Mindpearl AG
| Jurisdiction | UK Non-devolved |
| Judgment Date | 18 August 2011 |
| Neutral Citation | [2011] UKFTT 555 (TC) |
| Date | 18 August 2011 |
| Court | First Tier Tribunal (Tax Chamber) |
[2011] UKFTT 555 (TC)
Adrian Shipwright (Tribunal Judge) (Chairman), Helen Folorunso (Tribunal Member)
Gavin Scott, Financial Controller, for the Appellant
Sarah Ford, Counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents
Corporation tax - TA Income and Corporation Taxes Act 1988 section 343s. 343 - impact of Article 43 (now 49 TFEU) - non-member state transferee - could rights of member state transferor be relied on? no as non EU national involved - was s. 343 TA applicable? no in circumstances as 75% test not met - were provisions discriminatory? no section applied to all companies in the same way whether UK resident or not - should tribunal read 75% as 50% so position same for anti-avoidance purposes in TA Income and Corporation Taxes Act 1988 section 768s. 768? no, parliament enacted 75% - appeal dismissed
1.This is an appeal by Mind Pearl AG ("Mindpearl") against amendments to Mindpearl's returns for 2001 and 2002. These amendments denied Mindpearl loss relief under Income and Corporation Taxes Act 1988 section 343section 343Income and Corporation Taxes Act 1988 ("TA"). The notices of amendment were issued on 27 June 2005.
2.The losses in dispute amount to some £3,688,687.
3.The issue here, in essence, is whether relief for the losses in dispute should be allowed, notwithstanding that the 75% requirement is not met, in the light of Article 431 of the EU Treaty (now Article 49 Treaty on the Functioning of the European Union). This is referred to as the "Article 43 Issue" in this decision i.e. can and does Article 43 apply?
4.This raises a number of questions including the following:
(2) Does section 343 TA treat companies incorporated or operating in the UK differently from those incorporated outside the UK as regards losses?
(3) Does the UK treat share transfers and business transfers involving losses differently?
(4) Is this discriminatory of itself?
(5) What is the proper comparator?
(6) Should section 343 TA be read as having a 50% requirement rather than the 75% test set out in the legislation?
5.The Article 43 Issue is the only issue considered in this decision. Mindpearl had sought to rely on other matters earlier but told us at the hearing that it was only concerned with Article 43 and, in particular, the rights of the transferor, rather than Mindpearl itself, under Article 43.
6.In addition, we were specifically told that Mindpearl only wished to argue the position under European Law. It did not wish to argue that in fact more than 75% of the trade before and after the transfer was under common ownership. Mindpearl specifically confirmed this to the Tribunal at the start of the hearing. Accordingly, the point was not argued before us and we did not consider it further.
7.We were also told that Mindpearl did not wish to rely on the arrangements between Switzerland and the European Union. Mindpearl specifically confirmed this to the Tribunal at the start of the hearing. Accordingly, the point was not argued before us and we did not consider it further.
8.We were further told that Mindpearl did not wish to rely on any double tax convention. Mindpearl specifically confirmed this to the Tribunal at the start of the hearing. Accordingly, the point was not argued before us and we did not consider it further.
9.The legislation, in so far as is relevant here, is found in Income and Corporation Taxes Act 1988 section 337section 337, 343 344, 393, 768 and 769 TA.
10.These provide (in so far as relevant):
343Company reconstructions without a change of ownership
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(1)Where, on a company ("the predecessor") ceasing to carry on a trade, another company ("the successor") begins to carry it on, and-
(a) on or at any time within two years after that event the trade or an interest amounting to not less than a three-fourths share in it belongs to the same persons as the trade or such an interest belonged to at some time within a year before that event; and
(b) the trade is not, within the period taken for the comparison under paragraph (a) above, carried on otherwise than by a company which is within the charge to tax in respect of it;
then the Corporation Tax Acts shall have effect subject to subsections (2) to (6) below.
In paragraphs (a) and (b) above references to the trade shall apply also to any other trade of which the activities comprise the activities of the first mentioned trade.
(2)The trade shall not be treated as permanently discontinued nor a new trade as set up and commenced for the purpose of the allowances and charges provided for by [the Capital Allowances Act (including enactments which under this Act are to be treated as contained in that Act); but-
(a) there shall be made to or on the successor in accordance with those Acts all such allowances and charges as would, if the predecessor had continued to carry on the trade, have fallen to be made to or on it; and
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(b) the amount of any such allowance or charge shall be computed as if-
(i) the successor had been carrying on the trade since the predecessor began to do so, and
(ii) everything done to or by the predecessor had been done to or by the successor (but so that no sale or transfer which on the transfer of the trade is made to the successor by the predecessor of any assets in use for the purpose of the trade shall be treated as giving rise to any such allowance or charge).
The preceding provisions of this subsection shall not apply if the successor is a dual resident investing company (within the meaning of section 404) which begins to carry on the trade after 31st March 1987.
(3)… subject to subsection (4) below and to any claim made by the predecessor under section 393A (1), the successor shall be entitled to relief under section 393(1), as for a loss sustained by the successor in carrying on the trade, for any amount for which the predecessor would have been entitled to … relief if it had continued to carry on the trade.
(4)Where the amount of relevant liabilities exceeds the value of relevant assets, the successor shall be entitled to relief by virtue of subsection (3) above only if, and only to the extent that, the amount of that excess is less than the amount mentioned in that subsection.
This subsection does not apply where the predecessor ceased to carry on the trade or part of a trade before 19th March 1986 nor, in a case where subsection (7) below applies, in relation to any earlier event, within the meaning of that subsection, which occurred before that date (but without prejudice to its application in relation to any later event which occurred on or after that date).
(4A)Subsection (2A) of section 393A shall not apply to any loss which (but for this subsection) would fall within subsection (2B) of that section by virtue of the predecessor's ceasing to carry on the trade, and subsection (7) of that section shall not apply for the computation of any such loss.
344Company reconstructions: supplemental
(1)For the purposes of section 343-
…
(c) a trade or interest in a trade belonging to a company shall, where the result of so doing is that subsection (1) or (7) of section 343 has effect in relation to an event, be treated in any of the ways permitted by subsection (2) below.
(2)For the purposes of section 343, a trade or interest in a trade which belongs to a company engaged in carrying it on may be regarded-
(a) as belonging to the persons owning the ordinary share capital of the company and as belonging to them in proportion to the amount of their holdings of that capital, or
(b) in the case of a company which is a subsidiary company, as belonging to a company which is its parent company, or as belonging to the persons owning the ordinary share capital of that parent company, and as belonging to them in proportion to the amount of their holdings of that capital,
and any ordinary share capital owned by a company may, if any person or body of persons has the power to secure by means of the holding of shares or the possession of voting power in or in relation to any company, or by virtue of any power conferred by the articles of association or other document regulating any company, that the affairs of the company owning the share capital are conducted in accordance with his or their wishes, be regarded as owned by the person or body of persons having that power.
(3)For the purposes of subsection (2) above-
(a) references to ownership shall be construed as references to beneficial ownership;
(b) a company shall be deemed to be a subsidiary of another company if and so long as not less than three-quarters of its ordinary share capital is owned by that other company, whether directly or through another company or other companies, or partly directly and partly through another company or other companies;
(c) the amount of ordinary share capital of one company owned by a second company through another company or other companies, or partly directly and partly through another company or other companies, shall be determined in accordance with section 838(5) to (10); and
(d) where any company is a subsidiary of another company, that other company shall be considered as its parent company unless both are subsidiaries of a third company …
337Company beginning or ceasing to carry on trade
(1)Where a company begins or ceases-
(a) to carry on a trade, or
(b) to be within the charge to corporation tax in respect of a trade, the company's income shall be computed as if that were the commencement or, as the case may be, the discontinuance of the trade, whether or not the trade is in fact commenced or discontinued.
(2)Subsection (1) applies to a Schedule A business or overseas property business as it applies to a trade.
393Losses other than terminal losses
(1)Where in any accounting period a company carrying on a trade incurs a loss in the trade, the loss shall be set off for the purposes of corporation...
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Weekly Tax Update - Monday 17 October 2011
...(with respect to the 75% and 50% ownership requirements) difficult to regard as discriminatory. www.bailii.org/uk/cases/UKFTT/TC/2011/TC01400.html 2.2. EU Taxation Commissioner Semeta In a speech on 11 October EU Commissioner Semeta discussed the European Commission's tax policy and main pr......