Supreme Court hands down judgment on restitution of unlawful tax and EU law requirements as to remedies

28/05/12

On 23 May 2012 the Supreme Court (Lords Hope, Walker, Brown, Clarke, Dyson, Sumption and Reed) handed down its judgment in Test Claimants in the Franked Investment Income Group Litigation v Commissioners of Inland Revenue and another [2012] UKSC 19.

The judgment deals with a series of important issues concerning the scope of the restitutionary remedy for recovery of tax unlawfully demanded under the principle established in Woolwich Equitable Building Society v Inland Revenue Comrs [1993] AC 70 as a matter of domestic law and the extent of Member States' obligations to provide a remedy for tax levied contrary to EU law. The issues arose in the context of long running proceedings estimated to be worth in the order of £5 billion which have already generated two references to the European Court of Justice.

The Supreme Court concluded that an official demand for tax was not a pre-requisite of a Woolwich claim, and that the extended limitation period for claims in mistake under s. 32(1)(c) Limitation Act 1980 does not apply to such claims. Further, a common-law Woolwich claim based on EU law is not excluded by virtue of the statutory claim under s. 33 Taxes Management Act 1970.

The Supreme Court took the view that s. 107 Finance Act 2007, which cancelled extant claims for repayment of tax paid by mistake made under the extended limitation period under s. 32(1)(c) Limitation Act 1980, was unlawful as contrary to the Test Claimants' legitimate expectations. However, the Supreme Court was divided as to the question of whether EU law required both a Woolwich remedy and a claim in mistake to be available to vindicate the Claimants' EU law rights, and has directed that this issue should be the subject of a third reference to the European Court of Justice.

The judgment is here.