The Commissioners for HMRC v The Applicants in the Post Prudential Closure Notice Applications/Appeals Group Litigation

Statutory claims for double taxation relief must comply with the applicable domestic procedural rules, provided those rules are reasonable, fixed in advance and do not make EU-law rights excessively difficult to exercise. Subsequent clarification of substantive law does not require an ineffective claim to be recharacterised as a different claim.

A conforming interpretation of Income and Corporation Taxes Act 1988 s 790 goes only as far as necessary to remedy the EU-law breach. It does not extend time limits, convert exemption claims into claims for foreign nominal rate relief, or confer additional relief under the eligible unrelieved foreign tax regime. Double taxation relief must be claimed for the relevant dividend and accounting period. Unused relief may be carried forward only after a valid claim has been made.

The appeals concerned statutory claims by taxpayers seeking corporation tax refunds or double taxation relief on foreign portfolio dividends received before 2009. Some dividends had been returned as exempt, some as taxable with withholding-tax relief, and some claims were made after enquiries or outside ordinary time limits.

Eight test cases were selected from numerous appeals and closure-notice applications. The First-tier Tribunal’s decision, [2021] UKFTT 459 (TC), was substantially reversed by the Upper Tribunal, [2024] UKUT 23 (TCC). HMRC appealed on two issues and the taxpayers appealed on the remaining issues. The central questions concerned the effect of the EU-law conforming construction of the double taxation relief provisions and the validity and timing of the taxpayers’ statutory claims.

Appeals and governing approach. Lady Justice Falk gave the reasoned judgment, with Sir Launcelot Henderson and Lord Justice Arnold agreeing. HMRC’s appeal was allowed and the taxpayers’ appeal dismissed. The taxpayers’ appeals were remitted to the First-tier Tribunal for detailed determination in accordance with the Court of Appeal’s conclusions.

1. EU and ECHR principles. The domestic procedural regime satisfied the principles of equivalence, effectiveness, legal certainty and effective judicial protection. Its time limits were reasonable and fixed in advance. The retrospective effect of the conforming construction of s 790 was a consequence of declaratory judicial decision-making, not a retrospective rewriting of procedure. Uncertainty about the developing substantive law did not require a claim made for one form of relief to be treated as a claim for another.
2. Conforming construction. The Marleasing principle requires each statutory provision to be interpreted only so far as necessary to secure compliance with EU law and consistently with the grain of the legislation. It is not a general power to modify all procedural or consequential provisions, or to confer relief beyond that required to prevent economic double taxation.
3. Claims and errors. A failure to claim a foreign nominal rate credit was not a mistake in a return for the purposes of paragraph 51 of Schedule 18 to the Finance Act 1998. A claim for exemption could not be treated as a claim for double taxation relief. Section 114(1) of the Taxes Management Act 1970 could cure errors of form, but not the substantive choice to make a different claim.
4. Double taxation relief and time limits. A claim had to identify the relief sought. A withholding-tax claim did not extend to underlying-tax or foreign-nominal-rate relief. Section 806(2) applied only where an adjustment to UK or foreign tax caused the credit to become excessive or insufficient. The later recognition that a credit had always been available was not such an adjustment.
5. Extent of relief. Foreign-nominal-rate relief was capped by the UK tax attributable to the relevant dividend, after giving priority to lawful withholding-tax relief. Excess credits could not be set against unrelated income, and the EUFT provisions did not apply to create additional FNR relief.
6. Carry-forward and computation. A DTR credit had to be claimed for the year in which the relevant dividend arose. If validly claimed but unused because of management expenses, it could be carried forward. The dividend had to be grossed up in that year when an underlying-tax credit was claimed; otherwise an unwarranted windfall would result.
7. Enquiries. An amendment made during an enquiry took effect only through the closure-notice mechanism. Where the closure notice rejected it, the amendment did not adjust tax payable for s 806(2). The tribunal’s power under paragraph 33 of Schedule 18 was to direct HMRC to issue a closure notice, not to prescribe its contents, although incidental questions of law necessary to decide whether a direction should be given could be determined.

• Court of Appeal (Civil Division) — HMRC’s appeal allowed; taxpayers’ appeal dismissed; appeals remitted to the First-tier Tribunal: [2025] EWCA Civ 166.
• Upper Tribunal (Tax and Chancery Chamber) — substantially reversed the First-tier Tribunal’s decision: [2024] UKUT 23 (TCC).
• First-tier Tribunal — determined eight test cases arising from appeals and closure-notice applications: [2021] UKFTT 459 (TC).