HM Revenue & Customs (respondent) v VolkerRail Plant Ltd & ors (appellants)
Tuesday 7 – Wednesday 8 February 2023
This is a second appeal. By appellant’s notice filed on 26 May 2022, the taxpayer appellant appeals, with the permission of the Upper Tribunal, their decision of 11 February 2022, whereby they allowed HMRC’s appeal against the decision of the First-tier Tribunal.
The appeals concerned claims for group relief, so as to reduce corporation tax liability, in respect of losses incurred by the U.K. branch or resident permanent establishment (“PE”) of a Dutch resident company. The taxpayers’ claims involve some EUR 45,966,000 losses. By section 403D of the Income and Corporation Taxes Act 1988 (“ICTA”), there was a restriction on the ability to surrender losses of such a PE if that loss was deductible or otherwise allowable against non-UK profits. The question raised in the proceedings was whether this restriction is compatible with the provisions of the Treaty on the Functioning of the European Union (“TFEU”) concerning freedom of establishment. The First Tier Tribunal found that the restriction imposed by s.403D was contrary to EU law as it infringed the freedom of establishment guaranteed by the TFEU.
HMRC appeal against the same decision. HMRC concur with the Upper Tribunal’s ruling that section 403D(1)(c) of ICTA is compatible with articles 49 and 52 of TFEU because any restriction on freedom of establishment is justified in the public interest by the aim of preventing the double deduction of losses by groups with cross-border corporate structures. However, they appeal the UT Decision on the grounds that the provision is compatible with EU law for additional reasons rejected by the UT.