Treasury heads for EU clash over tax credit case

The Treasury could be heading for a new clash with the European Union over a
tax case decided by the European Court of Justice more than a year ago.

The government is rejecting claims for tax credits on EU dividends, a
practice the ECJ ruled unlawful in relation to the Finnish taxpayer Petri
Manninen in September 2004.

Advisers said that claims they had prepared on the basis of the Manninen
decision, which ruled that Finnish taxpayers could have the same credits for EU
dividends they received for Finnish dividends, were being rejected.

HM Revenue & Customs told Accountancy Age: ‘The Manninen case
involved a preliminary ruling concerning Finnish law. HMRC’s view is that the
UK’s taxation of dividends does not give rise to discrimination or to an
unjustified restriction on EC single market freedoms.

‘The UK taxation of the dividends system fully conforms with international

The move is set to cause a further row over the UK tax system’s compatibility
with EU law, perhaps with a test case.

Advisers, meanwhile, said they were frustrated that the UK consistently
failed to observe ECJ judgments until they related directly to a UK taxpayer,
and some have suggested the European Commission could be called upon to clamp
down on the Treasury’s refusal to comply with EU rules.

John Dewhurst, chairman of the Chartered Institute of Taxation’s EU and human
rights working group, said: ‘If there is a complaint made, the commission can
take the matter into its own hands.’

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