Deutche Morgan Greenfell Group V. Irc Notes

Deutche Morgan Greenfell Group v. Inland Revenue Commissioners

Facts

Under provisions of the Income and Corporation Taxes Act 1988, as in force until April 1999, certain distributions made by companies resident in the United Kingdom were subject to advance corporation tax which was payable quarterly. Tax so paid could later be set off against any liability to mainstream corporation tax. The legislation also provided that two companies resident in the United Kingdom, one of which owned at least 51% of the other, could make a group income election, a consequence of which was that the subsidiary company was not obliged to account for advance corporation tax on dividends paid to the parent company. In March 2001, the Court of Justice of the European Communities held that a tax regime permitting resident parent companies but not non-resident ones to receive dividends from their resident subsidiaries without payment of advance corporation tax created a cashflow disadvantage and was an unwarranted restriction on freedom of establishment. The court also held that in respect of payments of advance corporation tax already made, Community law conferred a right of compensation or restitution. The claimant, a UK subsidiary of a German parent company, had been able to set off the advance corporation tax it had paid against its liability to mainstream corporation tax, but had suffered a disadvantage of timing.

The claimant contended that it had made the payments under a mistake of law so that under section 32(1)(c) of the Limitation Act 19801, the limitation period began to run from the date it had discovered its mistake, or could with reasonable diligence, have discovered it.

Deutsche Morgan Grenfell Group plc ("DMG") claims compensation for having had to pay ACT on three dividends paid to its German parent company between 1993 and 1996: in October 1993, February 1995 and January 1996. Note that it is not the principal sum that is being demanded here as that has already been set off against Mainstream Corporate Tax.

Holding

Lord Hoffmann

Lord Goff’s Debatable Passage

I must deal with the opinion attributed by the Court of Appeal to Lord Goff. Both Jonathan Parker LJ and Buxton LJ subjected his speeches in the Woolwich and Kleinwort Benson cases to a detailed analysis which I have read more than once with attention and respect. The chief support for Mr Glick's argument is to be found in the following passage in the Kleinwort Benson case [1999] 2 AC 349 (cites Lord’s Goff’s passage).

There is no doubt that the regimes are different. Both the Woolwich principle and section 33 apply only to the recovery of money paid as taxes or the like. They do not apply to "private transactions". The Woolwich principle is indifferent as to whether the taxpayer paid the tax because he was mistaken or, as in the Woolwich case, for some other reason. And section 33 has its own rules. So the regime for taxes is certainly different. But the question is whether Lord Goff meant to say that the remedies provided by the two regimes are mutually exclusive. Woolwich and section 33 are available only for "taxes and other similar charges". Does it follow that the common law rule for recovery of payments made by mistake, as applied to private transactions in the Kleinwort Benson case, does not apply to taxes? That would be going a good deal further. It is one thing to say that the regimes are different and another to say that their remedies are mutually exclusive.

But to my mind the context in which Lord Goff made the remarks which I have quoted demonstrates conclusively that he could not have meant what the Court of Appeal thought… early in his speech [1999] 2 AC 349, 367 Lord Goff announced that he proposed to address first the question of whether the rule precluding recovery of money paid under a mistake of law should remain part of English law… Lord Goff then went on to the question of whether it made a difference that the payments were made in accordance with a settled understanding of the law… He uses the distinction between tax payments and private transactions to argue that the case for a settled law exception is stronger in the case of tax payments ("large numbers of taxpayers may be affected" and "there is an element of public interest") than in the case of private transactions. At the end of this discussion, he leaves the door slightly open for an argument that there is such a defence for tax payments. But he rejects it for private payments.

My Lords, this reasoning is quite inconsistent with the absence of a cause of action for recovery of tax on the grounds of mistake of law. What kind of claim did Lord Goff contemplate that a settled law defence might protect the revenue against? Surely, a claim to recover tax on the ground that it had been paid under a mistake of law. Lord Goff was not suddenly turning to the Woolwich cause of action and asking whether it should be subject to a defence that the demand for tax, although ultra vires, was in accordance with a settled understanding of the law.

There would be little point in discussing whether a settled understanding of the law should be a defence to a claim for recovery of a tax payment on the grounds of mistake of law if there was no such cause of action…. In my opinion, Lord Goff's speech in the Kleinwort Benson case does not deny the right to recover tax on the ground that it was paid by mistake. On the contrary, his discussion of a possible settled law defence necessarily entails that he thought that there was such a cause of action. And for the reasons I gave in the Kleinwort Benson case, I do not think that there is an exception for cases in which there is a settled view of the law.

Does the Statute (s. 33) exclude common law remedy?

When a special or qualified statutory remedy is provided, it may well be inferred that Parliament intended to exclude any common law remedy which would or might have arisen on the same facts. But I see no reason to infer that...

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