British American Tobacco is in line for a £1.2bn refund from the Treasury after a claiming a major victory in the High Court over tax on foreign subsidiaries.

In a test case that paves the way for a host of major multinational companies to pursue similar rebates, it was found that the Treasury was not entitled to tax dividends paid out to shareholders by the tobacco giant’s foreign subsidiaries under European Union law.

HM Revenue & Customs is almost certain to appeal the verdict, meaning BAT could be forced to wait several years before receiving the funds.

BAT was put forward for the test case as its position was judged to be the most complex, meaning its fellow multinationals will be confident of victory.

In his 150-page ruling, Mr Justice Henderson said: “Almost without exception, these issues are both difficult and important, and huge amounts of money are potentially at stake. I was told that the maximum amount of the claims is of the order of £5bn.”