The European Commission to take action against the UK in the Court of Justice of the EU

by Tax Faculty Team on 13.02.2012 09:40

The UK government is referred to the Court of Justice of the EU


The European Commission has decided to refer the United Kingdom to the EU's Court of Justice for abolishing the ‘remedy for repayment of taxes paid in mistake of law’ without proper transitional rules.


In 2006 the House of Lords ruled in the case Deutsche Morgan Grenfell Group Plc (Respondents) v. Her Majesty’s Commissioners of Inland Revenue and another, that the six-year limitation period for bringing a claim against HMRC for payments of tax that had been made under a mistake of law must run from the date on which the mistake was discovered rather than the date on which the payment was made.


As a result, taxpayers could potentially enjoy a much longer period to reclaim tax. 


The Government took the view that this was unfair and, by means of section 107 of the Finance Act 2007, it removed the extended period provided by the mistake of law provisions contained in section 32 of the Limitation Act 1980.


The new legislation did allow claims for relief that were specifically awaiting the 2006 decision of the House of Lords but apart from that there were no transitional measures in Finance Act 2007.  For example, in 2007, if a taxpayer had paid tax to HMRC in 2001 that in 2006 was ruled to have been unlawful and, therefore, made under a mistake of law, the taxpayer would have had until 2012 to claim repayment of the tax.  The change made by the Finance Act 2007 meant that the deadline was suddenly 2007, possibly too late to make a claim.


Under European Union rules, national rules on claiming tax repayments should not be made impossible or excessively difficult to benefit from.  The lack of transitional provisions is believed by the European Commission to contravene this principle.

On 30 September 2010, the Commission had formally requested the UK to change the provisions in Finance Act 2007 to provide for appropriate transitional relief.  As the UK government was not prepared to do this the matter is now to be heard by the Court of Justice of the EU.