JAN JOSEPH HAGE AARONSON LLP UPCOMING EVENTS & LIKELY DATES. Supreme Court rejects Government s Article 50 appeal NEWSLETTER.

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1 LLP UPCOMING EVENTS & LIKELY DATES JAN Q1 Prudential (portfolio dividends) Supreme Court decision on permission to appeal ITC (indirect claims for overpaid tax) Supreme Court judgment F EBRUARY Q2 M AY J ULY FID claims FII (dividends from controlled interests) BAT (super tax on EU claims) Littlewoods (compound interest on repaid VAT) High Court hearing Supreme Court decision on permission to appeal High Court hearing Supreme Court hearing Supreme Court rejects Government s Article 50 appeal Ramsey Chagoury Article 50 of the Treaty on the European Union provides, in summary terms, that, if a member state decides to withdraw from the European Union ( the EU ) in accordance with its own constitutional requirements, it should serve a notice of that intention ( a Notice ), and that the treaties which govern the EU ( the EU Treaties ) shall cease to apply to that member state within two years thereafter. Following the June 2016 referendum, the Government proposes to use its prerogative powers to withdraw from the EU by serving a Notice withdrawing the UK from the EU Treaties. The principal issue in these appeals is whether such a Notice can, under the UK s constitutional arrangements, lawfully be given by Government ministers without prior authorisation by an Act of Parliament and whether the terms on which powers have been statutorily devolved require consultation with or the agreement of the devolved legislatures before Notice is served, or otherwise operate to restrict the Government s power to do so ( the devolution issues ). The Supreme Court by a majority of 8 to 3 dismisses the Secretary of State s appeal. In a joint judgment of the majority, the Supreme Court holds that an Act of Parliament is required to authorise ministers to give Notice of the decision of the UK to withdraw from the European Union. On the devolution issues, the court unanimously concludes that it is not necessary for the court to decide if the Northern Ireland Act 1998 imposes a discrete requirement for such legislation, and that the Sewel Convention, which says that the UK Parliament will not normally exercise its right to legislate with regard to devolved matters without the agreement of the devolved legislature, does not give rise to a legally enforceable obligation.

2 2 Refusal to exempt dividends from WHT not permitted Cristiana Bulbuc The case deals with circumstances in which a Member State may refuse on the grounds of preventing tax evasion an exemption from WHT that would normally be granted for dividend payments of a resident subsidiary to its non-resident parent company. French tax authorities refused to exempt from WHT the dividends of a French company that were paid to its Luxembourg parent company, which was indirectly controlled by a Swiss company, on the grounds that proof was required to show that the ownership structure was not tax-related. Moreover, the proof had to come from the beneficiary of the dividends, i.e. the non-eu parent company, without the French tax authorities being obliged to provide sufficient indications of tax evasion. AG Kokott found that such a rule was disproportionate and that it went beyond what is required to prevent tax evasion. The mere reference to the direct/indirect control by shareholders in third States cannot be regarded as an indication of tax evasion. AG Kokot also held that that it is irrelevant that the company relying on the freedom of establishment is controlled by persons with their seat in a non-member State. The origin of the shareholders of companies does not affect the right of those companies, who are resident in the EU, to rely on the freedom of establishment. Consequently, a difference in the tax treatment of dividends between parent companies, based on the location of their seat, constitutes a restriction on the freedom of establishment. Full opinion can be found here. Advocate General Wathelet identifies a remedy of direct loss in EU law Ramsey Chagoury Where a tax exempt shareholder is denied a cash credit in breach of EU law on the distribution by a resident company of non-resident sourced income, in circumstances where resident-sourced income would carry a credit, what is the nature of the remedy? Is it a repayment remedy, recoverable as of right or is it a damages remedy which can only re recovered if certain conditions are met including the difficult requirement of a sufficiently serious breach? In his opinion of 21 December in The Trustees of the BT Pension Scheme C-628/15, AG Wathelet concludes that it is neither. It is not the repayment of tax unduly levied as the exempt taxpayer paid no tax. However, he concludes, the principle of the primacy of EU law obliges the Member States to adopt such measures as are necessary to enable any person that has suffered discrimination prohibited by Art 63 TFEU to obtain the payment of any sums to which it would have been entitled in the absence of such discrimination. In the current instance the exempt shareholders had suffered a direct loss and were entitled to the dis-application of the restriction which excluded non-resident income from the grant of a cash credit Full opinion can be found here.

3 3 Interest on payments of duties wrongly collected. Cristiana Bulbuc This is another case in the Littlewoods line of cases concerning interest due under EU law. This case concerns the reimbursement of anti-dumping duties paid following the annulment by the CJEU of a decision of the European Commission imposing the duties. The German customs authorities reimbursed Wortmann for the duties paid but refused to pay any interest on the sums repaid. The CJEU has held that EU and Member State authorities must pay interest on sums collected in violation of EU law, starting from the date on which the sums were collected. This rule applies to all types of duties and charges, including those collected pursuant to EU customs law. Full judgment can be found here. Foreign currency gains gives rise to interesting jurisdictional points on the Liechtenstein Disclosure Facility and COP 8 Katy Howard The First-tier Tribunal has given a detailed decision in an appeal against discovery assessments to capital gains tax that HMRC made in consequence of the Appellant's disposal of a property in Switzerland (declared via the Liechtenstein Disclosure Facility, the "LDF") and associated penalties. The main issue was which method should was the correct method to calculate the chargeable gain on disposal: Method A (Appellants' method): Calculate the gain that the Appellants made in Swiss Francs by subtracting the aggregate of the expenditure that they had incurred in respect of that property (in Swiss Francs) from the Swiss Franc disposal proceeds, thus producing a gain in Swiss Francs to be converted into sterling at the exchange rate applicable on the date of disposal for the purposes of calculating their CGT liability. Method B (HMRC method): Convert each item of expenditure incurred in respect of the property, including the cost of acquisition, into sterling at the exchange rate applicable on the date that expenditure was incurred and deduct the sum of those sterling amounts from the sterling equivalent of the sale proceedings (arrived at by converting the Swiss Franc disposal proceeds into sterling at the exchange rate applicable on the date of disposal. The Tribunal judge found that he was bound by the Court of Appeal's decision in Capcount Trading v Evans (HM Inspector of Taxes) [1993] STC 11 and the High Court's decision in Bentley v Pike (Inspector of Taxes) [1981] STC 60, so Method B was correct. The point of principle arising out of the Court of Appeal's decision in Capcount was that foreign currency was a distinct asset for CGT purposes. Thus, expenditure in foreign currency is expenditure consisting of giving up a distinct asset, not expenditure in money, and it falls to be valued by converting the foreign currency into sterling at the exchange rate prevailing on the date of expenditure. Similarly, receipts in foreign currency are receipts of separate assets which need to be converted into sterling at the rate prevailing on the date of receipt.

4 4 HMRC had applied the minimum percentage penalty (20%) in accordance with Schedule 24 of the Finance Act 2007 for deliberate inaccuracies, but the Appellants had also argued that the applicable penalty percentage under the terms of the LDF was 10%. The Tribunal found that this argument was fundamentally flawed in that the LDF was not a statutory provision and the Tribunal did not have any jurisdiction to consider complaints that HMRC had not honoured their agreement with the Government of Liechtenstein. Nor did the Tribunal have jurisdiction to consider arguments to the effect that HMRC should have applied a lower level of penalty given their public statements on the LDF: those were public law arguments that would have to be pursued in the courts by way of judicial review. In any event the Tribunal judge would not have accepted the Appellants' arguments as he believed that HMRC had applied the LDF correctly. The Tribunal judge also considered whether HMRC's perceived failure to apply the LDF amounted to a "special circumstance" which could justify reducing the penalty below the minimum level of 20% under paragraph 11 of Schedule 24. The Tribunal's jurisdiction on "special circumstances" which allows the Tribunal to reach a different decision to HMRC if the Tribunal thinks that HMRC s decision is flawed was, the Tribunal held, confined to considering HMRC's approach in light of judicial review principles. The Tribunal took the view that HMRC had made no error of law in this regard: HMRC had turned their mind to the LDF and applied it in a manner that was reasonable (and in a manner which the Tribunal judge considered to be consistent with the terms of the LDF). Finally, the Appellants had argued that HMRC should not have pursued enquiries into their tax affairs under HMRC's Code of Practice 8 because the dispute between HMRC and the Appellants was essentially one of law, namely which method should have been used to calculate the chargeable gain. However, the Tribunal held that, as a creature of statute, it had no jurisdiction to consider this complaint. One option available to the Appellants would have been to complain to HMRC and, if not satisfied, to pursue the matter to the Adjudicator's Office. Alternatively, they could have considered pursuing a judicial review in the courts. George Knight and Ingeborg Knight v The Commissioners for Her Majesty s Revenue & Customs [2016] UKFTT 0819 (TC)

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