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England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Six Continents Ltd v Inland Revenue  EWHC 169 (Ch) (02 February 2016)
Cite as:  EWHC 169 (Ch)
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Royal Courts of Justice
Fetter Lane, London, EC4A 1NL
B e f o r e :
| (1) SIX CONTINENTS LIMITED
|(2) SIX CONTINENTS OVERSEAS HOLDINGS LIMITED
- and -
|(1) THE COMMISSIONERS OF INLAND REVENUE
Mr Rupert Baldry QC and Ms Barbara Belgrano (instructed by the General Counsel and Solicitor for HMRC) for the Defendants
Hearing date: 18 January 2016
Crown Copyright ©
Mr Justice Henderson:
The Restitution Interest Tax Provisions: an Overview
"(a) the payment of an amount to the Commissioners under a mistake of law relating to a taxation matter, or
(b) the unlawful collection by the Commissioners of an amount in respect of taxation."
Condition B requires that the court has made a "final determination" that HMRC are liable to pay the interest, or that HMRC has entered into a final settlement of the relevant claim under which the company is entitled to be paid or retain the interest. A "final" determination is defined by section 357YC(8) as one which cannot be varied on appeal. Condition C requires that the interest determined to be due, or agreed upon, "is not limited to simple interest at a statutory rate".
"So far as restitution interest is charged to corporation tax under this Part it is not chargeable to corporation tax under any other provision."
"(a) deduct from it a sum representing corporation tax on the amount at the restitution payments rate, and
(b) give the company a written notice stating the amount of the gross payment and the amount deducted from it."
The amounts withheld under section 357YO(2) are then to be treated for all purposes as paid by the company on account of its liability, or potential liability, to corporation tax charged on the interest payment as "restitution interest": section 357YP(1).
"29. Under the law as it currently stands, payments of restitution paid by HMRC to companies, which relate to interest, are subject to Corporation Tax at the standard rate. However the interest payments targeted by this clause will be subject to a higher rate, to reflect the particular circumstances of these awards. These include the number of years over which the overpayments were made, the fact that any such awards would be calculated on a compound basis and the historic corporation tax rates that applied during the years to which these claims relate."
"New clause 8 addresses an unfairness whereby in certain claims for repayment of tax and restitution through interest payments, taxpayers might receive a significant additional benefit at the expense of the public purse. The vast majority of interest payments that are paid by [HMRC] are made under the relevant Taxes Act. These will continue to be subject to the normal rate of corporation tax. However, the interest payments targeted by this clause arise from claims made under common law, which stretch over a large number of years – in some cases, going back to 1973 – and represent a unique set of circumstances.
As it stands under current law, any payments will be taxed at the low corporation tax rate that applies at the time the payments are due to be made. Since the interest payments targeted by the clause have accrued over years when the rate of corporation tax was much higher than companies currently enjoy, those making the claims received a significant financial benefit. In addition, such payments may have to be calculated on a compound basis, further improving the advantage gained at the expense of the public purse."
The disputed amendments
"13G.4 The Restitution Interest Tax Provisions will be unlawful by reason of their incompatibility with EU law and with the requirements of the European Convention on Human Rights. In particular, the Restitution Interest Tax Provisions will:
(1) violate the United Kingdom's obligations under EU law to provide the Claimants with an adequate and effective remedy in respect of taxes unlawfully levied contrary to the principle of effectiveness and Article 47(1) of the Charter of Fundamental Rights of the European Union;
(2) contravene the established EU law and European Convention on Human Rights ("ECHR") law principles of legal certainty, non-retroactivity, and the protection of legitimate expectations;
(3) constitute, by seeking to reverse the effect of final judicial rulings as to the appropriate and necessary remedy, an unjustified interference by the State in judicial proceedings contrary to general principles of EU law and ECHR law (including the rule of law and the requirement of separation of powers, and contrary to Article 6 EC[H]R and Article 47(2) CFREU);
(4) contravene Article 1 of Protocol 1 to the ECHR and Article 17 CFREU.
13G.5 In the premises, the Restitution Interest Tax Provisions are unlawful and must be disapplied.
13G.6 Further, and in the alternative, any restitution and/or compensation awarded to the Claimants must be increased so as to take account of the tax which will be charged under the Restitution Interest Tax Provisions.
13G.7 Further, and in the alternative, the breaches of EU law effected by the Restitution Interest Tax Provisions upon which the Claimants rely involve manifest and grave infringements by the UK of the limits of its powers. The Claimants aver that the breaches on which they rely were sufficiently serious to warrant State liability to pay compensation in respect of resulting losses.
[Particulars are then given]"
"A declaration that the Restitution Interest Tax Provisions are contrary to EU law and/or ECHR law, the relief prayed above to reflect any such illegality."
The Revenue's objections
(2) The FTT has exclusive jurisdiction
"12. Clearly the purpose intended to be achieved by this elaborate, long established statutory scheme would be defeated if it were open to a taxpayer to leave undisturbed an assessment with which he is dissatisfied and adopt the expedient of applying to the High Court for a declaration of how much tax he owes and, if he has already paid the tax, an order for repayment of the amount he claims was wrongly assessed. In substance, although not in form, that would be an appeal against an assessment. In such a case the effect of the relief sought in the High Court, if granted, would be to negative an assessment otherwise than in accordance with the statutory code. Thus in such a case the High Court proceedings will be struck out as an abuse of the court's process. The proceedings would be an abuse because the dispute presented to the court for decision would be a dispute Parliament has assigned for resolution exclusively to a specialist tribunal. The dissatisfied taxpayer should have recourse to the appeals procedure provided by Parliament. He should follow the statutory route.
13. I question whether in this straightforward type of case the court has any real discretion to exercise. Rather, the conclusion that the proceedings are an abuse follows automatically once the court is satisfied the taxpayer's court claim is an indirect way of seeking to achieve the same result as it would be open to the taxpayer to achieve directly by appealing to the appeal commissioners. The taxpayer must use the remedies provided by the tax legislation. This approach accords with the views expressed in authorities such as Argosam Finance Co Limited v Oxby  Ch 390, In re Vandervell's Trusts  AC 912 and, more widely, Barraclough v Brown  AC 615."
"In this regard the appeal commissioners have the same powers and duties as the High Court."
(3) Other pending proceedings
(1) Various claimants in the BAT Group have appealed to the FTT against the withholding tax deducted by HMRC, in purported compliance with Part 8C, from the interest component of judgment debts obtained by them in the FII group litigation. This appeal raises two issues: first, whether HMRC has made a valid deduction under section 357YO, in circumstances where they have not given a written notice stating the amount of the gross payment and the amount deducted from it in accordance with subsection (2)(b); and, secondly, whether the withholding tax is unlawful. BAT sought to have this appeal determined urgently, and to have the first issue dealt with as a preliminary issue (on the basis that, if there had not been a valid deduction, the FTT would lack jurisdiction on the appeal and therefore could not decide the question of lawfulness). The FTT did not consider that the claim was urgent, or that there should be a separate determination of the first issue. The FTT has instead listed a case management hearing for 4 March 2016, at which appropriate directions will be given for the appeal to proceed to a substantive hearing.
(2) Two other claimants in the FII group litigation, Imperial Chemical Industries Limited ("ICI") and FCE Bank Plc ("FCE"), have begun judicial review proceedings challenging the lawfulness of the Restitution Interest Tax Provisions. ICI has obtained an interim payment of more than £64 million (which includes an interest component of more than £22 million), while FCE has obtained summary judgment for more than £67 million (including interest of some £41 million). These payments were received before Part 8C came into force, in the case of ICI as long ago as 2009, but the claimants say the interest component of those payments will become "restitution interest", and be chargeable to tax under Part 8C, when all appellate stages of the FII group litigation have been completed, probably several years hence. A permission hearing has been listed for 3 February 2016, when the Administrative Court will also consider whether to expedite the claim if permission is granted.
(3) Another application for judicial review has been made by The Prudential Assurance Company Limited, which is the test claimant in the CFC & Dividend GLO. Prudential also challenges the lawfulness of the new tax, and seeks to have its claim consolidated with the judicial review proceedings brought by ICI and FCE. Prudential's claim is supported by bodies such as life insurers, unit trusts and open ended investment companies which have historically paid low rates of tax. This claim is still at an early stage, and is awaiting a decision from the Administrative Court on permission and consolidation.
(4) Finally, the BAT test claimants and eight other claimants in the FII GLO have made applications seeking payment of their judgment debts gross of the 45% withholding tax, on the basis that the tax is unlawful. These applications were deferred pending a decision by the Administrative Court on the question whether they should be consolidated with the judicial review claim brought by ICI and FCE. The application for consolidation has been rejected by the Administrative Court, so directions will need to be given for the future conduct of these applications.
The submissions of Six Continents
"It is impossible to foresee all eventualities, and I agree with Lord Nicholls that the proceedings in the High Court in respect of claims which should have been brought before the commissioners should be stayed and not struck out. This would have two advantages. It should encourage the revenue to co-operate in waiving or extending time limits and removing procedural and other obstacles to the commissioners' jurisdiction; and it would enable the High Court claims to be revived in the event of unforeseen difficulties arising before the commissioners which cannot be overcome."