In a judgment of 25 October 2006, the House of Lords held that there was no reason why the right to restitution of payments made by mistake of law should not apply to payments of tax. Perhaps just as important, the Lords decided when the period of limitation should commence.

In this case, the taxpayer was the UK subsidiary of a German parent company. At the relevant time, where subsidiary companies paid dividends to their parents, it was possible to make a group income election which would enable the dividend to be paid without the paying subsidiary having to pay advance corporation tax to the UK Revenue.

A decision of the ECJ in 2001 held that the right to make a group income election could not be denied where the parent company was resident in another member state.

Deutsche Morgan Grenfell Group had made payments of ACT in 1993, 1995 and 1996. These payments were made by mistake but the mistake was not reasonably discoverable until after the judgment of the ECJ in 2001. It was important to bear in mind the special nature of the mistake, that it was deemed to have been made because of the retrospective operation of a decision of the ECJ.

The issue was whether a claim for restitution made under mistake of law applied in this case and whether the taxpayer made payments of ACT under a mistake of law. The third issue was when the limitation period began to run under section 31 (1) (c) of the UK Limitation Act 1980. The decision of the Lords was that the payment was under mistake of law and that section 32 (1) (c) postponed the commencement of the limitation period in respect of all three ATC payments until the judgment of the ECJ on 8 March 2001. This meant that the proceedings were in time.

A more detailed report on the case will be included in the next tax.point.