#6852 - Test Claimants In Fii Group Litigation V. Irc Ii - Restitution of Unjust Enrichment BCL

Test Claimants in FII Group Litigation v. IRC

Facts

In a group action in proceedings in the High Court commenced in June and September 2003, a number of companies in two United Kingdom groups of companies with overseas subsidiaries (“the test claimants”) sought, inter alia, restitution of sums paid by them under various provisions of the United Kingdom advance corporation tax (“ACT”) statutory regime in place between 1973 and 1999, or under section 18(Schedule D, Case V) of the Income and Corporation Taxes Act 1988 , on the ground that such legislation, in its treatment of dividends received by UK-resident companies from non-resident subsidiaries as compared with the treatment of dividends paid and received within wholly UK-resident groups of companies, amounted to unjustified difference of treatment between UK companies with resident subsidiaries and those with non-resident subsidiaries, contrary to the freedom of establishment provisions of article 43EC, and the free movement of capital provisions of article 56EC, of the EC Treaty, and so had been levied contrary to EU law, and that the Court of Justice had ruled that national law had to provide an effective remedy for moneys paid in respect of tax that had been paid pursuant to such unlawful levy.

After the decision in Deutche Morgan, the Parliament had enacted section 107 of the Finance Act 2007 , which made a similar disapplication of section 32(1)(c) in relation to proceedings brought brought before 8 September 2003.

Holding

Lord Walker

Demand Point

Lord Walker concluded that a “demand” is not required to trigger the unjust factor developed in Woolwich. He further held:

There is vigorous debate among legal scholars on this topic at present, and uncertainty as to the outcome. But to decide that an official demand is not a prerequisite to a claim for the recovery of tax paid when not due ought not to add appreciably to the uncertainty. It would not be a decisive step towards a general “absence of basis” principle in place of the “unjust factors” approach that has prevailed in the past. It would merely be creating, in Mr Rabinowitz's metaphor, a rather larger island of recovery in respect of undue tax.

Lord Sumption

Affirming the Unjust Factor Approach

Until surprisingly recently, English law afforded only very limited possibilities of recovering overpaid tax. As Lord Goff of Chieveleyobserved in Woolwich Equitable Building Society v Inland Revenue Comrs [1993] AC 70 , 172, English law had not recognised a condictio indebiti allowing an action for the recovery of payments on the simple ground that they were not due. It has still not done so. It is necessary, as the law presently stands, to bring the facts within one of the categories of case in which the law recognises that the recipient's retention of the money would be unjust. The relevant categories as they had stood for a considerable time up to 1992 were described by Lord Goff in his speech in Woolwich Equitable, at pp 164–166.

Absence of Basis in relation to EU Law

The argument: The test claimants' argument is that the obligation of a member state to provide an effective means of recovering overpaid taxes is not limited to cases where the state was in breach of EU law. It also applies in cases where the national law entirely conformed with EU law but the claimant paid more than the law required of him. This, they submitted, reflected the principle of restitution applied in EU law and in most civil law jurisdictions (but not England) that a payment is recoverable merely on account of the absence of a legal basis for making it: see Masdar (UK) Ltd v Commission of the European Communities (Case C-47/07P) [2008] ECR I-9761, paras 44 –46, 49.

The claimants relied on Reemtsma Cigarettenfabriken GmbH v Ministero delle Finanze (Case C-35/05) [2007] ECR I-2425 for...