European Court to rule on tax repayment claim limit

THE EUROPEAN Commission has referred the government to the EU's Court of Justice for abolishing the "remedy for repayment of taxes paid in mistake of law" without proper transitional rules, the ICAEW institute said.

In 2006 the House of Lords ruled in the case Deutsche Morgan Grenfell Group v HM Commissioners of Inland Revenue and another, that the six-year limitation period for bringing a claim against HM Revenue and Customs for payments of tax that had been made under a mistake of law must run from the date the mistake was discovered rather than the date the payment was made.

This would potentially give taxpayers a much longer period to reclaim tax.

The government argued that this was unfair and removed the extended period provided by the mistake of law provisions contained in section 32 of the Limitation Act 1980, the ICAEW said.

The new legislation did allow claims for relief that were specifically awaiting the 2006 decision of the House of Lords but apart from that there were no transitional measures in Finance Act 2007.

Under European Union rules, national rules on claiming tax repayments should not be made impossible or excessively difficult to benefit from. The lack of transitional provisions is believed by the European Commission to contravene this principle.

In September 2010, the Commission formally requested that the UK change the provisions in Finance Act 2007 to provide for appropriate transitional relief. The UK government refused and the matter will be heard by the Court of Justice of the EU.