17 February 2023

Gallaher Limited -v- HMRC

In the last UK direct tax case to be referred to the Court of Justice of the European Union, the Court has considered the compatibility of the group transfer rules (specifically section 171 TCGA 1992 and sections 775-776 CTA 2009) with EU law. The background to the case concerns transfers of assets by Gallaher Ltd to other members of the Japan Tobacco Inc. group of companies who are resident in Switzerland and the Netherlands. The total consideration for the transactions was over £2.4 billion. The Court has held that:

  1. National legislation such as the group transfer rules which applies only to groups of companies does not fall within the scope of free movement of capital (Article 63 TFEU) and falls only within the scope of freedom of establishment (Article 49 TFEU).
  2. The legislation does not entail any restriction of freedom of establishment on a transfer from a company resident in a Member State to a sister company resident in a third country.
  3. The group transfer rules are justified by the need to maintain a balanced allocation of the power to impose taxes between the Member States in circumstances in which the taxpayer received consideration equal to the full market value of the assets.

Rupert Baldry KC and Ben Elliott acted for HMRC.

To view a copy of the decision please click here