Deloitte and PwC disappointed at FII dividend case cap

Tax experts have expressed disappointment after a class action victory challenging the taxation of dividends to UK companies from overseas businesses was severely limited.

In the Franked Investment Income Group Litigation Order spearheaded by tobacco giant BAT, judges said only claims dating from 2004 should be considered, freezing out claims stretching back to 1973.

The UK government had previously suggested £7bn could be at stake.

The first issue rested on BAT claiming compensation for paying more UK corporation tax on dividends received from EU divsions than it would have paid on similar UK-based dividends.

Companies also claimed compensation for having to pay more advance corporation tax than they would have had to, had they received dividends from a UK business rather than those in other EU companies.

"Today’s ruling effectively closes the door on any common law remedy being available for corporation tax where claims fall outside the six year time limit, which is unexpected and very disappointing," said Peter Cussons, head of EU direct tax group, at PwC.

"Claimants with claims from 23 February 2004 onwards can still file a statutory claim, but as disputes can go as far back as 1973, this potentially leaves 31 years of ineligible claims with no remedy under common law."

Historically, a UK company which received a dividend from another UK business was exempt from corporation tax on the dividend. However a dividend from a non-UK, in particular an EU, division was not exempt, but liable for corporation tax.

Bill Dodwell, tax partner at Deloitte, said: "This is an immensely complicated case and HM Treasury and HM Revenue & Customs will be pleased by the Court of Appeal’s judgement, since it limits significantly claims which may be made."

UK companies felt they were being doubly hit because they had to pay out advanced corporation tax when distributing dividends but the incoming dividends from overseas companies had no ACT paid.

This left the UK companies unable to effectively reduce the amount of ACT they had stumped up in advance of their corporation tax bill, typically due up to 9 months later.

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