Credit Suisse Securities (Europe) Ltd & Ors v HM Revenue and Customs

A tax measure is not selective State aid merely because its limited period affects undertakings differently. The court must identify the relevant normal or reference tax system, determine whether an advantage is conferred against that system, and assess comparability by reference to the measure’s objectives. A short period of operation may form part of the nature and general structure of the tax where it is inherent in its policy and design. A taxpayer cannot ordinarily recover tax paid merely because another undertaking was allegedly relieved from equivalent tax. The exceptional remedy applies where the charge itself forms an integral part of an asymmetric aid measure. A damages claim under the Francovich principle also requires a sufficiently serious breach.

Four Credit Suisse companies claimed damages and repayment of bank payroll tax imposed under Schedule 1 to the Finance Act 2010. They alleged that the tax constituted unlawful State aid under Articles 107 and 108 TFEU because its operation between 9 December 2009 and 5 April 2010 favoured banks whose accounting periods meant that they generally avoided the charge.

The claim also raised whether State aid would entitle the claimants to repayment of tax, whether any breach was sufficiently serious to support damages, and whether statutory provisions confined the available remedy to a claim before the First-tier Tribunal.

1. Issue 1—State aid. The claimants failed to establish a selective advantage under Article 107(1) TFEU. The starting point was identification of the normal or reference tax system. A comparison with a hypothetical version of bank payroll tax operating for a different period was impermissible. The relevant question was whether the measure conferred an advantage against the applicable reference framework.
2. The objectives of bank payroll tax included discouraging high discretionary bonuses during the 2009–10 tax year. Its short-term operation was fundamental to the regime and reflected the expected transition to regulatory reforms and the new income tax rate. Banks awarding bonuses during the chargeable period and banks awarding them genuinely outside it were therefore not in a comparable factual and legal situation in the light of the measure’s objectives. Alternatively, any differentiation flowed from the nature and general structure of the regime.
3. The claimants also failed to provide sufficient evidence of an economic advantage to an untaxed bank or of an effect on competition and trade. The court declined to draw the necessary inferences from limited financial and correspondence evidence, particularly given the wider consequences of a finding that unlawful aid existed.
4. Issue 2—repayment. If State aid had existed, the general rule in H. J. Banks would have prevented recovery of tax paid merely because other undertakings were relieved from it. The Boiron exception did not apply. Bank payroll tax was not designed to confer an advantage on untaxed banks, and refunding it would extend rather than limit any aid.
5. Issue 4—damages. Applying the multifactorial assessment described in Negassi, any breach would not have been sufficiently serious. The alleged infringement was novel, there was no deliberate intention to confer an advantage, and the government had taken legal advice and acted on a risk-based assessment.
6. Issue 8 was not decided because it was unnecessary. Issues 1, 2 and 4 were decided in favour of HMRC. The claim failed.