High Court Ruling Explores Limitation Periods in Restitution Claims for Taxes Paid Under Mistake of Law

Citation: [2024] EWHC 195 (Ch)
Judgment on

Introduction

This article provides an analysis of the High Court judgment in “BAT Industries PLC & Ors v Commissioners of Inland Revenue & Anor: 2024 [2024] EWHC 195 (Ch),” which addresses the complex legal issues surrounding limitation periods in restitution claims for taxes paid under a mistake of law. The case deals with claims by members of the FII Group Litigation Order (FII GLO) against Her Majesty’s Revenue and Customs (HMRC), focusing on when claimants could have discovered their mistake in relation to certain tax payments, invoking Section 32(1)(c) of the Limitation Act 1980.

Key Facts

The FII GLO members contested the compatibility of the UK tax regime on overseas dividends with EU law and its treaties. The main question was whether the claimants could recover tax amounts paid under a mistaken belief that UK tax provisions were compatible with EU law. Key to this was whether claims were brought within a statutory limitation period, governed by Section 32(1)(c) of the Limitation Act 1980. The case analyses when the claimants should have, with reasonable diligence, recognised their legal mistake.

The judgment explores advanced corporation tax (ACT) and the corporation tax treatment under Case V of Schedule D (identified as the DV and ACT Challenges). The proceedings sought to establish that specific tax treatments were discriminatory under EU law, thus challenging the long-held legal consensus on the UK’s sovereign right to determine its tax regime in relation to cross-border dividends.

The court examined the crucial concepts of ‘mistake’ and ‘reasonable diligence’ under Section 32(1)(c) of the Limitation Act 1980. The judgment emphasised that the standard of ‘reasonable diligence’ is objective and assessed by the actions a person or business would take to ascertain if a legal mistake was made. The judgment also tackled the notion of ‘comparability,’ essential in EU law to determine discrimination, especially in the context of taxing domestic versus overseas dividends.

The ‘Bachmann principle’ from Bachmann v Belgian State and the ‘cohesiveness of tax system’ argument was critically evaluated against newer EU judgments, such as Verkooijen and Manninen, which had progressively dismantled previous legal understandings. The court noted that judicial decisions are not made in a vacuum and must consider wider legal contexts and developments.

Importantly, the judgment revisited the ‘logical paradox’ warning against judgments that only begin when the ‘truth’ is established — in this case, when the EU’s highest court confirms UK tax law’s incompatibility with EU treaties.

Outcomes

The court found that the earlier consensus that had precluded the filing of restitution claims fell apart after the CJEU’s decision in Verkooijen in 2000. Mr. Justice Richards concluded that a constructive discovery about the incompatibility of UK dividends’ tax treatment with EU law for both DV and ACT Challenges occurred on 6 June 2000. The ruling suggests that well-advised multinational firms had sufficient information and professional guidance post-Verkooijen to justify the commencement of proceedings against HMRC.

Conclusion

In “BAT Industries PLC & Ors v Commissioners of Inland Revenue & Anor: 2024,” the High Court underscored the transformative effect of the CJEU’s Verkooijen judgment on the legal landscape regarding UK taxation of overseas dividends. This case insightfully illustrates the evolving interface between domestic tax laws and EU principles, concluding that well-advised UK multinationals could have, with reasonable diligence, discovered the necessity of challenging the UK’s tax regime as early as the year 2000, following key European Court judgments that greatly impacted existing legal consensus. The judgment is a significant reflection on the interpretation and application of limitation principles in the pursuit of restitution claims for mistakes of law in relation to tax payments, offering pivotal guidance for future litigation in this domain.