Hoechst Challenges UK's ACT

In what could set an important precedent for industry, Germany's Hoechst and its UK subsidiary have issued writs against the Inland Revenue challenging the British system of advanced corporation tax levied on dividends. Hoechst says it has written to the IR, although thus far there has not been time for a reply, and has issued a High Court writ, which has yet to be served on the IR.

There are two claims. One is by the parent company, Hoechst AG, relating to payment of tax credits in respect of dividends paid by Hoechst's subsidiaries in the UK; this includes tax credits of L25.25 million ($40.2 million) - plus interest - made between 1990 and end-1994 on dividends paid by Hoechst UK Ltd. The other, a claim by Hoechst UK, relates to the cash flow disadvantages of having to pay ACT when paying dividends to its parent and receiving a credit at a later stage.

Hoechst says that in both cases the difference in treatment between UK subsidiaries with UK parent companies and UK subsidiaries with non-UK-based parents is contrary to the Freedom of Establishment provisions of the Treaty of Rome or, alternatively, in breach of the Double Taxation Convention in existence between the UK and Germany.