Out-Law News 2 min. read

BREXIT: Expert predicts surge in post-vote tax case referrals to EU courts


The number of EU court challenges to the interpretation of tax laws by HM Revenue and Customs (HMRC) is likely to increase in the short term, as businesses seek to protect their claims ahead of the UK's exit from the EU, an expert has said.

This is part of Out-Law's series of news and insights from Pinsent Masons experts on the impact of the UK's EU referendum. Watch our video on the issues facing businesses, and sign up to receive our 'What next?' checklist.

The average number of new tax cases sent to the Court of Justice of the EU (CJEU) has risen by a fifth since the credit crunch, up from an average of 50 per year between 2005 and 2010 to an average of 61 per year between 2011 and 2015, according to figures obtained by Pinsent Masons, the law firm behind Out-Law.com.

"The reach of EU law has widened considerably and continues to do so, with the result that an increasing amount of UK tax law is affected," said Andrew Scott, a tax expert at Pinsent Masons. "More businesses and other taxpayers have therefore managed to find grounds for challenging UK tax law."

"Although it's business as usual at present, Brexit means that the power of the CJEU over UK law will end but at an unknown time in the future. UK claimants will therefore be considering whether to launch proceedings now so as to increase the likelihood that their claims are protected as and when the UK does leave the EU," he said.

In particular, UK businesses might have concerns that the UK government would attempt to remove the ability to bring a claim based on EU grounds without notice, "even where EU law applied at the relevant time", as it had done in the past, Scott said. For this reason, companies would be keen to begin proceedings while it is clear that EU law still applies in the UK, he said.

HMRC and the UK government will continue to be bound by EU tax legislation until the Brexit process is complete. However, challenges based on the laws that were in force at the relevant time, including EU laws that were later reversed, would continue to be valid unless the UK passed separate legislation abolishing historic EU-law based tax refund claims.

Businesses and other taxpayers who believe that they have been taxed unfairly, contrary to the principles of EU law, can currently bring a legal challenge to the CJEU. The increasing number of such claims since the credit crunch could be down to the pressure national tax authorities have been under to increase revenues, leading many to levy extra charges and ensure that they maximise tax take wherever possible, according to Pinsent Masons.

To date, the CJEU has upheld several high profile challenges to national tax rules, enabling businesses to recover millions in overpaid tax, Scott said.

"EU law has been used to contest a range of taxes levied by member states," he said.

"EU anti-discrimination rules were used to overrule the UK's tax treatment of dividends paid by foreign subsidiaries of UK companies, for instance. It was argued that, in contravention of EU single market rules, they were being taxed more heavily than dividends from UK subsidiaries," he said.

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