Detail of ECJ ruling on FII case disappoints taxpayers

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The European Court of
disappointed tax payers in the franked investment income
case today when it issued a complex ruling on the case that experts described as
‘mixed bag’.

The Court did rule that the UK should not be allowed to tax foreign dividends
at a higher rate than UK dividends, but added that various methods for achieving
such parity were acceptable.

The court said it would be acceptable to achieve such parity by credit or
exemption system. The UK currently operates a system for taxing foreign
dividends that could meet these requirements, which makes it likely that finer
details will be contested in further court action.

Jonathan Bridges of KPMG’s
EU law group said it was ‘disappointing’ that the ECJ had stopped short of
ruling that the UK should apply the same rules to both UK and foreign sourced

He said: ‘Achieving equanimity of treatment via a credit system may, on the
face of it, sound reasonable but it is not straightforward’.

The ruling will, however, have pleased the
Treasury , which
feared that the ruling could have cost the government between £7bn and £9bn.

The decision will allow the Treasury to implement a very narrow view of the
ECJ ruling and limit the financial impact of claims.

Further reading:

Read the full judgment

Treasury steels itself for massive tax hit from ECJ

Treasury faces tax rewrite as European challenges mount

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