Incompatible with EC law

The taxpayer company Vodafone an indirect wholly-owned subsidiary of Vodafone Group plc was incorporated and resident in the UK. VIL was a wholly-owned subsidiary of Vodafone incorporated in Luxembourg. Vodafone's tax return was submitted on the basis that it did not have to include any profits made by VIL. HMRC enquired into the return.

The taxpayer appealed on the grounds that tax on the profits of the subsidiary under the controlled foreign companies legislation (TA 1988 ss 747 and 748) was contrary to the freedom of establishment and free movement of capital of articles 43 and 56 respectively of the EC Treaty.

The Special Commissioners decided that the matter should be referred to the European Court of Justice. After the judgment of the ECJ in another case concerning the compatibility of CFC law with EC legislation the reference was withdrawn and the Commissioners concluded...