Prudential Assurance Company Ltd (Respondent) v Commissioners for Her Majesty's Revenue and Customs (Appellant)

Prudential Assurance Company Ltd (PAC) brought a test case against the Commissioners for Her Majesty’s Revenue and Customs (HMRC) challenging the UK’s tax treatment of overseas dividends. The Supreme Court considered four issues arising from the case. The first issue was whether the tax credit for overseas dividends should be set by reference to the foreign tax actually paid, or by reference to the foreign nominal tax rate. The second issue was whether PAC was entitled to compound interest in respect of tax which was levied in breach of EU law. The third issue was whether a claim in restitution lay to recover lawful Advance Corporation Tax (ACT) which had been set against unlawful mainstream corporation tax (MCT). The fourth issue was whether the Court of Appeal was correct to allow HMRC to appeal on Issue III. The Court of Appeal had ruled that PAC was entitled to reimbursement of lawful ACT which HMRC had retained because it had been set against an unlawful MCT charge. PAC opposed the grant of permission to HMRC on this issue and submitted that it was a detailed issue of computation which was likely only to affect the appeal in PAC’s case if PAC’s approach to Issue V was correct. The Supreme Court allowed HMRC’s appeal on Issues II and III, and dismissed it on Issue I. PAC’s proposed cross-appeal on Issue IV did not arise, as a result of its success on Issue I, and it also succeeded in its cross-appeal on Issue V(a). In relation to Issue V(b), the Court held that FII carried back to an earlier quarter was to be treated as having been applied to relieve only lawful ACT.