Boake Allen Limited and others v. Her Majesty's Revenue and Customs

The House held that section 247 of the Income and Corporation Taxes Act 1988 did not infringe the non-discrimination provisions of the relevant double taxation conventions with the United States and Japan. The court emphasised that the group election in section 247 is a joint, group election made by both subsidiary and parent and that the entitlement to elect depends on the parent being liable to advance corporation tax (ACT); the distinction drawn by section 247 was therefore not discrimination on the ground of foreign control. The court also concluded that the appellants’ alternative argument under article 56 of the EC Treaty was excluded by article 57(1) as interpreted by the Court of Justice and that recent ECJ authority made the article 56 route unavailable. Finally, several Law Lords concluded that section 788(3)(a) of the 1988 Act did not give domestic effect to DTC protection against ACT because ACT was not "corporation tax in respect of income or chargeable gains."

Background and parties: The appellants were groups of companies whose UK subsidiaries paid advance corporation tax (ACT) on dividends between 1973 and 1999 but whose foreign parents (resident in the United States or Japan) could not join the election under section 247 of the Income and Corporation Taxes Act 1988. They sought compensation or other relief on two principal grounds.

• Nature of the claim/application: (i) that the denial of the section 247 election infringed the non-discrimination articles of the relevant double taxation conventions (article 24(5) of the US treaty and article 25(3) of the Japanese treaty) and (ii) that the denial infringed article 56 of the EC Treaty (movement of capital/payments) and thus gave rise to rights or remedies. The appellants also contested whether the relevant DTC provisions were incorporated into domestic law under section 788 of the 1988 Act so as to give a domestic cause of action.
• Procedural posture: First instance: Park J ([2004] STC 489) found in favour of the appellants on the DTC point; Court of Appeal ([2006] STC 606) agreed on the DTC point but held issues about domestic incorporation barred relief; the matter was appealed to the House of Lords ([2007] UKHL 25).

Issues framed by the House:

1. Whether section 247 discriminated against UK resident subsidiaries whose capital was owned or controlled by residents of the United States or Japan contrary to the applicable DTC non-discrimination articles.
2. Whether, if there were such discrimination, the relevant DTC articles were incorporated into domestic law by section 788 of the Income and Corporation Taxes Act 1988 so as to afford a domestic remedy.
3. Whether article 56 of the EC Treaty provided a basis for relief, given article 57(1).

Reasoning and disposition: The leading opinion explained that a section 247 election is a group election requiring both subsidiary and parent to accept the linked fiscal consequences (the subsidiary avoids ACT but the parent foregoes a tax credit). The distinction in section 247 therefore depends on the parent’s liability to ACT, not on foreign control of the subsidiary, and so it does not amount to discriminatory taxation of the resident enterprise under the DTC wording. The House also accepted that ECJ decisions interpreting article 57(1) exclude the appellants’ article 56 argument. Several Law Lords further concluded, on statutory construction of section 788 and of the 1988 Act as a whole, that ACT was not "corporation tax in respect of income or chargeable gains" and thus section 788(3)(a) would not have given domestic effect to any DTC obligation in relation to ACT. The appeal was dismissed.

Additional procedural observation: Lord Woolf drew attention to practical pleading and limitation issues in group litigation orders, emphasising proportionality of steps in GLO procedure and the need to construe individual claims in the context of group registration and the group register.

Appeal dismissed. The House held that section 247 did not infringe the non-discrimination articles of the relevant double taxation conventions because the group election is a joint election tied to the parent’s liability to ACT and not discriminatory treatment of the UK resident enterprise on account of foreign control. The article 56 argument was excluded by article 57(1) as interpreted by the Court of Justice, and several Law Lords concluded that section 788(3)(a) would not have given domestic effect to DTC protection in relation to ACT because ACT is not "corporation tax in respect of income or chargeable gains."

First instance: Park J ([2004] STC 489). Court of Appeal: Boake Allen Ltd & ors v HMRC [2006] STC 606. Appeal to House of Lords: [2007] UKHL 25 (dismissed).