Success for the taxpayer
On 5 October 2016, Henderson J handed down his judgment in Six Continents, a case concerning dividends from an EU subsidiary enrolled in the FII GLO and the notional credit for foreign tax which a claimant is entitled to when calculating restitution due for unlawfully levied Case V corporation tax. The judgment found largely for the taxpayer.
The judgment holds that Six Continents are entitled to a credit at the foreign nominal rate (FNR) on dividends where the underlying foreign profits incorporated:
The court found that the accounting profits derived from adjustments and the profits arising from the liquidation of a subsidiary of Six Continents were in principal subject to the Dutch standard rate of corporation tax. Notwithstanding the fact that most of these profits were exempt (or removed from the base), only a tax credit at the FNR is capable of eliminating economic double taxation, this being the objective of the decision of the European Court of Justice in Test Claimants in the FII Group Litigation v Revenue and Customs Commissioners [2013] STC 612.
However, Six Continents were not entitled to a credit at the FNR in relation to dividends sourced from the share premium account of a Dutch subsidiary. Henderson J held that this was not a case in which the UK taxed returns of capital made by UK-resident companies more advantageously than it taxed similar returns of capital made by non-resident companies. Rather, the return of capital by a non-UK resident company is outside the scope of UK tax altogether. Therefore, the Case V charge on Dividends was, to this extent, compliant with EU law.
The decision is helpful to taxpayers seeking restitution of DV corporation tax levied on controlled holdings.
A copy of the judgment can be found here.
This article appears in the JHA October 2016 Tax Newsletter, which also features:
