Sebastian Lawson-Foia discusses the recent House of Lords ruling in ICI v Colmer.
The House of Lords has now delivered a judgement in this case, deciding (on narrow grounds) in favour of the Revenue. This follows a ruling by the European Court of Justice that the UK consortium relief provisions (which give relief for losses of a joint venture to the consortium members) offend against Article 52 of the Treaty of Rome, which gives undertakings in member states the freedom to establish themselves or their branches and agencies overseas. As this case concerned a holding company with a majority of subsidiaries resident outside the EU, the ruling of the ECJ had in the final analysis little bearing on the outcome of the case.
The judgement of the ECJ does however make it clear that the scope of consortium relief must be extended to cover UK holding companies which exercise their right of establishment in the EU by setting up subsidiaries in other member states. The test for a holding company will now be whether its business consists "wholly or mainly" in the holding of shares in 90% subsidiaries resident in the EU.
The ECJ's ruling could have wider implications for example, it could impact on the Controlled Foreign Company (CFC) regime. That regime may effectively compel an EU subsidiary of a UK company to pursue an ‘acceptable distribution policy' to avoid higher UK taxes. This may constitute discrimination which is contrary to the UK company's rights to freedom of establishment under the EU treaty. A future reference to the ECJ on such matters cannot be ruled out.
The potential consequences of the ECJ ruling may be even more far-reaching. Two UK subsidiaries of an EU parent may for example now be able to argue that EU law gives them the right to form a CGT group, even though their common parent is not UK-resident. The recent German case of Saint-Gobain suggests that such arguments are set to be increasingly deployed.
This note is intended to provide general information about some recent and anticipated developments which may be of interest. It is not intended to be comprehensive nor to provide any specific legal advice and should not be acted or relied upon as doing so. Professional advice appropriate to the specific situation should always be obtained.
