R v Commissioners of Inland Revenue, ex parte Commerzbank AG ; Case C-330/91
| Jurisdiction | England & Wales |
| Judgment Date | 18 April 1991 |
| Date | 18 April 1991 |
| Court | Queen's Bench Division |
Queen's Bench Division (Divisional Court).
Nolan LJ and Henry J.
Mr Stephen Oliver QC, Mr Gerald Barling QC and Mr David Ewart (instructed by SJ Berwin) for the bank.
Mr Alan Moses QC and Mr Derrick Wyatt (instructed by the Solicitor of Inland Revenue) for the Crown.
The following cases were referred to in the judgment of the court:
Biehl v Administration des Contributions (Case 175/88) UNK[1990] 2 CMLR 143
EC Commission v France (Case 270/83) [1986] ECR 273; Common Market Reporter §14,282
IR Commrs v Commerzbank AG TAX[1990] BTC 172
R v Secretary of State for Transport, ex parte Factortame LtdELR[1990] 2 AC 85
Smidth (FL) & Co v Greenwood (Surveyor of Taxes) TAX(1922) 8 TC 193
Sotgiu v Deute Bundespost (Case 152/73) [1974] ECR 153; Common Market Reporter §8,257
Corporation tax - Repayment supplement - Bank not resident in UK entitled to repayment of overpaid tax - Repayment supplement limited to company resident in UK - Whether UK branch of bank trading in UK to be treated for the purposes of claiming repayment supplement as though UK resident - Taxes Management Act 1970 section 78Taxes Management Act 1970, sec. 78; Income and Corporation Taxes Act 1988 section 788 subsec-or-para (3) section 825 subsec-or-para (1)Income and Corporation Taxes Act 1988, sec. 788(3), 825(1)(formerly Finance (No. 2) Act 1975, Finance Act 1975 section 48sec. 48).Corporation tax - Double taxation relief - Provision in double taxation agreement that taxation in the UK of German residents not to be more burdensome than taxation of UK residents - Whether denial of repayment supplement inconsistent with agreement - SI 1967/25 section 20Double Taxation Relief (Taxes on Income) (Federal Republic of Germany) Order 1967 (SI 1967/25), art. 20.European Community law - Discrimination on grounds of nationality - Right of establishment in member states - Whether denial of repayment supplement inconsistent with Community law - EEC Treaty, eu-treaty treaty article 7 article 52art. 7, 52.
This was an application for judicial review by a German bank trading through a branch in the UK of the Revenue's refusal to pay interest in respect of overpaid tax which was previously held by the court to have been wrongly assessed and was consequently repaid.
The applicant, Commerzbank AG ("the bank"), was a branch of a bank resident in the Federal Republic of Germany. It had traded in the UK since 1973 qualifying as a permanent establishment situated in the UK under the Double Taxation Relief (Taxes on Income) (Federal Republic of Germany) Order 1967 ("the German double tax agreement"). The bank was at all material times within the charge to UK corporation tax on the profits attributable to the branch.
In the course of its banking business over the years 1973-76, the branch received interest on loans made to US corporations on which tax amounting to £4,222,234 was paid. The bank's claim to recover the tax paid succeeded before the special commissioners and in the High court (see IR Commrs v Commerzbank AG TAX[1990] BTC 172). The bank was held to be exempt from paying UK tax on the interest received from US corporations by virtue of the Double Taxation Relief (Taxes on Income) (United States of America) Order 1966, art. 15. The exemption applied because the bank was not resident in the UK. The Revenue therefore repaid the tax to the bank but refused to pay any interest or equivalent repayment supplement for the long period during which the bank was kept out of its money.
The bank sought to recover interest amounting to £5,199,258 on three grounds:
First, as a matter of construction of the Income and Corporation Taxes Act 1988, Income and Corporation Taxes Act 1988 section 825sec. 825 and the Taxes Management Act 1970 section 78Taxes Management Act 1970, sec. 78 a branch of a non-resident corporation was treated for the purposes of assessment and charge to tax as if it were a resident of the UK.
Secondly, the residence requirement in Income and Corporation Taxes Act 1988 section 825sec. 825 was inconsistent withSI 1967/25 section 20art. 20 of the German double tax agreement which provided that nationals of one of the contracting parties should not be burdened with tax liabilities not borne by the other, and to deny the benefit of Income and Corporation Taxes Act 1988 section 825sec. 825 to a German corporation would impose on it a burden to which a UK company would not be subjected.
Thirdly, if the repayment supplement were not available, the bank contended that it would be at a disadvantage vis-à-vis UK resident companies contrary to its right of establishment undereu-treaty treaty article 52art. 52 of the EEC Treaty and that it would suffer discrimination on grounds of nationality contrary to eu-treaty treaty article 7art. 7.
The Revenue contended that the bank was not eligible for repayment supplement under Income and Corporation Taxes Act 1988 section 825sec. 825 which by Income and Corporation Taxes Act 1988 section 825 subsec-or-para (2)subsec. (2) limited eligibility to UK residents. Nor did denial of repayment supplement give rise to discrimination inconsistent with the German double tax agreement or EEC law, or infringe the right of establishment in a member state. The recovery of tax depended on the bank's status as a non-resident of the UK, while the claim for repayment supplement depended on its being treated as so resident. If the bank had been a UK resident, no question of recovery would have arisen.
Held, dismissing the bank's application based on UK law but referring a question to the Court of Justice of the European Communities in relation to Community law.
1. Non-resident companies trading through UK branches were regarded as UK residents only for the purpose of assessment and charge to tax. Those purposes did not extend to the repayment supplement sinceIncome and Corporation Taxes Act 1988 section 825sec. 825 of the 1988 Act was not concerned with charge and assessment.
2. The repayment supplement did not fall within the matters specified in Income and Corporation Taxes Act 1988 section 788 subsec-or-para (3)sec. 788(3) of the 1988 Act to which double taxation agreements applied. Nor could there be discrimination on the ground of nationality within the terms of SI 1967/25 section 20art. 20 of the German double tax agreement because in the context no comparison could be made between a UK and a German corporation because liability to tax in Germany depended on nationality, while liability to UK tax depended on residence.
3. In deciding whether the refusal of repayment supplement was incompatible with Community law it had to be considered whether the claim for interest should be looked at in isolation or together with the circumstances of the recovery of tax. If looked at in isolation the disadvantage to a non-resident compared with a UK resident would be plain. But if the whole matter were looked at, no comparison between a resident and a non-resident would be possible since the tax could only have been recovered by a non-resident. That issue was a question of degree and therefore one of policy best decided by the European Court.
Commerzbank AG ("the bank") applied for judicial review of the decision of the Board of Inland Revenue refusing to pay to the bank repayment supplement in respect of an overpayment of corporation tax repaid to the bank on or about 9 February 1990. The grounds of the application were:
-
1. As a matter of construction of the Finance Act 1975 section 48Finance (No. 2) Act 1975, sec. 48 and the Taxes Management Act 1970 section 78Taxes Management Act 1970, sec. 78 the bank was entitled to repayment supplement.
-
2. The residence requirement in Finance Act 1975 section 48sec. 48 of the 1975 Act was inconsistent with SI 1967/25 section 20art. 20 of the double taxation treaty between the UK and the Federal Republic of Germany.
-
3. The residence requirement in Finance Act 1975 section 48sec. 48 of the 1975 Act was inconsistent with, inter alia,eu-treaty treaty article 7 article 52art. 7 and 52 of the EEC Treaty.
In this application for judicial review the applicant is a German bank ("the bank") which, in respect of accounting period from 1973-76, paid to the UK authorities more tax than was in fact due from it. The overpayments amounted in all to £4,222,234. The bank succeeded in recovering this tax, but not until many years later. The Inland Revenue has refused to pay the bank anything by way of or equivalent to interest on it for the period that the bank was out of its money. The bank now seeks to recover such an additional payment by this application for judicial review.
The bank was incorporated in the Federal Republic of Germany. Under the provisions of the double taxation agreement between the UK and Germany (the convention of 26 November 1964 incorporated into UK law by theDouble Taxation Relief (Taxes on Income) (Federal Republic of Germany) Order 1967) which, in this instance, reflects the normal provisions of UK tax law, the bank is a resident of the Federal Republic of Germany, and is not a resident of the UK for tax purposes.
However a branch of the bank has traded in the UK since 1973. That branch provides a full range of banking services, and is a recognised bank under the provisions of the Banking Act 1979. The branch qualifies as a permanent establishment situated in the UK under the double taxation agreement.
The bank was at all material times within the charge to UK corporation tax on the profits attributable to the branch, computed in accordance with Income and Corporation Taxes Act 1970 section 246sec. 246 of the Income and Corporation Taxes Act 1970 (now re-enacted asIncome and Corporation Taxes Act 1988 section 11sec. 11 of the Income and Corporation Taxes Act 1988). It has been recognised throughout by the Inland Revenue as...
To continue reading
Request your trial
-
UBS AG v HM Revenue and Customs
...[2006] BTC 266 (CA); [2004] BTC 208 Pirelli Cable Holding NV v IR CommrsTAX [2006] BTC 181 R v IR Commrs, ex parte Commerzbank AGTAXTAX [1991] BTC 161; 68 TC 252 Taylor (HMIT) v MEPC Holdings LtdUNKTAX [2003] UKHL 270; [2004] BTC 20 Union Texas International Corporation v Critchley (HMIT)TA......
-
Pirelli Cable Holding NV v Commissioners of Inland Revenue
...far as they provide" in section 788(3) of the Income and Corporation Taxes Act 1988 ("the 1988 Act"): see R v IRC ex parte Commerzbank AG [1991] STC 271 (Divisional Court); NEC Semi-Conductors Ltd v IRC [2004] STC 489 (Park J). The correct starting point for any examination of the position ......
-
Felixstowe Dock and Railway Company Ltd v HM Revenue and Customs
...the case of a surrender, to opportunities. 27.In this respect, Mr Goy referred us to two cases, R v IR Commrs, ex parte Commerzbank AG TAX[1991] BTC 161, and UBS AG v R & C Commrs SCD(2005) Sp C 480, as illustrative of the application of non-discrimination articles in cases that were concer......
-
Fitzgerald v Lloyd Williams
... ... trial) turn very largely on the facts of the case and raise no question of general legal ... The application was made ex parte and was supported by an affidavit of Willcox, who ... 680 at pp 735–736 and R v IRC exp Commerzbank AG [1994] QB 219 at p.239 ... 89 It ... ...