• Service: Tax, International Tax
  • Type: Regulatory update
  • Date: 12/12/2013

United Kingdom - Tax refund-procedure changes incompatible with EU law 

December 12:  The Court of Justice for the European Union (CJEU) today issued a judgment concluding that EU law precludes UK measures that had the effect of depriving taxpayers—without notice and retroactively—of a remedy for a refund of tax that was levied in breach of EU law.

The CJEU further concluded that merely because a second remedy is available that allows taxpayers to recover the tax does not counteract what were the negative consequences of the law change that repealed the more favorable remedy.

The case is: Test Claimants in the Franked Investment Income Group Litigation v. Commissioners of Inland Revenue, C-362/12 (12 December 2013). Read the CJEU judgment


According to today’s release(PDF 114KB) from the CJEU, English law before 24 June 2004 provided two avenues for recovering tax levied in breach of EU law:

  • The first one was an action for recovery of tax unlawfully levied, for which the limitation period was six years from the date of payment of the tax
  • The second permitted the restitution of sums paid under a mistake of law, with a limitation period of six years from the date the claimant discovered the mistake of law or could with reasonable diligence have discovered it.

UK law enacted on 24 June 2004 revised the second cause of action, so that the six-year statute of limitations would not apply in relation to a mistake of law relating to a taxation matter within the remit of the Commissioners of Inland Revenue.

The new rule applied retroactively to actions brought on or after 8 September 2003 (i.e., the date when the UK government announced its intention to adopt the legislation).

ACT regime challenge

The CJEU, in a March 2001 judgment, found that certain aspects of the UK’s advance corporation tax (ACT) regime—effective from 1973 to 1999—were incompatible with the freedom of establishment and the free movement of capital.

Following that judgment, a multinational media and digital communications group filed a refund claim on 8 September 2003, seeking to recover ACT wrongly paid between 1973 and 1999. The limitation period applicable for that action began to run on 8 March 2001 (i.e., the date of the CJEU judgment).

Because the retroactive effective date of the UK law (24 June 2004) meant that the taxpayer could no longer bring a claim for recovery on the basis of the second cause of action, the taxpayer group turned to the UK courts, arguing that denying it the benefit of the more favorable rules on limitation applicable to such an action was contrary to a number of principles of EU law.

In that context, the UK Supreme Court referred the case to the CJEU and asked whether it is compatible with the EU law principles of effectiveness, legal certainty, and the protection of legitimate expectations to remove the second cause of action without notice and retroactively.

CJEU judgment

In today’s judgment, the CJEU concluded that a national law curtaining, retroactively and without any transition relief, the period within which a refund / tax repayment could be claimed for taxes collected in breach of EU law, was incompatible with the principle of effectiveness.

The CJEU also found that the law infringed on the principles of legal certainty and the protection of legitimate expectations.

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