The High Court judgement in the above case has been released. The brief CCH summary of the case highlights that the tax payer won on the ACT and interest points (i.e. should repayment interest be calculated on a simple or a compound basis)
A copy of the decision is at
What strikes me about the decision is that it seems as if the tax payer lost on the question of the treatment of portfolio dividends. I've reproduced the relevant part of the judgement below.
"Equal treatment of foreign dividends could therefore be achieved by
granting a credit based on the foreign nominal rate but capped at the UK
policyholder rate. Since section 790 already provided for the grant of
tax credits, in the case of both portfolio and non-portfolio dividends,
the grant of a further tax credit for portfolio dividends would not go
against the grain of the UK tax legislation. Nor would it require the
court to make policy decisions for which it was not equipped because the
sole purpose of the tax credit would be to secure compliance with
authority from the Court of Justice of the European Union in which the
UK tax system has been held to infringe article 63. In reaching that
conclusion, Henderson J accepted the revenue’s submission that a
conforming interpretation was possible and that it was therefore
unnecessary for the Case V charge on portfolio dividends to be
disapplied in cases where it infringed article 63. Henderson J went on
to conclude on the issue that (a) the test claimants failed on the facts
to prove their entitlement to a tax credit for the underlying tax
actually paid; (b) that failure involved no breach by the UK of the
principle of effectiveness; and (c) there was therefore no reason either
to disapply the requirement of proof, or to grant a tax credit at the
nominal rate as a proxy."
What I think this is saying is that although it is against EU law for BLAGAB foreign portfolio dividends to be taxed under schedule D case V this can be remedied by providing credit relief relief for the underlying tax on the portfolio dividends rather than just treating the dividend as exempt and in this case the tax payer failed to provide sufficient evidence to support the claim.
I've no comment on the legal aspects of the judgement but it seems clear to me that it was inappropriate for HMRC to advance the credit relief argument. As HMRC is at the coal face of the tax compliance process it is aware that it is difficult to calculate and document claims for underlying tax for significant holdings and where the information is relatively fresh. For portfolio holdings from prior years this will be a very time consuming process and may just be flat out impossible. However, some judges may be unaware of these practical issues. HMRC is attempting to make EU law inoperable and the people bearing the cost are, by and large, with profits policyholders.
Life insurance companies could look to establish what information they would have for underlying credit relief claims I suspect HMRC will just reject any such claims sending the question of what is sufficient evidence to the FTT and back into the judicial morass. However submitting withholding tax claims might put some pressure on HMRC.
As a big picture point I feel some sort of insurance company, FCA, HMRC settlement might be the best answer, see post of 14th June.
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