The UK Court of Appeal on Tuesday rejected most of the arguments put forward by HMRC against an earlier ruling in 2013 which ruled in favour of the insurer.
Prudential and HMRC have been engaged in a legal battle since 2003, with the life company claiming the tax authority demanded more tax on dividends in overseas companies than on those based in the UK - violating EU law which charges a lower tax rate on cross-border transactions than domestic transactions.
As a result, Prudential claims that from 1990 to 2007 it overpaid in tax on foreign dividends and investments returns to both with-profits policyholders and shareholders were hit.
Prudential declined to comment on the hearing while HMRC has vowed to appeal the outcome although it remains unclear whether it will gain permission to bring an appeal to the Supreme Court.
“HMRC is extremely disappointed with this judgment. Nothing is payable immediately as a consequence of these decisions and we plan to robustly defend our position through future appeals,” the tax office told The Financial Times.
The legal challenge is part of multiple hearings with ten other insurers bringing similar complaints against the tax body in a bid to recoup tax paid decades ago.