Multinationals seeking tax rebates from the UK government totalling billions
of pounds have taken heart from last week’s advocate general opinion in the
Advocate general Leendert Geelhoed rejected claims from Dutch companies last
week that they were unfairly discriminated against in not being allowed a half
tax credit on advanced corporation tax payments.
But in doing so, Geelhoed also indicated as a general point that non-resident
companies should not be discriminated against in their receipt of tax credits.
While ruling on the facts in the government’s favour on this advanced
corporation tax case – worth £1.5bn to the UK treasury – such a point of view
would lead to the same advocate general ruling in favour of companies in the
forthcoming franked investment income (FII) case. The FII case is worth £5bn to
the UK, according to government figures.
Geelhoed said: ‘To the extent that… the UK exercises jurisdiction to levy UK
income tax on dividends distributed to non-residents, it must ensure that these
non-residents receive equivalent treatment – including tax benefits – as
residents subject to the same UK income tax jurisdiction would receive.’
A briefing note on the case from KPMG said:‘[The decision] strongly indicates
that individual shareholders should be entitled to a tax credit in the same way
as on UK dividends.’
Geelhoed ruled on the case last week, with initial indications showing that
the case was further evidence of a shift in sympathies at the court from
companies pursuing the exact application of free market rules, to governments
seeking to defend their tax revenues.
Bill Dodwell, tax partner at Deloitte, said: ‘This is another welcome opinion
for European governments. It follows the trend over the past year, where few
claimants have succeeded in winning large tax refunds. This opinion was largely
expected… the claimants’ argument that full tax credits were due was
These were separate strands to the case, one involving half credits and one
full credits. The advocate general said that the area was one where
predictability for governments was ‘crucially important’.
Observers have noted that Geelhoed could have a crucial impact in several of
the group litigation order cases going through the ECJ, meaning that his opinion
on this case has been closely watched.
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