Bibby (Inspector of Taxes) v Prudential Assurance Company Ltd ; Oakes (Inspector of Taxes) v Equitable Life Assurance Society
| Jurisdiction | England & Wales |
| Judgment Date | 10 May 2000 |
| Date | 10 May 2000 |
| Court | Chancery Division |
Chancery Division.
Before Mr Justice Burton
Corporation tax - life assurance company - ascertaining relevant profits
The "relevant profits" of a company carrying on life assurance business were to be ascertained for the purpose of section 88(3) of the Finance Act 1989 without deduction of any charges on income.
Thus such a company could allocate such charges against the balance of profits chargeable to corporation tax at the full rate and not the policy holders' share which was chargeable at the reduced rate equal to the basic rate of income tax.
Mr Justice Burton, sitting as an additional judge of the Chancery Division, so held allowing an appeal by Prudential Assurance Company
Ltd from the determination of a special commissioner (Mr T. H. K. Everett)((1999) STC SCD 108) relating to estimated assessments to corporation tax for years ended 1993 and 1994.
Section 88 of the Finance Act 1989 provides:
"(1) … the rate of corporation tax chargeable for any financial year on the policy holders' fraction of its relevant profits for any accounting period shall be deemed to be the rate at which income tax at the basic rate is charged…
"(3) … the relevant profits of a company for an accounting period are the total profits of its life assurance business, less any deduction due under section 76 of the (1988 Act), but before allowing any (loss or group relief)".
Section 338 of the Income and Corporation Taxes Act 1988 provides: "… any charges on income paid by the company … shall be allowed as deductions against the total profits for the period as reduced by any other relief for tax".
Mr Graham Aaronson, QC, for Prudential; Mr Launcelot Henderson, QC, for the Crown.
MR JUSTICE BURTON said that the issue, a short one, was of considerable significance to the parties and would have been of wider significance but for the fact that there had been amendment of section 88 by section 51 of, and paragraphs 21 and 57 of Schedule 8 to the Finance Act 1995, so as to render the dispute a historical one only.
Some Pounds 4 million hung on the decision, but more was at stake, even on a historical basis.
The profits of a life assurance company fell to be assessed for corporation tax on two separate bases. The profits applicable to the policy holders were taxed at 25 per cent as if the profits were earned by the individual policy holders and taxed at the basic rate.
The balance of profits, being those applicable to the shareholders of...
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