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State faces millions in tax refunds after ECJ ruling

THE Government might have to repay millions of euro to dozens of Irish multinational companies in tax after the EU's highest court found in favour of British American Tobacco in a long-running legal dispute between the cigarette giant and the UK government.

The European Court of Justice (ECJ) found earlier this week that by taxing dividends earned from companies based in Britain differently from income gained abroad, Britain's treasury overcharged companies for decades.

The ruling looks set to force the British government to repay billions to companies in the UK. Here, the Revenue Commissioners operated an identical system until 2007, and has operated a similar system since then. The sums involved here would be "much, much smaller," said David Fennell, a tax director at Ernst & Young in Dublin. Companies may also only be able to claim back tax paid in the past four years, although a separate challenge could allow Irish companies to make claims stretching further back.

Some companies established in Britain said that rules there resulted in less favourable tax treatment when they had subsidiaries in other EU countries.

They brought a group case that led to a long English court battle on the taxation of multinationals. The High Court referred the case to the ECJ in 2006, and later asked the EU court for further clarification.

This week's decision was a test claim in the group case and is expected to be re-examined by Britain's High Court next year.

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