The implications of this CJEU judgment for claimants with outstanding Foreign Income Dividend claims.
On 14 September 2017 the Court of Justice of the European Union (CJEU) issued a judgment in respect of The Trustees of the BT Pension Scheme v HM Revenue and Customs following a reference from the Court of Appeal. The substantive point of law on whether or not the pension funds should have been able to recover dividend tax credits on Foreign Income Dividends (FIDs) was referred. The CJEU ruled shareholders in receipt of FIDs, who are not subject to income tax in respect of dividends, should have a remedy which allows payment of a tax credit. This is a positive development which confirms there was a breach of EU law.
Previously, the Trustees of the BT Pension Scheme (BTPS) were successful in establishing before the Upper Tribunal that the UK breached EU law in not providing payable tax credits in respect of overseas dividends (Manninen claims) and foreign income dividends (FIDs claims) paid by UK companies (the substantive issues). HMRC however successfully argued that all but one of BTPS' statutory claims (1997/98 tax year) were out of time. The Court of Appeal granted both parties permission to appeal that decision. This allowed HMRC to try and overturn BTPS' success on the substantive issues and BTPS to put forward arguments that claims were in time.
Following the initial Court of Appeal hearing which considered UK domestic legislation arguments put forward by BTPS to extend time limits, a second Court of Appeal hearing took place in June 2015 and considered BTPS’ EU law based time limit arguments and also HMRC’s appeal on the substantive issues.
The Court of Appeal dismissed BTPS’ EU law based time limit arguments. Therefore only the FIDs claim in respect to tax year 1997/98 is considered in time. All other FIDs claims and all Manninen claims are considered out of time. On the substantive issues in respect to the 1997/98 FIDs claims, the Court of Appeal decided to refer certain matters to the CJEU.
The questions referred to the CJEU included whether Article 63 (free movement of capital) is the appropriate provision when considering shareholders rights and also a question regarding whether EU law imposes any requirements as to the remedy for FIDs claims.
On 14 September 2017, the CJEU found in favour of BTPS on all points referred which is a positive development and confirms there was a breach of EU law when refusing tax credits on FIDs. The case will now go back to the Court of Appeal for a ruling. Although the CJEU judgment was not asked to consider time limits, there are some helpful comments in respect of remedies which could assist claimants in the future. Further, the confirmation that there had been a breach of EU law may also assist any potential future litigation in respect to Manninen claims which the Court of Appeal previously considered out of time.
For further information please contact: