Firestone Tyre & Rubber Company, Ltd v Lewellin (HM Inspector of Taxes)
| Jurisdiction | England & Wales |
| Judgment Date | 14 February 1957 |
| Date | 14 February 1957 |
| Court | Chancery Division |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
COURT OF APPEAL-
HOUSE OF LORDS-
Income Tax, Schedule D - Non-resident company - Exercise of trade in United Kingdom - Agency - Sale of goods manufactured in United Kingdom by subsidiary and ordered from subsidiary by parent company's foreign customers.
The trade mark of Firestone tyres was owned by A, a foreign company with a world-wide organisation. The tyres were manufactured and sold in the United Kingdom by A's wholly-owned resident subsidiary B, which was assessed to Income Tax on that business, the percentage on exports hereinafter mentioned being brought into the receipts. A made agreements with distributors in other countries specifying the terms on which Firestone products would be supplied and binding them to keep on hand reasonable stocks and use their best endeavours to sell those products. These distributors were given a list of manufacturers, including B, who could fulfil orders; B was given a list of the distributors and was under contract to A to fulfil orders obtained abroad by A. In practice B received orders direct from the distributors, made delivery at a port in the United Kingdom and received payment, which was credited to A in the books of B after deducting costs plus 5 per cent.
The profits of the export trade were assessed to Income Tax under Case I of Schedule D for the years 1940-41 to 1944-45 on the alternative bases that it was carried on either by B on its own behalf or by A in the United Kingdom through the agency of B. On appeal to the Special Commissioners B contended that the trade of selling tyres to A's customers abroad was not carried on by B on its own behalf and not exercised by A in the United Kingdom or through B's agency, but that the fulfilment of each
order by B involved a sale to A with delivery to A's orders. The Commissioners found that B held goods of its own at A's disposal and sold them on A's behalf to customers approved, and on terms imposed, by A. They concluded that A was through the agency of B exercising a trade in the United Kingdom, where the orders were received and fulfilled, the goods manufactured and payment received. Both parties demanded a Case but in the High Court the Crown abandoned the assessments on B as principalHeld, (1)that a trade was exercised in the United Kingdom of selling to distributors abroad under contracts made in the United Kingdom tyres manufactured therein and delivered therein to the purchasers against payment therein of the contract price; (2) that the Commissioners were fully entitled to conclude that the trade was exercised by A through the agency of B.
Stated under the Income Tax Act, 1952, Section 64, by the Commissioners for the Special Purposes of the Income Tax Acts for the opinion of the Chancery Division of the High Court of Justice.
1. At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held on 27th and 28th May, 1952, the Firestone Tyre & Rubber Co., Ltd. (hereinafter called "Brentford"), which carries on the business of tyre and rubber manufacturers at Great West Road, Brentford, Middlesex, appealed against two alternative series of Income Tax assessments made upon it for the years 1940-41 to 1944-45 inclusive.
2. The first series of assessments was made upon Brentford under Case I of Schedule D in respect of profits as tyre manufacturers as follows:
Year of assessment |
Amount of assessment |
||||
1940-41 |
… |
… |
… |
… |
£5,000 |
1941-42 |
… |
… |
… |
… |
£5,000 |
1942-43 |
… |
… |
… |
… |
£5,000 |
1943-44 |
… |
… |
… |
… |
£5,000 |
1944-45 |
… |
… |
… |
… |
£10,000 |
The second series was made upon Brentford as agents for an American corporation, the Firestone Tire & Rubber Co. of Akron, Ohio, in the United States of America (hereinafter called "Akron"), in respect of agency profits as follows:
Year of assessment |
Amount of assessment |
||||
1940-41 |
… |
… |
… |
… |
£10,000 |
1941-42 |
… |
… |
… |
… |
£10,000 |
1942-43 |
… |
… |
… |
… |
£10,000 |
1943-44 |
… |
… |
… |
… |
£10,000 |
1944-45 |
… |
… |
… |
… |
£10,000 |
These assessments were in addition to the assessments made upon Brentford in respect of its own business of tyre manufacturers referred to in paragraph 4 below.
The questions for determination before us were as follows:-
(a) whether Brentford itself was carrying on a trade on its own behalf of selling tyres to persons outside the United Kingdom; and, if not,
(b) whether Akron was exercising within the United Kingdom a trade of selling tyres to persons outside the United Kingdom; and, if so,
(c) whether that trade was carried on by Akron through the agency of Brentford.
3. Evidence was given by William Ernest Duck, chairman of Brentford, and Arthur William Edlin, secretary to Brentford. The facts admitted or proved before us are set out in paragraphs 4 to 13 below.
4. Akron, an American corporation registered in Akron, Ohio, is the head of a world-wide organisation consisting of a large group of corporations operating in America and in various parts of the world. Some of its associated and subsidiary corporations manufacture and sell tyres in the countries in which they are registered and others sell, in the countries in which they are registered, tyres which have been manufactured in America or by subsidiary corporations in other countries. For convenience, certain matters in regard to the business of the organisation carried on outside the United States of America have been conducted by other subsidiary companies of Akron but for the purposes of the determination of the appeal before us only it was agreed by both sides that Akron and any of its associated and subsidiary companies registered outside the United Kingdom should be treated as one person. Accordingly the references in the succeeding paragraphs to Akron embrace not only the principal company but also, where necessary, its associated subsidiary companies registered outside the United Kingdom.
Brentford is an English company registered in 1922 with an issued capital of £20,000 in £1 ordinary shares. This capital was increased to £140,000 in 1938. All the shares in Brentford are owned by Akron. The board of directors of Brentford consists of individuals resident in the United Kingdom with the exception of Mr. Harvey Firestone, the chairman of the board of directors of Akron, who is a director of Brentford and occasionally attends meetings of its directors.
Following its incorporation, Brentford's business consisted in the selling of Firestone tyres in the United Kingdom which had been manufactured in America. In 1928 a factory for the manufacture of tyres was built at Brentford, and from 1929 onwards, Brentford's business consisted by agreement with Akron of the manufacture and sale of tyres under the name of Firestone tyres in the United Kingdom. Brentford has been throughout duly assessed to Income Tax under Case I, Schedule D, in respect of this business. The trade mark in these tyres was owned by Akron and Brentford was therefore unable to sell them inside or outside the United Kingdom without the consent of Akron.
5. Firestone tyres which had been manufactured by Brentford were exported to customers outside the United Kingdom by agreement with Akron in accordance with the following arrangements. They were exported only to persons approved by Akron as "distributors" of Firestone tyres, who were required to sign an agreement with Akron. A copy of a specimen of this agreement made between a Swedish corporation and Akron, marked "A", is attached to and forms part of this Case(1).
Under this agreement dated 20th May, 1935, Akron granted to the Swedish distributor the exclusive right to sell Firestone tyres and accessories in Sweden and the latter undertook to buy, sell and distribute such Firestone branded products exclusively; to keep on hand reasonable stocks of these
products; and to use its best efforts to sell these products in Sweden but not elsewhere.The distributor was entitled to buy Firestone products at prices set out in lists attached to the agreement subject to Akron's right to change the prices without notice. Akron undertook to make deliveries f.a.s. vessel and it was agreed that delivery to a carrier should constitute delivery to the distributor. The terms of Akron were 90 days' sight draft documents against acceptance.
Akron agreed that in the event of its reducing its billing prices it would credit the difference between the old and the new prices not only on goods in transit to but also on stocks held by the distributor. The distributor agreed that in the event of Akron increasing prices, the former would accept a debit for the difference in prices not only on goods in transit to but also on stocks held by it.
It was understood and agreed between the parties to the agreement that it was not to be construed as constituting the distributor as an agent of Akron for any purpose whatever.
The contract between the parties set out in the agreement was to become effective only when executed by the duly authorised representative of Akron at Akron in Ohio, it being agreed that the agreement was to be construed under the laws of the State of Ohio in the United States of America. It was also agreed that the terms of the agreement could not be altered, waived or modified, except by written endorsement thereon executed on behalf of Akron at Akron in Ohio.
At the hearing before us it was agreed between the parties to the appeal that this document could be taken as typical of the agreements entered into between Akron and its distributors outside the United Kingdom. These agreements are hereafter referred to as "master agreements".
6. The foreign distributors who had entered into a master agreement with Akron were given lists of the corporations which manufactured Firestone products and were empowered to order these products in accordance...
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