B.A.T. Industries p.l.c. and Ors v HMRC
The First-tier Tribunal (FTT) dismissed the appeal brought by the British American Tobacco Group against the imposition of a withholding tax on restitution interest under Part 8C Corporation Tax Act 2010.
Part 8C Corporation Tax Act 2010 (introduced by Finance No.2 Act 2015) created a ring-fenced charge at a rate of 45% on interest, not limited to simple interest at a statutory rate, paid in respect of common law claims in restitution. The rationale for the charge, it was said, was that had the awards of interest been received and taxed year-by-year over the period of the claim, they would have been subject to tax at higher corporation tax rates than the current rate and the compounding effect would have been reduced by annual charges.
The FTT rejected BAT’s submission that the tax infringes a number of EU law principles, including the principle of effectiveness and the right to an adequate indemnity for losses arising from a breach of EU law. The Appellants argued unsuccessfully that it is for the courts to calculate taxpayers’ losses due to breaches of EU law based on their individual circumstances and not for the legislator to seek to claw back part of those awards via a one-size fits all tax. However, the FTT considered that a retrospective tax on a court award would only breach EU law if it was confiscatory in nature, which the 45% tax was not. BAT had also argued that, even if a ring-fenced tax on Court awards did not by its nature breach EU law, 45% was a disproportionate rate, since it was set by reference to the nominal rate of tax and that most if not all of the affected taxpayers would have reduced their tax liability through the availability of reliefs. The FTT rejected this argument, finding that BAT had not proven that they had not received a windfall and that it was rational and proportionate to set a tax by reference to the nominal rate. The FTT did not consider it appropriate to refer any questions to the CJEU since it found that the law was clear. The next stage is an appeal to the Upper Tribunal.
This article appears in the JHA July 2017 Tax Newsletter, which also features:
