United Kingdom Tax: Court of Appeal rules on double tax relief litigation claims

The Court of Appeal has issued its decision in the Franked Investment Income Group Litigation Order case concerning the compatibility of U.K. double tax relief rules for companies with European Union law. The Court of Appeal also referred several issues back to the European Court of Justice (ECJ) for clarification of the earlier ECJ decision, particularly as it concerns dividends received in the U.K. from 10% or greater shareholdings in EU companies.

The claimants argued that the prior U.K. system of taxing overseas dividends but allowing relief for tax actually paid overseas was not equivalent to the approach exempting U.K. dividends whether or not any taxes were paid. The Court of Appeal concluded that the original ECJ judgment was sufficiently unclear that a further explanation should be sought. Additionally, the Court of Appeal agreed with the High Court that a referral on more complicated group structures is needed (after the High Court crafts the referral request).

Unexpectedly, the Court of Appeal decided that refund claims for tax unlawfully levied should be made within six years from the date the tax was originally paid rather than under the mistake of law principle, which instead sets a six-year time limit from the date the mistake is discovered, potentially allowing claims back to 1973.

The principles set out by the Court of Appeal should apply to certain other European Union claims, subject to any appeal to the Supreme Court. Taxpayers, however, likely will seek leave to appeal to the Supreme Court and the ECJ referrals would likely be put on hold until the U.K. process has been finalized.