HMRC v The Applicants/Appellants in the Post-Prudential Closure Notice Application Group Litigation/ Appeals Group Litigation
| Jurisdiction | UK Non-devolved |
| Judge | MR JUSTICE RICHARD SMITH,JUDGE JONATHAN CANNAN |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
| Published date | 25 January 2024 |
UT Neutral citation number: [2024] UKUT 00023 (TCC)
UT (Tax & Chancery) Case Number: UT/2022/000018
UT/2022/000021
Upper Tribunal
(Tax and Chancery Chamber) Hearing venue: Rolls Building, Fetter Lane, London EC4A 1NL
Heard on: 21-23, 26 June 2023
Judgment date: 25 January 2024
Corporation tax – double taxation relief on foreign dividend income – portfolio holdings –
procedural issues arising out of claims for relief and claims for repayment of overpaid tax
following the UK’s established breach of EU law
Before
MR JUSTICE RICHARD SMITH
JUDGE JONATHAN CANNAN
Between
THE COMMISSIONERS FOR HIS MAJESTY’S
REVENUE AND CUSTOMS Appellants/Cross Respondents
and
(1) APPLICANTS IN THE POST PRUDENTIAL CLOSURE NOTICE
APPLICATIONS GROUP LITIGATION
(2) TAXPAYERS IN THE POST PRUDENTIAL CLOSURE NOTICE
APPEALS GROUP LITIGATION
Respondents/Cross Appellants
Representation:
For the Appellants/Cross Respondents: David Ewart KC, Barbara Belgrano and Laura Ruxandu of
counsel, instructed by the General Counsel and Solicitor for His Majesty’s Revenue and Customs
For the Respondents/Cross Appellants: Jonathan Bremner KC instructed by Joseph Hage Aaronson
LLP
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DECISION
Introduction
These appeals concern the validity of claims in relation to foreign tax on overseas dividend
income received by various investment funds and an insurance company (“the Taxpayers” or “the
Taxpayer” as appropriate). One group of appeals relates to applications made by some of the
Taxpayers to the First-tier Tribunal (“the FTT”) for directions that HMRC should issue closure
notices in relation to open enquiries. The other group relates to appeals against closure notices and
decisions of HMRC refusing to make repayments of tax.
The Taxpayers held “portfolio holdings” of shares in non-UK resident companies. A portfolio
holding represents less than 10% of a company’s share capital. A non-portfolio holding represents
10% or more. The Taxpayers have made, or purport to have made, claims for repayment of tax on
dividends from portfolio holdings on the basis that double taxation relief (“DTR”) was available.
The claims cover various accounting periods between 1991 and 2010.
There has been a long history of litigation concerning the UK tax treatment of foreign tax on
such dividends. It is now established that the UK tax provisions breached EU law in failing to make
appropriate provision for DTR. These appeals concern the procedural methods by which the
Taxpayers could or should have reclaimed the tax which HMRC accept was overpaid and certain
other procedural issues. Certain substantive issues also arise as to the amount of relief available.
The FTT heard the applications and appeals in a number of lead cases. The decisions in the
present appeals will be applied to many applications and appeals which are presently stayed. There
were 14 issues addressed at the hearing before the FTT, identified as Issues 1–14. Following
circulation of the FTT’s draft decision, a further 5 issues were identified on which the FTT received
further submissions, identified in the final decision as Issues A–E. We adopt the same issue
numbering and lettering in this decision. The FTT’s final decision was released on 8 December 2021
(“the Decision”). Overall, the FTT found in favour of the Taxpayers. Various issues were pursued
by the Taxpayers in the alternative, on some of which the FTT found in favour of HMRC. However,
that did not affect the overall result because the Taxpayers were successful on their primary
arguments and the applications and appeals were allowed in full.
HMRC have appealed with permission of the FTT on the issues on which they were unsuccessful.
The Taxpayers have cross-appealed, again with permission of the FTT, on four issues on which they
were unsuccessful.
We are grateful to counsel on both sides for their helpful written and oral submissions, and to the
FTT for its careful analysis of the issues. The oral hearing lasted 4 days, a significant proportion of
which was devoted to the circumstances in which the Court of Justice of the European Union
(“CJEU”) and the UK courts have held that the UK’s provisions for relieving foreign tax on
dividends breached EU law. It is essential to understand the UK domestic provisions, the timeline
of the litigation and the findings of the various courts along the way before considering the specific
issues arising on these appeals.
Background
We have set out in the Appendix to this decision the relevant legislation. Save where otherwise
stated, all references are to the legislation as it applied during the relevant accounting periods. We
were also referred to a large number of cases and we adopt the following shorthand for the principal
authorities:
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Test Claimants in the FII Group Litigation v IRC (C-446/04) [2012] 2 AC 436 (“FII CJEU 1”)
Test Claimants in the FII Group Litigation v Revenue and Customs Commissioners [2008]
EWHC 2893 (Ch) (“FII HC 1”)
Test Claimants in the FII Group Litigation v Revenue and Customs Commissioners [2010]
EWCA Civ 103 (“FII CA 1”)
Test Claimants in the FII Group Litigation v Revenue and Customs Commissioners [2012] UKSC
19 (“FII SC 1”)
Test Claimants in the FII Group Litigation v HMRC (C-35/11) (“FII CJEU 2”)
Prudential Assurance Co Ltd and another v Revenue and Customs Commissioners [2013] EWHC
3249 (Ch) (“Prudential Ch”)
Prudential Assurance Co Ltd v Revenue and Customs Commissioners [2016] EWCA Civ 376
(“Prudential CA”)
Prudential Assurance Co Ltd v Revenue and Customs Commissioners [2018] UKSC 39
(“Prudential SC”)
Claimants in Class 8 of the CFC and Dividend Group Litigation v Revenue and Customs
Commissioners [2019] EWHC 338 (Ch) (“Class 8”)
Test Claimants in the FII Group Litigation and others v Revenue and Customs Commissioners
(formerly Inland Revenue Commissioners) [2021] UKSC 31 (“FII SC 3”)
At all material times, UK dividends received by UK resident companies were exempt from
corporation tax pursuant to section 208 Income and Corporation Taxes Act 1988 (“ICTA 1988”).
The purpose of this provision was to prevent economic double taxation of the underlying profits of
the relevant company declaring the dividend.
Where UK resident companies received dividends from shareholdings in foreign companies,
DTR was available either by way of treaty relief or unilateral relief.
Treaty relief was given by way of arrangements in a double taxation treaty pursuant to section
788 ICTA 1988. A claim for treaty relief had to be made to HMRC (see section 788(6)). Relief was
available for:
(1) Any withholding tax (“WHT”) deducted on payment of the dividend, subject to any
limit in the arrangements on the amount of such relief.
(2) The underlying tax actually paid by the overseas company on profits from which the
dividend was paid. Such relief was generally limited to non-portfolio holdings. It was
given by way of credit for the foreign tax against UK tax chargeable.
Unilateral relief was available pursuant to section 790 where there was no relief pursuant to a
double taxation treaty. Section 793A provided that unilateral relief was not available where treaty
relief was available or where a treaty expressly provided that relief was not available. The relief was
given as if there was a treaty in existence containing the reliefs in section 790. As such, a claim for
unilateral relief also had to be made to HMRC pursuant to section 788(6). In fact, the UK has double
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