Boake Allen Ltd and Others v HM Revenue and Customs
| Jurisdiction | England & Wales |
| Judge | Mr Justice Park: |
| Judgment Date | 24 November 2003 |
| Neutral Citation | [2003] EWHC 2813 (Ch) |
| Docket Number | Case No: HCO100187 & others |
| Court | Chancery Division |
| Date | 24 November 2003 |
[2003] EWHC 2813 (Ch)
The Honourable Mr Justice Park
Case No: HCO100187 & others
Graham Aaronson QC, David Cavender and Paul Farmer (instructed by Dorsey & Whitney) for the claimants
Ian Glick QC, David Ewart and Kelyn Bacon (instructed by the Solicitor of Inland Revenue) for the defendants
Hearing dates : 29 – 31 October & 3 – 6 November 2003
Approved Judgment ( amended 2nd version)
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this judgment and that copies of this version as handed down may be treated as authentic.
Abbreviations, glossary, dramatis personae etc
These are as follows.
Overview
| ACT | Advance corporation tax |
| Bush Boake Allen | Several United Kingdom subsidiaries of a United States parent company include Bush Boake Allen in their names. They are test cases for the present judgment |
| CJEC | The Court of Justice of the European Communities |
| DMG | Deutsche Morgan Grenfell Group plc v IRC [2003] EWHC 1779 (CH), [2003] STC 1017 |
| GLO | Group litigation order, as respects which see the Civil Procedure Rules rr 19.11 to 19.15 |
| Hoechst case, the; sometimes simply Hoechst | Hoechst United Kingdom Ltd v IRC [2003] EWHC 1002 (CH) |
| Imputation system, the | The system which applied in the United Kingdom between 1973 and 1999 for the taxation of dividends, normally requiring companies which paid dividends to pay ACT and conferring tax credits on shareholders who or which received dividends |
| Inland Revenue | The Inland Revenue of the United Kingdom; the Commissioners of Inland Revenue |
| Kleinwort Benson | The House of Lords decision in Kleinwort Benson v Lincoln City Council [1999] 2 AC 349 |
| MCT | Mainstream corporation tax |
| Metallgesellschaft/Hoechst | The combined cases in the CJEC of Metallgesellschaft Ltd and others v Commissioners of Inland Revenue and the Attorney General ( Case C-397/98) and (1) Hoechst AG (2) Hoechst United Kingdom Ltd v Commissioners of Inland Revenue and the Attorney General ( Case C-410/98). The judgment of the CJEC was delivered on 8 March 2001 and is reported at [2001] STC 452 |
| NEC Semi-Conductors Ltd | A United Kingdom subsidiary of a Japanese parent company; a test case for this judgment |
| OECD, the | The Organisation for Economic Co-operation and Development |
| Pirelli | Pirelli Cable Holding NV and others v IRC [2003] EWHC 250, [2003] STC 250 |
| S or section | Usually a reference to a section number of the Income and Corporation Taxes Act 1988 |
| Statutory references | See 's or section' |
| Surplus ACT | See paragraph 45 below |
| Woolwich | Woolwich Equitable Building Society v IRC [1993] AC 70 |
Between 1973 and 1999 the imputation system regulated the taxation treatment of dividends paid by companies resident in the United Kingdom. When such a company paid a dividend the general rule was that it had to pay ACT to the Revenue. There was an exception if the company was a 51 per cent-plus subsidiary of a holding company which was also resident in the United Kingdom. In that case the two companies could make a group income election, and as long as the election was in force the subsidiary did not have to pay ACT. If, however, the United Kingdom company was a subsidiary of a non-resident company the two companies could not make a group income election. The compatibility of this rule with the EC Treaty was challenged in the mid to late 1990s, and in Metallgesellschaft/Hoechst the CJEC held that, as between a United Kingdom subsidiary and a parent company in another member state, the rule was incompatible with the present article 43 of the Treaty (then numbered article 52). Consequential questions were referred back to the English courts to decide, and this led to the making of a group litigation order, a GLO. This is the third case which I have heard pursuant to the GLO. The previous two were Pirelli and DMG. (The Hoechst case was also consequential on an aspect of the Metallgesellschaft/Hoechst decision, but it was not within the ambit of the GLO.) All the cases have involved questions concerned with claims for compensation or restitution by United Kingdom subsidiaries of non-United Kingdom parent companies in respect of ACT which they paid. All the cases until this one have involved dividends flowing from United Kingdom subsidiaries to parent companies established in other member states of the European Community. In this case, however, the parent companies are resident outside the European Community. Restitution for ACT paid is claimed on two alternative grounds.
The first ground relies on the proposition that the relevant United Kingdom law, or more precisely the manner in which it was operated by the Inland Revenue, was in breach of certain provisions of non-discrimination articles in double taxation agreements concluded by the United Kingdom with some overseas nations. For the reasons which I will describe at length below I do not accept the claimants' case. Although I think that there may have been infringements of the non-discrimination article (infringements which were certainly not perceived to have been such by anyone at the time), in my judgment this aspect of the article never became a part of domestic United Kingdom tax law upon which the taxpayer claimants could rely in proceedings in the national courts.
The second ground on which the claimants say that they are or may be entitled to relief involves reliance on provisions in article 56 of the EC Treaty. The claimants do not suggest that I can myself decide the relevant arguments, but they invite me to refer the relevant questions to the CJEC under article 234 of the EC Treaty. However, in my opinion article 5 7(1) is clear to the effect that the provisions of article 56 on which the claimants wish to rely do not apply to the ACT payments complained of. In the circumstances I will not make a reference to the CJEC. Instead I dismiss the claimants' second ground for claiming relief, as well as their first.
The non-discrimination article issue: the statutory and treaty background
Repeating what I have said in paragraph 2 above, under the imputation system the general rule under the Taxes Act was that, when a company resident in the United Kingdom paid a dividend to its shareholders, it was liable to pay ACT to the Inland Revenue: s 14. At the times relevant to this case the rate of ACT was 25 per cent of the dividend. The ACT was available to be set off later against the company's liability for corporation tax (MCT), that is corporation tax on its profits (its taxable income and its chargeable gains) in so far as it had such profits. The effect of the ACT was that, if the company did have taxable profits, it had to pay its corporation tax earlier than it otherwise would have done, and earlier than some of its competitors paid their corporation tax. Further, it was quite common for a company to have paid ACT but not to have a sufficient liability to MCT for it to be able to set off the ACT. In that case the ACT was not just an early payment of corporation tax: it was a true additional tax liability. The general point was that it was disadvantageous to have to pay ACT. However, s 247 enabled a United Kingdom resident company which was a subsidiary of a parent company also resident in the United Kingdom to join with its parent in making a group income election. Once the election was accepted by the Inland Revenue or upheld on appeal the United Kingdom subsidiary could pay dividends to its parent company without being liable to ACT. Thus United Kingdom tax law extended an advantage to subsidiaries of United Kingdom holding companies which it did not extend to subsidiaries of overseas holding companies.
All of this was the background to the Metallgesellschaft/Hoechst case, in which the CJEC held that the rule of United Kingdom law which prohibited a United Kingdom subsidiary and a parent company established in another member state from making a group income election was contrary to article 43 (formerly article 52) of the EC Treaty, the right of freedom of establishment. The CJEC directed that in such cases compensation or restitution was payable by the Inland Revenue, and left consequential questions of United Kingdom law to be determined by the English courts. As I said above, I have already decided three cases of that nature: the Pirelli case, the Hoechst case and the DMG case. Pirelli and DMG are subject to appeal, but the position rests for the time being at my decisions, the references to which are in the table in paragraph 1 of this judgment.
The present case is another one in which restitution is sought by United Kingdom subsidiaries of non-United Kingdom parent companies which paid dividends in the belief, which was certainly encouraged by the clear words of s 247, that they could not make group income elections. The United Kingdom subsidiaries therefore paid ACT, but now they claim that the ACT was unlawful (or more precisely that the rule in s 247 which prevented them and their parent companies making group income elections was unlawful). They say that in consequence they are entitled to restitution. If in the meantime the ACT has been set off against MCT the restitution which they claim is an amount calculated by applying an interest factor over the period beginning with when they paid the ACT and ending with when they set it off against MCT: that period is equivalent to the period for which the ACT rules required them to pay part of their corporation tax liability earlier than they would otherwise have done. If and to the extent that the ACT has...
To continue reading
Request your trial
-
UBS AG v HM Revenue and Customs
...answer to this part of the appeal can be found in the decision of Park J. in NEC Semi-Conductors Ltd v. IRC [2003] EWHC 2813 (Ch), [2004] STC 489, or the very recent judgments of the Court of Appeal on the appeal from his decision (under the name Boake Allen Limited & Os v HMRC [2006] EWCA ......
-
The Commissioners for HM Revenue and Customs v Fce Bank Plc
...enterprise (a subsidiary of a UK parent) would not have had to pay such ACT if it had made an election under section 247. Park J ( [2004] STC 489) and the Court of Appeal ( [2006] STC 606) held that section 247 did infringe the articles. 17 The first issue with which Lord Hoffmann dealt on ......
-
Autologic Holdings Plc and Others v Commissioners of Inland Revenue; Test Claimants in Loss Relief Group Litigation v Commissioners of Inland Revenue
...with another type of group relief has recently been considered by Park J in NEC Semi-Conductors Ltd v Inland Revenue Commissioners [2004] STC 489. Your Lordships were told that an appeal from that decision is to be heard by the Court of Appeal [next July/this month]. The main area of contro......
-
Boake Allen Ltd and Others v HM Revenue and Customs
...and connected requirements to which other similar enterprises of that first-mentioned state are or may be subjected." 7 Both Park J [2004] STC 489 and the Court of Appeal [2006] STC 606 held that section 247 infringed this provision because it subjected an enterprise in the UK, namely the......