussion in this judgment develops:
| Abbreviation | Citation |
| Prudential HC | Prudential Assurance Co Ltd v HMRC [2013] EWHC 3249 (Ch) |
| Prudential CA | Prudential Assurance Co Ltd v HMRC [2016] EWCA Civ 376 |
| Prudential SC | Prudential Assurance Co Ltd v HMRC [2018] UKSC 39 |
| FII CA1 | Test Claimants in the FII Group Litigation v HMRC [2010] EWCA Civ 103 |
| FII SC1 | Test Claimants in the FII Group Litigation v Revenue & Customs Commissioners [2012] UKSC 19 |
| FII SC2 | Test Claimants in the Franked Investment Income GLO v HMRC [2020] UKSC 47 |
| FII SC3 | Test Claimants in the Franked Investment Income Group Litigation v HMRC [2021] UKSC 31 |
| FII CJEU1 | Case C-446/04 Test Claimants in the FII Group Litigation v IRC [2007] STC 326, |
| FII CJEU3 | Case C-362/12 Test Claimants in the Franked Investment Income Group Litigation |
The relevant issues to which the CFC/Dividend GLO gives rise can, very broadly, be summarised as follows:
i) Members of the GLO were challenging (a) the UK corporation tax regime that dealt with the charge to corporation tax on dividends received from non-UK resident companies before the law changed in 2009 (“corporation tax claims”) and (b) the way in which UK companies' obligations to account for advance corporation tax (“ACT”) was determined prior to 1999 when ACT was abolished (“ACT claims”).
ii) Both corporation tax claims and ACT claims involved the proposition that the UK tax regime discriminated unfairly between the treatment of dividends received from other UK resident companies and dividends received from companies resident in the EU/EEA or in “third countries”.
iii) The nature of that discrimination insofar as relating to corporation tax claims is summarised in paragraphs [3] to [5] of the judgment in Prudential SC. It revolved around the amount of double taxation relief (“DTR”) that was available to be set off against corporation tax chargeable on non-UK dividends. The nature of that discrimination insofar as relating to ACT claims is summarised in paragraphs [126] and [127] of Prudential HC.
It is now settled law that, in principle, taxpayers are entitled to a restitutionary remedy in relation to both corporation tax claims and ACT claims. Questions of both quantification and limitation remain with the following points being relevant:
i) The limitation issue has given rise to conflicting decisions of the House of Lords and Supreme Court. It is now settled law that taxpayers seeking a restitutionary remedy in respect of ACT claims and corporation tax claims are entitled to take the benefit of s32(1)(c) of the Limitation Act 1980 (the “ Limitation Act”) with the result that the period of limitation would not begin to run until a claimant discovered the mistake or could with reasonable diligence have discovered it (referred to throughout this judgment as the date of “constructive discovery”).
ii) In Deutsche Morgan Grenfell Group plc v IRC [2006] UKHL 49 (“ DMG”) the House of Lords held that the date of constructive discovery was the date of the judicial ruling that established the unlawfulness of the relevant UK tax provisions. That was a favourable position from claimants' perspectives as many had made their claims before there was any definitive ruling of the CJEU that the UK's corporation tax system infringed principles of free movement of capital. On the basis of DMG, the limitation period for such taxpayers would not start to run until after they issued proceedings.
iii) DMG was overruled in November 2020 by the Supreme Court in FII SC2. Following FII SC2, very broadly, a limitation period under s32(1)(c) will start to run when a claimant discovered, or could with reasonable diligence have discovered, that there was a “worthwhile claim”.
iv) FII SC2 therefore effected a radical re-examination of the law on s32(1)(c). Before that judgment, many claimants could simply have assumed, given the dates on which they made their claims and the state of EU jurisprudence in the 6 years before, that they were obviously in time. Many claimants affected by FII SC2 will no longer be in that position and now need to consider when a date of discovery arose under the new formulation of the law in FII SC2.
v) DMG was not the only judgment of the highest court in the UK to be overturned during the currency of this litigation. Sempra Metals Ltd v IRC [2007] UKHL 34 (“ Sempra Metals”) held that where tax was paid prematurely as a consequence of a mistake in law, the appropriate remedy in restitution required HMRC to pay compound interest for the applicable period. That was of relevance to, among others, claimants who had “unlawful ACT” (that is ACT levied in excess of the amount that should have been levied in accordance with EU law) which was carried forward and set off against a lawful obligation to pay mainstream corporation tax (“MCT”). Sempra Metals was overruled by the judgment of the Supreme Court in FII SC3.
The preliminary issues and the context in which they arise
AXAIUK has made corporation tax claims which it first brought on 8 April 2003. Its claims relate to “portfolio shareholdings”, that is shareholdings in companies, both in the EU/EEA and in third countries, in which AXAIUK holds 10% or less of the voting power. AXAIUK's claims go back to its accounting period ended 31 December 1995, more than 6 years before it made its claims, so AXAIUK needs to rely on the extended limitation period in s32(1)(c) of the Limitation Act. AXAIUK makes no ACT claims.
GREA was added as a claimant in these proceedings on 20 July 2009. It makes ACT claims, but no corporation tax claims. Its ACT claims go back to 14 January 1997 and so, like AXAIUK, it needs to take the benefit of s32(1)(c) of the Limitation Act. Both AXAIUK and GREA have been enrolled in the CFC/Dividend GLO at all material times.
By an order of Falk J (as she then was) of 29 September 2022, this hearing has been listed to determine the following three preliminary issues:
i) The “Limitation Issue” namely:
Have the Claimants' claims been conclusively established to have been issued within the limitation period by reason of the orders and judgments in the Prudential test case or should they be determined in accordance with the law as...
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