# C_2005057EN.01002001.xml

| 5.3.2005 | EN | Official Journal of the European Union | C 57/20 |
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Reference for a preliminary ruling by the High Court of Justice (England & Wales), Chancery Division, by order of that court dated 21 December 2004, in the case of Test Claimants in the Thin Cap Group Litigation against Commissioners of Inland Revenue

(Case C-524/04)

(2005/C 57/35)

Language of procedure: English

Reference has been made to the Court of Justice of the European Communities by order of the High Court of Justice (England & Wales), Chancery Division, dated 21 December 2004, which was received at the Court Registry on 31 December 2004 for a preliminary ruling in the case of Test Claimants in the Thin Cap Group Litigation and Commissioners of Inland Revenue on the following questions:

| 1. | Is it contrary to Article 43, 49 or 56 EC for a Member State (‘the State of the borrowing company’) to keep in force and apply provisions such as those in sections 209, 212 and schedule 28AA of the Income and Corporation Taxes Act 1988 (‘the national provisions’) which impose restrictions upon the ability of a company resident in that Member State (‘the borrowing company’) to deduct for tax purposes interest on loan finance granted by a direct or indirect parent company resident in another Member State in circumstances where the borrowing company would not be subject to such restrictions if the parent company had been resident in the State of the borrowing company? |
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| 2. | What difference, if any, does it make to the answer to Question 1:
a)
if the loan finance is provided not by the parent company of the borrowing company but by another company (‘the lending company’) in the same company group sharing a common direct or indirect parent company with the borrowing company and both that common parent and the lending company are resident in Member States other than the State of the borrowing company? b)
if the lending company is resident in a Member State other than that of the borrowing company but all common direct or indirect parent companies of the borrowing company and the lending company are resident in a third country? c)
if all the common direct or indirect parent companies of the lending company and the borrowing company are resident in third countries and the lending company is resident in a Member State other than that of the borrowing company, but advances the loan finance to the borrowing company from a branch of the lending company situated in a third country? d)
if the lending company and all the common direct or indirect parent companies of the lending company and the borrowing company are resident in third countries? | a) | if the loan finance is provided not by the parent company of the borrowing company but by another company (‘the lending company’) in the same company group sharing a common direct or indirect parent company with the borrowing company and both that common parent and the lending company are resident in Member States other than the State of the borrowing company? | b) | if the lending company is resident in a Member State other than that of the borrowing company but all common direct or indirect parent companies of the borrowing company and the lending company are resident in a third country? | c) | if all the common direct or indirect parent companies of the lending company and the borrowing company are resident in third countries and the lending company is resident in a Member State other than that of the borrowing company, but advances the loan finance to the borrowing company from a branch of the lending company situated in a third country? | d) | if the lending company and all the common direct or indirect parent companies of the lending company and the borrowing company are resident in third countries? |
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| a) | if the loan finance is provided not by the parent company of the borrowing company but by another company (‘the lending company’) in the same company group sharing a common direct or indirect parent company with the borrowing company and both that common parent and the lending company are resident in Member States other than the State of the borrowing company? | | | | | | | | |
| b) | if the lending company is resident in a Member State other than that of the borrowing company but all common direct or indirect parent companies of the borrowing company and the lending company are resident in a third country? | | | | | | | | |
| c) | if all the common direct or indirect parent companies of the lending company and the borrowing company are resident in third countries and the lending company is resident in a Member State other than that of the borrowing company, but advances the loan finance to the borrowing company from a branch of the lending company situated in a third country? | | | | | | | | |
| d) | if the lending company and all the common direct or indirect parent companies of the lending company and the borrowing company are resident in third countries? | | | | | | | | |

| 3. | Would it make any difference to the answers to Questions 1 and 2 if it could be shown that the borrowing constituted an abuse of rights or was part of an artificial arrangement designed to circumvent the tax law of the Member State of the borrowing company? If so, what guidance does the Court of Justice think it appropriate to provide as to what constitutes such an abuse or artificial arrangement in the context of cases such as the present? |
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| 4. | If there is a restriction on the movement of capital between Member States and third countries within article 56 EC, did that restriction exist on 31 December 1993 for the purposes of article 57 EC? |
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| 5. | In the event that any of the matters referred to in questions 1 or 2 are contrary to Articles 43, 49 or 56 EC, then in circumstances where the borrowing company, or other companies in the borrowing company's group (‘the Claimants’) make the following claims:
a)
a claim for the repayment of the additional corporation tax paid by the borrowing company as a result of the disallowance, as a deduction against its profits chargeable to corporation tax, of interest paid to the lending company, where those interest payments would have been regarded as allowable deductions from the borrowing company's profits if the lending company had also been resident in the State of the borrowing company; b)
a claim for repayment of the additional corporation tax paid by the borrowing company where the full amount of interest on the loan has actually been paid to the lending company but the claim for a deduction in respect of that interest has been reduced because of the national provisions or the tax authority's application of them; c)
a claim for the repayment of the additional corporation tax paid by the borrowing company where the amount of interest on loans from the lending company, allowable as a deduction against the borrowing company's profits, has been reduced because equity capital has been subscribed rather than loan capital, or has been substituted for existing loan capital, because of the national provisions or the tax authority's application of them; d)
a claim for the repayment of the additional corporation tax paid by the borrowing company where the interest on loans from the lending company allowable as a deduction against the borrowing company's profits has been reduced by reducing the rate of interest chargeable on the loan (or making the loan interest free) as a result of the national provisions or the tax authority's application of them; e)
a claim for restitution or compensation in respect of losses, or other tax reliefs or credits, of the borrowing company (or which were surrendered to the borrowing company by other companies in the borrowing company's group which were also resident in the State of the borrowing company) used by the borrowing company to offset the additional corporation tax liabilities referred to in paragraphs (a), (b) or (c) above, where such losses, reliefs and credits would otherwise have been available for alternative use or to be carried forward; f)
a claim for repayment of un-utilised advance corporation tax paid by the borrowing company upon interest payments to the lending company which were re-characterised as distributions; g)
a claim for restitution or compensation in respect of amounts of advance corporation tax paid in the circumstances referred to in paragraph (f) above but which were subsequently set off against the borrowing company's corporation tax liabilities; h)
a claim for compensation for costs and expenses incurred by the Claimants in complying with the national provisions and the Revenue authority's application of them; i)
a claim for restitution or compensation for the loss of return upon loan capital invested as equity (or converted to equity) in the circumstances described in (c); and j)
a claim for restitution or compensation for any tax liability incurred by the lending company in its State of residence upon the deemed or imputed receipt of interest from the borrowing company which was recharacterised as a distribution under the national provisions referred to in question 1
are such claims to be regarded, for the purposes of Community law, as:
claims for restitution or repayment of sums unduly levied which arise as a consequence of, and adjunct to, the breach of the abovementioned Community provisions; or
claims for compensation or damages; or
claims for payment of an amount representing a benefit unduly denied? | a) | a claim for the repayment of the additional corporation tax paid by the borrowing company as a result of the disallowance, as a deduction against its profits chargeable to corporation tax, of interest paid to the lending company, where those interest payments would have been regarded as allowable deductions from the borrowing company's profits if the lending company had also been resident in the State of the borrowing company; | b) | a claim for repayment of the additional corporation tax paid by the borrowing company where the full amount of interest on the loan has actually been paid to the lending company but the claim for a deduction in respect of that interest has been reduced because of the national provisions or the tax authority's application of them; | c) | a claim for the repayment of the additional corporation tax paid by the borrowing company where the amount of interest on loans from the lending company, allowable as a deduction against the borrowing company's profits, has been reduced because equity capital has been subscribed rather than loan capital, or has been substituted for existing loan capital, because of the national provisions or the tax authority's application of them; | d) | a claim for the repayment of the additional corporation tax paid by the borrowing company where the interest on loans from the lending company allowable as a deduction against the borrowing company's profits has been reduced by reducing the rate of interest chargeable on the loan (or making the loan interest free) as a result of the national provisions or the tax authority's application of them; | e) | a claim for restitution or compensation in respect of losses, or other tax reliefs or credits, of the borrowing company (or which were surrendered to the borrowing company by other companies in the borrowing company's group which were also resident in the State of the borrowing company) used by the borrowing company to offset the additional corporation tax liabilities referred to in paragraphs (a), (b) or (c) above, where such losses, reliefs and credits would otherwise have been available for alternative use or to be carried forward; | f) | a claim for repayment of un-utilised advance corporation tax paid by the borrowing company upon interest payments to the lending company which were re-characterised as distributions; | g) | a claim for restitution or compensation in respect of amounts of advance corporation tax paid in the circumstances referred to in paragraph (f) above but which were subsequently set off against the borrowing company's corporation tax liabilities; | h) | a claim for compensation for costs and expenses incurred by the Claimants in complying with the national provisions and the Revenue authority's application of them; | i) | a claim for restitution or compensation for the loss of return upon loan capital invested as equity (or converted to equity) in the circumstances described in (c); and | j) | a claim for restitution or compensation for any tax liability incurred by the lending company in its State of residence upon the deemed or imputed receipt of interest from the borrowing company which was recharacterised as a distribution under the national provisions referred to in question 1
are such claims to be regarded, for the purposes of Community law, as:
claims for restitution or repayment of sums unduly levied which arise as a consequence of, and adjunct to, the breach of the abovementioned Community provisions; or
claims for compensation or damages; or
claims for payment of an amount representing a benefit unduly denied? |
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| a) | a claim for the repayment of the additional corporation tax paid by the borrowing company as a result of the disallowance, as a deduction against its profits chargeable to corporation tax, of interest paid to the lending company, where those interest payments would have been regarded as allowable deductions from the borrowing company's profits if the lending company had also been resident in the State of the borrowing company; | | | | | | | | | | | | | | | | | | | | |
| b) | a claim for repayment of the additional corporation tax paid by the borrowing company where the full amount of interest on the loan has actually been paid to the lending company but the claim for a deduction in respect of that interest has been reduced because of the national provisions or the tax authority's application of them; | | | | | | | | | | | | | | | | | | | | |
| c) | a claim for the repayment of the additional corporation tax paid by the borrowing company where the amount of interest on loans from the lending company, allowable as a deduction against the borrowing company's profits, has been reduced because equity capital has been subscribed rather than loan capital, or has been substituted for existing loan capital, because of the national provisions or the tax authority's application of them; | | | | | | | | | | | | | | | | | | | | |
| d) | a claim for the repayment of the additional corporation tax paid by the borrowing company where the interest on loans from the lending company allowable as a deduction against the borrowing company's profits has been reduced by reducing the rate of interest chargeable on the loan (or making the loan interest free) as a result of the national provisions or the tax authority's application of them; | | | | | | | | | | | | | | | | | | | | |
| e) | a claim for restitution or compensation in respect of losses, or other tax reliefs or credits, of the borrowing company (or which were surrendered to the borrowing company by other companies in the borrowing company's group which were also resident in the State of the borrowing company) used by the borrowing company to offset the additional corporation tax liabilities referred to in paragraphs (a), (b) or (c) above, where such losses, reliefs and credits would otherwise have been available for alternative use or to be carried forward; | | | | | | | | | | | | | | | | | | | | |
| f) | a claim for repayment of un-utilised advance corporation tax paid by the borrowing company upon interest payments to the lending company which were re-characterised as distributions; | | | | | | | | | | | | | | | | | | | | |
| g) | a claim for restitution or compensation in respect of amounts of advance corporation tax paid in the circumstances referred to in paragraph (f) above but which were subsequently set off against the borrowing company's corporation tax liabilities; | | | | | | | | | | | | | | | | | | | | |
| h) | a claim for compensation for costs and expenses incurred by the Claimants in complying with the national provisions and the Revenue authority's application of them; | | | | | | | | | | | | | | | | | | | | |
| i) | a claim for restitution or compensation for the loss of return upon loan capital invested as equity (or converted to equity) in the circumstances described in (c); and | | | | | | | | | | | | | | | | | | | | |
| j) | a claim for restitution or compensation for any tax liability incurred by the lending company in its State of residence upon the deemed or imputed receipt of interest from the borrowing company which was recharacterised as a distribution under the national provisions referred to in question 1
are such claims to be regarded, for the purposes of Community law, as:
claims for restitution or repayment of sums unduly levied which arise as a consequence of, and adjunct to, the breach of the abovementioned Community provisions; or
claims for compensation or damages; or
claims for payment of an amount representing a benefit unduly denied? | | | | | | | | | | | | | | | | | | | | |

| 6. | In the event that the answer to any part of Question 5 is that the claims are claims for payment of an amount representing a benefit unduly denied:
a)
are such claims a consequence of, and an adjunct to, the right conferred by the abovementioned Community provisions; or b)
must all or some of the conditions for recovery laid down in Joined Cases C-46/93 and C-48/93 Brasserie du Pecheur and Factortame be satisfied; or c)
must some other conditions be met? | a) | are such claims a consequence of, and an adjunct to, the right conferred by the abovementioned Community provisions; or | b) | must all or some of the conditions for recovery laid down in Joined Cases C-46/93 and C-48/93 Brasserie du Pecheur and Factortame be satisfied; or | c) | must some other conditions be met? |
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| a) | are such claims a consequence of, and an adjunct to, the right conferred by the abovementioned Community provisions; or | | | | | | |
| b) | must all or some of the conditions for recovery laid down in Joined Cases C-46/93 and C-48/93 Brasserie du Pecheur and Factortame be satisfied; or | | | | | | |
| c) | must some other conditions be met? | | | | | | |

| 7. | Does it make any difference whether as a matter of domestic law the claims referred to in Question 6 are brought as restitutionary claims or are brought or have to be brought as claims for damages? |
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| 8. | What guidance, if any, does the Court of Justice think it appropriate to provide in the present cases as to which circumstances the national court ought to take into consideration when it comes to determine whether there is a sufficiently serious breach within the meaning of the judgment in Joined Cases C-46/93 and C-48/93 Brasserie du Pecheur and Factortame, in particular as to whether, given the state of the case law on the interpretation of the relevant Community provisions, the breach was excusable? |
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| 9. | As a matter of principle, can there be a direct causal link (within the meaning of the judgment in Joined Cases C-46/93 and C-48/93 Brasserie du Pecheur and Factortame) between any breach of Articles 43, 49 and 56 EC and losses falling into the categories identified in Question 5(a)-(h) that are claimed to flow from it? If so, what guidance, if any, does the Court of Justice think it appropriate to provide as to the circumstances which the national court should take into account in determining whether such a direct causal link exists? |
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| 10. | In determining the loss or damage for which reparation may be granted, is it open to the national court to have regard to the question of whether injured persons showed reasonable diligence in order to avoid or limit their loss, in particular by availing themselves of legal remedies which could have established that the national provisions did not (by reason of the application of double taxation conventions) have the effect of imposing the restrictions set out in Question 1? Is the answer to this question affected by the beliefs of the parties at the relevant times as to the effect of the double taxation conventions? |
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