4Cast Limited v Robert Arbuckle Mitchell (H M Inspectot of Taxes), SPC 00455
| Jurisdiction | UK Non-devolved |
| Judge | Dr John Avery Jones CBE |
| Judgment Date | 06 January 2005 |
| Respondent | Robert Arbuckle Mitchell (H M Inspectot of Taxes) |
| Appellant | 4Cast Limited |
| Reference | SPC 00455 |
| Court | First-tier Tribunal (Tax Chamber) |
SPC00455
ENTERPRISE INVESTMENT SCHEME – whether money raised by share issues was for the purpose of a qualifying business activity or partly for the activities of foreign subsidiaries – whether money employed wholly for the qualifying business activity – appeal allowed
4CAST LIMITED Appellant
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ROBERT ARBUCKLE MITCHELL
(HM INSPECTOR OF TAXES) Respondent
Special Commissioner: DR JOHN F. AVERY JONES CBE
Sitting in public in London on 13 and 14 December 2004
Jolyan Maugham, counsel, instructed by Ridley & Co, for the Appellant
Jane Hodge, HM Inspector of Taxes, Southern England Regional Appeals Unit, for the Respondent
© CROWN COPYRIGHT 2005
DECISION
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This is an appeal by 4Cast Limited against refusal by the Inspector to allow Enterprise Investment Scheme (EIS) relief in respect of share issues made on 8 September 200 and 5 March 2002. The Appellant was represented by Mr Jolyon Maugham, and the Inspector by Miss Jane Hodge.
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Mr Brian Park, managing director of the Appellant, gave evidence and a witness statement by Mr Raymond Attrill, global research director of the Appellant, was admitted unopposed.
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There was a statement of facts not in dispute as follows:
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The Appellant Company, registration number 02711701, was incorporated on 5 May 1992 with a nominal share capital of £2,000, increased to £1,000,000 on 13th March 1995.
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It engaged in activities preparatory to its trading from 1993 and issued its first invoice in the year ended 31 December 1995. It carried on a trade, from offices at 191 Victoria Street in Victoria London SW1, of providing up-to-the-minute market analysis to those dealing in non-equity and non-commodity financial instruments. This activity is carried on wholly or mainly in the United Kingdom. It now trades from 52 Grosvenor Gardens in Victoria London SW1.
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The provision of this analysis involves gathering data from various sources around the world including central banks, government agencies and news and data services such as Reuters and Bloomberg. This data is then analysed by the Appellant’s research teams and reports are prepared which are sent to its clients by a variety of electronic means.
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The Appellant’s published accounts for the years since it commenced trading show trading profits (losses) after tax as follows:
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Year Profits (losses) Accumulated profits (losses)
£ £
1994 (33.819) (33,819)
1995 (513,323) (547,142)
1996 (941,314) (1,488,456)
1997 (881,498) (2,369,954)
1998 4,199 (2,365,755)
1999 211,593 (2,154,162)
2000 778,391 (1,375,771)
2001 (486,666) (1,862,437)
2002 224,689 (1,637,748)
The Share Issues-
The Appellant having initially been substantially loss making, its activities were funded, inter alia, from the proceeds of the issue by it of a series of tranches of shares. The instant appeals concern two of those share issues, namely, those occurring on 8 September 2000 and 5 March 2002 (together the “Share Issues”).
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The share issue on 8 September 2000 was for 787 shares, the entirety of which were subscribed for by Philip Howard. The amount subscribed for those shares was £49,211. The share issue on 5 March 2002 was for 1,150 shares, the entirety of which was subscribed for by Jivko Stantchovsky. The amount subscribed for those shares was £149,500.
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The Appellant has, and at all material times had, two active subsidiaries: 4Cast, Inc (“New York”) (a company incorporated in the State of New York) and Forecast Plc Ltd (“Singapore”) (a company incorporated in the Republic of Singapore) (together the “Subsidiaries”). New York was incorporated on 11 July 1997 and commenced trading in March 1998 with an issued-shared capital of US $1000. Singapore was incorporated on 11 June 1999 and commenced trading in June 1999 with an issued share capital of SGD 2. The Appellant owned and owns the entirety of the issued share capital of the Subsidiaries.
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New York’s tax returns for the years since it commenced trading show trading losses as follows:
Year Losses Accumulated Losses
US$ US$
1998 (660,408) (660,408)
1999 (718,928) (1,379,336)
2000 (1,121,161) (2,500,497)
2001 (638,681) (3,139,178)
2002 (444,245) (3,583,423)
The activities of New York were and are not carried on wholly or mainly in the United Kingdom.
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Singapore’s published accounts for the years since it commenced trading show trading losses as follows:
Year Losses Accumulated losses
SGD SGD
30/07/2000 (1,306,575) (1,306,575)
31/12/2000 (393,261) (1,699,837)
2001 (1,737,497) (3,437,334)
2002 (1,190,608) (4,627,942)
The activities of Singapore were and are not carried on wholly or mainly in the United Kingdom.
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Neither of the Subsidiaries has or has had material third party borrowings. The activities of the Subsidiaries have been funded by loans made to them by the Appellant. These loans had as their source monies raised by the Appellant through share issues including the Share Issues.
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Philip Howard asked the Appellant to issue a certificate on form EIS 3 in respect of the 787 shares issued to him on 8 September 2000. On 2 May 2002, the Appellant submitted form EIS 1 (1998) to Kensington 2 TDO in respect of these shares.
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Jivko Stantchovsky asked the Appellant to issue a certificate on form EIS 3 in respect of the 1,150 shares issued to him on 5 March 2002. The Appellant submitted form EIS 1 (1998), signed on 29 January 2003, to Small Companies Enterprise Centre Dundee in respect of these shares.
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After correspondence between the parties, by two decisions dated 11 June 2003 and 5 November 2003 (together “the Decisions”) Robert Mitchell, Inspector of Taxes, refused, pursuant to section 306(2) Income and Corporation Taxes Act 1988, the Appellant authority to issue certificates in respect of the Share Issues. The basis of that refusal was that, the monies raised in the Share Issues having been loaned to and spent by the Subsidiaries, the shares issued pursuant thereto were not “issued in order to raise money for the purpose of a qualifying business activity” in the sense in which those words are used in section 289(1) Income and Corporation Taxes Act 1988.
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By letters of 1 July 2003 and 19 November 2003 the Appellant appealed against those refusals.
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