Deloitte and PwC disappointed at FII dividend case cap

Tax experts have expressed disappointment after a class action victory
challenging the taxation of dividends to UK companies from overseas businesses
was severely limited.

In the Franked Investment Income Group Litigation Order spearheaded by
tobacco giant BAT, judges said only claims dating from 2004 should be
considered, freezing out claims stretching back to 1973.

The UK government had previously suggested £7bn could be at stake.

The first issue rested on BAT claiming compensation for paying more UK
corporation tax on dividends received from EU divsions than it would have paid
on similar UK-based dividends.

Companies also claimed compensation for having to pay more advance
corporation tax than they would have had to, had they received dividends from a
UK business rather than those in other EU companies.

“Today’s ruling effectively closes the door on any common law remedy being
available for corporation tax where claims fall outside the six year time limit,
which is unexpected and very disappointing,” said Peter Cussons, head of EU
direct tax group, at PwC.

“Claimants with claims from 23 February 2004 onwards can still file a
statutory claim, but as disputes can go as far back as 1973, this potentially
leaves 31 years of ineligible claims with no remedy under common law.”

Historically, a UK company which received a dividend from another UK
business was exempt from corporation tax on the dividend. However a dividend
from a non-UK, in particular an EU, division was not exempt, but liable for
corporation tax.

Bill Dodwell, tax partner at Deloitte, said: “This is an immensely
complicated case and HM Treasury and HM Revenue & Customs will be pleased by
the Court of Appeal’s judgement, since it limits significantly claims which may
be made.”

UK companies felt they were being doubly hit because they had to pay out
advanced corporation tax when distributing dividends but the incoming dividends
from overseas companies had no ACT paid.

This left the UK companies unable to effectively reduce the amount of ACT
they had stumped up in advance of their corporation tax bill, typically due up
to 9 months later.

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