Court of Appeal – Controlled foreign company provisions
The recent ‘Vodafone’ Court of Appeal case examined whether a company resident in the UK was able to disapply the UK’s controlled foreign company (CFC) provisions in respect of a wholly owned subsidiary incorporated and resident in Luxembourg. The Court of Appeal unanimously found in favour of HMRC.
The judgment, which reversed the earlier decision of the High Court, held that the UK CFC rules can be subject to ‘conforming interpretation’ and that disapplication is not required.
In this case, Vodafone appealed against a notice by HMRC which sought information on a Luxembourg subsidiary. This company had made a large acquisition and HMRC intended to raise an assessment under the CFC legislation. Vodafone appealed on the basis of the ECJ’s decision in the ‘Cadbury’ case which suggested that UK CFC legislation breached EC law. The High Court agreed with Vodafone and ordered the disapplication of the UK CFC legislation in this case.
The Court of Appeal, in reversing the decision, unanimously held that HMRC were entitled to have regard to the whole of the UK CFC legislation. This decision was based on prior UK case law. It remains to be seen whether this decision will be appealed. If not, this could significantly undermine the applicability of the Cadbury’s decision in CFC cases.