Volvo, Lafarge and other multi-nationals fighting for tax refunds from Revenue and Customs will have to prove their case in the UK after a Europe’s highest court rubber-stamped Britain’s tax-dodging restrictions.

The European Court of Justice (ECJ) ruled that UK regulations designed to prevent foreign companies making loans to their UK subsidiaries purely as a means of cutting tax bills are acceptable under EU law.

The court said the onus was on those companies claiming unfair treatment to demonstrate that their financing decisions were based on “economic reality” rather than “purely artificial” tax-avoidance motives and that this was a matter for the UK courts to decide.

The ECJ decision follows a similar line of reasoning to that adopted in an earlier tax case concerning Cadbury Schweppes. The drinks group was ordered to prove that its Irish subsidiary had a “genuine economic purpose” and was not just established to save tax if it wanted to take advantage of Ireland’s favourable tax terms.

In order to convince the Revenue and secure their rebates, Volvo, Lafarge and others affected by today’s test case will need to show that the financing structures they adopted through passing money from a parent to its UK subsidiary were broadly comparable to commercially available financing deals.

Chris Morgan, head of international corporate tax at KPMG, said: “The companies should be relieved that, provided they can demonstrate that they could achieve similar terms on the open market, their arrangements will be acceptable to HM Revenue.”

However, in a clear victory for the Revenue, the court said that only UK subsidiaries whose parent was based in the EU were eligible to try and prove their case and claim a rebate. Other companies, including Pepsi Co and Caterpillar, that were also included in today’s group action were denied the right to seek refunds.

In a second victory for the Revenue, the ECJ also suggested that the UK restrict the ability of EU companies to claim back taxes to 2002, rather than earlier as the claimants had hoped. Ashley Greenbank, tax partner at Macfarlanes, said that if followed, this aspect of today’s judgment would allow the Government to “escape the full horror” of substantial tax claims.

Experts are divided over the exact amount of money at stake in the case. The Revenue has previously estimated that it could lose €300m from the case but in earlier guidance to the ECJ on the matter, an Advocate General said the actual amount was “considerably less” without giving a figure.

The case concerns so-called “thin capitalisation” rules that restricted the tax savings foreign companies could secure from lending money to their UK subsidiaries. The companies argued that the rules, abolished in 2004, were anti-competitive because they treated UK subsidiaries of foreign businesses less favourably than those of UK-based groups.

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