The taxman is facing a production line of cases brought by car giant Ford.
The dispute could see the agency return almost £77m of corporation tax after
falling foul of a 35-year-old rule allowing US companies to be treated the same
as UK companies in claiming loss relief.
The two sides had been duking it out at the first tier tax tribunal as Ford
tried to claim relief for losses sustained between two of its UK divisions,
using a treaty which operated until 2000.
However, HMRC was beaten by the non-discrimination clause in the treaty after
failing to convince judges that the two divisons, Ford Motor Company Limited UK
and FCE Bank, were not members of the same group.
Treaties with non-discrimination articles effectively trump domestic
legislation. In this case it allowed a US company with UK divisions to be given
the same breaks as a UK company with subsidiaries here, in claiming tax relief
In deciding the non-discrimination rule applied, the judges said HMRC had not
recognised the shareholding between the two subsidiaries and their US group
The case reinforces the fact that the agreements within treaties can trump
domestic legislation, advisers say.
“This case shows again that treaties are meant to override domestic
legislation and that the way to read them is as legislation,” said John Whiting,
tax policy director at the CIoT.
Ford claimed group relief on £538,521 of losses sustained in 1994 by FCE.
Excluding interest this will see HMRC repay £177,712.
This may not be the largest payout HMRC has ever made, but the eleven other
wrangles, relating to other accounting periods and divisions including Jaguar,
mean the total racks up to £76.6m if Ford were to win all of the disputes.
Ford’s win also has a bearing on how much up-front money it can claw back
because the repayments received from HMRC would “displace” advance corporation
The amounts of displaced (or “unutilised”) ACT would top more than £60m, the
tribunal said in its decision.
But despite being beaten at this stage there may be some better news on the
horizon for HMRC. “The House of Lords doesn’t like invoking non-discrimination
rules,” said Bill Dodwell, head of tax policy at Deloitte. “It’s absolutely true
that treaties have that effect on legislation but I’m not convinced the result
will stay the same when it goes higher up.”
HMRC said it is “considering the implications of the decision” and it would
be seeking leave to appeal.
Does Darwin's theory apply to taxation? Colin ponders...
The UK tax gap fell in 2014-15 to its lowest-ever level of 6.5%, revealed official statistics published today
Changes to the tax system is urged to support the growth of entrepreneurs, found a report from the Grant Thornton UK, the Institute of Directors, and the Prelude Group
The EC has been instructed to draft a European Union (EU) directive authorising an EU financial transaction tax, which would apply to ten of the EU’s 28 member states