Felixstowe Dock and Railway Company Ltd v HM Revenue and Customs
| Jurisdiction | UK Non-devolved |
| Judgment Date | 19 December 2011 |
| Neutral Citation | [2011] UKFTT 838 (TC) |
| Date | 19 December 2011 |
| Court | First Tier Tribunal (Tax Chamber) |
[2011] UKFTT 838 (TC)
Roger Berner (Chairman), Sir Stephen Oliver QC (Tribunal Judges)
Philip Baker QC and Nicola Shaw, instructed by Ernst & Young LLP, for the Appellant
David Goy QC and Gerry Facenna, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents
Corporation tax - joint referral - FA 1998, Sch 18, Finance Act 1998 schedule 18 subsec-or-para 31Apara 31A - group relief - consortium - surrendering company indirectly partly owned by Luxembourg company - condition that "link company" must be UK resident or carry on a trade in the UK through a permanent establishment - Income and Corporation Taxes Act 1988 section 402 subsec-or-para 3 section 402 subsec-or-para 3A section 402 subsec-or-para 3Bss. 402(3), (3A) and (3B) ICTA 1988 - whether requirement an infringement of EU law that can be relied upon by claimant companies - questions referred to CJEU - whether that requirement cannot be applied against claimant companies by virtue of the non-discrimination article of the UK-Luxembourg double tax convention - whether group relief precluded by Income and Corporation Taxes Act 1988 section 410s. 410 ICTA
1.We are asked to determine certain questions on a joint referral pursuant to Finance Act 1998 schedule 18 subsec-or-para 31Aparagraph 31A of Schedule 18 to the Finance Act 1998 in the course of enquiries into the tax returns of certain companies in the Hutchison Whampoa group.
2.The Hutchison Whampoa group is a worldwide group of companies headed by Hutchison Whampoa Limited, a company resident for tax purposes in Hong Kong. The referral arises out of claims for group relief by the relevant Hutchison Whampoa companies ("the Applicants") in respect of losses made by one member of the group, Hutchison 3G UK Limited ("the Surrendering Company").
3.At the relevant time the Surrendering Company was owned by a consortium of companies through an intermediate holding company. Relief has been claimed pursuant to the provisions of Income and Corporation Taxes Act 1988 section 406s. 406 of the Income and Corporation Taxes Act 1988 ("ICTA"). In order for such relief to be available there must exist a "link company" which is both a member of the consortium and a member of a group of companies. In the present case the Applicants say that Hutchison 3G UK Investments Sarl ("Investments"), a company resident in Luxembourg, was such a company on the basis that it was a member of the consortium owning, through an intermediate UK resident holding company (Hutchison 3G UK Holdings Limited), the Surrendering Company, and was in addition a member of a group of companies which included the Applicants.
4.It is a requirement of s. 406(2) ICTA that the obtaining of relief by a group member is dependent on the link company itself being able to make a consortium relief claim. In the present case it was not possible for Investments to make such a claim on the face of the relevant legislation. Entitlement of a company to group relief is given by s. 402(3) ICTA. Subsection (3A) provides that such relief is not available unless the claimant company satisfies the condition in subsection (3B), namely
that the company is resident in the United Kingdom or is a non-resident company carrying on a trade in the United Kingdom through a permanent establishment.
5.It is common ground that this condition is not satisfied in respect of Investments. The Applicants say that such a requirement is ineffective as regards the Applicants in that:
(a) it is a requirement that is inconsistent with European Union law; and/or
(b) it is a requirement that cannot be applied as against the Applicants in order to give effect to Article 26(4) of the double taxation convention between the United Kingdom and Luxembourg ("the DTC")
6.In addition to these issues on the fundamental right to claim consortium relief in these circumstances, a question also arises in the circumstances of this case on the application of the anti-avoidance provisions in Income and Corporation Taxes Act 1988 section 410s 410 ICTA. This arises as a result of certain share sale agreements entered into at the relevant time.
7.At the May 2011 hearing we heard oral argument from Mr Baker and Miss Shaw for the Applicants and from Mr Goy (assisted by Mr Facenna) for HMRC. Because the appeal of the decision of the First-tier Tribunal in FCE Bank plc TAX[2010] TC 00445 had only recently been heard in the Upper Tribunal (Tax and Chancery), and the decision had not been released, we adjourned for written submissions following the release of the Upper Tribunal decision. That decision (see [2011] UKUT 420 (TCC); [2011] BTC 1,885) was released on 13 October 2011. We are grateful for the written submissions we have received in that respect, which we have considered in reaching our decision.
8.The questions referred to the Tribunal for determination are:
(2) In relation to the claims for group relief, does the requirement in Income and Corporation Taxes Act 1988 section 406 subsec-or-para 2section 406(2) ICTA for the link company to be resident in the United Kingdom or carrying on a trade in the United Kingdom through a permanent establishment infringe the EU law rights of any company in the Hutchison Whampoa Group and, if it does, can the Applicants rely on that infringement in support of their claims for group relief? ("the EU Law question")
(3) To what extent does Article 26 of the UK/Luxembourg double taxation convention (the non-discrimination article) impact upon the Applicants' claims for group relief? ("the DTC question")
(4) What is the impact, if any, of Income and Corporation Taxes Act 1988 section 410section 410 ICTA [on] the claims made for group relief in the periods up to 22 June 2005? ("the section 410 question")
9.There was no dispute on the facts. We reproduce below the statement of agreed facts produced by the parties:
(2) The Applicants are all companies incorporated and resident in the United Kingdom and were members of the group comprising Hutchison Whampoa Ltd and its subsidiaries (the "Hutchison Whampoa Group") during all, or part of, the period from 26 April 2002 to 23 June 2005 (the "Total Period") (as specified in Appendices 2 & 3 to this Agreed Statement of Facts). They have made claims for consortium relief under Income and Corporation Taxes Act 1988 section 402 section 406sections 402 and 406 of the Income and Corporation Taxes Act 1988 (ICTA) in respect of the trading losses of Hutchison 3G UK Limited ("the Surrendering Company"), a company incorporated and resident in the United Kingdom. A list of the relevant Applicant claims appears at Appendix 1 to this Agreed Statement of Facts.
(3) The Surrendering Company, a company incorporated and resident in the United Kingdom, commenced trading on 26 April 2002 and had an accounting period for all relevant years ending December. The accounting periods of the Surrendering Company that fall within the Total Period are referred to here as the "Relevant Accounting Periods". On 23 June 2005 the consortium relationship ceased to exist and the Surrendering Company became a member of the same group as the Applicants.
(4) The ultimate parent company of the Hutchison Whampoa Group is, and was throughout the Total Period, Hutchison Whampoa Limited ("HWL"), a company incorporated and resident in Hong Kong. The diagram at Appendix 2 illustrates the Group position of the Applicants and the Surrendering Company as at 7 November 2003 (the relevance of that date is explained below). The diagram at Appendix 3 of this Agreed Statement of Facts illustrates the Group position of the Applicants and the Surrendering Company as at 23 June 2005.
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(5) The Surrendering Company is, and was throughout the Total Period, a 100% subsidiary of Hutchison 3G UK Holdings Limited ("Holdings"), a company incorporated and resident in the United Kingdom. On 7 November 2003 Holdings was owned:
(i) as to 50.1% by Hutchison 3G UK Investments SARL ("Investments"), a company incorporated and resident in Luxembourg;
(ii) as to 14.9% by three indirect subsidiaries of HWL, Brave First Limited (as to 1.5%), Clear Choice Limited (as to 5%) and Bright Thought Limited (as to 8.4%), all three being companies, incorporated and resident in the British Virgin Islands;
(iii) as to 20%, by Brilliant Design Limited ("Brilliant Design") a company incorporated in the British Virgin Islands, whose indirect 100% shareholder was NTT DoCoMo, Inc. ("DoCoMo"), a company incorporated in Japan; and
(iv) as to 15%, by Waerdah Limited ("Waerdah") a company incorporated in the British Virgin Islands, whose 100%) shareholder was KPN Mobile N.V. ("KPNM"), a company incorporated in the Netherlands.
(6) Throughout the Total Period, Investments was 100% owned by Hutchison Europe Telecommunications SARL, a company incorporated and resident in Luxembourg, which was throughout the Total Period 100% owned by Hutchison Whampoa Europe Investments SARL, also incorporated and resident in Luxembourg, which was throughout the Total Period 98.98%) owned by Auditorium Investments 1 SARL, a company incorporated and resident in Luxembourg. The balance of the shares in Hutchison Whampoa Europe Investments SARL were, throughout the Total Period, owned by Auditorium Investments 2 SARL (0.51%) and Auditorium Investments 3 SARL (0.51%), which two companies were incorporated and resident in Luxembourg.
(7) Throughout the Total Period, Auditorium Investments 1 SARL, Auditorium Investments 2 SARL and Auditorium Investments 3 SARL were each 100% owned by New Millennium Corp, a company incorporated and resident in the Cayman Islands, which was 100% owned by Ommaney Limited, a company incorporated and resident in the British Virgin Islands, which was owned 100% by Hutchison Whampoa International (00/03) Limited, a company incorporated and resident in the British Virgin Islands, which was owned...
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