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Two German companies, Hoechst and Metallgesellschaft, have cases at the European Court of Justice arguing that the United Kingdom's advance corporation tax regime contravened the principle of 'freedom of establishment' in the Treaty of Amsterdam (formerly Rome).
United Kingdom subsidiaries of overseas companies were obliged to pay advance corporation tax in respect of dividends to their overseas parents, whilst dividends paid to United Kingdom parent companies suffered no such charge because they were within the tax definition of intra group.
The companies now have the benefit of a favourable Opinion from the Advocate General given on 12 September, finding that the imposition of advance corporation tax in these circumstances was indeed discriminatory.
It remains to be seen if the decision will be upheld by the European Court of Justice, but if so there will be major implications for the United Kingdom Inland Revenue.
In particular, its apparent policy of ignoring the implications of European law in relation to our tax system, unless and until challenged in particular cases, may need to be replaced with a more proactive stance.
If the European Court of Justice upholds the Opinion of the Advocate General, other multi-national groups will no doubt follow suit with claims for interest on the advance corporation tax payments of their United Kingdom subsidiaries, and the repayment of that tax, to the extent that it could not be recovered against mainstream corporation tax.
More coverage of the Advocate General's Opinion is planned for an issue of Taxation shortly.
