Taxation

• Author: International Law Group
• Pages: 96-100

Page 96

After the decision of the European Court of Justice (ECJ) in Hoechst v. Attorney-General, Metallgesellschaft v. Attorney-General, Joined Cases C-397/98 and C-410/98 [2001] ECR I-1727, [2001] Ch 620 (the Hoechst case), certain parent companies which are citizens of countries other than the United Kingdom (here, two from the United States) which lie outside of the European Union, filed suits in the English Courts against the Commissioners for Her Majesty's Revenue and Customs (Commissioners) over their liability to pay an Advance Corporation Tax (ACT).

This branch of the litigation specifically deals with the liability to pay ACT in connection with the payment of dividends by companies incorporated in the UK which are subsidiaries of two U.S. parent companies.

Page 97

Following that decision many claims have been made by parents or subsidiaries or both, where the parent is based in another Member State, seeking restitution in respect of ACT which should not have been paid.

There are two main aspects to these claims. First, the U.S. plaintiffs argue that the inability of the non-resident parent to join in a group income election violates the US/UK Agreement for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital Gains [31 U.S.T. 5668; T.I.A.S. 968231 of December 1975] [DTC] as incorporated into UK law. Secondly it is said that this inability also breaches Article 56EC.

The first instance court ruled that the legislation did contravene the terms of the DTC, but that the relevant provisions were not part of UK internal law, so that the UK courts could provide no domestic remedy. He also decided that the legislation clearly did not breach Article 56EC, and that hence he should not refer this question to the ECJ.

On appeal to the Court of Appeal - Civil Division, the plaintiffs also raised the question whether this Court should make such a reference after or before a likely further appeal to the House of Lords. The appellate court dismisses the appeal on the first claim and declines at this point to refer the EU law questions to the ECJ.

The following are some key facts from the parties' Agreed Statement. Bush Boake Allen, Inc. is a company resident in the United States and the direct or indirect parent of three relevant companies domiciled in the UK. Between January 1996 and April 1999, the three subsidiaries paid dividends to their direct or indirect U.S. parents, and paid ACT accordingly amounting in all to £2.2 million surplus ACT. Gallaher Ltd. is a UK company; at all material times it was a wholly-owned subsidiary of a U. S. company, ATIC Group Inc. Between July 1995 and January 1997, Gallaher paid dividends to its parent; on one occasion within that period it made a distribution in the form of shares to its parent which counted as a qualifying distribution and therefore attracted the same liability to pay ACT as did the payment of a dividend. It paid ACT accordingly, amounting in all to £153,762,615. All of this was set off against a levy which is sometimes called "mainstream corporation tax" or MCT.

Acushnet Ltd. is a UK company, and a wholly-owned subsidiary of Acushnet International Inc. of the U. S. The subsidiary paid dividends to the parent from 1989 up to and including 1999. On each occasion, the subsidiary also paid ACT. If these U.S. parents and their subsidiaries had been able to join in a group income election, they would have done so.

The U.S. plaintiffs focus...