International taxes

Validity of pre-2009 dividend double tax relief claims following FII GLO, etc

A number of judgments in recent years, such as the Supreme Court’s judgment in July 2021 in FII Group Litigation, clarified the principles in applying EU law to, and conforming interpretations of, the UK’s double tax relief rules to certain overseas dividends received by UK companies prior to 1 July 2009. 

In 2021 and 2024, the First-tier Tribunal and Upper Tribunal (UT) gave decisions (the Post Prudential Closure Notice Applications/Appeals group litigation case) dealing, inter alia, with follow-up questions of what procedures must have been followed by affected taxpayers, in particular what constituted a valid claim for double tax relief for underlying tax (at the rate established by the courts for the appropriate level of relief under EU law). A wide range of questions was posed, reflecting the variety of circumstances of test claimants. HMRC won on most points at the UT. However, the UT agreed with the taxpayer on one significant issue (‘Issue 3’), concerning returns containing claims made for double tax relief for withholding tax only, which HMRC subsequently opened an enquiry into.

Both parties appealed to the Court of Appeal (CA), and it has now handed down its judgment in favour of HMRC. In each of the appealed issues, including Issue 3, the CA agreed with HMRC, with the result that a statutory claim for double tax relief for the underlying tax had not been validly made in time. The judgment will be of particular interest to companies with outstanding claims in connection with the various cases (including FII GLO, CFC/Dividend GLO, BAT or Prudential) and s79, Taxation (International and Other Provisions) Act 2010, s806(2), Income and Corporation Taxes Act 1988, or para 51, Schedule 18, Finance Act 1998 claims in respect of historical overseas dividends. 

HMRC v The Applicants in the Post Prudential Closure Notice Applications/Appeals Group Litigation [2025] EWCA Civ 166

From the Business Tax Briefing dated 28 February 2025, published by Deloitte

VAT

Are Mega Marshmallows confectionery?

The Court of Appeal (CA) has been asked to rule on whether a food product is ‘confectionery’ and therefore excluded from zero-rating. Innovative Bites Ltd contended that its product, Mega Marshmallows, was intended to be roasted over a campfire or barbeque or used as an ingredient in a s’more, and that they were not usually consumed as a snack without roasting. HMRC was of the view that Mega Marshmallows were confectionery and standard rated for VAT purposes. At the First-tier Tribunal (FTT) and Upper Tribunal (UT), Innovative Bites was successful: considering the viewpoint of a typical customer and giving the term ‘confectionery’ its ordinary meaning, they were not confectionery and were therefore zero-rated.

The UT disagreed with HMRC’s assertion that Note 5 of Group 1, Schedule 8, Value Added Tax Act 1994 (which provides that ‘confectionery’ includes certain products), is a “deeming provision”, which would mean that if a product fell within Note 5, there can be no further findings of fact, and it is confectionery for the purposes of Item 2. Rather, the UT held that Note 5 is “akin to a rebuttable presumption” and an inclusive definition to clarify potential doubt, and a multi-factorial assessment may therefore still be necessary. However, in its judgment, the CA has allowed HMRC’s appeal and remitted the case to the FTT. 

In the CA’s view, what Parliament has said about the significance of Note 5 was unambiguous: Note 5 is conclusive, and absent absurdity, products of the types described in Note 5, including “sweetened prepared food which is normally eaten with the fingers”, are confectionery for the purposes of Item 2. In remitting the matter back to a differently constituted FTT, the burden will lie with the taxpayer to prove that the product is not normally eaten with the fingers (a question of fact on which the FTT has not made a finding), or indeed, not confectionery as understood by an ordinary person. 

HMRC v Innovative Bites Limited [2025] EWCA Civ 293

From the Weekly VAT News dated 24 March 2025, published by Deloitte

Broking services supplied to a Gibraltar insurer

Hastings Insurance Services Limited supplied insurance broking services to Advantage Insurance Company Limited, a Gibraltar (non-EU) provider of insurance to UK policyholders. Although under EU and UK law, insurance transactions, including broking services, are VAT exempt, Article 169(c) of the EU Principal VAT Directive (PVD) allows input tax recovery if the services are provided to a customer outside the EU. This is implemented in the UK by way of the Value Added Tax (Input Tax) (Specified Supplies) Order 1999, but the order was amended in 2019 so that UK insurance intermediaries were entitled to recover VAT only where the party insured was based outside the UK. Hastings submitted a claim to HMRC for the recovery of input tax attributable to supplies made to Advantage relating to a pre-31 December 2020 Brexit period and a post-1 January 2021 Brexit period, on the basis that the 2019 amendment was incompatible with the PVD. The First-tier Tribunal (FTT) has found in Hasting’s favour, following HMRC’s disallowance of the claim. 

The FTT has held that “customer” in Article 169(c) should be understood as referring to Hastings’ customer, Advantage, and not the final customer, the UK policyholder (as was argued by HMRC). The FTT also found that Article 169(c) is unconditional and sufficiently precise so as to have direct effect, and therefore for the pre-Brexit period, Article 169(c) can be relied on to allow input tax recovery. With respect to the post-Brexit period, under Section 4 of the EU (Withdrawal) Act 2018, directly effective rights arising under an EU Directive and recognised and enforced before 31 December 2020 continued to be recognised and enforced in UK law, if they are “of a kind” recognised by the European Court or any UK court or tribunal in a case decided before 31 December 2020. The FTT held that EU case law provided that Article 169 had direct effect, or alternatively, that Article 169 was “of a kind” and/or had a “close relationship” with Article 168, which had previously been held to have direct effect. Accordingly, the FTT has ruled in favour of Hastings. 

Hastings Insurance Services Limited v HMRC [2025] UKFTT 275 (TC)

From the Business Tax Briefing dated 14 March 2025, published by Deloitte

Valuation of intra-group charges

Högkullen AB was the parent company of a Swedish group involved in real estate management. Högkullen’s subsidiaries were partially VAT exempt, and unable to fully recover input tax. Högkullen supplied services to its subsidiaries (company management, financial services, real-estate management, IT services, and personnel management), and calculated its charges on a ‘cost-plus’ basis. Högkullen also incurred shareholder and other accounting and fund-raising costs, which it did not take into account when calculating the intra-group charges. 

Under the EU Principal VAT Directive, EU member states may, where a supplier and recipient have close ties, value a supply at the open market value. The open market value is the amount payable on the open market for a comparable service, but where this cannot be ascertained, it is an amount not less than the full cost to the supplier of providing the service. The Swedish tax authorities considered that Högkullen’s intra-group supplies constituted a single supply, the consideration for which was less than the open market value. Therefore, as there was no comparable price on the open market, the open market value would be at least equal to the full cost of providing the service. 

The Advocate General has concluded that the services supplied by Högkullen were all separate services, and was of the view that it was likely that comparison prices for the services could be ascertained. There was no evidence to suggest that the consideration actually paid by Högkullen for the third-party services should not be regarded as the comparison price. Although not necessary given that conclusion, the AG also went on to conclude that the open market value could not be determined simply by adding all of the expenditure incurred by Högkullen during a given calendar year. Only the expenditure subject to VAT should be taken into account, allocated to the respective output services, with capital costs apportioned to recognise that capital expenditure related to services supplied over a number of years. 

Högkullen Case C-808/23 ECLI:EU:C:2025:149

From the Weekly VAT News dated 10 March 2025, published by Deloitte

Application to strike out appeal on post-Brexit application of EU law

The First-tier Tribunal (FTT) has refused to strike out an appeal concerning the post-Brexit application of EU VAT law. 

In January 2023, Mr Poulton submitted a VAT refund claim under the DIY housebuilders scheme, the majority of which was refunded. In June 2023, he wrote to HMRC enquiring how he could reclaim VAT on certain additional invoices where it had been incorrectly charged (the services should have been zero-rated), as he was unable to reclaim the VAT from the supplier, which had gone into liquidation. HMRC treated this as a further claim under the DIY refund scheme, which it refused. Mr Poulton appealed that decision, and HMRC applied to strike out the appeal. 

HMRC considers that following Brexit there is no basis for making a Reemtsma claim (a claim for incorrectly paid VAT made directly to HMRC where it is impossible or excessively difficult to recover it from the supplier). However, the FTT was not satisfied that the parties had had an adequate opportunity to address the application of s28, Finance Act 2024, concerning whether the ability to make Reemtsma claims had been preserved for post-Brexit periods by related legislation, and decided that this point should be left to the substantive hearing. The FTT considered Mr Poulton had a realistic prospect of succeeding in that argument, so refused to strike out the claim.

HMRC also argued that, if Reemtsma claims have survived Brexit, Mr Poulton had no reasonable prospect of success for a claim made under s35 or s80 of the VAT Act 1994. The FTT found that he did not have any right to repayment under s80, which deals with claims for repayment of overstated or overpaid VAT. However, if it were possible to adopt a conforming (Marleasing) construction to extend Reemtsma claims in respect of VAT incorrectly levied by a contractor to a DIY builder, he had a realistic prospect of succeeding in an argument that a claim would be available under s35, which governs the DIY refund scheme. Accordingly, the appeal will proceed to a hearing on the substantive issues.

Chris Poulton v HMRC [2025] UKFTT 240 (TC)

From the Business Tax Briefing dated 28 February 2025, published by Deloitte