The Trustees of the BT Pension Scheme v HM Revenue and Customs

The Court of Appeal considered statutory claims by the trustees of the BT Pension Scheme for "payable tax credits" on dividend income and related EU-law based claims (the "Manninen" claims for foreign dividends and the "FIDs" claims for distributions characterised as foreign income dividends). Central statutory provisions were s.231 of the Income and Corporation Tax Act 1988 (payable tax credits) and the statutory claim and limitation machinery in ss.42–43 of the Taxes Management Act 1970. The tribunal findings that the UK FIDs regime infringed Article 56 (free movement of capital) of the EC Treaty were acknowledged as significant for parent companies, but the court held that whether shareholders (such as exempt pension schemes) have a directly enforceable Article 56 right in respect of FIDs raised a non-acte clair question appropriate for reference to the Court of Justice of the European Union in respect of the only FIDs claim that was in time (tax year 1997/98).

By contrast, all Manninen claims and all FIDs claims other than the 1997/98 FIDs claim were held to be time-barred under s.43 TMA. The Court upheld the Upper Tribunal's dismissal on limitation grounds and refused to disapply the statutory six-year limitation on effectiveness or equivalence grounds. The court also rejected attempts to treat the High Court proceedings or other procedural steps as substitutes for timely s.42 claims and declined to intervene on the Revenue's application of its extra-statutory concession (ESC B41) which, the court held, raised public law issues outside the tribunal's statutory appeals jurisdiction.

Background and parties. The BT Pension Scheme (an exempt approved UK pension scheme) brought statutory claims for payable tax credits under s.231 ICTA in respect of dividend income in tax years 1990/91 to 1997/98 (the "relevant period") and concurrent High Court claims for restitution and/or damages. HMRC refused the claims and the trustees appealed to the First-tier Tribunal, then to the Upper Tribunal, and thence to this Court of Appeal.

Nature of the claims and relief sought.

• The trustees sought payable tax credits for foreign dividends (Manninen claims) and dividends characterised as foreign income dividends under the FIDs regime (FIDs claims), or alternatively restitution/damages for sums not paid.
• They relied on EU free movement rights (principally Article 56 EC) to contend that the UK regimes unlawfully discriminated or restricted cross-border capital movements and therefore had to be disapplied or remedied.

Issues framed by the court.

1. Whether the non-availability of payable tax credits in relation to FIDs infringed Article 56 and whether shareholders (tax-exempt pension schemes) could rely on that infringement (including the "piggyback"/principle of effectiveness point).
2. Whether the non-availability of payable tax credits in relation to foreign dividends infringed Article 56 (the Manninen issue).
3. Whether claims for payable tax credits were time-barred under s.43 TMA and whether EU principles (effectiveness/equivalence/legal certainty) or ESC B41 required disapplication or waiver of the limitation period.

Court’s reasoning and disposition. The court (i) concluded there was a referable question of EU law in relation to the surviving FIDs claim (1997/98) — in particular whether shareholders have their own Article 56 right or may "piggyback" on a parent company's rights — and referred that question to the ECJ; (ii) found that all Manninen claims, and all FIDs claims other than the 1997/98 claim, were time-barred by s.43 TMA and dismissed the trustees' appeals on limitation grounds; (iii) rejected arguments that the High Court proceedings or the Revenue's extra-statutory concession amounted to timely s.42 claims or required disapplication of s.43; and (iv) noted potential consequential questions on remedies (including risks of double recovery) for the ECJ to consider if it answers entitlement in the trustees' favour.

Context and implications. The court emphasised that many issues turned on EU law questions that were not acte clair, that the principle of effectiveness and equivalence require close fact-specific assessment, and that national limitation rules will not automatically be displaced simply because EU jurisprudence develops after the relevant period.

Allowed in part. The Court dismissed the trustees' appeals in relation to limitation, upholding that all Manninen claims and all FIDs claims except the FIDs claim for 1997/1998 were time-barred under s.43 TMA; but concluded that the remaining in-time FIDs claim raises a non-acte clair question of EU law (whether shareholders can enforce Article 56 or 'piggyback' on a parent company's rights) and referred that question, together with consequential questions as to remedy, to the Court of Justice of the European Union.

Appeal from the Upper Tribunal (Tax and Chancery Chamber) [2013] UKUT 0105 (TCC) which itself dismissed appeals from the First-tier Tribunal (Tax Chamber) [2011] UKFTT 392 (TC). This Court ([2015] EWCA Civ 713) dismissed the trustees' appeals on limitation grounds and ordered a reference to the Court of Justice of the European Union in respect of the sole surviving in-time FIDs claim (1997/98).