Commercial Union Assurance Company Plc v Shaw (Inspector of Taxes)
| Jurisdiction | England & Wales |
| Judgment Date | 21 December 1999 |
| Date | 21 December 1999 |
| Court | Court of Appeal (Civil Division) |
Court of Appeal (Civil Division).
Lord Woolf MR, Peter Gibson and Brooke LJJ.
Graham Aaronson QC and Malcolm Gammie (instructed by Linklaters & Paines) for Commercial Union.
Ian Glick QC and Jonathan Peacock (instructed by the Solicitor of Inland Revenue) for the Crown.
The following cases were referred to in the judgment:
Collard (HMIT) v Mining & Industrial Holdings Ltd TAXTAX[1989] BTC 167; 62 TC 448
Edinburgh Life Assurance Co v Lord Advocate TAX(1909) 5 TC 472
IR Commrs v McGuckian TAXWLR[1997] BTC 346; [1997] 1 WLR 991
Sterling Trust Ltd v IR Commrs TAX(1925) 12 TC 868
Corporation tax - Double taxation relief - Charges on income - Interest - Whether charges on income had to be fully utilised before double taxation relief applied - Income and Corporation Taxes Act 1988 section 338 subsec-or-para (1) section 393 subsec-or-para (9) section 797 subsec-or-para (3)Income and Corporation Taxes Act 1988, ss. 338(1), 393(9), 797(3).
This was an appeal by the taxpayer ("CU") against a judgment of Harman J ([1998] BTC 89) that a company had to deduct charges on income from its profits before giving credit for double taxation relief ("DTR").
CU and its UK and foreign subsidiaries carried on the trade of writing insurance. Profits included dividends in respect of which foreign tax was payable, and in respect of which double taxation relief ("DTR") was available pursuant to Income and Corporation Taxes Act 1988 section 797 subsec-or-para (3)s. 797(3) of the Income and Corporation Taxes Act 1988 in the form of credit against UK tax paid in the relevant period.
Financing its own trade and that of its subsidiaries was an integral part of CU's commercial operations. Between 1972 and 1987 CU raised six loans which formed a pool of money used to meet the needs of the group's entire business. The substantial payments of interest on those loans were charges on income, deductible in computing profits for corporation tax purposes under Income and Corporation Taxes Act 1988 section 338 subsec-or-para (1)s. 338(1) of the 1988 Act "as reduced by any other relief from tax, other than group relief".
In each relevant accounting period CU purported to allocate just enough of the charges on income to its foreign income as would leave enough income to enable it to take the full benefit of DTR, with the result that the charges on income exceeded the remaining profits of that period. The requirements of Income and Corporation Taxes Act 1988 section 393 subsec-or-para (9)s. 393(9) of the 1988 Act were satisfied and thus it was said that the excess charges on income were available to be carried forward as losses.
The issue was whether the charges on income had to be utilised before DTR was taken. CU contended that they did not: "any other relief from tax" in Income and Corporation Taxes Act 1988 section 338 subsec-or-para (1)s. 338(1) included DTR and underIncome and Corporation Taxes Act 1988 section 797 subsec-or-para (3)s. 797(3) CU was entitled to allocate charges on income in such amounts and to such of its profits as it chose. CU claimed that full advantage could be taken of the DTR which would otherwise expire and the relief for charges on income, if not fully used in the current period, survived for use in subsequent periods, even if that produced a loss.
Held, dismissing CU's appeal:
DTR did not operate by reducing taxable profits, but as a credit against tax on the profits which had been ascertained. That was reinforced by the fact that Income and Corporation Taxes Act 1988 section 338 subsec-or-para (1)s. 338(1) was made subject to a number of provisions in the Act, but was not made subject toIncome and Corporation Taxes Act 1988 section 797s. 797. Accordingly the words "any other relief" in Income and Corporation Taxes Act 1988 section 338 subsec-or-para (1)s. 338(1) did not include DTR. The right to allocate underIncome and Corporation Taxes Act 1988 section 797 subsec-or-para (3)s. 797(3)(a) existed only for the purposes of setting foreign tax against UK tax on the same profits and not for a purpose outside the section. DTR took the form of a credit against UK tax paid and could not give rise to a loss.
Peter Gibson LJ: The appellant taxpayer company, Commercial Union Assurance Co plc ("CU"), in each accounting period relevant to this appeal made payments of interest constituting charges on income and received foreign income subject to foreign tax qualifying for double taxation relief ("DTR"). It purported to allocate to its foreign income only so much of the charges on income as would leave the corporation tax otherwise payable on that foreign income equal to and offset by DTR thereby leaving to its modest chargeable gains constituting the remainder of its total profits the remainder of the charges on income. The primary issue in this appeal is whether it was entitled to compute its profits in that way, which produces an excess of charges on income capable of being carried forward to a subsequent accounting period (on the assumption that the payments of interest were made wholly for the purposes of a trade carried on by CU). A second issue which arises if CU was so entitled is whether those interest payments were made wholly and exclusively for the purposes of a trade carried on by CU. If they were not, then they would not be capable of being carried forward. The first issue turns on the true construction and interpretation of several provisions of the Income and Corporation Taxes Act 1988 ("the Act"), viz. Income and Corporation Taxes Act 1988 section 338 subsec-or-para (1) section 393 subsec-or-para (9) section 797 subsec-or-para (3)s. 338(1), s. 393(9) and s. 797(3). The second issue is basically one of fact.
CU appealed to the general commissioners for the City of London against corporation tax assessments for the eight accounting periods ended 31 December in the years 1984 to 1991 and against the Revenue's refusal to allow CU's claim to carry forward losses (in the form of excess charges on income) in respect of the last three of the eight periods. The appeal was heard by distinguished commissioners (Mr DC Potter QC, Mr JW Lindsey and Mr RM Rouse) who gave a decision in principle on the two issues to which I have referred. On each they reached a conclusion against CU, which appealed to the High Court by way of case stated. Harman J on 20 February 1998 dismissed the appeal. CU now appeals to this court on both issues. The Revenue by a respondent's notice contend that the judge's decision should be affirmed on grounds additional to those relied on by the judge.
The judge's decision is now reported together with the case stated setting out the general commissioners' findings of fact and reasons ([1998] BTC 89). In consequence I need only give a brief summary of the facts to make this judgment comprehensible.
CU in the material periods carried on the trade of writing insurance. It had numerous UK subsidiaries which carried on the like trade. CU's business also included holding shares in numerous non-UK companies each of which carried on a trade of writing insurance. CU also traded through branches outside the UK. CU had profits including dividends in respect of which tax was payable under the laws of territories outside the UK. Financing its own trade and the trades carried on by its subsidiaries was an integral part of CU's commercial operations. Between 1972 and 1987 CU raised six loans which formed a pool of money used to meet the needs of CU's entire business, including the trading needs of CU itself and of its subsidiaries. The substantial payments of interest by CU on those loans were charges on income in the relevant periods.
In each relevant period CU purported to allocate just enough of the charges on income to its foreign income as would leave sufficient of that income to enable it to take the full benefit of DTR. It says that in consequence the charges on income exceed the remaining profits of that period and the excess charges on income are accordingly to be carried forward as losses. Thus in the accounting period ended 31 December 1989, CU had income of £54m chargeable under Income and Corporation Taxes Act 1988Case V of Sch. D and chargeable gains of £400,000. Its total profits were therefore £54.4m. It had £23.1m charges on income and was entitled to a DTR credit of £16.7m. It had a Income and Corporation Taxes Act 1988Case I loss of £64m. It purported to allocate £6.3m of the charges on income to the Income and Corporation Taxes Act 1988Case V income of £54m (leaving £47.9m liable to corporation tax at 35 per cent). That gave rise to a corporation tax liability of £16.7m against which it set off the £16.7m DTR. That left the remaining £16.8m out of the £23.1m charges on income to be set against the £400,000 chargeable gains so as to produce an excess of charges on income of £16.4m. CU claims that the excess charges on income can be carried forward even though the charges on income (£23.1m) do not exceed the total profits for the period (£54.4m). It was common ground that if on the proper construction of the statutory provisions effect had to be given to charges on...
To continue reading
Request your trial
-
Bibby (Inspector of Taxes) v Prudential Assurance Company Ltd ; Oakes (Inspector of Taxes) v Equitable Life Assurance Society
...cases were referred to in the judgment: Chevron UK Ltd v IR Commrs TAX[1995] BTC 8034 Commercial Union Assurance Co plc v Shaw (HMIT) TAX[1999] BTC 12 IR Commrs v McGuckian TAX[1997] BTC 346 Corporation tax - Life assurance company - Charges on income - Policy holders' share of "relevant pr......
-
Bloomsbury Verlag GMBH
...can be found in the description of the scheme of corporation tax by Peter Gibson LJ in Commercial Union Assurance Co plc v Shaw (HMIT) TAX[1999] BTC 12 at The scheme of the corporation tax legislation requires, first the ascertainment of income from a particular source and chargeable gains,......
-
Sun Life Assurance Company of Canada (UK) Ltd v HM HM Revenue and Customs
...If authority is needed it can be found in the description of the scheme of corporation tax by Peter Gibson LJ in Commercial Union Assurance Co plc v Shaw 72 TC 101,126G: “The scheme of the corporation tax legislation requires, first the ascertainment of income from a particular source and c......
-
Legal and General Assurance Society Ltd v R & C Commissioners
...arrive at the total profits: section 9(3). Reliefs may be allowed at various stages in this process: see per Peter Gibson LJ in Commercial Union Assurance v Shaw (1998) 72 TC 101 at 126 D/I. The latest stage at which relief can operate is by reducing or extinguishing the tax which would oth......