The UK High Court's judgment is a further milestone in long running litigation brought by a number of UK multinational companies regarding the treatment of Advance Corporation Tax by the UK Revenue Authorities

Advance Corporation Tax (ACT) has not been a feature of either the UK or the Irish tax systems for several years. However, while it did operate, it was in theory offsetable against mainstream Corporation Tax, always of course providing that such a charge to tax existed. The companies in the case contended, inter alia, that because foreign dividends were treated differently than dividends arising in the UK, where a group had significant levels of foreign income the Advance Corporation Tax became in effect a permanent charge on the corporate group.

A test case was brought to the European Court of Justice (Case C-446/04) where the companies involved successfully argued that the nub of the problem was the differing tax treatment in the UK of foreign and domestic dividends. The ECJ held that this differing treatment was repugnant to the EU Treaty freedom of establishment principles, and referred the matter back to the UK Courts to determine the appropriate remedy and in particular the extent to which the companies were entitled to ACT refunds. The latter issue also hinged on some matters of fact, on which the UK Courts also had to adjudicate. The UK High Court ruled on the matter on 27 November last.

This current judgment is both detailed and lengthy – it runs to some 450 paragraphs, and the learned judge considered issues of restitution as they applied to ACT, the foreign income provisions under Schedule D, and additional liabilities arguably incurred by attempts by the group companies to blend distributions made in trying to manage overall liabilities. Restitution is to be applied in relation to the first two categories of claim, but the judge found that Revenue have some defence against claims based on their mistake where the facts permit. Very importantly however, it would seem that in general, the claims are not time bound.

The learned judge also commented that the cost to Government of satisfying any claims made did not come into the reckoning. He had earlier mentioned that the amounts involved could run up to as much as £5billion – a solid reason for there being interest in the case. However, another reason for the importance of the case is its careful analysis of the European jurisprudence in connection with breaches of freedom of establishment, and the remedies available for it.