I’m quite interested in the Court of Appeal’s recent decision in this tax case, about Vodafone’s attempt to structure its takeover of Mannesman in the most tax-efficient way, using a Luxembourg-registered holding company to take advantage of lower rates in that country. The issue was whether the British tax legislation on “controlled foreign companies”, designed to enable the taxman to collect tax here in any event (minus the tax paid in Luxembourg) had to be disapplied as incompatible with EU law on freedom of establishment in the light of the ECJ’s ruling in C-196/04 Cadbury-Schweppes. The Court decided it should not be disapplied, as it can be read consistently with EU obligations so long as an exception from British taxation is read in for genuine, economically active European companies rather than merely artificial arrangements. Quite interesting from a tax point of view.

More interesting from a broader public law perspective is the way the Court approaches its task of interpretation. In deciding it could properly read an exception in to the tax legislation, applying the EU Marleasing principle of consistent interpretation, ultimately as a result of section 2(4) of the European communities Act 1972, the Court was guided by the law on interpretation under section 3 of the Human Rights Act, the Chancellor Sir Andrew Morritt explaining (para. 41) that

The terms of that section are in substance the same as the terms of s.2(4) ECA 1972 although the consequence of an inability to find a conforming interpretation is a declaration of incompatibility not disapplication in the manner I have explained.

He must be right: the similarity of the two provisions was pointed out by Lord Steyn in the leading human rights interpretation case, Ghaidan, which is referred to in the judgment. In the early days of the Human Rights Act, lawyers would look to EU law on consistent interpretation to construct arguments about what was possible under section 3 of the Human Rights Act; now the analogy seems to be the other way.

2009-06-04T11:25:00+00:00Tags: , , , |