UT/2024/000060 - [2024] UKUT 00315 (TCC)

The underlying judicial review claim is brought with the permission of the Administrative Court, and was transferred to the Upper Tribunal on 14 May 2024. The substantive hearing is due to take place in February 2025. There is much legal and procedural history to the claim. The long-running litigation in relation to the taxation of foreign dividends (the Franked Investment Income cases (FII litigation) before the CJEU and in the UK courts forms part of the backdrop to the claimant’s time extension request. There were also multiple exchanges between the parties in the run up to and post-dating the claimant’s commencement of the judicial review claim on 8 June 2023. I do not attempt to reflect that detail here but in the following paragraph merely outline, in the broadest way, the background to the dispute as explained in the claimant’s grounds in order to put the submissions and issues regarding the disclosure application before me in context.

During the accounting period ended 31 December 2002, the claimant received dividends from a foreign subsidiary. It filled in its tax return for that period on the basis the foreign dividends were exempt. Not having profit of its own, it surrendered a non-trading loan relationship deficit (“NTLRD”) it had to another group company amending its own return accordingly. HMRC later opened a statutory enquiry into the claimant’s return. As regards the claimant’s treatment of overseas dividends, it was later established as a result of court decisions, that the UK was not required to exempt overseas dividends from UK tax but instead had to provide a credit for foreign tax at the foreign nominal rate. Applied to the claimant’s case, it turned out that foreign tax credit did not extinguish the UK tax the claimant was liable for on the foreign dividends (the foreign nominal credit rate of 10% being below the UK corporation tax rate). The claimant therefore asked HMRC, in a letter of 11 March 2021, to reduce (by £822,928) the NTLRD sum which the claimant had previously surrendered to its group company, and instead use the sum to set off against the amount which the claimant was now taxable for.

HMRC refused the claim to set-off the NTLRD on the basis the claim had not been made within two years of the relevant period (i.e. by 31 December 2004). It also refused to exercise its discretion to extend the time limit. Its reasons included that the claimant’s case did not fall within the SP (Footnote: ¹). The SP contained a section on HMRC’s approach to extending time limits for claims in which HMRC recognise that “there may be exceptional reasons why a claim is not made within the time specified”. The SP goes on to specify that applications to HMRC should be considered with the assistance of various criteria and that in general HMRC’s approach will be (as set out in paragraph 10):

“…to admit claims which could not have been made within the statutory time limits for reasons beyond the company’s control. This would include, for example, cases where:

• at the date of the expiry of the time limit, the company or its agents were unaware of profits against which the company could claim relief

• the amount of a profit or loss depended on discussions with an inspector which were not complete when the time limit expired, and the delay in agreeing figures is not substantially the fault of the company or its agents

In such cases the Commissioners for HMRC’s approach will be to admit late claims up to the amount of the profit or loss in question.”

HMRC’s decision letter of 5 January 2024, written by Sinead Murphy, tax specialist, responded explaining why it considered the circumstances in the various SP paragraphs were not met. In relation to paragraph 10 of the SP, Ms Murphy stated:

“In its original company tax return filed on 31 March 2004, [the claimant] treated its overseas dividends as taxable. Later, on 22 December 2004, it amended its tax return to treat the overseas dividends as non-taxable. That change indicates that [the claimant] had some doubt as to the treatment of the overseas dividends when the time limit expired (31 December 2004). That means that paragraph 10 of SP5/01 is not met, because [the claimant] was aware that there could have been profits against which [the claimant] could claim relief.

23.

[The claimant] did not make a claim for double tax relief (“DTR”) in its amended return, contrary to the assertion in your letter dated 13 November 2023. On 31 March 2010, and to protect its position. [The claimant] made a DTR claim under separate cover. This indicates that they were aware of the dividend income that should be brought into charge following the outcome of the ongoing legislation.”

In the letter Ms Murphy also explained HMRC’s view that paragraph 13 of the SP did not apply. That paragraph provided that an application should be made as soon as possible and mentioned that delay after the circumstances which had caused the claim to be late ceased could result in rejection of the claim. HMRC noted judicial decisions had confirmed in October 2013 and July 2018 that foreign dividends were taxable (respectively Prudential Assurance Company Limited v HMRC [2013] EWHC 3249 (Ch) and Prudential Assurance Company Limited v HMRC [2018] UKSC 39 July 2018).