On 18 December 2014 the Court of Justice of the European Union (“CJEU”) handed down its judgment in infringement proceedings brought by the Commission against the UK concerning the effect of section 107 Finance Act 2007 (“FA 2007”). This case concerns the limitation periods for the remedies available under English law for actions for recovery of tax unlawfully levied.
Following the High Court’s decision in Deutsche Morgan Grenfell v IRC in 2003, the UK had enacted legislation (section 320 FA 2004) which restricted the application of the 6 year limitation period in relation to claims for recovery of taxes paid under a mistake of law (Kleinwort Benson claims). The UK government later adopted section 107 FA 2007, which further amended, retrospectively and without transitional arrangements, the limitation period in relation to Kleinwort Benson claims brought against the Revenue under mistake of law.
The Commission began infringement proceedings in October 2009. By its judgment in Test Claimants in the FII GLO in May 2012, the Supreme Court unanimously ruled that section 107 FA 2007 was contrary to EU law. The UK subsequently acknowledged that section 107 breached EU law and stated that it would be disapplied each time it proved to be incompatible. However, the Commission was not satisfied with this response and proceeded with the action.
The CJEU gave judgment without an Opinion from the Advocate General. Its decision, unsurprisingly, follows that of the Supreme Court in FII and the CJEU’s own judgment in Case C-362/12 FII (3rd reference). The CJEU found that section 107 FA 2007 breached the EU law principles of effectiveness and protection of legitimate expectations. The UK had failed to uphold its obligation under Article 4(3) TEU to guarantee tax payers the right to a refund of unlawfully levied taxes. Although the UK government had argued that an amendment of section 107 FA 2007 was contemplated, the CJEU rejected this as irrelevant to the situation existing in the UK at the time.