Credit Suisse Securities (Europe) Ltd v The Commissioners for HM Revenue and Customs

JurisdictionEngland & Wales
JudgeMrs Justice Falk
Judgment Date19 July 2019
Neutral Citation[2019] EWHC 1922 (Ch)
Docket NumberCase No: HC2016002492
CourtChancery Division
Date19 July 2019

[2019] EWHC 1922 (Ch)

IN THE HIGH COURT OF JUSTICE

BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES

BUSINESS LIST (ChD)

Royal Courts of Justice

Fetter Lane, London, EC4A 1NL

Before:

THE HONOURABLE Mrs Justice Falk

Case No: HC2016002492

Between:
(1) Credit Suisse Securities (Europe) Limited
(2) Credit Suisse International
(3) Credit Suisse (UK) Limited
(4) Credit Suisse AG
Claimants
and
The Commissioners for her Majesty's Revenue and Customs
Defendants

Aidan Robertson QC and Tony Singla (instructed by Slaughter and May) for the Claimants

George Peretz QC and Alan Bates (instructed by HMRC Solicitor's Office) for the Defendants

Hearing dates: 25 and 26 June 2019

Approved Judgment

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.

Mrs Justice Falk Mrs Justice Falk

Introduction

1

The Claimants, to whom I shall refer collectively as Credit Suisse, are four members of the Credit Suisse group, a financial services group headquartered in Zurich, Switzerland. The claim arises out of their payment of a tax known as bank payroll tax (“BPT”) which was enacted by Schedule 1 to the Finance Act 2010 (“ FA 2010”) in the aftermath of the financial crisis.

2

BPT applied to “relevant remuneration” awarded by “taxable companies” during the period between the date of its announcement on 9 December 2009 and 5 April 2010 (the “chargeable period”). In very broad terms, the definition of “taxable company” covered banks, building societies and certain related entities resident or operating in the UK, and “relevant remuneration” covered discretionary payments exceeding £25,000, rather than regular salary or pre-contracted amounts. The tax was imposed on the banks rather than the employees, at a rate of 50%. In crude terms, it was a tax on bankers' bonuses. For convenience, I will refer throughout to the entities caught as “banks”, although that is a significant over-simplification of the rules. As is common with tax measures, the legislation that brought BPT into effect was passed some months after the start date of the tax, when the Finance Act 2010 (the first of three Finance Acts in that year) obtained Royal Assent on 8 April 2010. Rather less usually, in this case the date of enactment also post-dated the period of operation of the tax.

3

Credit Suisse paid £238,799,581 in BPT on the due date, 31 August 2010. The final amount of BPT is not yet determined, pending the outcome of a dispute in respect of certain aspects of the rules which is currently before the First-tier Tribunal (“FTT”). By their claim to this Court, Credit Suisse allege that the imposition of BPT was unlawful on the basis that it was contrary to the State aid rules set out in Articles 107 and 108 of the Treaty on the Functioning of the European Union (“TFEU”), and they seek damages under the Francovich principle 1 to compensate for the loss they say they have suffered.

4

The nub of Credit Suisse's case is simply stated. They say that the way in which the tax was imposed, and in particular the limited period of around four months to which it related, meant that in reality it was imposed only on those banks that as a matter of practice, policy or expectation awarded (or were practically required to award) bonuses during that period (“Taxed Banks”). Essentially, it targeted those with calendar year ends (i.e. financial years ending 31 December), bonuses generally being awarded around or relatively shortly after the end of the financial year. Banks with different year ends paid their bonuses at other times and escaped, or largely escaped, liability (“Untaxed Banks”). Credit Suisse say that this was a State aid measure because it conferred a selective advantage on Untaxed Banks, who were in a comparable legal and factual situation, and that because it was not notified to and cleared in advance by the European Commission it was unlawful.

5

HMRC say that there was no State aid or, even if there was, no “sufficiently serious” breach to found a Francovich claim, and in any event a claim for damages in respect of the tax paid is precluded by paragraph 51 of Schedule 18 to the Finance Act 1998 (“ FA 1998”), as applied by paragraph 31 of Schedule 1 to the FA 2010, which requires any

claim to be made pursuant to that Schedule and Schedule 1A to the Taxes Management Act 1970. Any appeal against a refusal of such a claim would lie to the FTT only, and not to the High Court. No such claim was made and the four year time limit under paragraph 31(2) of Schedule 1 has now expired.

State Aid

6

Article 107(1) of TFEU provides:

“Save as otherwise provided in the Treaties, any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market.”

7

Article 108 relevantly provides as follows:

“1. The Commission shall, in cooperation with Member States, keep under constant review all systems of aid existing in those States…

2. If, after giving notice to the parties concerned to submit their comments, the Commission finds that aid granted by a State or through State resources is not compatible with the internal market having regard to Article 107, or that such aid is being misused, it shall decide that the State concerned shall abolish or alter such aid within a period of time to be determined by the Commission.

If the State concerned does not comply with this decision within the prescribed time, the Commission or any other interested State may, in derogation from the provisions of Articles 258 and 259, refer the matter to the Court of Justice of the European Union direct.

….

3. The Commission shall be informed, in sufficient time to enable it to submit its comments, of any plans to grant or alter aid. If it considers that any such plan is not compatible with the internal market having regard to Article 107, it shall without delay initiate the procedure provided for in paragraph 2. The Member State concerned shall not put its proposed measures into effect until this procedure has resulted in a final decision.

…”

8

In order to fall within the scope of Article 107(1), it is accepted in the light of the case law that (1) there must be aid, in the sense of an economic advantage, granted by the State or through State resources, (2) the measure must favour certain undertakings over others in a comparable legal and factual situation (a “selective advantage” must be conferred), (3) that advantage must not be justified by the nature or general scheme (or structure) of the system, and (4) it must be liable to distort competition and to affect trade between Member States. The burden of proof is on Credit Suisse 2.

The issues

9

The parties have agreed that there should be a split trial of liability and quantum issues. This trial relates to liability only. The agreed issues for determination at this stage are as follows:

Issue 1: Did HMRC's imposition of BPT on the Claimants constitute a State aid measure within the meaning of Article 107(1) TFEU? In particular:

(a) Did the measure confer an economic advantage to the Untaxed Banks?

(b) Was the economic advantage granted by the State or through State resources?

(c) Was the measure selective?

(d) Was the measure liable to distort competition and to affect trade between EU Member States?

Issue 2: If the measure is considered to be a State aid measure, does that give rise to a claim for repayment of tax, as opposed to a recovery of aid from the beneficiaries of that aid?

Issue 4: If, by imposing BPT on the Claimants, HMRC did breach the State aid rules in Articles 107 and 108 TFEU, was that a sufficiently serious breach of EU law which renders HMRC liable to pay damages to the Claimants in accordance with the decision of the European Court of Justice in Joined Cases C-6/90 and C-9/90 Francovich and Bonifaci v Italy [1991] ECR I-5357 and subsequent case law?

Issue 8: Is the Claimants' claim (or any part thereof) precluded by:

(a) paragraph 51(6) of Schedule 18 to the FA 1998 read with paragraph 31(1) of Schedule 1 to the FA 2010? and/or

(b) paragraph 31(2) of Schedule 1 to the FA 2010?

(Issues 6 and 7 relate respectively to causation (and therefore the quantum of damages), and to the question whether Credit Suisse are entitled to interest on a compound or simple basis, and if so in what amount and for what period. Issues 3 and 5 are common ground, being respectively that the imposition of BPT was not notified in advance to and cleared by the European Commission under Article 108(3) TFEU, and that Article 108(3) has direct effect and confers rights on Credit Suisse. It is also common ground that any economic advantage was granted by the State or through State resources, Issue 1(b) above.)

The evidence

10

There were two witnesses for HMRC, Jacqueline McGeehan and Michael Williams, who provided witness statements and were cross-examined. At the relevant time both held senior roles in the personal tax team at HM Treasury, Ms McGeehan as a Deputy Director and Mr Williams as the Director of Personal Tax and Welfare Reform. Mr Williams had lead responsibility for BPT at Director level and Miss McGeehan was closely involved in its development, with responsibility for policy in relation to BPT. The evidence of both was straightforward and I accept it.

11

As discussed further below, Credit Suisse adduced no witness evidence. Documentary evidence was limited and comprised in large part materials disclosed by HMRC that were produced in connection with the development of BPT, its announcement and subsequent decisions about its scope and duration. A certain amount of correspondence between HMRC and other...

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    ...such as individual tax rulings …” 16 In Credit Suisse (Securities) Ltd v Commissioners for Her Majesty's Revenue and Customers [2019] EWHC 1922 (Ch), [2019] 5 CMLR 17 Falk J reviewed two decisions of the Grand Chamber of the Court of Justice of the European Union and concluded at [30]: “As......
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