George Wimpey International Ltd v Rolfe (HM Inspector of Taxes)
| Jurisdiction | England & Wales |
| Judgment Date | 14 June 1989 |
| Date | 14 June 1989 |
| Court | Chancery Division |
Chancery Division.
Hoffmann J.
Mr. Stephen Oliver Q.C. and Mr. Kevin Prosser (instructed by R.W. Grey, legal department, George Wimpey plc) for the taxpayer.
Mr. C.H. McCall Q.C. and Mr. Alan Moses (instructed by the Solicitor of Inland Revenue) for the Crown.
The following cases were referred to in the judgment:
Duckering (H.M.I.T.) v. Gollan TAX(1965) 42 T.C. 333
Ostime (H.M.I.T.) v. Australian Mutual Provident Society ELR[1960] A.C. 459
Double tax relief - Foreign tax paid on trading income - Company's worldwide liability under Income and Corporation Taxes Act 1988Sch. D, Case I in relevant period was nil while having taxable profits on non-trading income - Whether credit for foreign tax could be set against UK tax on non-trading profits - Income and Corporation Taxes Act 1970, Income and Corporation Taxes Act 1970 section 498 subsec-or-para (3)sec. 498(3)Income and Corporation Taxes Act 1970 section 501 subsec-or-para (1)501(1) (now Income and Corporation Taxes Act 1988, sec.Income and Corporation Taxes Act 1988 section 790 subsec-or-para (4) section 793 subsec-or-para (1)790(4), sec. 793(1)).
This was an appeal by the taxpayer company from the decision of a Special Commissioner that unilateral double taxation relief under the Income and Corporation Taxes Act 1970, Income and Corporation Taxes Act 1970 section 498sec. 498 by way of credit against non-trading income was unavailable where foreign tax had been paid by a company on trading profits arising overseas, but its totalIncome and Corporation Taxes Act 1988Sch. D, Case Iincome from its worldwide trade was nil.
The company carried on a single worldwide trade of construction and civil engineering. In 1984 its trading profits arising from operations in Gabon, Hong Kong and Jordan, none of which had double taxation treaties with the UK, were £3,858,268. Tax was paid in those territories amounting to £1,153,376 but the company's worldwide trading activities showed a loss. The company also had non-trading income with the result that the overall tax computation produced a profit of £4,338,266.
The issue was whether there was a UK tax liability computed "by reference to" the same income against which the foreign tax could be allowed within Income and Corporation Taxes Act 1970 section 498 subsec-or-para (3)sec. 498(3) of the 1970 Act and whether for the purposes of Income and Corporation Taxes Act 1970 section 501 subsec-or-para (1)sec. 501(1) there was UK tax chargeable "in respect of" the same income.
The company contended that the profits from its operations in the three territories were included in the calculations of its UK tax liability. More particularly, in the case of corporation tax, trading and non-trading income were aggregated and charged on total profits by virtue of Income and Corporation Taxes Act 1970 section 250sec. 250 of the 1970 Act (now Income and Corporation Taxes Act 1988 section 9sec. 9 of the 1988 Act). Consequently the overall UK tax liability was computed "by reference to" and chargeable "in respect of" the overseas profits.
The Revenue submitted that the computation to which Income and Corporation Taxes Act 1970 section 498sec. 498 referred was the computation of liability charged on the income that had been taxed in the foreign territory. That computation of Income and Corporation Taxes Act 1988Sch. D, Case I income produced no liability to tax and there was no tax charged by reference to or in respect of that income.
Held, dismissing the taxpayer's appeal:
1. It was a basic principle of UK income tax law that tax was charged on different kinds of income each identifed by reference to its source under the appropriate Schedules and Cases. Each Case gave rise to a separate computation of income and consequently of tax. Accordingly the only tax which was computed "by reference to" and chargeable "in respect of" a category of income was that on income of the same category.
2. Credit was allowed in respect of the same income on which tax was imposed to ensure that tax was not paid twice on the same income. Since corporation tax was computed according to income tax principles, aggregation under Income and Corporation Taxes Act 1970 section 250sec. 250 was not relevant in deciding whether credit was to be allowed.
3. The company was not subject to UK tax computed "by reference to" or chargeable "in respect of" the income which had been subject to foreign tax, and no credit for the foreign tax paid could be allowed.
1. On 21 April 1988 one of the Special Commissioners heard the appeal of George Wimpey International Ltd ("the company") against a decision of the inspector of taxes, dated 2 April 1987, refusing (in part) a claim made by the company on 18 December 1985 to double taxation relief underIncome and Corporation Taxes Act 1970 section 498sec. 498 of the Income and Corporation Taxes Act 1970 for the taxpayer's accounting period ended 31 December 1984.
2. In 1984 the company, in the course of its trade, conducted profitable business in three overseas territories; and taxes, corresponding to corporation tax and computed by reference to the profits arising in those territories, were paid to the governments of those territories. The company's trade is a single worldwide trade and the profits thereof for the year, as computed for UK tax purposes were (notwithstanding the success of the overseas business referred to above) nil.
The company had other sources of income and profits, and it accordingly had, for the year 1984, total profits chargeable to corporation tax.
The question in issue was whether, in the circumstances of the case, the corporation tax so chargeable in the UK was "computed by reference to" the overseas profits on which the overseas taxes had been paid.
3. [Paragraph 3 listed the documents before the Commissioner.]
4. At the conclusion of the hearing the Commissioner reserved his decision. The decision, which sets out the material facts and the contentions of the parties, together with the reasons for the decision in favour of the inspector of taxes, was issued on 3 May 1988.
5. The company immediately after the determination of the appeal declared dissatisfaction therewith as being erroneous in point of law and on 27 May 1988 required the Commissioner to state a case for the opinion of the High Court pursuant to the Taxes Management Act1970, Taxes Management Act 1970 section 56sec. 56.
6. The question of law for the opinion of the court was whether the Commissioner erred in holding that relief was not available under theIncome and Corporation Taxes Act 1970, Income and Corporation Taxes Act 1970 section 498sec. 498, in circumstances where (as here) overseas taxes had been paid in respect of trading profits (as computed locally where the profits have arisen) but where the trading profit (as computed for UK tax purposes) was nil so that no trading profit featured directly in the computation of "total profits" on which corporation tax was assessable.
This is an appeal by George Wimpey International Ltd. ("the company") against the inspector's refusal (in part) of its claim to...
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