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PBR: Six year time limitation period for all direct tax claims. By Nichola Ross Martin

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6th Dec 2006
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As predicted, following a decision of the House of Lords in October, the chancellor announced a six year time limitation period for the recovery of direct tax paid by mistake of law. This is meant as a damage limitation exercise, but it is controversial and seems to be contrary to EU law. The new legislation, which will amend section 32(1)(c) of the Limitation Act 1980, will be introduced in the 2007 Finance Bill.

In the case of Deutsche Morgan Grenfell v Commissioners of Inland Revenue, the Lords ruled that where a taxpayer claimed repayment of tax paid under a mistake of law, the time limit for challenging the decision was six years from the date of the European Court's decision. Normally the time limit for a repayment would be six years from the date the tax was paid.

The Deutsche case concerns advance corporation tax, and the new legislation is trying to prevent action in similar cases in a massive group litigation order which started prior to 8th September 2003. The 2004 Finance Act introduced a similar provision which applies to cases after that date this, however, is reported to be subject to a legal challenge.

The irony of all this is that the European Court established that a taxpayer's treaty rights cannot be taken away without adequate notice being given. This new legislation seems destined to be challenged which is good news for the legal teams and this about all.

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