Boake Allen Limited and others (Appellants) v. Her Majesty's Revenue and Customs (Respondents)

A tax rule does not discriminate against a resident subsidiary on the ground of foreign control merely because a fiscal election is unavailable when its parent is non-resident. The comparison must respect the election's integrated character. Where the subsidiary's exemption from advance corporation tax is inseparably linked to fiscal consequences for a parent liable to that tax, extending only the exemption to a foreign-parented group would confer a different advantage.

Further, the third-country standstill in article 57(1) of the EC Treaty applies to article 56 restrictions on both capital movements and payments. A double taxation convention has domestic effect only within the scope given to it by legislation.

United Kingdom subsidiaries of parent companies resident in the United States and Japan sought compensation for advance corporation tax paid because they could not make group income elections under section 247 of the Income and Corporation Taxes Act 1988. They alleged discrimination contrary to the non-discrimination articles of the applicable double taxation conventions and relied separately on article 56 of the EC Treaty.

Park J, [2004] STC 489, and the Court of Appeal, [2006] STC 606, held that the conventions were infringed. They nevertheless dismissed the claims because section 788 of the 1988 Act did not give the relevant provisions domestic effect in relation to advance corporation tax. The central issues were whether the election rules discriminated on the ground of foreign control, whether the conventions supplied a domestic remedy, and whether article 56 assisted the subsidiaries.

1. Appeal dismissed unanimously. Lord Hoffmann delivered the leading speech. Lord Woolf and Lord Walker agreed with his reasons; Lord Mance and Lord Neuberger agreed on the decisive non-discrimination issue.

2. Per Lord Hoffmann, section 247 of the Income and Corporation Taxes Act 1988 did not discriminate against a United Kingdom subsidiary because its capital was foreign-owned or controlled. A group income election was a joint election by the dividend-paying subsidiary and the recipient parent. Its linked consequences could not be separated: the subsidiary avoided advance corporation tax, while the parent surrendered the associated tax credit and remained within the advance corporation tax system.

   A foreign parent was not liable to that tax. Allowing its subsidiary the same apparent exemption would therefore create an election whether the group paid advance corporation tax at all, rather than an election allocating liability within the group. That was an advantage different in kind from the election available to a wholly resident group. The reasoning in Pirelli Cable Holding NV v Inland Revenue Comrs [2006] 1 WLR 400 was applied.

3. Per Lord Hoffmann, the result under article 43 of the EC Treaty did not govern the conventions. Article 43 protected a parent company's freedom to establish itself in another member state and therefore addressed the position of the group as a whole. The conventions instead prohibited taxation of a resident enterprise which discriminated on the ground of foreign ownership or control. The denial of the election arose from the foreign parent's absence from the advance corporation tax system, not from foreign control itself.

4. Per Lord Hoffmann, it was consequently artificial and unnecessary to decide whether section 788 incorporated a convention provision which had not been infringed. Lord Mance and Lord Neuberger additionally concluded that section 788(3)(a) did not cover advance corporation tax. Per Lord Neuberger, advance corporation tax was corporation tax, but it was payable in respect of distributions rather than income or chargeable gains. It therefore fell outside the statutory phrase “corporation tax in respect of income or chargeable gains”.

5. Per Lord Hoffmann, Test Claimants in FII Group Litigation established that article 57(1) excluded the operation of article 56 in relation to both capital movements and payments involving third countries. No reference to the Court of Justice was required. The questions concerning remedies were unnecessary.

6. Lord Woolf added obiter guidance on group litigation. An individual claim form under the Civil Procedure Rules should generally contain only an outline of the claim. For limitation purposes it should be construed with the application for registration and, after registration, the group register. Requiring each claimant to plead detailed remedial analysis would frustrate the cost-saving purpose of a group litigation order.

1. House of Lords: The appeal in [2007] UKHL 25 was dismissed. The House held that section 247 did not infringe the relevant double taxation conventions.
2. Court of Appeal: In [2006] EWCA Civ 25, reported at [2006] STC 606, the court held that section 247 infringed the conventions but that section 788 supplied no domestic remedy. It dismissed the claims and reversed permission to amend the pleadings.
3. High Court: Park J, [2004] STC 489, held that the conventions were infringed but that their provisions concerning advance corporation tax had not been given effect in domestic law. He granted permission to amend the statements of case.