On 4 July 2008, the High Court issued its judgment in the case of Vodafone 2 v HMRC [2008] EWHC 1569 (Ch).

The High Court overturned the decision of the Special Commissioners, holding that the UK controlled foreign company (CFC) rules cannot be construed as compliant with the right to freedom of establishment in light of the ECJ's judgment in Cadbury Schweppes. As a result, the High Court held that the UK's CFC rules must be disapplied pending legislative amendment.

This is good news for taxpayers, although they (and their advisers) should exercise caution in relying on this decision in view of the possibility of its being appealed and overturned. However, this decision further heightens the need for HMRC to push ahead with its much-delayed consultation on the taxation of foreign profits.