| REVENUE — Corporation tax — Double taxation relief — Dividends paid by UK subsidiaries to parent companies in other member states — Whether group making group income election remaining entitled to tax credits under double taxation conventions — Income and Corporation Taxes Act 1988 (c 1), ss 231(1), 247, 788(3) — Double Taxation Relief (Taxes on Income) (Netherlands) Order 1980 (SI 1980/1961), Sch, art 10(3)(c) — Double Taxation Relief (Taxes on Income) (Italy) Order 1990 (SI 1990/2590), Sch, art 10(3)(c)
Pirelli Cable Holding NV and others v Commissioners for Revenue and Customs [2008] EWCA Civ 70; [2008] WLR (D) 48
CA: (Rix, Jacob and Moses LJJ): 13 February 2008
The United Kingdom tax authorities had not assumed responsibility for eliminating double taxation on the dividend paid by a UK subsidiary to a parent resident in the Netherlands or Italy in circumstances where the UK had not levied corporation tax on the dividend.
The Court of Appeal so held, dismissing the appeal of the claimants, Pirelli Cable Holding NV, Pirelli Spa, Pirelli Tyre Holding Nv, Pirelli General plc and Pirelli UK plc, from the decision of Rimer J [2008] STC 144, who concluded that if the Pirelli group had been able to make and had made a group income election, the subsidiaries would not have been liable to advanced corporation tax and on payment by the subsidiaries of mainstream corporation tax, their parents would not have been entitled to tax credits. The case had been remitted to Rimer J following the decision of the House of Lords in Pirelli Cable Holding NV v Inland Revenue Comrs [2006] 1 WLR 400, that if the Pirelli subsidiaries had avoided liablity to ACT by choosing with their parents to make a group income election, they would not have been entitled to tax credits under Double Taxation Agreements with Italy and the Netherlands.
MOSES LJ said that Community law was concerned to remove discrimination which restricted freedom of establishment contrary to Article 43 EC. Where a Member State alleviated economic double taxation on dividends paid to residents by resident companies, Community law required it to treat dividends paid to residents by non-resident companies in the same way. But Community law did not require the Member State in which the company making the distribution was resident to alleviate economic double taxation on a distribution to a non-resident shareholder. The responsibility for alleviating economic double taxation rested, usually, on the member state in which the recipient shareholder resided. That qualification (“usually”) was necessary because such a responsibility might be triggered if a member state exercised its taxing powers in respect of a dividend paid to a non-resident company. It should, in such circumstances, afford the same relief against double taxation to the non-resident recipient as to a resident. In relation to the Double Taxation Agreement with Italy, since the high contracting parties reached no agreement as to the payment of a tax credit in the circumstances of a group income election, there was no foundation for concluding that the United Kingdom had assumed responsibility for eliminating double taxation on the dividend received by the parent resident in Italy. The United Kingdom imposed no tax on receipt of that dividend, whether the recipient parent was resident in the United Kingdom or in another Member State. So it could not be said to discriminate against the parent resident in Italy. Accordingly, Community law imposed no requirement on the United Kingdom to eliminate double taxation. That was a matter for Italy in the exercise of its fiscal sovereignty in respect of the dividend received by a resident in that member state. Consistency with Community law was achieved by affording the Pirelli group the same opportunity to make a group income election as that afforded to a group resident in the United Kingdom. In circumstances in which the United Kingdom levied no tax on the dividend received by the parent resident in Italy, no obligation to eliminate any subsequent double taxation was imposed on the United Kingdom under Community law.
JACOB and RIX LJJ agreed |
