The trustees of the BT Pension Scheme v The Commissioners for HM Revenue & Customs

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLord Justice Lewison,Lord Justice Briggs,Lord Justice Longmore
Judgment Date17 January 2014
Neutral Citation[2014] EWCA Civ 23
Docket NumberCase No: A3/2013/1211 & 1208
Date17 January 2014

[2014] EWCA Civ 23

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE UPPER TRIBUNAL

(TAX AND CHANCERY CHAMBER)

FTC/91 & 922011

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Lord Justice Longmore

Lord Justice Lewison

and

Lord Justice Briggs

Case No: A3/2013/1211 & 1208

Between:
The trustees of the BT Pension Scheme
Appellant
and
The Commissioners for Her Majesty's Revenue & Customs
Respondent

Mr M Gammie QC & Mr C McDonnell (instructed by Pinsent Masons LLP) for the Appellant

Mr R Baldry QC & Mr J Rivett (instructed by HMRC Solicitor's Office) for the Respondent

Lord Justice Lewison

Introduction

1

The preliminary issue raised on this part of the appeal is whether section 43 of the Taxes Management Act 1970 (" TMA"), which imposes time limits on claims, applies to a claim for payments made by the Trustees of the BT Pension Scheme ("the Trustees") under section 231 of the Income and Corporation Taxes Act 1988 (" ICTA"). If it does then, subject to questions of community law which remain to be decided, many of those claims are time barred. At the hearing before the First Tier Tribunal the Trustees accepted that, subject to arguments of community law, section 43 did apply. But on appeal to the Upper Tribunal (Tax and Chancery Chamber) (Warren P and Judge Herrington) the Trustees took the point that, simply as a matter of interpretation, it did not. The Upper Tribunal held, contrary to the Trustees' submission, that section 43 of the TMA did apply. Their decision was promulgated on 28 February 2013 and is at [2013] UKUT 105 (TCC), [2013] STC 1781. The Upper Tribunal considered a number of issues, some of which will have to be referred to the CJEU in due course. But the parties were unable to agree on the form of the questions to be referred to the CJEU. Although it had been thought that a one day hearing would suffice to resolve those issues, the parties agreed that it would not. However since this court had already reserved a day's hearing, we considered that the day could best be used in determining the preliminary issue I have described, which if decided against HMRC would reduce the number of questions that had to be referred to the CJEU.

2

Mr Malcolm Gammie QC and Mr Conrad McDonnell presented the appeal on behalf of the Trustees; and Mr Rupert Baldry QC and Mr James Rivett presented HMRC's response. In the end the argument occupied the morning.

3

For the reasons that follow I would dismiss the appeal.

Background

4

As my references to the CJEU suggest the appeal takes place against a background of both domestic and community law. The context in which it arises is the regime that applied to the tax treatment of dividends received by UK residents from overseas companies either directly from those companies, or indirectly from UK companies which had designated dividends as representing the onward distribution of foreign profits. I will call both kinds of dividends "foreign dividends". It is unnecessary to distinguish between the two for the purposes of the preliminary issue.

5

At the time with which we are concerned there was a difference in the domestic tax treatment of these kinds of dividends and dividends received from UK companies on UK profits. We are to assume, for the purposes of the preliminary issue, that on the basis of a ruling by the CJEU this differential treatment was a breach by the UK government of community law, to the extent that it applied to foreign dividends from companies established in member states. On that assumption, the tax treatment of foreign dividends from companies established in member states had to be treated in the same way as dividends received from UK companies on UK profits.

Tax treatment of dividends

6

The Upper Tribunal explained the operation of the system in paragraphs [8] to [16] of their decision, drawing on the lucid summary given by Henderson J in Test Claimants in the FII Group Litigation v Revenue and Customs Commissioners [2008] EWHC 2893 (Ch). Stripped to its bare essentials it worked like this.

7

When a UK-resident company paid a dividend to its shareholders it had to pay an amount of advance corporation tax ("ACT") to the Revenue. The rate of ACT was initially linked to the basic rate of income tax, and subsequently the lower rate. Thus, when the basic rate of income tax was 25%, the ACT rate was 25/ 75 (or 1/3) of the amount of the distribution. The company which paid the ACT was in due course entitled to set that ACT against its corporation tax liability for its annual accounting period. Individual shareholders were liable to income tax on dividends received. Their liability arose under Schedule F (that is, section 20 of ICTA). The ACT paid by the company was "imputed" to the shareholders. What this meant was that the measure of the shareholder's income for tax purposes was the aggregate of the dividend plus the ACT which the company had paid to the Revenue. However, the shareholder was entitled to a tax credit for the amount of the ACT that had been imputed to him in this way; and that tax credit went to reduce his own liability to tax. In some cases the procedure might result in the Revenue making a payment to the claimant. The overall objective was to prevent double taxation: once in the hands of the company and once again in the hands of the shareholder.

The legislation

8

The relevant legislation in force at the time of the events with which we are concerned was section 231 of ICTA (before its amendment by the Finance (No 2) Act 1997). That provided, so far as material:

" Tax credits for certain recipients of qualifying distributions

(1) Subject to sections 247 and 441A, where a company resident in the United Kingdom makes a qualifying distribution and the person receiving the distribution is another such company or a person resident in the United Kingdom, not being a company, the recipient of the distribution shall be entitled to a tax credit equal to such proportion of the amount or value of the distribution as corresponds to the rate of advance corporation tax in force for the financial year in which the distribution is made.

(3) A person not being a company resident in the United Kingdom, who is entitled to a tax credit in respect of a distribution may claim to have the credit set against the income tax chargeable to his income under section 3 or on his total income for the year of assessment in which the distribution is made and, subject to subsections (3A) to (3D) below, where the credit exceeds that income tax, to have the excess paid to him."

9

Section 42 of the TMA provides:

"(1) Where any provision of the Taxes Acts provides for relief to be given, or any other thing to be done, on the making of a claim, this section shall, unless otherwise provided, have effect in relation to the claim."

10

Section 43 provides:

"(1) Subject to any provisions of the Taxes Acts prescribing a longer or shorter period, no claim for relief under the Taxes Acts shall be allowed unless it is made within six years from the end of the chargeable period to which it relates."

11

These provisions were amended once the self-assessment scheme was introduced; but the amended legislation is not relevant to this appeal.

The taxation of pension funds

12

Staff pension schemes which are secured by a trust and which meet certain additional requirements specified by HMRC or their predecessor body, the Commissioners of Inland Revenue, are called "exempt approved schemes". The pension scheme in our case is one such scheme. Exempt approved schemes do not have to pay tax on investment income held for the purposes of the scheme. This was achieved by section 592 (2) of ICTA which provides:

"Exemption from income tax shall, on a claim being made in that behalf, be allowed in respect of income derived from investments or deposits if, or to such extent as the Board are satisfied that, it is income from investments or deposits held for the purposes of the scheme."

The issues

13

The Trustees' argument is that no claim is needed in order to become entitled to a tax credit under section 231. The entitlement arises automatically because of section 231 (1). Section 231 (1) says that "the recipient of the distribution shall be entitled to a tax credit."

14

HMRC, by contrast, argue that what is claimed under section 231 (3) is the tax credit itself. In order to take advantage of the tax credit a claim must be made. Without a claim being made, neither set off nor repayment will happen. Since the essence of the tax credit is either a set off or a payment, the substance of what is being claimed is the tax credit itself.

15

The second issue is, in a sense, a reformulation of the first issue. The Trustees argue that a claim made under section 231 (3) is not a claim for "relief." Section 42 of the TMA distinguishes between a claim for relief and a claim for "any other thing to be done." The...

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