Capcount Trading v Evans
| Jurisdiction | England & Wales |
| Judgment Date | 15 December 1992 |
| Date | 15 December 1992 |
| Court | Court of Appeal (Civil Division) |
Court of Appeal (Civil Division).
Staughton, Mann and Nolan L JJ.
Andrew Park QC (instructed by Freshfields) for the company.
Nicholas Warren (instructed by the Solicitor of Inland Revenue) for the Crown.
The following cases were referred to in the judgment:
BSC Footwear Ltd v Ridgway (HMIT) ELR[1972] AC 544
Bentley v Pike (HMIT) TAX(1981) 53 TC 590
Halcyon the Great, The WLR[1975] 1 WLR 515
Lothian Chemical Co Ltd v Rogers (HMIT) TAX(1926) 11 TC 508
Miliangos v George Frank (Textiles) Ltd ELR[1976] AC 443
Pattison (HMIT) v Marine Midland Ltd TAXTAX(1983) 57 TC 219; [1983] BTC 111 (CA), 448 (HL)
Stanton (HMIT) v Drayton Commercial Investment Co Ltd ELRTAX[1983] 1 AC 501; [1982] BTC 269
Corporation tax - Computation of chargeable gain or allowable loss - Assets acquired and disposed of for foreign currency - Whether consideration for acquisition and consideration for disposal to be valued in sterling or whether loss or gain established in foreign currency before translating result into sterling - Finance Act 1965 schedule 6 subsec-or-para 4Finance Act 1965, Sch. 6, para. 4(1)(a) (Capital Gains Tax Act 1979 section 32 subsec-or-para (1)Capital Gains Tax Act 1979, sec. 32(1)(a),and Taxation of Chargeable Gains Act 1992 section 38 subsec-or-para (1)Taxation of Chargeable Gains Act 1992, sec. 38(1)(a).
This was an appeal by Capcount Trading, an unlimited company, against the decision of a special commissioner directly to the Court of Appeal by virtue of leave given by Nicholls LJ on 19 July 1991 under the provisions of O. 61, r. 4 of the Rules of the Supreme Court.
During the 1970s the taxpayer company acquired and disposed of certain Canadian shares realising a loss. Both the acquisition and the disposal of the shares were for Canadian dollars. Owing to the depreciation of sterling during the period there was a substantial difference in the amount of the allowable loss depending on the method of computation. If the method argued for by the company was the correct method, the losses would amount to some £16m but if the Revenue's method were right, the losses would amount to only £3m.
The question for decision was whether an allowable loss fell to be established by deducting the dollar sale price from the dollar cost, and translating the resulting sum into sterling at the spot rate prevailing at the date of disposal (as argued by the taxpayer), or by translating the dollar purchase price and the dollar sale price into sterling at the spot rates prevailing at, respectively, the date of purchase and the date of sale, and deducting the sterling equivalent of the sale price from the sterling equivalent of the purchase price.
The Finance Act 1965 section 23 subsec-or-para (1)Finance Act 1965, sec. 23(1) provided that the amount of a loss was to be computed in the same way as the amount of a gain. Finance Act 1965 schedule 6 subsec-or-para 4Schedule 6, para. 4(1)(a)provided allowable deductions were restricted to "the amount or value of the consideration, in money or money's worth, given by him or on his behalf wholly and exclusively for the acquisition of the asset".
The company submitted that where there was an acquisition and disposal of a Canadian asset, it followed that for the purposes ofFinance Act 1965para. 4(1)(a) the consideration accruing on the disposal of the asset was a sum of money, namely Canadian dollars, from which there fell to be deducted the amount of money, Canadian dollars again, given for the acquisition of the asset. The courts of the UK no longer refused to give judgments in currencies other than sterling.
While recognising that the Revenue's view might give rise to difficulties if, for instance, an asset were to be acquired and disposed of in different foreign currencies when it would be necessary to fall back on sterling, the company argued that foreign currencies might rank either as money or as money's worth according to the circumstances.
The Revenue submitted that for the purposes of Finance Act 1965para. 4(1)(a) Canadian dollars were not money: they were money's worth. That was borne out by the provision that all forms of property were assets, including any currency other than sterling. That view was also supported by the capital gains tax treatment of debts and by the fact that the exemption for chattels was available if "the amount or value of the consideration" did not exceed a specified amount. If the consideration consisted of foreign currency, then it would have to be translated into sterling to see whether it exceeded the specified amount.
Held, dismissing the company's appeal:
Sterling was the only permissible unit of account for capital gains tax purposes. Foreign currency was not money but an asset. It could not be both. Therefore when the company acquired the Canadian shares for Canadian dollars it gave a consideration in money's worth which fell to be valued in sterling terms for the purpose of computing both the gain (if any) on the disposal of the dollars and the cost of acquisition of the shares. By the same token, when the shares were sold for Canadian dollars the consideration for UK tax purposes was not money, but another asset whose value fell to be translated into sterling terms for the purpose of computing the gain or loss on the disposal of the shares. (Bentley v Pike (HMIT) TAX(1981) 53 TC 590 approved;Pattison (HMIT) v Marine Midland Ltd TAX[1983] BTC 448 distinguished.)
1. On 27 and 28 November 1990 I, one of the commissioners for the special purposes of the Income Tax Acts (Mr R H Widdows) heard an appeal by Capcount Trading, an unlimited company, ("Capcount") against an estimated assessment to corporation tax for the chargeable accounting period of 12 months ended on 25 March 1979 in the sum of £300,000.
2. Shortly stated the question for my decision was whether the capital gain or loss for corporation tax purposes arising on the disposal of an asset situated in Canada, acquired for a consideration in Canadian dollars and disposed of for Canadian dollars, should be computed:
(a) by deducting from the Canadian dollar disposal proceeds the Canadian dollar base cost and translating the resulting sum into sterling at the spot rate prevailing at the date of disposal, or
(b) by translating the Canadian dollar acquisition cost and disposal proceeds into sterling at the spot rates prevailing at, respectively, the date of acquisition and the date of disposal and deducting from the sterling disposal proceeds the sterling acquisition cost.
Capcount contended that method (a) was correct while the Revenue contended for method (b).
[Paragraph 3 recorded that no witnesses were heard and that a statement of facts and a bundle of documents were put in evidence.]
4. I reserved my decision and gave it in writing on 3 January 1991 dismissing the appeal and determining the assessment in the figure, agreed in that event, of £674,092. A copy of that decision, which sets out the material facts, the contentions of the parties and my reasons for the conclusion that Capcount's appeal should fail, is attached to and forms part of this case.
5. Capcount immediately after the determination of the appeal declared to me its dissatisfaction therewith as being erroneous in point of law and on 8 January 1991 required me to state a case for the opinion of the High Court pursuant to the Taxes Management Act 1970 section 56Taxes Management Act 1970, sec. 56.
6. The question of law for the opinion of the court is whether, on the agreed facts decision that Capcount's capital gain should be computed in accordance with method (b) referred to in para. 2 above, was erroneous in point of law.
7. I certify that my decision involves a point of law relating wholly or mainly to the construction of an enactment, namely Finance Act 1965 part IIIPt. III of the Finance Act 1965, which has been fully argued before me and fully considered by me.
The appellant company ("Capcount") is an unlimited company resident in the UK which has been known as Capcount Trading since 1978, having changed its name three times since its incorporation in the UK as Genoxa Ltd in 1973. It appeals against a corporation tax assessment for the 12 months ended on 25 March 1979 in the nominal figure of £300,000.
The issue in the appeal relates to the computation of a loss which accrued to Capcount on the disposal of shares in a Canadian company for a consideration in Canadian dollars. The question of principle which I am asked to determine is whether the capital gain or loss for corporation tax purposes arising on the disposal of an asset situated in Canada, acquired for a consideration in Canadian dollars and disposed of for Canadian dollars should be computed:
(a) by deducting from the Canadian dollar disposal proceeds the Canadian dollar base cost and translating the resulting sum into sterling at the spot rate prevailing at the date of disposal, or
(b) by translating the Canadian dollar acquisition cost and disposal proceeds into sterling at the spot rates prevailing at, respectively, the date of acquisition and the date of disposal and deducting from the sterling disposal proceeds the sterling acquisition cost.
Capcount contends that method (a) is correct while the Revenue contend for method (b).
The facts are agreed and are sufficiently recorded for the purposes of this decision as follows:
(2) On 23 March 1973 Capcount acquired two holdings, of 2211,903 and 7200 common shares respectively, in Great Northern Capital Corporation ("GNC") which was then a public quoted company registered in Ontario, Canada. The purchase price was Can.$ 13 per share and the total consideration Can.$ 28,848,339.
(3) On 12 October 1973 Capcount acquired 3997,452 common shares in Western Realty Projects Ltd another Canadian company. The price was Can.$12 per share and the total consideration was Can.$47,969,424.
(4) On 1 April 1974 GNC and were amalgamated under...
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