CA-2024-001898 - [2025] EWCA Civ 1392

The relevant background

The key relevant factual background can be outlined fairly briefly. In 2002 Evonik and other members of its corporate group brought claims against HMRC (then the Inland Revenue) alleging that certain aspects of the UK corporation tax regime infringed EU law, most relevantly for present purposes the rules that levied advance corporation tax (“ACT”) on the payment of dividends and other distributions. The claims became part of the FII group litigation which was established by a group litigation order (“GLO”) the following year, and were largely stayed pending the resolution of test cases.

There were various difficulties with the ACT regime from the perspective of corporate taxpayers. Two are most relevant here. First, and as the name indicates, it required amounts to be paid in advance of the normal payment dates for corporation tax, leading to cashflow costs. Secondly, although ACT could (within limits) be offset against UK corporation tax, multinational groups generating profits outside the UK frequently had insufficient domestic taxable profits for that purpose, leading to a build-up of so-called surplus ACT.

One category of ACT was that payable on foreign income dividends (“FIDs”). The FID regime had been introduced with the intention of ameliorating the problems that multinational groups had with surplus ACT. Under the regime, dividends could be specified as FIDs. ACT would still be payable on a FID but surplus ACT arising could be reclaimed to the extent that the FID could be “matched” with foreign profits which had been taxed at a rate exceeding the UK corporation tax rate.

In Test Claimants in the FII Litigation v Revenue and Customs Comrs (No 2) [2014] EWHC 4302 (Ch), [2015] STC 1471 (“FII HC 2”), Henderson J held that the unlawfulness of all of the ACT paid by the claimants on FIDs had been established by earlier decisions in the litigation, such that ACT on FIDs should be treated separately from ACT on other dividends (see at [174] and [181]-[186]). This led Evonik and six other groups to apply for summary judgment in respect of the FID elements of their overall claims. Henderson J’s judgment in respect of those applications is reported as Evonik Degussa UK Holdings Ltd v Revenue and Customs Comrs [2016] EWHC 86 (Ch) (“Evonik 2016”) and was given effect to by orders dated 22 January and 16 March 2016 (the “Summary Judgment Orders”). HMRC paid the amount due to Evonik on 23 March 2016.

As Henderson J recorded in Evonik 2016 at [21], all of the ACT paid on Evonik’s FIDs had been repaid by March 2014. The dispute before him concerned only interest, of which there were two components, namely: a) a claim for compound interest from the date the ACT was paid to the date it was repaid; and b) compound interest between that date and the date of judgment.

Henderson J rejected HMRC’s arguments that summary judgment should not be awarded at all, reiterating his conclusion in FII HC 2 about the unlawfulness of ACT paid on FIDs and concluding that it was open to him to grant summary judgment limited to the FID element of the claims. He granted summary judgment in respect of element a), following Sempra Metals Ltd (formerly Metallgesellschaft Ltd)v Inland Revenue Comrs [2007] UKHL 34, [2008] 1 AC 561 (“Sempra”), but refused it in respect of element b). He noted at [82] that compound interest in respect of element a) was common ground between the parties, but that element b) could be affected by the then-pending appeal to the Supreme Court in what became Littlewoods Ltd v Revenue and Customs Comrs [2017] UKSC 70, [2017] 3 WLR 1401.

HMRC’s appeal against the Summary Judgment Orders was dismissed by this court in 2016, in Test Claimants in the FII Litigation v Revenue and Customs Comrs [2016] EWCA Civ 1180, [2017] STC 696 (“FII CA2”). Issue 10 of the 19 issues before the Court of Appeal related to FIDs and was expressed more broadly than an appeal against the Summary Judgment Orders, but when permission to appeal came to be granted by the Supreme Court on issue 10 in 2019 it was expressed as limited to the “Sempra issue”. The context for this was that the Supreme Court had by that stage departed from its approach in Sempra: see Prudential Assurance Co Ltd v Revenue and Customs Comrs [2018] UKSC 39, [2019] AC 929.

The remaining issue 10, together with the closely related issue 26(a) (“whether interest should be simple or compound”) came before the Supreme Court in Test Claimants in the FII Group Litigation v Revenue and Customs Comrs [2021] UKSC 31, [2021] 1 WLR 4354 (“FII SC3”). HMRC prevailed. Lord Reed and Lord Hodge, with whom Lord Briggs, Lord Sales and Lord Hamblen agreed, concluded at [84] that HMRC were not procedurally barred from arguing that it was erroneous to award compound interest in the FID claims in respect of what they termed the period of prematurity (that is, the period between the date of payment and repayment or set off), and proceeded to consider and decide the substantive issue in HMRC’s favour.

By the date that FII SC3 was decided, s.85 of the Finance Act 2019 (“FA 2019”) had been enacted (see further below). The Supreme Court held that it provided a statutory remedy in the form of interest on unlawful ACT for the period of prematurity (see at [100]) and dismissed the claimants’ arguments against its application.

Lord Reed and Lord Hodge summarised their conclusion at [118] and [234] in the following terms:

For these reasons, the Revenue’s appeal on issues 10 and 26(a) …should be allowed. The summary judgment should also be set aside, and the cases in question remitted to the High Court.”

Having upheld the Revenue’s appeal in relation to issue 10 above, we would recall the summary judgment of 22 January 2016 pronounced by Henderson J in Evonik Degussa UK Holdings Ltd v Revenue and Customs Comrs [2016] EWHC 86 (Ch)...”

The Supreme Court’s decision was reflected in an order dated 13 May 2024 (the “FII SC3 Order”) which relevantly provided as follows:

“HMRC’s appeal is allowed on issues 10 (limited to the Sempra Issue) and 26(a) of CA2.” (Para 2(i) of the order).

“The summary judgments which are the subject of Issue 10 CA 2 (limited to the Sempra Issue) are set aside to that extent only and the claims remitted to the High Court for determination on the basis of this Court’s findings.” (Para 4 of the order).

The schedule to the order defined “Issue 10 (limited to the Sempra Issue) and Issue 26(a) CA 2” as follows:

“Should interest be simple or compound? In particular, on what basis can the claimants recover for the periods of prematurity?”

Meanwhile, in Test Claimants in the FII Group Litigation v Revenue and Customs Comrs [2020] UKSC 47, [2022] AC 1 (“FII SC2”), the Supreme Court had also made a decision about the application of s.32(1)(c) of the Limitation Act 1980. That decision affected the correct approach to limitation in respect of the balance of Evonik’s claim, which related to surplus ACT on non-FID dividends, but not the FID element of the claim which was on any basis brought in time. The decision in FII SC2 led to a fresh trial on the limitation issue before Richards J. Evonik was, alongside BAT Industries and others, one of the claimants that participated in that trial. The effect of Richards J’s decision on the limitation issue, BAT Industries PLC & Ors v Commissioners of Inland Revenue [2024] EWHC 195 (Ch), [2024] STC 305, was that Evonik was entitled to final judgment. (An appeal against that decision has recently been dismissed by this court, [2025] EWCA Civ 1271.)

The relevant statutory provisions

Section 35A of the Senior Courts Act 1981 (“SCA 1981”) relevantly provides: