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Legal 500, 2018

13 November 2012

ECJ gives judgment in the FII Group Litigation

13 November 2012

ECJ gives judgment in the FII Group Litigation

The ECJ has now given judgment in the FII Group Litigation (second reference) brought by multinational corporations with headquarters in the UK.  The ECJ held in favour of the Claimants on all of the main issues –
(i)                  The UK’s Schedule D V regime for taxing dividends from overseas was unlawful, as being incompatible with Articles 56 (Freedom of Establishment) and 63 (Freedom of Movement of Capital) of the TFEU;

(ii)                The UK’s Franked Investment Income regime was likewise incompatible with those Articles, irrespective of the level in the group at which ACT was payable and overseas corporation tax was payable;

(iii)               Corporation tax or ACT unlawfully levied because of the incompatibility with those articles has to be repaid as a matter of restitution (and not as a matter of damages, which would require a higher evidentiary threshold);

(iv)              Article 63 (which extends to movements of capital from outside the EU) is separately engaged where the tax legislation in question is not confined to group structures.  Accordingly the unlawfulness could extend to dividends received from companies located outside the EU (although this would be subject to the “standstill” exception provided by Article 64, where applicable).

The case will now resume in the UK courts where the decision of the ECJ will be applied.
Graham Aaronson QC (instructed by Dorsey & Witney) was the lead counsel for the Claimants. David Ewart QC and Rupert Baldry QC appeared for HMRC.

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