Court of Appeal rejects taxpayer arguments on overseas dividend claims
Procedural issues on validity/scope of claims for relief/repayment of overpaid tax following UK’s EU law breach determined in HMRC’s favour
HMRC win on procedural issues related to taxpayer’s overseas dividends claims
The Court of Appeal (CoA) has determined an appeal and cross-appeal in relation to procedural matters arising from the Prudential/CFC & Dividend group litigation, deciding all relevant issues in favour of HMRC. The issues focused on the validity and scope of claims for double tax relief (DTR) or repayment of overpaid tax on overseas dividends.
Falk LJ’s opening comment – “Those with some knowledge of tax litigation might be forgiven for thinking that there cannot be much more to say in the very long-running dispute about the non-compliance of some aspects of the UK corporation tax regime with EU law. They would be wrong” – provides the background to this litigation. The long-running litigation out of which these appeals arise relates to the taxation of overseas dividends by the UK in breach of EU law (a principle already determined in the main litigation). However, there are a number of ancillary issues which remain for taxpayers who made historic claims. These appeals primarily concern issues of procedure, for example in relation to the validity and scope of claims for DTR; so as to give effect to the decisions in the group litigation to date.
Where taxpayers had submitted returns originally treating overseas dividend income as exempt, HMRC accepted that relevant taxpayers were in time to make claims for DTR following receipt of closure notices (issue 1). This issue did not need to be determined by the CoA (or by the Upper Tribunal below) as a result.
The remaining issues considered were determined in favour of HMRC; the CoA reversed the decision of the Upper Tribunal to the limited extent that it had found in favour of the taxpayers. The issues concerned, inter alia, matters such as the extended time limit for DTR claims, giving effect to amendments to a return and the treatment of management expenses and the carry-forward of DTR.
The appeals were remitted to the First-tier Tribunal (FTT) to apply the CoA’s findings to the taxpayers’ claims, to the extent that HMRC and each relevant appellant taxpayer are unable to agree on their application.
Of broader interest in the context of disputes with HMRC are the comments in relation to ‘Issue A’; while these are, strictly speaking, obiter dicta and therefore not binding, they give a strong persuasive indication that the FTT can direct HMRC to provide a closure notice, but that this power does not extend to specifying what decision the closure notice is to contain; see paragraph 232 onwards.
The number of issues involved and complexity of the decision and litigation history to date illustrates that consideration of the factual and procedural background to claims is important. In light of this decision, HMRC are likely to contact any taxpayers with outstanding claims (if they have not written to them already) to ascertain their intentions in relation to those claims and/or to seek further evidence. Taxpayers with claims which are yet to be resolved should give careful consideration to their fact pattern and procedural history. KPMG in the UK’s tax disputes team are well-placed to advise – please speak to the authors or your usual contact.
