LAW LORDS TAX RULING MAY COST TREASURY ?BILLIONS? ?
The House of Lords? majority decision to dismiss Revenue Customs' appeal in the Deutsche Morgan Grenfell case could cost the UK Treasury hundreds of millions ? and possibly billions ?
of pounds, tax advisers have suggested. Deloitte said the , concerning the effect of the Limitation Act 1980, would have ?potentially significant?
financial implications for other groups. The case forms part of a group litigation order (GLO) concerning claims for recovery of advance corporation tax (ACT). The decision means Deutsche Morgan Grenfell can claim interest from HMRC in relation to payments of ACT, which UK companies were required to pay in respect of dividends paid between 1973 and 1999.
?As well as the ACT GLO, the decision is also likely to affect most or all of the other GLOs that claim discrimination under the EC Treaty. HMRC stated in arguments to the House of Lords that the cost to the Treasury could run into billions of pounds,?
the firm said in a statement. However, the Treasury ?distanced itself?
from claims that billions of pounds were at stake from the case, according to the Financial Times. The paper reported that tax advisers said the cost could run that high if legislation introduced in 2003 was found to be flawed. The GLO followed a European Court of Justice ruling that HMRC had levied ACT unlawfully.
Deutsche Morgan Grenfell claimed that the time limitation period should run from the date that the ECJ handed down its decision in the Hoechst case in 2001. The House of Lords decided by a four-to-one majority that taxpayers have six years from the discovery of the mistake in law in which to make a claim. Deloitte tax partner Bill Dodwell said: ?
The long awaited decision of the House of Lords is a success for Deutsche Morgan Grenfell and other members of the ACT Group Litigation Order. It is likely that most of the ACT would have already been offset [against corporation tax liabilities], but HMRC is likely to have to pay restitution, in effect interest, on the payments of ACT to these companies. ?
The decision clears up some of the confusion on time limits but it remains to be seen what evidence will be needed for companies to prove that there has been ?a mistake? and also when that mistake could ?
with reasonable diligence have been discovered?. There will be knock-on effects on the other Group Litigation Orders.
The Government legislated with effect from 8 September 2003 to try to limit the effect of this case. Some groups have commenced litigation arguing that this legislation is ineffective, in particular the lack of a transitional period. This litigation, which has been delayed pending this decision, will now presumably proceed.
? He added: ?The focus will now switch to the Sempra Metals case, due to be heard by the House of Lords next week.
The question in Sempra is whether interest is compounded or calculated on a ?simple? basis.
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