Latest Chapter in Advanced Corporation Tax Group Litigation

28 Mar 2007

On 23 March 2007 Mr Justice Rimer gave judgment in Pirelli Cable Holding NV and others v. Commissioners for HM Revenue and Customs [2007] EWHC 583 (Ch.), the latest chapter in the long-running Advance Corporation Tax (‘ACT’) group litigation.

The five test cases in the ACT group litigation (of which Pirelli is one) result from the 2001 decision of the ECJ in Metallgesellschaft v. IRC and Hoechst v. IRC [2001] Ch. 620. They are aimed at resolving the issues arising out of a large number of claims for compensation by foreign companies and their UK subsidiaries in respect of payments of ACT made between 1973 and 1999, which the ECJ held in Metallgesellschaft/Hoechst to be contrary to the right of establishment under Article 43 EC.

Two of the five test cases have progressed through the domestic courts and were decided by the House of Lords in 2006 (Pirelli and Deutsche Morgan Grenfell); two are currently being heard by the House of Lords (Sempra Metals and Boake Allen / NEC Semiconductors); while the last case, “Test Claimants in Class IV” was referred back to the ECJ, which delivered judgment on 12 December 2006.

The central issue in Pirelli was whether the payment of a tax credit to a parent company resident in another EU Member State should have any bearing on the compensation now payable to its UK subsidiary in respect of unlawful ACT payments. Having lost the argument in the House of Lords, Pirelli sought to argue before Rimer J. (to whom the matter was remitted) that the Claimants were nevertheless entitled under EC law to a separate tax credit that they had not yet received and which now had to be brought into account in assessing the compensation due in line with the ECJ’s judgment in Metallgesellschaft.

Rimer J. rejected the argument, finding that neither domestic law nor Community law provided Pirelli with a right to any such tax credit. The Judge held that the Claimants should have raised the point before the House of Lords but that, on balance, it was not an abuse of process for them to do so now.

It is now expected that there will be a further hearing to deal with factual issues and the method of assessing the relevant amount of compensation in line with the decision of the House of Lords.

Meanwhile, the House of Lords has set down a further day in May 2007 for argument in Sempra Metals, another of the ACT test cases, to deal with issues relating to the restitutionary claims by the ACT Claimants and the issue of whether compensation should be calculated using compound interest.

The original High Court actions in Metallgesellschaft and Hoechst were commenced in 1995 before Neuberger J., sufficiently long ago that the same Judge is now sitting in the House of Lords in one of the test cases (Boake Allen / NEC Semiconductors). Increasingly, it looks like what Lord Hoffman has referred to as ‘the forensic fall-out’ from Metallgesellschaft will see out another decade.

Gerry Facenna is instructed as junior counsel to HM Revenue & Customs in two of the five ACT group litigation test cases, Sempra Metals and Pirelli.