The Commissioners for HMRC v Applicants in the Post Prudential Closure Notice Applications Group Litigation & Anor
[2024] UKUT 23 (TCC)
Volkerrail Plant Limited & Ors v The Commissioners for HMRC
1 March 2023
[2023] EWCA Civ 210
Court of Appeal
A UK company tried to get tax relief for losses its Dutch parent company had in the UK. The rules said no if those losses were also used to lower taxes in the Netherlands. The court said the UK rules are okay because they prevent companies from dodging taxes twice.
Key Facts
- •Four appellant taxpayers (VolkerRail) are UK-incorporated companies within a group ultimately owned by a Netherlands-based company (KVW).
- •VSCE, a Dutch company within the KVW group, had a UK branch (VSCE UK) that incurred losses.
- •VSCE UK's losses were offset against profits of a Dutch fiscal unity, but a Dutch recapture mechanism applied upon subsequent UK profits.
- •VSCE UK sought to surrender its losses to VolkerRail via group relief under s.403 D(1)(c) of the Income and Corporation Taxes Act 1988 (ICTA).
- •HMRC denied the claim, relying on s.403 D(1)(c), which restricts group relief where losses are deductible against non-UK profits.
- •The case concerns the compatibility of s.403 D(1)(c) with the EU principle of freedom of establishment.
Legal Principles
Freedom of establishment (Articles 49 and 54 TFEU)
Treaty on the Functioning of the European Union
Group relief rules (s.403 D(1)(c) ICTA)
Income and Corporation Taxes Act 1988
CJEU case law on freedom of establishment and tax rules, including Philips, NN, M&S, Bevola, and others.
Case Law of the Court of Justice of the European Union
Interpretation of statutes (conventional and conforming interpretations)
UK common law principles of statutory interpretation
Proportionality principle in EU law
EU law
Powers to depart from EU law under the European Union (Withdrawal) Act 2018
European Union (Withdrawal) Act 2018
Outcomes
VolkerRail's appeal dismissed.
s.403 D(1)(c) is compatible with freedom of establishment because the objective of preventing double deduction of losses is a valid justification, and the provision is proportionate.
HMRC's appeal allowed on the issue of proportionality.
The Court found that s.403 D(1)(c) is proportionate, rejecting VolkerRail’s argument that the recapture mechanism should have been considered.
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