Imperial Chemical Industries Plc v Colmer (Case C-264/96)

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
Judgment Date15 July 1993

Court of Appeal (Civil Division).

Dillon, Stuart Smith and Evans L JJ.

Imperial Chemical Industries plc
and
Colmer (HM Inspector of Taxes)

Christopher McCall QC and Rabinder Singh (instructed by the Solicitor of Inland Revenue) for the Crown.

Peter Whiteman QC (instructed by VO White, ICI Group Legal Services) for ICI.

The following cases were referred to in the judgments:

Davies Jenkins & Co Ltd v Davies (HMIT) ELR[1968] AC 1097

Pepper (HMIT) v Hart & related appeals TAX[1992] BTC 591

Corporation tax - Group relief - Consortium - Meaning of "holding company" - Relief claimed for losses of UK trading subsidiary of UK holding company - Holding company had 23 subsidiaries, four of which were UK resident - Whether conditions for relief satisfied -Income and Corporation Taxes Act 1970 section 258 subsec-or-para (2) section 258 subsec-or-para (5) section 258 subsec-or-para (7)Income and Corporation Taxes Act 1970, sec. 258(2), (5)(b), (7) (replaced by Income and Corporation Taxes Act 1988 section 402 subsec-or-para (3) section 413 subsec-or-para (3) section 413 subsec-or-para (5)sec. 402(3), 413(3)(b), (5)of the 1988 Act.

This was an appeal by the Revenue from a decision of Millett J ([1992] BTC 20) reversing the decision of a special commissioner that consortium relief under the Income and Corporation Taxes Act 1970 section 258 subsec-or-para (2)Income and Corporation Taxes Act 1970, sec. 258(2) was not available in respect of the losses of a UK trading subsidiary held through an intermediate holding company if 19 of the 23 subsidiaries of the holding company were foreign companies.

A company ("Holdings") was incorporated in 1984 owned as to 51 per cent by the Wellcome Foundation and as to 49 per cent by the taxpayer company ("ICI"), together forming a consortium within Income and Corporation Taxes Act 1970 section 258 subsec-or-para (2)sec. 258(2). The only activity of Holdings was that of owning shares in subsidiary companies trading in many countries. Of those subsidiaries 19 were foreign companies and four were UK resident. One of the UK resident companies ("CAH"), wholly owned by Holdings, incurred substantial trading losses in its accounting periods ending 31 December 1984 to 31 December 1987.

The issue was whether ICI was entitled to consortium relief underIncome and Corporation Taxes Act 1970 section 258 subsec-or-para (2)sec. 258(2) of the 1970 Act for the losses of CAH. The only matter in dispute was whether Holdings qualified as a "holding company" for the purposes of Income and Corporation Taxes Act 1970 section 258sec. 258. That depended on whether the opening words of Income and Corporation Taxes Act 1970 section 258 subsec-or-para (7)sec. 258(7), "References in this and the following sections of this Chapter to a company apply only to bodies corporate resident in the United Kingdom", were to be incorporated into the definition of "holding company" in Income and Corporation Taxes Act 1970 section 258 subsec-or-para (5)subsec. (5). It was common ground that if Income and Corporation Taxes Act 1970 section 258 subsec-or-para (7)subsec. (7) were to be incorporated into the definition inIncome and Corporation Taxes Act 1970 section 258 subsec-or-para (5)subsec. (5), Holdings would not be regarded as a holding company and ICI would not be entitled to relief.

Held, dismissing the Revenue's appeal:

1. A distinction was to be made between a statutory definition and a qualification. The opening words of Income and Corporation Taxes Act 1970 section 258 subsec-or-para (7)subsec. (7)constituted an independent qualification not intended to be imported into the definition of "holding company" in Income and Corporation Taxes Act 1970 section 258 subsec-or-para (5)subsec. (5). To require all or a majority of the subsidiaries of a holding company to be resident in the UK would be an irrational restriction on the scheme of the relief, the tax affairs of other subsidiaries of the holding company being irrelevant to a claim by a UK resident company.

2. (Per Dillon LJ) In the context, the opening words ofIncome and Corporation Taxes Act 1970 section 258 subsec-or-para (7)subsec. (7) were satisfied by being applied to the surrendering company, the claimant company and the holding company.

3. (Per Evans LJ) Income and Corporation Taxes Act 1970 section 258 subsec-or-para (7)Subsection (7) applied only to the claimant company and the surrendering company, which if resident in the UK would both be subject to UK corporation tax, and perhaps to the holding company itself.

GROUNDS OF APPEAL

The Revenue appealed against a decision Millett J delivered on 5 December 1991. The grounds of the appeal were:

  1. 1. The judge erred in law in holding that a company owned by a consortium of ICI and the Wellcome Foundation was a "holding company" within the meaning of the Income and Corporation Taxes Act 1970 section 258 subsec-or-para (5)Income and Corporation Taxes Act 1970, sec. 258(5)(b).

  2. 2. He erred in holding that Income and Corporation Taxes Act 1970 section 285 subsec-or-para (7)sec. 285(7) of the Act did not apply for the purposes of interpreting the meaning of the word "company" to Income and Corporation Taxes Act 1970 section 258 subsec-or-para (5)sec. 258(5).

  3. 3. He erred in holding that Income and Corporation Taxes Act 1970 section 285 subsec-or-para (7)sec. 285(7) applied only toIncome and Corporation Taxes Act 1970 section 258 subsec-or-para (1) section 258 subsec-or-para (2)sec. 258(1) and (2) so as to ensure that only UK companies could surrender or claim losses.

  4. 4. He erred in law in holding that the special commissioner's decision was wrong.

  5. 5. He ought to have held that by virtue of Income and Corporation Taxes Act 1970 section 258 subsec-or-para (7)sec. 258(7) all references to a company in the section were to be read as if they were references to "a body corporate resident in the United Kingdom".

JUDGMENT

Dillon LJ: This is an appeal by the Crown against a decision of Millett J, given on the 5 December 1991, in a tax case. By his decision, the judge reversed a decision in favour of the Crown which had been given by Mr Charles Potter QC, as a special commissioner, on a question of statutory construction of provisions, relating to the form of group relief called consortium relief, which are contained in Income and Corporation Taxes Act 1970 section 258sec. 258 of the Income and Corporation Taxes Act 1970 as amended and in force in the years of assessment with which these proceedings are concerned. To be fair to Mr Potter, the point of construction on which the judge decided the case in favour of the taxpayer, ICI, was a point which Mr Potter himself had suggested during the course of the argument before him, but both of the advocates appearing before him rejected the suggestion and he did not pursue it. It is also a point which was not in the forefront of the argument of the taxpayer on the appeal to the judge.

Income and Corporation Taxes Act 1970 section 258Section 258 has been replaced by Income and Corporation Taxes Act 1988 section 402sec. 402 of the Income and Corporation Taxes Act 1988, but with that we are not concerned in this case.

Income and Corporation Taxes Act 1970 section 258Section 258 provided by Income and Corporation Taxes Act 1970 section 258 subsec-or-para (1)subsec. (1) for the ordinary group tax relief and then by Income and Corporation Taxes Act 1970 section 258 subsec-or-para (2)subsec. (2) for consortium relief which had originally been introduced into tax law by theFinance Act 1967. Income and Corporation Taxes Act 1970 section 258 subsec-or-para (3) section 258 subsec-or-para (4)Subsections (3) and (4) of sec. 258 do not matter, and then in Income and Corporation Taxes Act 1970 section 258 subsec-or-para (5)subsec. (5) to Income and Corporation Taxes Act 1970 section 258 subsec-or-para (8)(8)there are a number of provisions, some introduced by amendment since the section was originally enacted, which are said to apply "for the purposes of this and the following sections of this Chapter."

For the purposes of consortium relief as claimed in the present case, there has to be a consortium, which owns the share capital of a holding company which has a subsidiary which is at least a 90 per cent subsidiary and is a trading company. If in such circumstances the subsidiary makes tax losses, the subsidiary can assign a due proportion of the tax losses to a member of the consortium and that member can claim relief for the assigned losses against its own trading profits.

In the present case there is a consortium, which consists of the taxpayer and the Wellcome Foundation. The consortium owns the share capital of a company, Coopers Animal Health (Holdings) Ltd ("Holdings"), which the taxpayer claims is a holding company within the meaning of Income and Corporation Taxes Act 1970 section 258sec. 258, and Holdings had a wholly-owned direct subsidiary, Coopers Animal Holdings Ltd ("CAH") which was a trading company and had made trading losses in the relevant years. CAH had assigned appropriate amounts of its losses to the taxpayer and the taxpayer had claimed consortium relief in respect of the losses.

The only issue, which lies in a very small compass, is whether Holdings qualifies as a "holding company" under Income and Corporation Taxes Act 1970 section 258sec. 258 and that depends on whether provisions in the opening words of Income and Corporation Taxes Act 1970 section 258 subsec-or-para (7)subsec. (7) are to be applied to the definition of "holding company" in Income and Corporation Taxes Act 1970 section 258 subsec-or-para (5)sec. 258(5).

Income and Corporation Taxes Act 1970 section 258 subsec-or-para (2)Section 258(2) provides, so far as material, as follows:

  1. (2) Group relief shall also be available in accordance with the said provisions in the case of a surrendering company and a claimant company where either of them is a member of a...

To continue reading

Request your trial
10 cases

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT