Deutsche wins landmark limitation battle

house of lords

Deutsche Morgan Grenfell has won its battle to claim back tax paid before the
traditional six-year limitation, in a judgment that could massively increase
group litigation order claims against the UK government.

House of Lords
voted four to one this morning to allow the claims, which
relate to the early 1990s, and could open the way for claims dating back to

HMRC stated in arguments to the House of Lords that the cost to the Treasury
could run into billions of pounds.

Rupert Shiers, of the EU Tax Litigation group at McGrigors, added however:
‘All is not lost for HMRC – the multinationals will now have to prove that they
were indeed operating under a mistake, rather than acknowledging there was doubt
as to whether the tax was due but deciding nonetheless not to challenge HMRC,
when paying the overpaid tax in question.’

Bill Dodwell, corporate tax partner at Deloitte, said that after today’s
ruling the focus would now turn to the case of Sempra Metals, which will
consider whether the interest HMRC has to pay on claims is simple interest or
compound interest.

Dodwell said the decision in favour of Deutsche Morgan Grenfell did clear up
confusion around time limits for claims, but added that companies would still
have to show that there had been an error on the part of HMRC

‘The decision clears up some of the confusion on time limits but it remains
to be seen what evidence will be needed for companies to prove that there has
been ‘a mistake” and also when that mistake could “with reasonable diligence
have been discovered”,’ Dodwell said.

HMRC said it was not releasing a formal statement on the decision, but did
say that it would contest any claims on the back of the Deutsche decision on a
case by case basis. The taxman also said that it had attempted to protect the
Exchequer from similar claims in the 2004 Finance Act 

‘The Government has already acted in the 2004 Finance Act to protect the
Exchequer from any future claims of this nature. The impact of this decision on
existing claims will depend on the specific details, on a case by case basis,’
HMRC said in a statement.

KPMG’s Jonathan Bridges, however, said the blocking leglisation introduced in
the 2004 Finance Act would be challenged after the Deutsche Morgan Grenfell

He said the legislation would be challenged on the grounds that it had been
introduced with immediate effect and did not allow for a transition period from
the old rules to the new ones.  

Further reading:

rest on House of Lords tax decisions

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