Test Claimants In the Thin Cap Group Litigation v HM Revenue and Customs [2011] EWCA Civ 127 (18 February 2011)

Test Claimants In the Thin Cap Group Litigation v HM Revenue and Customs [2011] EWCA Civ 127 (18 February 2011)

UK thin cap legislation prior to 2004 infringed Article 43 EC because it discriminated against cross-border intra-group loans by not allowing a defence of commercial justification and not applying to domestic transactions. The legislation could not be construed compatibly with Article 43 EC, and must be disapplied to the extent of the incompatibility. The claimants' transactions were genuine commercial transactions, so the legislation should not have applied to them. The breach became sufficiently serious to entitle claimants to damages only after the ECJ's decision in Lankhorst-Hohorst (12 December 2002).

Citation
[2011] EWCA Civ 127
Parties
Claimants, Appellants and Respondents: Test Claimants in the Thin Cap Group Litigation; Defendants, Appellants and Respondents: Commissioners for Her Majesty's Revenue and Customs
Jurisdiction
England and Wales
Judgment Date
18 February 2011
Procedural Posture
Appeal (civil) / Court of Appeal Judgment on Preliminary Issues Following High Court Decision
Outcome
Appeal allowed in part; UK thin cap legislation disapplied to genuine commercial transactions; entitlement to damages only for sufficiently serious breach post-Lankhorst-Hohorst; issues of remedies adjourned.
Legal Topics
Thin Capitalisation, Freedom of Establishment (article 43 Ec), Discriminatory Tax Treatment, Restitutionary Remedies, Damages for Breach of EU Law
Tax Law European Union Law Corporate Law Thin Capitalisation Freedom of Establishment (article 43 Ec) Discriminatory Tax Treatment Restitutionary Remedies Damages for Breach of EU Law

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Parties

Test Claimants in the Thin Cap Group Litigation

Claimants, Appellants and Respondents

Commissioners for Her Majesty's Revenue and Customs

Defendants, Appellants and Respondents

Procedural Posture

Appeal (civil) / Court of Appeal Judgment on Preliminary Issues Following High Court Decision

Legal Issues

  1. 1 Whether UK thin cap legislation prior to 2004 unlawfully infringed Article 43 EC by discriminating against cross-border intra-group loans without allowing a commercial justification defence
  2. 2 Whether the breach was sufficiently serious to entitle claimants to damages
  3. 3 Whether the UK legislation could be construed compatibly with Article 43 EC

Ratio Decidendi

UK thin cap legislation prior to 2004 infringed Article 43 EC because it discriminated against cross-border intra-group loans by not allowing a defence of commercial justification and not applying to domestic transactions. The legislation could not be construed compatibly with Article 43 EC, and must be disapplied to the extent of the incompatibility. The claimants' transactions were genuine commercial transactions, so the legislation should not have applied to them. The breach became sufficiently serious to entitle claimants to damages only after the ECJ's decision in Lankhorst-Hohorst (12 December 2002).

Court Disposition

Appeal allowed in part; UK thin cap legislation disapplied to genuine commercial transactions; entitlement to damages only for sufficiently serious breach post-Lankhorst-Hohorst; issues of remedies adjourned.

Orders

  • UK thin cap legislation to be disapplied in relation to genuine commercial transactions between related companies where no wholly artificial arrangement exists.
  • Claimants entitled to restitution for sums paid under the unlawful legislation.