Bowater Paper Corporation Ltd v Murgatroyd
| Jurisdiction | England & Wales |
| Judge | Lord Reid,Lord Morris of Borth-y-Gest,Lord Guest,Lord Donovan,Lord Wilberforce |
| Judgment Date | 16 July 1969 |
| Judgment citation (vLex) | [1969] UKHL J0716-2 |
| Date | 16 July 1969 |
| Court | House of Lords |
[1969] UKHL J0716-2
House of Lords
Lord Reid
Lord Morris of Borth-y-Gest
Lord Guest
Lord Donovan
Lord Wilberforce
Upon Report from the Appellate Committee, to whom was referred the Cause Bowater Paper Corporation Limited against Commissioners of Inland Revenue and Bowater Paper Corporation Limited against Murgatroyd (Inspector of Taxes) [Consolidated Appeals], that the Committee had heard Counsel, as well on Tuesday the 3d as on Wednesday the 4th, days of June last, upon the Petition and Appeal of The Bowater Paper Corporation Limited, whose registered office is situate at Bowater House, Knightsbridge, London, S.W.I, praying, That the matter of the Order set forth in the Schedule thereto, namely, an Order of Her Majesty's Court of Appeal of the 13th of May 1968, might be reviewed before Her Majesty the Queen, in Her Court of Parliament, and that the said Order might be reversed, varied or altered, or that the Petitioners might have such other relief in the premises as to Her Majesty the Queen, in Her Court of Parliament, might seem meet; as also upon the Petition and Appeal of The Bowater Paper Corporation Limited, whose registered office is situated at Bowater House, Knightsbridge, London, S.W.I, praying, That the matter of the Order set forth in the Schedule thereto, namely, an Order of Her Majesty's Court of Appeal of the 13th of May 1968, might be reviewed before Her Majesty the Queen, in Her Court of Parliament, and that the said Order might be reversed, varied or altered, or that the Petitioners might have such other relief in the premises as to Her Majesty the Queen, in Her Court of Parliament, might seem meet (which said Appeals were, by an Order of this House of the 1st day of August 1968, ordered to be consolidated); as also upon the Case of the Commissioners of Inland Revenue and Robert Cyril Murgatroyd (Her Majesty's Inspector of Taxes), lodged in answer to the said Appeals; and due consideration had this day of what was offered on either side in this Cause:
It is Ordered and Adjudged, by the Lords Spiritual and Temporal in the Court of Parliament of Her Majesty the Queen assembled, That the said Orders of Her Majesty's Court of Appeal, of the 13th day of May 1968, complained of in the said Appeals, be, and the same are hereby, Affirmed, and that the said Petitions and Appeals be, and the same are hereby, dismissed this House: And it is further Ordered, That the Appellants do pay, or cause to be paid, to the said Respondents the Costs incurred by them in respect of the said Appeals, the amount thereof to be certified by the Clerk of the Parliaments.
My Lords,
For the reasons given by my noble and learned friends, Lord Donovan and Lord Wilberforce, I agree that these appeals should be dismissed.
My Lords,
I have had the advantage of reading in advance the speeches prepared by my noble and learned friends, Lord Donovan and Lord Wilberforce. I agree with them and I would dismiss the appeals.
My Lords,
I have had the advantage of reading the speeches of my noble and learned friends, Lord Donovan and Lord Wilberforce, with which I agree.
My Lords,
The first of these appeals relates to the quantum of relief from United Kingdom income tax to be given to the Appellant for the years of assessment 1958/59 to 1961/62 inclusive. The second relates to the quantum of relief from United Kingdom profits tax to be given to the Appellant for eight chargeable accounting periods between 1st January, 1958, and 31st December, 1962. In each case the Appellant's title to relief arises because it is liable to United Kingdom income tax and profits tax on dividends which it receives from sources in the U.S.A. and Canada, which dividends have suffered tax in those countries or have been paid out of profits which have suffered tax there. The facts and issues are the same in both appeals and I need deal, therefore, only with the first.
Section 51 (1), Finance (No. 2) Act, 1945 , provided that where arrangements had been made with Governments of territories outside the United Kingdom for relief from double taxation, an Order in Council might declare that this has been done, and that it was expedient that the arrangements should have effect to the extent specified in the said section 51 (1). This provision is now to be found in section 347 (1) of the consolidated Income Tax Act, 1952. Such arrangements have been concluded with numerous other countries. So far as the U.S.A. and Canada are concerned they were made in 1946; and are attested as aforesaid by Orders in Council No. 1327 and 1885 of that year. The relevant arrangement is set out in a Schedule to each Order.
The Appellant is the parent of a subsidiary company called The Bowater Company of North America, Ltd.—a Canadian company. That company in turn is the parent of a number of subsidiary companies resident in Canada and the U.S.A. which carry on business and suffer income tax in those countries on their profits. From these profits the subsidiaries pay dividends to the Bowater Company of North America Ltd. and that company pays dividends to the Appellant which is liable to United Kingdom income tax upon them.
Under the aforesaid section 347, Income Tax Act, 1952, and the 16th Schedule to that Act, however, effect is given to the provisions of the two Orders in Council already mentioned. The result is that a measure of relief from such United Kingdom income tax is accorded. The way it is done is to credit Canadian and U.S.A. tax against United Kingdom income tax subject to the provisions of the said section and the said Schedule. It is common ground that in computing the amount of this credit the Canadian and U.S.A. taxes paid on the profits of the Canadian and U.S.A. subsidiaries out of which they pay dividends to the Bowater Company of North America may be taken into account; as well as any Canadian and U.S.A. taxes suffered by that Corporation on the dividend it receives.
Section 347 provides that the 16th Schedule to the Act shall have effect regarding the allowance of foreign tax in a credit against United Kingdom tax. Paragraph (9) of that Schedule provides as follows:—
"Where, in the case of any dividend, foreign tax not chargeable directly or by deduction in respect of the dividend is, under the arrangements, to be taken into account in considering whether any, and if so what, credit is to be allowed against the United Kingdom taxes in respect of the dividend, the foreign tax not so chargeable which is to be taken into account shall be that borne by the body corporate paying the dividend upon the relevant profits in so far as it is properly attributable to the proportion of the relevant profits which is represented by the dividend.
The relevant profits are—
"( a) if the dividend is paid for a specified period, the profits of that period;
( b) if the dividend is not paid for a specified period, but is paid out of specified profits, those profits;
( c) if the dividend is paid neither for a specified period nor out of specified profits, the profits of the last period for which accounts of the body corporate were made up which ended before the dividend became payable:
Provided that if, in a case falling under sub-paragraph ( a) or sub-paragraph ( c) of this paragraph, the total dividend exceeds the profits available for distribution of the period mentioned in the said sub-paragraph ( a) or the said sub-paragraph ( c), as the case may be, the relevant profits shall be the profits of that period plus so much of the profits available for distribution of preceding periods (other than profits previously distributed or previously treated as relevant for the purposes of this paragraph) as is equal to the excess; and for the purposes of this proviso the profits of the most recent preceding period shall first be taken into account, then the profits of the next most recent preceding period, and so on."
The present dispute arises from the different constructions given by the Appellant and the Revenue to the expression "the relevant profits"; and it involves a considerable sum. If the expression refers to the profit shewn in the Canadian and U.S.A. subsidiaries' accounts (as the Revenue contends) the effect is to yield one figure as the amount of double taxation relief: whereas if it refers to the profit as computed for the purpose of Canadian or U.S.A. tax (as the Appellant contends) the effect is to yield a different and higher figure.
The explanation of this curiosity is that, for reasons which are immaterial, the fiscal authorities in Canada and the U.S.A. allow, for the purposes of tax on the subsidiary companies' profits, a greater deduction for depreciation of plant than the companies themselves debit in their profit and loss account. The result upon the calculation of double taxation relief can be seen from the following figures, taking a U.S.A. subsidiary company as the example. The figures are hypothetical:
| 1. Profits before deductions for depreciation and U.S.A. tax … … … … … … | $10,000 |
| 2. Depreciation charged in company's accounts … | 1,000 |
| 3. Depreciation allowed by U.S.A. fiscal authority … | 2,000 |
| 4... |
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