Six Continents Ltd v Inland Revenue

The claimants sought permission to amend their particulars of claim to challenge the lawfulness under EU law and the European Convention on Human Rights of new primary legislation enacted by section 38 of the Finance (No. 2) Act 2015 and now in Part 8C of the Corporation Tax Act 2010 (the "Restitution Interest Tax Provisions"). The proposed amendments alleged incompatibility with EU effectiveness (including Article 47 CFREU), legal certainty, non-retroactivity, protection of legitimate expectations, separation of powers / interference with judicial decisions and Article 1 of Protocol 1 ECHR.

The court refused permission to amend. Key legal principles applied were prematurity and the existence of a statutory appeal machinery: any challenge to the Part 8C charge or to withholding under section 357 YO should, save in exceptional circumstances, be pursued by appeal to the Tax Chamber of the First-tier Tribunal in accordance with the scheme in Autologic Holdings Plc v Inland Revenue Commissioners. The judge held that the proposed amendments were premature, that the First-tier Tribunal would be the appropriate forum to determine the lawfulness of Part 8C once an assessment or withholding crystallises, and that hypothetical or precautionary pleadings should not be entertained.

Background and nature of the application. This was an opposed application by the claimants, Six Continents, for permission to amend their particulars of claim to include a direct challenge to the Restitution Interest Tax Provisions enacted by section 38 of the Finance (No. 2) Act 2015 and contained in Part 8C of the Corporation Tax Act 2010. Part 8C imposes a ring-fenced corporation tax charge at a 45% rate on specified "restitution interest" paid by HMRC and creates an obligation on HMRC to deduct withholding tax on such payments under section 357 YO.

Relevant factual and procedural context. The claim is first instance in the Chancery Division; the court had previously ordered an interim payment (received gross because paid before the relevant withholding provisions applied). The trial of the substantive claim was fixed for May 2016. The proposed amendments would have relied on EU law and Convention rights to seek disapplication of Part 8C, an order increasing restitution to reflect tax, and alternatively state liability for serious breaches.

Issues framed by the court. The judge addressed whether permission to amend should be granted, focusing on: (i) prematurity (no Part 8C charge had yet crystallised for the claimants and the interim payment fell outside section 357 YO), (ii) whether the First-tier Tribunal has exclusive or primary jurisdiction to determine challenges to Part 8C (relying on Autologic), and (iii) the existence of multiple pending proceedings raising similar issues and the appropriateness of pleading hypothetical future claims in current proceedings.

Court's reasoning and conclusions. The court concluded that the objections of prematurity and the availability of the statutory appeal route were compelling. In accordance with Autologic, where Parliament has provided a statutory appeals mechanism (here appeals to the Tax Chamber of the First-tier Tribunal against assessments under Part 8C or withholding under section 357 YO), taxpayers should use that route and it would ordinarily be an abuse of process to litigate those points first in the High Court. The judge accepted that the FTT has the same capacity as the High Court to assess EU-law challenges to domestic tax provisions once an assessment or withholding arises. The court also rejected the claimants' contention that the validity of Part 8C needed to be determined before fixing quantum at trial, and found that the alternative claims for grossing-up or for state liability were premature because no unlawful tax had yet been imposed. Although the judge noted authorities suggesting a stay might be appropriate in some circumstances, he considered the present case different and refused to allow precautionary amendments to advance hypothetical disputes.

Outcome. Permission to amend was refused because the proposed amendments had no realistic prospect of success at this stage; the appropriate remedy, if and when a tax charge crystallises, is the statutory appeal process to the FTT.

Permission to amend the particulars of claim was refused. The judge held the proposed challenges to Part 8C were premature and, in general, the statutory appeal machinery to the First-tier Tribunal is the appropriate forum for determination of the lawfulness of the new provisions under EU and Human Rights law; permitting precautionary amendments would be an improper use of pleadings and risk overcompensation or duplication of process.