The firm predicts that the number of new tax cases against HM Revenue and Customs (HMRC) heard before the ECJ may increase as more claimants push for proceedings to be heard before Europe’s highest court while EU law still applies in the UK.
“UK claimants might be concerned that, once it is out of the EU, the UK government will attempt without notice - as they have in the past - to remove the ability to bring a claim based on EU grounds even where EU law applied at the relevant time,” said Pinsent Masons’ director Andrew Scott.
Increasing ECJ cases
The firm, which has international offices in Dubai, Hong Kong and Singapore, said it has seen a steady rise in the number of tax cases heard before the ECJ challenging the actions of national tax offices across Europe.
Between 2011 and 2015, cases rose from 50 to 61 per year, an increase of 22%.
Pinsent Masons said that since the credit crunch in 2007, national tax authorities in Europe have been under “intense pressure” to increase revenues, leading many to levy extra charges and “ensure they maximise tax take wherever possible”.
However, in string of high-profile rulings in recent years, the ECJ has ruled in favour of a number of claimants fighting authorities against unfair tax hikes.
“The reach of EU law has widened considerably and continues to do so, with the result that an increasing amount of UK tax law is affected. More businesses and other taxpayers have therefore managed to find grounds for challenging UK tax law.”
Under the current system, the ECJ can bring a case against a nation if it feels the government is imposing an unfair tax regime on EU citizens from outside the country. If successful, all 28 member states are obliged to accept the consequences of the ruling, implementing them in their national law.
In 2008, Portugal was forced to amend its legislation after the European courts ruled that non-residents living in the EU can opt to be taxed as a Portuguese citizen on gains, thereby qualifying for the same 50% reduction in tax.
In Spain, the government accepted an ECJ verdict in September 2014 that found the capital gains tax (CGT) it charges non-residents, which in some cases could be as high as 35%, should be on par with the 19% resident’s rate.
In June, international IFA firm Blevins Franks warned British expats living in Europe could be hit with higher rates of CGT on their homes if Britain decides to leave the European Union.
“One of the consequences of the UK leaving the EU would be that those owning real estate in mainland Europe would no longer benefit from the European Court of Justice (ECJ) interceding on their behalf where there is an inequality in the tax rates applied to resident and non-resident taxpayers,” said the firm’s director Jason Porter.