Trustees of BT Pension Scheme
| Jurisdiction | UK Non-devolved |
| Judgment Date | 14 June 2011 |
| Neutral Citation | [2011] UKFTT 392 (TC) |
| Date | 14 June 2011 |
| Court | First Tier Tribunal (Tax Chamber) |
[2011] UKFTT 392 (TC)
Sir Stephen Oliver QC (Chairman), Julian Ghosh QC
Peter Whiteman QC and Conrad McDonnell, counsel, instructed by McGrigors LLP, solicitors, for the Appellant
Rupert Baldry QC and James Rivett, counsel, instructed by the General Counsel to HM Revenue and Customs, for the Respondents
Tax credit - foreign income dividends - claim by Trustees of exempt approved pension scheme - FIDs received from UK resident companies - ICTA 1988 Income and Corporation Taxes Act 1988 section 231s. 231Tax credit - cross-border dividends - claims for tax credits based on ECJ decision in Manninen (Case C-319/02) - ICTA 1988 Income and Corporation Taxes Act 1988 section 231s. 231Limitation - tax credit claims - whether out of time - TMA Taxes Management Act 1970 section 28A subsec-or-para 3 section 42s. 28A(3) and 42 - Limitation Act 1970, s. 32(1)(c)
1.There are three issues in this appeal:
(i) whether the Appellant, the trustees of the BT Pension Scheme ("BTPS") are entitled to a payment of a tax credit under the Income and Corporation Taxes Act 1988 ("TA 1988"), Income and Corporation Taxes Act 1988 section 231section 231 for certain dividends elected to be "Foreign Income Dividends" ("FIDs") within TA 1988, Income and Corporation Taxes Act 1988 section 246Asection 246A, which BTPS received from UK resident companies between 1 July 1994 and 2 July 1997: we refer to these claims made by BTPS as the "FIDs claims";
(ii) whether BTPS is entitled to a payment of a tax credit under TA 1988, section 231, for dividends paid by non-UK resident companies between 1 July 1990 and 2 July 1997: we refer to these as "Manninen claims" since these claims arise from the case law of the European Court of Justice, concerning the application of the EC Treaty to cross-border dividends, which commenced with the European Court's judgment in Re Manninen ECAS(Case C-319/02) [2007] BTC 163; the Statement of Facts agreed between the parties, which we reproduce below, refers to these particular claims as "Tax Credit Claims". Since the FIDs claims are also claims for tax credits, we use the terminology of "Manninen claims" for these claims in our Decision;
(iii) to the extent that the FIDs claims and the Manninen claims are good, in principle, whether these claims have been made in time ("the limitation issue").
2.The FIDs claims relate to dividends paid by UK tax-resident companies to BTPS which are funded out of non-UK source income by the dividend-paying companies; that non-UK source income arises both from sources located within the Community and from sources located in non-Member States ("third countries"), so far as the dividend-paying companies are concerned. The Manninen claims relate to dividends paid by companies tax-resident within both Member States and third countries.
3.It is agreed between the parties that quantum be left to be decided after the determination of the questions of law.
4.Mr Whiteman QC presented the case for BTPS on the substantive issues in relation to the FIDs claims and the Manninen claims. Mr McDonnell presented the case for BTPS on the limitation issue. Mr Baldry QC presented the case for the Respondents ("HMRC") on all of the issues.
5.There was a Statement of Facts agreed between the parties, which we reproduce here (omitting certain immaterial sections). The parties agreed that the Statement of Facts is an aid to assist the determination of the relevant questions of law in this appeal (and HMRC are not bound by the Statement of Facts as determinative of any issues arising as to quantum).
6.The BT Pension Scheme (formerly known as the British Telecom Pension Scheme) ("BTPS") was formed in the 1980s and is the largest defined benefit pension fund in the United Kingdom. BTPS was at all material times an exempt approved scheme.
7.BTPS was formed as a result of the separation of the Post Office Staff Superannuation Fund ("POSSF") into the Post Office Staff Superannuation Scheme ("POSSS") and the British Telecommunications Staff Superannuation Scheme ("BTSSS") on 1 April 1983. BTSSS later merged with British Telecommunications plc New Pension Scheme ("BTNPS") to form BTPS with effect from 1 January 1993. Accordingly, in respect of periods before 1 January 1993, the claims are maintained by the trustees of BTPS on behalf of the two funds, BTSSS and BTNPS, which now constitute BTPS.
8.Until 2006, the trustees of the BTPS were a group of nine individuals. Since 14 December 2006, BTPS has had a corporate trustee, BT Pension Scheme Trustees Limited ("BTPSTL") and the individual trustees became directors of BTPSTL.
9.The investment fund management team of POSSS and BTPS, originally known as PosTel Investment Management Limited ("PosTel"), was formed in 1982 from the existing investment fund management team of POSSF. From that time until 1995, PosTel was jointly owned by the Trustees of POSSS and the Trustees of BTPS.
10.On 31 March 1995 the Trustees of the BT Pension Scheme acquired the 50% holding in PosTel owned by the POSSS, and PosTel's name was changed to Hermes Pensions Management Limited. In March 2008 its name was changed to Hermes Fund Managers Limited ("HFML"). HFML is now 100% owned by BTPS.
11.HFML is the parent company of a number of companies falling within the Hermes group, some of which are separately authorised and regulated by the Financial Services Authority.
12.Hermes Investment Management Ltd ("HIML") (known from February 1990 to March 1995 as PosTel Financial Asset Management Limited) is a wholly owned subsidiary of HFML. HIML is an institutional fund manager which invests funds on behalf of approximately 209 clients including pension funds, insurance companies, government entities, financial institutions, charities and endowments. HIML is the principal manager of the BTPS and undertakes the day to day management of the pension fund's assets.
13.Hermes Administration Services Limited ("HASL") is a wholly owned subsidiary of HFML. HASL provides administration services to BTPS and other clients.
14.The investments of BTPS are registered in the name of Britel Fund Trustees Limited and Britel Fund Nominees Limited (or in certain cases, another nominee such as Britel (MAM) Nominees Limited). These companies hold all such assets purely in their capacity as nominees on behalf of the Trustees of BTPS. For all tax purposes, the Trustees of BTPS are the relevant taxable entity and BTPS is the beneficial owner of the relevant assets.
15.Investments of BTPS
16.At all material times, approximately 70% to 75% of the investments of BTPS (by market value) were in the form of equities.
17.Of BTPS' holdings of equities, some were investments in companies resident in the United Kingdom ("United Kingdom equities"), and some were investments in companies resident in the EU and elsewhere ("overseas equities"). The proportion of overseas equities has varied over time. Between March 1990 and 31 December 1992, approximately 81% of the holdings (by market value) were United Kingdom equities and 19% were overseas equities. On 31 December 1993, 31 December 1994, 31 December 1995 and 31 December 1996, in each case approximately 73% of the holdings were United Kingdom equities and 27% were overseas equities. On 31 December 1997 and in subsequent years, approximately 67% of the holdings, or less, were United Kingdom equities, and 33% or more were overseas equities.
18.BTPS invests a very small proportion (approximately 3%) of its equities portfolio in selected smaller companies, in which it may take up to a 10% interest. These investments in small companies are not included in these claims.
19.The vast majority (at least 97%) of BTPS' equities portfolio was invested in large publicly quoted companies in the United Kingdom and overseas. These are the investments which are the subject of these claims. In each case, BTPS would typically hold less than 2% of the company's share capital, and always less than 5%. BTPS' relationship with the investee companies was purely as shareholder.
20.High Court Claims
20.1FIDs claims
20.1.1On 31 January 2003, the Trustees of the BTPS (together with Britel Nominees Limited and Britel (MAM) Nominees Limited) brought a claim in the High Court of Justice against the Commissioners of Inland Revenue for payable tax credits in respect of Foreign Income Dividends (Claim Number HC03C00426) (the "FIDs Claim").
20.2Tax Credit claims
20.2.1On 1 April 2005 the Trustees of the BTPS (together with Britel Nominees Limited and Britel (MAM) Nominees Limited) brought a claim in the High Court of Justice against the Commissioners of Inland Revenue for tax credits in respect of overseas dividends received directly (Claim Number HC05C00770) (the "Tax Credit Claim" which we refer to as the "Manninen claims" in the course of our Decision. However, in reproducing the parties' Statement of Facts we leave the terminology as used by the parties).
20.3Group Litigation Order
20.3.1The FIDs Claim brought by BTPS was one of several claims brought around this time by trustees of various pension schemes.
20.3.2On 13 May 2004 the solicitors acting for BTPS, McGrigors, issued an application in the High Court for an order that the Court grant a group litigation order under rules 19.10 and 19.11 of the Civil Procedure Rules.
20.3.3The hearing of the application took place on 7 July 2004 before Chief Master Winegarten and an agreed Order by Consent between BTPS and HMRC was sealed by the Court on 21 July 2004. It was held that BTPS would be appointed as Test Claimant in the group litigation. The application was therefore brought in the name of "The Trustees of the BT Pension Scheme and the Claimants listed in Schedule 1 to this Order". The Order provided that claims in connection with the FIDs regime would constitute the "FIDs Group Litigation" and provided that a group register of claims should be set up and maintained...
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