TaxCorporate TaxTreasury faces bill for billions

Treasury faces bill for billions

Billions of pounds of public money will be put at risk tomorrow (Friday), when lawyers challenge 'unjustified' legislation rushed in by the UK to counter the burgeoning number of cases that use European law to claim back overpaid tax.

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Some of the world’s largest companies, including Coca Cola, IBM and BMW, stand to benefit from the legal challenge. If successful, it could massively inflate the estimated £20bn at stake in six group litigation orders (GLOs) currently being fought in European courts.

Tomorrow’s hearing is the start of a claim that contests the six-year limit imposed by paymaster general Dawn Primarolo on how far back claims may go. Primarolo rushed through the legislation in September 2003 to stem the tide of claims using European law to undermine the UK tax system.

But experts believe that, because the Treasury introduced the legislation without a transitional period, it contravenes the Human Rights Act.

‘I’m not surprised it’s taking place,’ said tax barrister Patrick Cannon. ‘The attempt to limit claims to six years was not justified.’

Lawyers hope to use a judicial review to challenge the legislation, following a case management judgement scheduled for tomorrow. While only a housekeeping exercise, the judgement marks the beginning of one of the most important tax cases of recent years.

One expert close to the case said there were hundreds of companies that had valid claims effectively ruled out because of the legislation. Some go as far back as the seventies and run into ‘tens of millions’ of pounds.

The latest legal challenge to the UK’s tax regime could be one of the most fundamental and damaging.

Not only could it open the way for hundreds of other claims for overpaid tax, but it could also prove that the very basics of British law could be challenged under European law.

‘This won’t please the government,’ said Mike Warburton, senior tax partner at top 10 firm, Grant Thornton. He went on to say that current claims from some of GT’s clients ran into ‘pretty big numbers’.

So far, four of the six GLOs have been referred from British courts to the European Court of Justice. A fifth – the so-called controlled foreign companies and EU dividend GLO – is expected to be sent to the ECJ before the end of the month when the hearing begins at the High Court on 24 January. The Treasury was unable to comment.

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