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ITEM PF20
PENSION
FUND COMMITTEE – 25 AUGUST 2006
GROUP ACTION
CLAIM FOR RECOVERY OF OVERSEAS TAX
Report by
the Head of Finance & Procurement
Introduction
- This report confirms
the outcome of the work undertaken by KPMG to quantify the Oxfordshire
Pension Fund’s potential claim for the recovery of overseas tax, the
subsequent decision taken to join the Group Litigation Order (GLO) and
the authorisation to incur the costs associated with this decision after
consultation with the Chairman, Deputy Chairman and Opposition Group
Spokesman, under the terms of the resolution of this Committee at the
26 May 2006 meeting.
Background
- The Pension Fund
Committee meeting on 26 May 2006 considered a report on the legal action
which KPMG and McGrigors were progressing on behalf of a number of pension
schemes. The report set out the background to the action, indicated
the potential benefit to the Fund and sought the Committee’s approval
to Oxfordshire Pension Fund joining this action and to the costs of
involvement. The Committee agreed to:
- authorise the
defrayment of the cost of the quantification exercise (estimated cost
shown in paragraph 18 of the report), subject to any additional expenditure
on this exercise being agreed by the Head of Finance & Procurement
after consultation with the Chairman, Deputy Chairman and Opposition
Group Spokesman;
- delegate to
the Head of Finance & Procurement and the County Solicitor the
decision as to whether to join the GLO on the basis of the evidence
of the quantification exercise;
- authorise the
defrayment of the costs of the action (estimated cost shown in the
report), subject to the ascertainment of the final costs by the Head
of Finance & Procurement, after consultation with the Chairman,
Deputy Chairman and Opposition Group Spokesman, in the event of a
decision to join the GLO.
Quantification
exercise
- KPMG agreed to
complete the quantification exercise for our potential claim - using
the income records and the valuation data compiled by our pensions investment
team - for a fee of £5,000. That exercise produced the outcome detailed
in the table below:
OCC
pension fund claim:
|
£
|
|
FID’s
|
(277,000)
|
|
Manninen
– EU claim
|
(521,000)
|
|
Manninen
– Non EU claim
|
(403,000)
|
|
Total
claim:
|
(1,201,000)
|
|
|
|
Sub-total:
Professional & court costs
|
|
KPMG:
|
Quantification
exercise
|
5,000
|
|
Flat
fee
|
40,000
|
McGrigors:
|
Lodging
provisional claim
|
12,700
|
|
Serving
claim / GLO
|
8,000
|
|
Share
of common costs (capped @ ¾% of claim)
|
9,008
|
Sub-total:
Professional & court costs
|
74,708
|
|
|
|
Net
value of successful claim
|
(1,126,292)
|
- Our claim will
accordingly be for £1,201,000 and will cost £74,708 in professional
and court costs – giving a ‘net benefit’ to the pension fund of £1,126,292.
If the claim were to fail, our exposure to costs would be limited –
via the capping mechanism in place – to the £74,708 detailed above.
As to the likelihood of success, KPMG consider that to be as follows:
|
Value
of claim
£’000
|
Likelihood
of success
|
Manninen
EU
|
521
|
Good-High
|
Manninen
Non EU
|
403
|
Even
|
FIDs
|
277
|
Good-High
|
- The KPMG assessment
of the likelihood of success is based upon the evidence of similar tax
cases already taken successfully through the European Court of Justice.
The different success factors attributed to EU versus non-EU Manninen
claims relates to the fact that the clause of the European Treaty, which
extends the principle of the free movement of capital to outside the
EU, has never been tested in a tax case. Even if this element of the
case were to fail, the financial argument for joining the action remains
persuasive.
Decision
taken
- In the light of
the above, the Head of Finance & Procurement and the County Solicitor
agreed that Oxfordshire County Council Pension Fund should join the
legal action and the incurring of the costs of £74,708 detailed above,
was authorised after consultation with the Chairman, Deputy Chairman
and Opposition Group Spokesman.
RECOMMENDATIONS
- The Committee
is RECOMMENDED to note the report.
SUE
SCANE
Head of Finance
& Procurement
Background Papers: Report to 26 May Pension Fund Committee
Contact
Officer: Ken Bell, Interim Assistant Head of Finance. Tel (01865) 815411
August
2006
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