Pirelli Cable Holding NV & Ors v Revenue and Customs

A party may raise a new point in a remitted inquiry where refusing to hear it would be unjust, even if the point could and should have been advanced earlier. Abuse of process is determined through a broad, merits-based assessment of all the circumstances, including finality, efficiency, fairness and prejudice.

Under the statutory scheme considered, a group income election removed liability for advance corporation tax and consequently removed the associated tax-credit entitlement. Community law did not require the United Kingdom to grant a further tax credit when mainstream corporation tax was later paid where the United Kingdom had imposed no tax on the dividend and therefore created no risk of economic double taxation.

The claimants sought compensation from HMRC for advance corporation tax paid under legislation which unlawfully denied companies with non-UK parent companies access to group income elections. Earlier proceedings established that the tax credits actually received by the non-UK parent companies had to be brought into account in assessing the group’s loss.

The House of Lords remitted factual and compensation issues to the Chancery Division. The claimants sought to raise a further point: that, although the actual treaty credits would not have been payable had an election been made, a larger credit would have become payable when mainstream corporation tax was subsequently paid. The issues were whether that point was an abuse of process and, if not, whether it was legally sound.

1. The new point was not an abuse of process. The point had been raised before Park J, although not argued before the Court of Appeal or the House of Lords. It was closely connected with the issues previously litigated and ought ordinarily to have been raised earlier. However, the abuse jurisdiction requires a broad, merits-based assessment of all the circumstances. Relevant considerations included the possibility that the House of Lords might not have entertained the point, HMRC’s prior knowledge of it, its shortness and importance to more than 50 related claims, and HMRC’s decision to argue the merits first. The point could therefore be decided.
2. No later tax credit arose under domestic or Community law. The House of Lords had decided that the treaty credits actually received would not have been payable if a group income election had been made, because the election removed the liability to ACT and the corresponding section 231 credit. That reasoning was binding in the remitted proceedings.
3. The ECJ decisions in Test Claimants in the ACT Group Litigation v Commissioners of Inland Revenue and Test Claimants in the FII Group Litigation v Commissioners of Inland Revenue did not support a different result. Community law required relief where the United Kingdom itself imposed economic double taxation on dividends paid to non-residents and granted comparable relief to residents. It did not require the United Kingdom to relieve taxation imposed by the parent company’s state of residence, nor did it create a credit where the United Kingdom imposed no tax on the dividend.
4. Since no credit would have been payable, the United Kingdom would not have imposed income tax on the dividend. There was consequently no United Kingdom-created risk of a series of charges to tax and no Community-law obligation to provide relief. The claim that a full or enhanced credit would have arisen when mainstream corporation tax was paid was therefore mistaken and irrelevant to the remitted loss calculation.
5. Declaration made: had the claimants exercised a group income election, the non-UK parent companies would not have become entitled to a tax credit on the subsequent payment of mainstream corporation tax.

• House of Lords: Pirelli Cable Holding NV and others v Inland Revenue Commissioners, [2006] UKHL 4; [2006] 1 WLR 400. The Court of Appeal was reversed and the compensation issues were remitted to the Chancery Division.
• Court of Appeal: Pirelli Cable Holding NV v Inland Revenue Commissioners, [2003] EWCA Civ 1849; [2004] STC 130. The appeal was dismissed.
• High Court: Park J decided the earlier issues in favour of the claimants: Pirelli Cable Holding NV and Others v Inland Revenue Commissioners, [2003] EWHC 32 (Ch); [2003] STC 250.