Treasury faces £5bn bill as British American Tobacco wins dividends tax case
The Treasury is potentially facing a £5 billion black hole after suffering a High Court defeat at the hands of British American Tobacco yesterday.
The ruling comes days after Alistair Darling, the Chancellor, admitted that Britain’s public finances had deteriorated sharply since his March Budget and unveiled plans to borrow billions of pounds.
BAT, the world’s second-largest cigarette maker, had challenged HM Revenue & Customs over its policy of taxing dividend payments from foreign subsidiaries. The verdict paves the way for a £1.2 billion tax refund for BAT and exposes HMRC to a far bigger payout. That is because BAT was fighting a test case on behalf of some 20 multinational companies which, if successful, will spark similar cases.
The companies claim that HMRC’s policy is illegal under European law because the UK does not tax similar payments from domestic companies.
