Thin Cap Group Litigation, Test Claimants In v Revenue and Customs

Thin Cap Group Litigation, Test Claimants In v Revenue and Customs

The UK thin capitalisation rules breached Article 43 EC because they failed to provide a separate defence of genuine commercial justification, rendering them disproportionate. The rules must be disapplied in relation to transactions with commercial justification, and the burden is on HMRC to prove absence of such justification. Restitution is available for tax paid and reliefs used as a direct consequence of the unlawful regime. Damages are available only from 12 December 2002, the date of the ECJ's Lankhorst-Hohorst judgment, as any earlier breach was excusable and not sufficiently serious.

Parties
Claimants: Test Claimants in the Thin Cap Group Litigation; Defendants: Commissioners for Her Majesty's Revenue and Customs
Jurisdiction
England and Wales
Judgment Date
17 November 2009
Procedural Posture
Group Litigation Order (glo) Test Case / High Court Judgment After Trial of Liability and Remedies Issues
Outcome
Claimants succeed on liability; UK thin cap rules disapplied for transactions with commercial justification; restitution and damages available subject to findings on quantum and causation.
Legal Topics
Thin Capitalisation, Freedom of Establishment (article 43 Ec), Restitution for Unlawful Taxation, State Liability for Breach of EU Law, Double Taxation Conventions, Limitation Periods, Non Discrimination in Tax Treaties
Tax Law European Union Law Public Law Thin Capitalisation Freedom of Establishment (article 43 Ec) Restitution for Unlawful Taxation State Liability for Breach of EU Law Double Taxation Conventions +2 more

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Parties

Test Claimants in the Thin Cap Group Litigation

Claimants

Commissioners for Her Majesty's Revenue and Customs

Defendants

Procedural Posture

Group Litigation Order (glo) Test Case / High Court Judgment After Trial of Liability and Remedies Issues

Legal Issues

  1. 1 Whether the UK thin capitalisation rules breached Article 43 EC (freedom of establishment) by failing to allow a defence of commercial justification.
  2. 2 What remedies are available for breach of Article 43 EC: restitution, damages, or both.
  3. 3 Whether the UK rules could be interpreted conformably with EU law or must be disapplied.

Ratio Decidendi

The UK thin capitalisation rules breached Article 43 EC because they failed to provide a separate defence of genuine commercial justification, rendering them disproportionate. The rules must be disapplied in relation to transactions with commercial justification, and the burden is on HMRC to prove absence of such justification. Restitution is available for tax paid and reliefs used as a direct consequence of the unlawful regime. Damages are available only from 12 December 2002, the date of the ECJ's Lankhorst-Hohorst judgment, as any earlier breach was excusable and not sufficiently serious.

Court Disposition

Claimants succeed on liability; UK thin cap rules disapplied for transactions with commercial justification; restitution and damages available subject to findings on quantum and causation.

Orders

  • UK thin cap provisions disapplied in relation to transactions with genuine commercial justification.
  • Restitution of tax paid and reliefs used as a direct consequence of the unlawful regime.