The Supreme Court today handed down its judgment in the case of The Test Claimants in the FII Group Litigation v The Commissioners for HM Revenue and Customs. The British American Tobacco group is the principal test claimant in that group litigation (GLO) in which the claims of 25 company groups are enrolled.
The judgment is complex and extends to 190 pages. British American Tobacco will be studying the judgment in detail with external counsel and deciding on the future course of action.
The judgment concerns a number of issues but the main issue of relevance to British American Tobacco concerned the lawfulness of retrospective legislation introduced by s107 of Finance Act 2007 (FA ’07).
The claimants in the GLO contend that they were discriminated against in breach of EU law by the imposition of UK corporation tax charges, mostly in the form of advance corporation tax (ACT), upon the distribution of foreign sourced income. Profits were effectively subject to double taxation, firstly in the source state and then in the UK when distributed to shareholders.
British American Tobacco issued its claim in the litigation in June 2003 and its case was referred to the European Court (ECJ) in 2004. In 2006, six days before the ECJ was due to release its ruling, HMRC announced retrospective legislation which became s107 of FA ‘07, to cancel all restitution claims in tax matters which extended back longer than six years such as those of British American Tobacco and others in the GLO who had issued claims at about the same time. Before the intervention of this retrospective change these claims could be made for tax liabilities going back to 1973 in most cases. The judgment of the ECJ which then followed that announcement did largely find discrimination and favoured the taxpayers.
In 2008 the High Court held that the retrospective cancellation of these claims by s107 of FA ’07 was also a breach of EU law. In 2010 the Court of Appeal unanimously overturned that judgment. In this judgment the Supreme Court sitting as a panel of 7 judges (reserved for the most important of its cases) has unanimously held that s107 of FA ’07 was in breach of EU law and has restored the claimants’ claims.
The effect of the judgment is to enable British American Tobacco and other claimants who issued their claims at about the same time to pursue claims for the recovery of unlawfully imposed UK corporation tax back, in most cases, to 1973. Although the ECJ has ruled largely in favour of the taxpayers in those claims, the value of the claims is subject to a second reference to the ECJ. The Advocate General’s opinion in that reference is due on 28 June 2012. It is not known when the judgment of the court will follow. Once the ECJ judgment is delivered the matter will then revert to the UK courts.
British American Tobacco cannot comment on the views or reaction of HMRC to this judgment however further issues in the litigation are likely to remain which could take several years to resolve.