Three UK Wins £1 Billion Tax Case Against UK Government
Published on: 2nd Apr 2014
By: Ian Mansfield
Three UK has secured a court victory that will let it offset its tax losses against profits earned by other subsidiaries of its Hong Kong based parent group.
Hutchison Whampoa, through a Luxembourg holding company owns the UK based Three network, but also a number of other UK firms, such as the cosmetics retailer, Superdrug and the shipping cargo facility at Felixstowe Docks.
The UK tax collector had ruled that tax credits built up by the mobile network could be used against future profits at the mobile network, but not to reduce the tax bill of unrelated sister companies.
Hutchison sued and Court of Justice of the European Union has ruled in Hutchison's favour.
The court found that requiring Hutchison to have based the holding company in the UK instead of Luxembourg for it to be allowed to transfer tax losses between subsidiaries goes against the EU's policy on the "freedom of establishment".
Specifically, the Court found that the residence condition laid down for the link
company introduces a difference in treatment between resident companies connected by a UK link company, which are entitled to the tax advantage at issue, and resident companies connected by a link company established in another Member State of the EU, which are not entitled to it.
That difference in treatment, which makes it less attractive in tax terms to set up a link company in another Member State, constitutes a restriction on freedom of establishment.
The high costs and initially low revenues meant that Three UK had built up tax losses of £1.6 billion by 2011, although as it is now in profit that credit is reportedly fallen to £1 billion.
Following the court ruling, it will now be able to recognise that tax credit against the profits from its shipping business, and from selling cosmetics to teenage girls.