‘Mistake of law’ defeat leaves HMRC chastened but unbowed

The House of Lords ruled that DMG should be allowed to claim back advanced
corporation tax going beyond the standard six-year cut-off, because the European
Court of Justice had ruled that the tax was a mistake of law.

The government was so nervous about the possibility of losing the case that
it passed legislation in the 2004 Finance Act preventing other companies from
filing similar claims

Now that DMG has won its case, the consequences for the Exchequer are
enormous. Any company that has paid tax as a result of a mistake of law could
claim the sums paid going all the way back to 1973, when the UK joined the EU.
In its arguments before the House of Lords
HMRC estimated that the ruling could cost
the government billions of pounds.

All is not lost for
HMRC, however, and any
companies excitedly queuing up to claim back their share are realising that the
DMG decision does not automatically mean an easy pay day.

Jonathan Bridges from KPMG’s EU law team said that companies will have to
show that any tax they now wish to claim back was paid because of a genuine

‘If a company doubted whether it should have paid a tax, but paid anyway
without challenging the Revenue then, arguably, it has not made a mistake. The
Revenue could dispute further claims on these grounds,’ Bridges said.

Judging by HMRC’s response to the DMG decision, it seems that Bridges may be
right. The taxman did not provide specifics, but did suggest that it would fight
any similar claims fiercely.

In a statement, HMRC said: ‘The government has already acted in the 2004
Finance Act to protect the Exchequer from any future claims of this nature. The
impact of this decision on existing claims will depend on the specific details,
on a case by case basis.’

Don’t count on payments from any big claims just yet.

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