Treasury faces £1bn tax loss
With less than a week to go until the Budget, Gordon Brown is facing a devastating court action which could see the UK Treasury out of pocket to the tune of more than £1bn.
Link: Revenue accused in M&S case
On Tuesday lawyers acting on behalf of 30 companies were given the go ahead in the High Court for a group litigation order (GLO) to pursue the Inland Revenue for hundreds of millions in overpaid corporation tax.
Sources close to the case say, if successful, which is thought ‘highly likely’, Tuesday’s case could cost the government around £750m.
An advanced corporation tax GLO from March 2002 involving 160 company groups, including Hoechst and Pirelli, saw the Revenue on the losing end of a High Court decision which could, when completed, cost the taxman between £300m and £500m. The two cases would bring potential Revenue losses to more than £1bn.
Experts expect the number of companies involved to increase.
Lawyers will claim the 30 companies should be allowed to offset losses made by European subsidiaries against UK-earned profits.
This week’s court action comes on the back of the Marks & Spencer cross-border loss relief case, which Accountancy Age revealed in November last year. The department store claims that it is due £30m in overpaid corporation tax, and that the Inland Revenue was in breach of Article 43 of the EC Treaty.
QCs for lawyers Dorsey & Whitney will take the GLO forward in the courts after being approached by PricewaterhouseCoopers.
Given that the Budget will see Gordon Brown struggling with a deficit in government finances of £10bn, the losses from successful court actions have the potential to significantly affect the chancellor’s plans.
A source close to the case said: ‘The court has recommended that a GLO be made to permit a group of about 30 companies to proceed in litigation against the Inland Revenue for the recovery of tax under the same circumstances as M&S.’
Revenue lawyers said in court the case could ‘cost hundreds of millions’.