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Volkerrail Plant Ltd & Ors v HM Revenue and Customs [2023] EWCA Civ 210 – Mark Fell KC

This important decision concerns the legitimacy of the public policy objective of preventing the cross border double deduction of losses for tax purposes. Mark Fell KC appeared for HMRC, along with David Ewart KC and Harry Winter.

The case arose from a dispute over the compatibility of an aspect of UK group relief rules with European Union law. Under group relief, tax deductible losses can be transferred from one member of a group of companies (including a permanent establishment) to another member of the same group. HMRC had disallowed group relief claims by UK resident members of the so-called Volker Group in respect of losses of around 45 million euros incurred by a UK permanent establishment of a Netherlands resident Volker Group company. The basis of HMRC’s decision was that the relevant losses were also deductible in the Netherlands, engaging a limitation on the availability of group relief imposed by section 403D(1)(c) of the Income and Corporation Taxes Act 1988. The Volker Group argued, relying on the decision of the Court of Justice of the European Union in (Case C-18/11) Philips, that this limitation should be disapplied as an unlawful restriction on EU freedom of establishment.

In its judgment the Court of Appeal found that Philips had been departed from by the Court of Justice in its later decision in (Case C-28/17) NN. The Court of Appeal held the limitation imposed by section 403D(1)(c) was justified and proportionate in the light of its objective of preventing double deduction of losses. Accordingly, there was no contravention of EU law.

The Court of Appeal’s full judgment can be found here.