Our Insights

The Convention between the UK and the Republic of Kosovo for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital was signed on 4 June 2015.

The agreement is not yet in force. This will happen when both countries have completed their Parliamentary procedures and exchanged diplomatic notes.

2015 Kosovo – UK Double Taxation Convention

The ECJ has ruled that the new German excise duty on nuclear fuel is permissible under EU law.

The law in question introduced a duty on the use of nuclear fuel for the commercial production of electricity for the period from 1 January 2011 to 31 December 2016. Kernkraftwerke Lippe-Ems challenged the compatibility of the duty with EU law before the Finanzgericht Hamburg, who referred the question to the ECJ.

The ECJ held as follows:

• Nuclear fuel was not exempt from taxation under the Directive on taxation of energy products and electricity (Council Directive 2003/96/EC), as it was not on the list of exemptions in that Directive nor could it be exempted analogously. Under EU law both electricity sources and the consumption of electricity itself could be taxed.
• The Directive on the general arrangements for excise duty (Council Directive 2008/118/EC) did not preclude the German duty on nuclear fuel, which was levied on the use of such fuel for the commercial production of electricity. As it was not levied (directly or indirectly) on the consumption of electricity or that of any other product subject to excise duty, the German duty did not constitute excise duty or “other indirect taxes” on that product within the meaning of the Directive.
• The German duty did not amount to state aid as it was not selective. Methods of producing electricity (except that based on nuclear fuel) were not affected by the duty.
• The Treaty establishing the European Atomic Energy Community did not preclude the duty. The duty was not a charge with equivalent effect to a customs duty. It was levied not because nuclear fuel had crossed a frontier, but because it was used for the commercial production of electricity, irrespective of the source of that fuel.

Case C-5/14 Kernkraftwerke Lippe-Ems GmbH v Hauptzollamt Osnabrück

The Administrative Court has held that HMRC’s decision to repay VAT would unjustly enrich a supplier in administration where the claimant was an unsecured creditor.

The claimant had erroneously paid VAT to the supplier, who then accounted for the VAT to HMRC. Under section 80(1) of the Value Added Tax Act 1994 (VATA) only the supplier could be repaid by HMRC, and would then pass the repayment on to the claimant. As the supplier was in administration, the repayment would be distributed to its creditors, of which the claimant was an unsecured one.

Supperstone J held as follows:

• Customs and Excise Commissioners v McMaster Stores (Scotland) Ltd (in receivership) [1995] STC 846 (a Scottish case) should no longer be regarded as good law. The legal landscape had changed. The decision of the ECJ in Reemtsma Cigarettenfabriken GmbH v Ministero delle Finanze [2008] STC 3448 had established that the customer who ultimately bore the burden of the VAT had a right under EU law to recover the full amount of the mistakenly paid VAT directly from HMRC.
• In Investment Trust Companies (In Liquidation) v The Commissioners for Her Majesty’s Revenue and Customs [2015] EWCA Civ 82 the Court of Appeal endorsed the application of Reemtsma in domestic courts.
• Under section 80(3) VATA the UK had provided the machinery to ensure fiscal neutrality and the mechanism to enable the monies to be paid directly to the claimant. Repayment to the supplier would amount to unjust enrichment under section 80(3) VATA.

R (Premier Foods (Holdings) Ltd) v HMRC [2015] EWHC 1483 (Admin), 21 May 2015

HMRC have decided to temporarily suspend the published list of Recognised Overseas Pension Schemes (“ROPS”). They will publish an updated list on 1 July 2015. They state that they are now aware that there are pension schemes that have appeared on previous lists that do not meet the Pension Age Test, one of the requirements to be a ROPS. Pension schemes established in countries that can be required to make payments before age 55 in circumstances other than ill health will not be able to meet the Pension Age Test if the scheme allows the member to receive transfers before age 55.

Schemes that do not meet the requirements to be a ROPS cannot be a Qualifying Recognised Overseas Pension Scheme (“QROPS)”. HMRC state that if a scheme has ceased to be a QROPS, individuals who transferred their pension savings to that pension scheme before it ceased to be a QROPS will be subject to UK tax on the same basis as if the scheme had remained a QROPS. They will be able to remain as members and receive a pension paid from the sums transferred without automatically incurring additional UK charges.

HMRC do not, however, state what will happen in cases where individuals who transferred their pension savings to a scheme that has ceased to be a QROPS did so prior after such a scheme ceased to be a QROPS but before it was removed from the published list of ROPS. HMRC may therefore seek to raise assessments of 55% of the pension savings transferred in such cases.

This article appears in the JHA June 2015 Tax Newsletter, which also features:

1. ECJ Judgment in Case C-686/13 X AB v Skatteverket by Alessia Riposi
2. Revenue and Customs Brief 9 (2015): HMRC position following Court of Appeal judgment in Littlewoods (compound interest on overpaid VAT) by Katy Howard

The EU has extended its sanctions regime for Syria, and has also made amendments to prohibitions and listings.

The restrictive measures are further extended until 1 June 2016.

As regards the existing EU prohibition on the trade in cultural property and other items removed from Syria, this now applies to items illegally removed from Syria since 15 March 2011 (by contrast with the earlier provision, since 9 May 2011).

Finally, General Muhamad (Head of the Syrian Military Intelligence and former Deputy Head of Political Security) has been added to the sanctions list. Rustum Ghazali has been removed from the list. The entries for 10 persons have been amended.

Council Regulation (EU) 2015/827 of 28 May 2015

Council Implementing Regulation (EU) 2015/828 of 28 May 2015

Council Decision (CFSP) 2015/837 of 28 May 2015

On 10 June 2016 the ECJ gave judgment in the case of X AB v Skatterverket and held that Swedish tax legislation, which provided that neither capital gains nor capital losses on the transfer of “holdings for business purposes” were to be taken into account for corporation tax purposes, was compatible with freedom of establishment. The Court noted that the legislation did not treat investments made in another Member State less favourably, because capital gains and capital losses, including currency losses, were in principle always disregarded, regardless of where the companies were established. However, according to the Court, even assuming that the non-deductibility of capital losses might be likely to disadvantage a company which has invested in foreign shares because of the exposure to currency losses, it follows from the Member States’ competence in tax matters that the provisions on freedom of establishment cannot be interpreted as requiring Member States to adapt their own tax systems in order to ensure that companies are taxed at the same level wherever they have chosen to establish, in order to take account of possible exchange risks.

In reaching this conclusion the Court distinguished this case from Deutsche Shell on the basis of the different legal context: unlike this case, the national legislation at issue in Deutsche Shell provided that, as a general rule, currency gains were taxed and currency losses were deductible.

This article appears in the JHA June 2015 Tax Newsletter, which also features:

1. Temporary suspension of the Recognised Overseas Pension Scheme notifications list by Katy Howard
2. Revenue and Customs Brief 9 (2015): HMRC position following Court of Appeal judgment in Littlewoods (compound interest on overpaid VAT) by Katy Howard

HMRC have issued a Revenue and Customs Brief setting out their position following the Court of Appeal judgment in Littlewoods Ltd & Ors v HM Revenue and Customs [2015] EWCA Civ 515. We reported on this judgment in our May newsletter.

HMRC seek to distinguish the facts and circumstances of the Littlewoods case from other High Court claims for compound interest on the basis that the Court of Appeal “maintained that statutory provisions will provide an adequate amount of interest in many cases, therefore it is not the case that compound interest will always be payable where there has been an overpayment of tax”. They remain of the view that there is no clear method for calculating the level of interest which provides adequate indemnity to claimants, which is the requirement of EU law.

HMRC have also confirmed that they are seeking leave to appeal to the Supreme Court and indicate that they will apply for any compound interest claims already lodged in the High Court or County Court to continue to be stayed and for any new claims to be stayed. Their position in relation to Tribunal appeals also remains unchanged.

HMRC suggest that they will reconsider their position in the event that permission to appeal to the Supreme Court is not granted.

This article appears in the JHA June 2015 Tax Newsletter, which also features:

1. ECJ Judgment in Case C-686/13 X AB v Skatteverket by Alessia Riposi
2. Temporary suspension of the Recognised Overseas Pension Scheme notifications list by Katy Howard

On 27 May 2015 the EU and Switzerland signed an agreement on the automatic exchange of financial account information. This aims to improve international tax compliance.

From 2018 the EU and Switzerland will automatically exchange information on the financial accounts of their respective residents. This arrangement is intended to address situations where a taxpayer seeks to hide capital representing income or assets for which tax has not been paid.

The agreement ensures that Switzerland applies strengthened measures that are equivalent to the EU directive, as upgraded in March 2014. It also complies with the automatic exchange of financial account information promoted by a 2014 OECD global standard.

The EU and Switzerland must conclude the agreement in time to enable entry into force on 1 January 2017.

Press release, EU-Switzerland taxation agreement signed in joint effort to improve tax compliance

EU-Switzerland agreement on the automatic exchange of financial account information

The High Court has granted an interim injunction to restrain a breach of contract and upheld the application of the American Cyanamid test except in extreme circumstances.

The case involved an application for an injunction to restrain an alleged breach of contract. Hildyard J held as follows:

• The only exception to the application of the American Cyanamid test was “where the relief sought, if granted, would as a practical matter foreclose any further assessment of the true merits of the legal claim and put an end to the action because such relief effectively decides the contest”. This was not the case here, as the trial would be expedited.
• If the applicant delayed the injunction application, this may affect the status quo of the case; “especially in the context of applications to restrain breaches of covenant and invasion of proprietary rights and interests, the relevant status quo is that obtaining immediately prior to the commencement of the breaches alleged, rather than the date of the hearing”.
• The injunction granted allowed the respondents to carry on some business (subject to conditions) until the date of the trial, so that they would not be driven into liquidation, which would effectively eradicate the applicant’s claim for damages or profits.

Allfiled UK Ltd v Eltis and others [2015] EWHC 1300 (Ch), 19 May 2015

It has been reported that Philip Morris International and British American Tobacco have sued the UK government over standardised packaging proposals.

The proposed laws would provide for cigarettes to be sold in unbranded packaging from May 2017, following a transition period of one year. From 2016, health warnings will have to cover up to 65% of cigarette packs under EU law. The tobacco companies argue that this would be an infringement of their intellectual property (trade mark) rights, more specifically that the measures would amount to a deprivation of property in breach of UK and EU law.

The Times reports that Philip Morris plans to rely on a legal opinion drafted by Lord Hoffman, which argues that banning branding could be a breach of trade mark law, and that blocking an internationally recognised trade mark in the UK could breach free movement of goods within the EU. It is further reported that legal papers filed in the High Court hold that the regulations do not provide fair compensation for depriving Philip Morris of its property.