Treasury faces tax rewrite as European challenges mount

The government will be forced to rewrite UK tax law at an unprecedented rate
in the next year as the number of ECJ tax cases dramatically escalate.

Companies and individuals are bringing claims against member states at such a
rate that the UK and other member states’ tax systems will face one major
challenge a week in 2007, experts have said.

Philip Baker QC, the international tax barrister from Grays Inn Tax Chambers,
made the claims at a conference last week.

‘The next 12 to 24 months are going to be very busy for the ECJ, which will
probably be dealing with one tax case a week. It is a substantial increase on
previous years,’ Baker said.

The government has been consulting on possible changes to UK tax rules as a
result of challenges made under the EC Treaty, the results of which could be
outlined in next week’s pre-Budget report.

But sources familiar with the cases have played down suggestions that the
chancellor may use the PBR to pre-empt the challenges.

The upcoming cases may not relate specifically to UK taxpayers, nor all of
them to UK tax rules, but key group litigation orders are set to impact in the
next 12 months, with claims from multi-nationals against the government running
into billions.

‘Each case against a member state will have wider implications,’ said Peter
Cussons, international corporate tax partner at PricewaterhouseCoopers.

A number of forthcoming cases involving other member states have already
emerged as having major consequences for the UK Treasury, which is bracing
itself for the impact of ECJ judgments on the Class IV Advanced Corporation Tax
case and the franked investment income case due in December.

A Treasury spokesman said the government would be keeping a close watch on
developments at the ECJ over the next year.

‘The tax and economic developments in other member states are important. We
have a number of teams that monitor international tax, as you would expect,’ the
spokesman said.