Now that they have had a chance to digest the decision in the EU State aid investigation into certain aspects of the UK CFC rules, affected taxpayers are asking a number of questions.
Will the UK appeal? It would seem surprising if it did not - and we would be surprised if any concerns about damaging the relationship between the UK and the EU impacted this - but the decision is one for a Government which is currently somewhat distracted by Brexit. And even if it does, will the UK see the process through? There must be a real risk that a future Labour government would not want to use taxpayer resources defending a Tory tax measure for the benefit of multinationals.
Should taxpayers appeal? This is not a straightforward question. Although all affected taxpayers should have standing to appeal, whether they need to do so depends on their individual circumstances. What points of principle would they rely on to defend their position on recovery? Is their position similar to other taxpayers who are appealing? If a taxpayer undoubtedly had standing before the EU Court, it will not be possible later to raise arguments before the UK courts challenging the correctness of the EU decision, but questions of fact relevant to applying any eventual decision are ultimately for the UK to determine. The risk of relying on the government's, or another taxpayer's, appeal, of course, is you have no ability to fight on if they withdraw their appeal at any stage for reasons which do not apply to you.
What is the time limit for a taxpayer to appeal? The limit is two months from publication of the decision plus a 10-day extension for distance. Whether this runs from publication in the EU Official Journal or on the EC website is the subject of some debate but what is clear is that the EC will be all too happy to reject appeals beyond the deadline, so many taxpayers will be tempted to file by 5 July 2019 to be sure.
When does recovery begin? Whatever the position on appeals, the UK is technically required to provide a list of taxpayers who have benefited from the regime – and the amount of tax at stake - by June 2019 and to recover that tax from the taxpayer by August 2019. Given the complexity of working out the amount of tax at stake – identifying the relevant UK “significant people functions”, allocating profit to those UK activities and assessing, for example, whether losses might otherwise have been available – this timescale looks unlikely, but the UK will have to at least update the EU on its recovery actions in short order.
What else should taxpayers be doing now? Affected groups should be identifying and preserving evidence (which may be documents or people) to support their (lack of) UK SPF position. People move, memories fade, and this factual matrix is going to be an essential part of knowing what points matter before the ECJ, agreeing the recovery bill and understanding any collateral consequences of describing those facts to HMRC.
Although all affected taxpayers should have standing to appeal, whether they need to do so depends on their individual circumstances