Commercial Union Assurance Company Plc v Shaw (Inspector of Taxes)
| Jurisdiction | England & Wales |
| Judgment Date | 20 February 1998 |
| Date | 20 February 1998 |
| Court | Chancery Division |
Chancery Division.
Harman J.
Graham Aaronson QC (instructed by Linklater & Paines) for the taxpayer.
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:
Bentleys Stokes & Lowless v Beeson (HMIT)TAX (1952) 33 TC 491
Chevron UK Ltd v IR Commrs TAX[1995] BTC 8034
Collard (HMIT) v Mining & Industrial Holdings Ltd TAXTAX[1989] BTC 167;62 TC 448
Elliss (HMIT) v BP Oil Northern Ireland Refinery Ltd TAXTAX[1987] BTC 38; 59 TC 474
Liverpool & London & Globe Insurance Co v BennettTAX(1913) 6 TC 327
MacKinlay (HMIT) v Arthur Young McClelland Moores & CoTAXELR[1989] BTC 587; [1990] 2 AC 239
Mallalieu v Drummond (HMIT) TAXELR[1983] BTC 380; [1983] 2 AC 861
Odhams Press Ltd v Cook (HMIT)TAX (1940) 23 TC 233
Ramsay (WT) Ltd v IR CommrsELR [1982] AC 300
Reid's Brewery Co Ltd v MaleTAX (1891) 3 TC 279
Robinson (HMIT) v Scott Bader Co LtdTAX (1981) 54 TC 757
Sterling Trust Ltd v IR CommrsTAX (1925) 12 TC 868
Vodafone Cellular Ltd v Shaw (HMIT) TAXTAX[1995] BTC 206; [1997] BTC 247(CA)
Corporation tax - Double taxation relief - Charges on income - Interest - Foreign tax paid by subsidiaries - Extent to which foreign tax could be allocated to profits of group as a whole - Whether interest payments were made "wholly and exclusively" for the purposes of the trade of the taxpayer - Income and Corporation Taxes Act 1988 section 393 subsec-or-para (9) section 797 subsec-or-para (3)Income and Corporation Taxes Act 1988, ss. 393(9), 797(3).
This was an appeal by the taxpayer against a decision of the general commissioners for the City of London that double taxation relief for charges on income under the Income and Corporation Taxes Act 1988 section 797Income and Corporation Taxes Act 1988, s. 797was limited to setting foreign tax against UK tax on the same profit and could not be brought into the computation of a loss pursuant toIncome and Corporation Taxes Act 1988 section 393s. 393 of the 1988 Act.
The taxpayer carried on the trade of writing insurance. It had branches and subsidiaries, both in the UK and overseas. Each subsidiary carried on its own trade of writing insurance.
All the taxpayer's investment business was related to its insurance business, and financing its own trade and the trades of its subsidiaries was an integral part of the taxpayer's own operation. The money raised by the taxpayer was pooled and was used to meet the needs of the taxpayer itself and of both UK and overseas subsidiaries. Against that background the taxpayer took six major loans which were used for the purposes of the group as a whole.
The issue was to what extent the taxpayer might allocate charges on income, in this case the interest paid on the six loans, to UK profits, thereby increasing the amount of UK tax on foreign dividend income against which foreign tax could be set off.
The outcome depended on the true meaning of the Income and Corporation Taxes Act 1988 section 797 subsec-or-para (3)Income and Corporation Taxes Act 1988, s. 797(3)(a), which provided that a company might, "for the purposes of this section allocate the deduction [of foreign tax] in such amounts and to such of its profits for that period as it thinks fit".
The taxpayer contended that, since taxpayers had a right to utilise particular reliefs in the most advantageous way, Income and Corporation Taxes Act 1988 section 797 subsec-or-para (3)s. 797(3)(a) should be interpreted to enable double taxation relief to achieve that result. Further, in order to overcome the objection that the interest was not paid "wholly and exclusively" for the purposes of its trade, the taxpayer raised an additional argument that the interest payments were nevertheless made wholly and exclusively for the purposes of a "treasury function" for the group which amounted to a separate trade.
The Revenue contended that the words in Income and Corporation Taxes Act 1988 section 797 subsec-or-para (3)s. 797(3)(a), "for the purposes of this section", limited the permitted deduction to double taxation relief. Once that was exhausted, any excess amount was lost and could not be applied to create or increase a loss. In any event, the interest was paid by the taxpayer for the purposes of the trade of the group as a whole. It was thus not paid "wholly and exclusively" for the purposes of the taxpayer's trade as required by the Income and Corporation Taxes Act 1988 section 393 subsec-or-para (9) Income and Corporation Taxes Act 1988, s. 393(9).
Held, dismissing the taxpayer's appeal:
The words "for the purposes of this section" limited the right to allocation of charges against income to the purposes of double tax relief. The legislation did not entitle the taxpayer to utilise the relief to its fullest extent. Allocation of a deduction for charges on income might be effected only for the purpose of setting foreign tax against UK tax on the same profit. The taxpayer was not entitled to make an allocation under Income and Corporation Taxes Act 1988 section 797 subsec-or-para (3)s. 797(3) for a purpose outside the section.
Per curiam: The loans were raised by the taxpayer for the use of the group as a whole. The interest could not therefore be said to have been paid "wholly and exclusively" for the purposes of the taxpayer's own trade. Nor could a separate trade of the taxpayer consisting of a treasury function for the group be identified.
1.1 On 7, 8, 9 and 10 November 1995 the commissioners for the general purposes of the income tax for the City of London heard the taxpayer's appeals against corporation tax assessments for the eight accounting periods ending 31 December 1984-1991 inclusive and against the inspector's refusal to allow a claim to carry forward losses in respect of the three accounting periods ending 31 December 1989-1991 inclusive.
1.2 The parties directed their arguments before us to issues which arose in respect of only the three accounting periods ending 31 December 1989-1991 inclusive. They asked us to give a decision in principle on those issues and, if need be, to hear argument at a later date on other issues relating to the assessments under appeal.
The commissioners reserved their decision on the issues and gave it in writing on 15 December 1995, the final determination to be made when any outstanding issues had been resolved or adjudicated upon and when agreed figures were made available.
3.1 The taxpayer's solicitors informed the commissioners that the other matters to be resolved between the parties made it impossible for them to agree figures immediately and they subsequently required a case to be stated.
3.2 The Solicitor of Inland Revenue wrote stating that the Revenue were content for a case to be stated in respect of the decision in principle.
3.3 The commissioners were of the opinion that they could properly state a case in the circumstances, the provisions relating to case stated procedure in SI 1994/1812 section 20reg. 20 of theGeneral Commissioners (Jurisdiction and Procedure) Regulations1994 (SI 1994/1812) being, so far as relevant, no different from those of Taxes Management Act 1970 section 56s. 56 of theTaxes Management Act 1970 which they replaced and during the currency of which the courts accepted jurisdiction over cases stated in respect of decisions in principle.
4.1 A copy of the decision was annexed to and formed part of the case.
4.2 The question for decision, the facts found and the contentions of the parties were set out in the decision as well as particulars of the documents which were put in evidence.
4.3 The documents referred to, limited as stated in para. 3 of the decision, were not annexed to the decision but were available for the court. After the hearing the parties agreed a list of the said documents, so limited; that list was annexed to the case.
5. In accordance with the SI 1994/1812General Commissioners (Jurisdiction and Procedure) Regulations 1994 the commissioners sent a draft of this case to the parties, both of whom then made representations on that draft. After considering those representations, and further representations made by both parties the commissioners refused to amend their decision but were willing to consider amendments of and additions to the draft case. They therefore recorded the following facts:
(2) The underlying value of CU's overseas insurance subsidiaries was taken into account in calculating CU's UK solvency requirements and represented a very large proportion of the assets which enabled CU to obtain a licence to operate its insurance business in the UK.
(3) Over and above the need to respect legal constraints and local regulatory requirements, Mr Linbourn and other members of CU's management did not distinguish whether CU operated through a subsidiary or a branch.
(4) The policy of the CU group was to have a spread of business geographically as well as by class, thereby being stronger.
6. A fresh document, prepared since the hearing, giving tabulated details of six loans was not admitted as evidence. That document may be used as an aide-memoire in relation to any submissions of law.
7. The commissioners declined to record as a fact that CU had no subsidiaries trading in insurance and not included in the consolidated tax return, even though both parties requested it. A company called Indemnity Marine Insurance Co Ltd was outside the list of consolidated companies even though it was a UK subsidiary trading in insurance.
8. As requested by the taxpayer the commissioners stated and signed this case for the opinion of the High Court.
9. The question of law for the opinion of the court was whether on the facts found the commissioners were right in coming to the conclusions set out in para. 16-19 of their decision.
On 7, 8, 9, and 10 November 1995 we heard the appeals of Commercial Union Assurance Co plc ("CU") against assessments...
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