United Kingdom


  • Service: Tax
  • Type: Press release
  • Date: 12/12/2013

European Court Judgment raises taxpayers’ hopes of rebates but is an “expensive blow” for HMRC, says KPMG 

  • Court of Justice of the European Union (CJEU) issues judgment following third preliminary reference in the Franked Investment Income Group Litigation Order (“FII GLO”)



The CJEU’s judgment in respect of the third reference in the FII GLO, released today determined unreservedly that the UK’s introduction of section 320 Finance Act 2004 (which sought to limit the length of time over which claims based on mistake of law could be made) was unlawful, offending EU principles of effectiveness, legal certainty and legitimate expectation.


Chris Morgan, head of tax policy and head of the EU law group at KPMG in the UK, said: “This result is potentially an expensive blow to HMRC. This is because many of the claimants in the FII GLO have lodged claims in the High Court for repayments of tax that run back until the beginning of the Advance Corporation Tax (ACT) regime in 1973. A series of judgments in this long running litigation have already determined that the UK’s previous tax treatment of dividends that were paid to UK parent companies by their overseas subsidiaries was contrary to EU law. Section 320 was intended to curtail the risk of such costs to HMRC in respect of UK tax rules that are, many years after their introduction, found by the CJEU to be incompatible with EU law.”


Chris continued “However the case does not represent a windfall for companies. ACT was always meant to be an advance payment of corporation tax to be set off against the main corporation tax liability.  As the claimants in the FII GLO were not able to offset the ACT, it effectively became a long term loan to the Exchequer. Today’s judgment confirms the loan must be repaid.”


Richard Doran, EU tax litigation specialist, at KPMG in the UK noted “However, this is not yet the end of the road for the claimants in the FII GLO. The case will return to the High Court in early 2014. This hearing should determine any outstanding issues between the parties, including how the claims should be valued.”


Section 320


Section 320 was introduced by way of an announcement of the Paymaster General on 8 September 2003 and was intended to prevent taxpayers from benefiting from the extended limitation period that applies to High Court claims based on mistake of law (“mistake claims”). Despite not being enacted until 24 June 2004, the restriction worked retroactively and applied to all relevant High Court claims for tax repayments issued on or after the date of the announcement.


Mistake claims allow taxpayers a limitation period of six years from the date on which the mistake is discovered, or could with reasonable diligence have been discovered. The time limit for the alternative remedy is a less beneficial six years from the date of the tax payment.




This is the third reference to the CJEU in the long running FII GLO. The taxpayers are claiming the old Advance Corporation Tax (ACT) rules were unlawful as they penalised companies investing abroad as opposed to in the UK. They therefore claim a refund of ACT they were unable to offset against UK corporation tax due to the fact that dividends were paid from profits which had been taxed abroad. They are also claiming that the old regime which applied to foreign dividends was contrary to EU law as it imposed an effectively higher tax charge on foreign dividends than UK dividends. So far the Courts have basically upheld the taxpayers’ claims.


The current CJEU ruling originates from the Supreme Court decision of 23 May 2012 which looked at two pieces of blocking legislation introduced as a result of taxpayer action seeking a repayment of tax under “mistake of law”. Under this cause of action the six year limitation period for filing a claim ran from the date the taxpayer discovered (or should have discovered) their mistake as opposed to the date the tax was paid which applied otherwise. The Government introduced two pieces of blocking legislation to prevent such mistake of law claims:


  • FA 2004, s320 which applied to actions brought on or after 8 September 2003; and


  • FA 2007, s 107 which applied to actions brought before 8 September 2003.


The Supreme Court decided unanimously that the FA 2007 legislation was contrary to EU law. However, it was divided on its view of the FA 2004 legislation and therefore referred the issue back to the CJEU.




For further information please contact:


Margot Cowhig, KPMG Corporate Communications

Tel:  0207 694 4246 Mobile: 07920 274856: margot.cowhig@kpmg.co.uk

KPMG Press Office: 0207 694 8773


Notes to editors.


About KPMG


KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and operates from 22 offices across the UK with over 12,000 partners and staff.  The UK firm recorded a turnover of £1.8 billion in the year ended September 2012. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. We operate in 156 countries and have 152,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity.  KPMG International provides no client services.



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