Meeting documents

Pension Fund Committee
Friday, 25 August 2006

PF250806-20

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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

  1. 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.

    2. Background

  2. 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:

    1. 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;

    2. 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;

    3. 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

  3. 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:

    4. 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)

  4. 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:

    5.  

     

    Value of claim

    £’000

    Likelihood of success

    Manninen EU

    521

    Good-High

    Manninen Non EU

    403

    Even

    FIDs

    277

    Good-High


  5. 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.

    6. Decision taken

  6. 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.

    7. RECOMMENDATIONS

  7. 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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