Inland Revenue & Anor v Test Claimants In the Franked Investment Income Group Litigation
2014
COURT OF APPEAL (CRIMINAL DIVISION)
United Kingdom
CORAM
- LORD JUSTICE MOORE-BICK
- LADY JUSTICE GLOSTER
Areas of Law
- Civil Procedure
- Tax Law
2014
COURT OF APPEAL (CRIMINAL DIVISION)
United Kingdom
CORAM
AI Generated Summary
Lady Justice Gloster, with Lord Justices McFarlane and Moore-Bick concurring, dismissed HMRCs appeal from Henderson Js November 2013 order refusing re-amendments to HMRCs defence in the Franked Investment Income (FII) Group Litigation. HMRC sought to plead that, although the FID regimes denial of shareholder tax credits was a new restriction not saved by the Article 64(1) TFEU standstill, the obligation on a UK company to pay ACT on FIDs was an existing restriction as at 31 December 1993 and therefore protected for third-country dividends, eliminating the Test Claimants claims for the time value of ACT. The Court held that the standstill question had already been determined against HMRC in FII HC and FII CA, which treated the FID regime as a composite scheme falling outside Article 64(1), and that HMRC was barred by issue estoppel and, alternatively, by abuse-of-process principles from relitigating the point. Permission to appeal was granted, but the appeal was dismissed.
Judgment
Lady Justice Gloster :
Introduction
On 27 March 2014 this court gave permission to the applicants, now The Commissioners for Her Majesty's Revenue and Customs ("HMRC"), to appeal against part of the order of Henderson J made on 29 November 2013 ("the November 2013 Order"), consequent upon his judgment of the same date, [2013] EWHC 3757 (Ch) (“the judgment”), by which the judge declined to allow HMRC to make certain re-amendments to their defence in ongoing litigation with the respondents, who are Test Claimants in the Franked Investment Income ("FII") Group Litigation ("the Claimants"): see paragraphs 31 to 39 of the judgment and paragraph 1 of the November 2013 Order .
Having heard full argument on the substantive appeal in the course of HMRC’s application for permission, we dismissed the appeal on the same date.
This judgment sets out the reasons why I considered it appropriate to dismiss the appeal.
The issue which was the subject of the appeal
The decision on the proposed re-amendments, relevant to this appeal, depended on the following issue: namely, whether it was open to HMRC to plead in their defence that they were entitled to rely on the standstill provision in Article 64(1) of The Treaty on the Functioning of the European Union ("TFEU") (formerly Article 57(1) of the EC Treaty) to deny claims by the Claimants for the time value of advance corporation tax (“ACT”) on third country foreign income dividends (“FIDs”), to which the Claimants were otherwise entitled by reason of breach of Article 63 of TFEU, pursuant to the European Court of Justice's ("ECJ") decision in C-446/04 Test Claimants in the FII Group Litigation v Commissioners of Inland Revenue [2006] ECR I-11753 (“FII ECJ1”) .
Article 64(1) provides as follows:
“The provisions of Article 63 shall be without prejudice to the application to third countries of any restrictions which exist on 31 December 1993 under national or Union law adopted in respect of the movement of capital to or from third countries involving direct investment — including in real estate — establishment, the provision of financial services or the admission of securities to capital markets. In respect of restrictions existing under national law in Bulgaria, Estonia and Hungary, the relevant date shall be 31 December 1999.”
The background to the proceedings and the FID regime
The application arises out of the FII Group Litigation which was established by a group litigation order dated 8 October 2003