R v Commissioners of Inland Revenue ex parte Unilever Plc
| Jurisdiction | England & Wales |
| Judge | THE MASTER OF THE ROLLS,I,LORD JUSTICE SIMON BROWN,LORD JUSTICE HUTCHISON |
| Judgment Date | 13 February 1996 |
| Judgment citation (vLex) | [1996] EWCA Civ J0213-8 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | QBCOF/94/1618/D |
| Date | 13 February 1996 |
[1996] EWCA Civ J0213-8
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE, QUEEN'S BENCH DIVISION
(CROWN OFFICE LIST)
Mr. Justice Macpherson of Cluny
Before: The Master of the Rolls (Sir Thomas Bingham) Lord Justice Simon Brown Lord Justice Hutchison
QBCOF/94/1618/D
QBCOF/94/1622/D
IN THE MATTER OF AN APPLICATION FOR JUDICIAL REVIEW
IN THE MATTER OF AN APPLICATION FOR JUDICIAL REVIEW
MR A MOSES QC & MR. R SINGH (Instructed by Solicitors to the Inland Revenue) appeared on behalf of the Appellants
MR. R VENABLES QC & MR. J KESSLER & MISS A HARDY (Instructed by Messrs. Beachcroft Stanleys, DX45 London) appeared on behalf of the Respondents
Tuesday 13 February 1996
THE MASTER OF THE ROLLSThese appeals concern two companies, one of them for three accounting years and the other for two. Because of legislative changes, the statutory provisions governing the two earlier accounting years differ from those governing the third. But the problem is in each instance almost exactly the same, and can conveniently be described by taking one company (Unilever PLC) for one accounting year (the 12-month period which ended on 31 December 1988).
Section 6 of the Income and Corporation Taxes Act 1988 ( ICTA 1988) provided that corporation tax should be charged on the profits of companies. Section 393 (2) of ICTA 1988 provided (subject to qualifications not here relevant) that where in an accounting period ending after 5 April 1988 a company carrying on a trade incurred a loss in the trade, the company might make a claim requiring that the loss be set off for the purposes of corporation tax against profits of whatever description of that accounting period. Section 42 of the Taxes Management Act 1970 ( TMA 1970) empowered the Board of Inland Revenue to prescribe the form in which such a claim should be made, but it has never done so. Section 393 (11) of the ICTA 1988 does, however, provide that "a claim under subsection (2) above must be made within two years from the end of the accounting period in which the loss is incurred."
At the relevant time the Inland Revenue enjoyed no express statutory power to extend or waive that two-year time limit, which on its face bound both the Inland Revenue and companies seeking to set off losses against profits in the same accounting year. But section 1(1) of TMA 1970 provided that corporation tax should be under the care and management of the Commissioners of Inland Revenue, and it is common ground on these appeals that the Revenue had a discretion under that section to accept late claims for loss relief. Under what is now section 393 A(10) of ICTA 1988, not in force at the material time, claims for loss relief must be made within two years of the end of the accounting period "or within such further period as the Board may allow". This express new statutory discretion is not said to vary the discretion which the Board already enjoyed under section 1 of TMA 1970.
The Revenue disallowed a claim made by Unilever to set off trading losses incurred during the accounting year ended 31 December 1988 against profits of that accounting period on the ground that a claim to do so had not been made within two years after the end of the accounting period, that is by 31 December 1990. Unilever contended that it had made a claim within the two-year period; that if it had not the Revenue could not in fairness, having regard to its conduct in the past, treat the claim as time-barred; and that in all the circumstances the Revenue should exercise its discretion in Unilever's favour.
The difference between Unilever and the Revenue proved irreconcilable, and Unilever sought judicial review of the Revenue's decision. Its application came before Macpherson of Cluny J, and the main issues argued were those already mentioned. He gave judgment on 29 July 1994 (dealing with both companies and all three accounting years, without drawing any material distinction between them). He held that Unilever had not made a claim within the two year period, and Unilever argue that he was wrong to reach that decision. But he went on to hold that the Revenue could not in fairness, having regard to its past conduct, treat the claim as time-barred and that the Revenue should have exercised its discretion in Unilever's favour. The Revenue challenge those decisions, on which ground the judge granted the applications of both companies for judicial review. His decision is reported at [1994] STC 841.
In R v Independent Television Commission ex parte TSW Broadcasting Limited (House of Lords, unreported, 26 March 1992) Lord Templeman observed (at page 16):
"Of course in judicial review proceedings, as in any other proceedings, everything depends on the facts".
These must be briefly summarised.
The Unilever group is a very large world-wide trading group with a turnover of £23 billion, most of it outside the United Kingdom. About 70 group companies pay corporation tax in the UK. The group's tax affairs are of great complexity, and take some years to finalise.
Towards the end of the 1960s the Revenue and the Unilever tax department (which handled the tax affairs of group companies taxed here) devised an extra-statutory two-stage procedure for the provisional and final assessment of company profits.
At stage 1, the Revenue sent to Unilever a list of group companies. A typical list had four columns. In column 1 was the tax reference for each company; in column 2 the name of the company; and in column 3 the date on which the respective companies' accounting years ended (usually 31 December). Column 4, typically headed "Amount/Notes", was left blank. Unilever called these documents "questionnaires". That is a misnomer. The documents asked no specific question. But the purpose of the documents was clear: to enable Unilever to give the Revenue an approximate estimate of the profit of each company for the relevant accounting period. Unilever would accordingly fill in the blank fourth column against each company either "nil profits" (if the company had made no profit), or "loss" (if the company had made an overall loss), or a figure if the company had made a profit during the period.
Usually, since Unilever has been a successful group, companies made trading profits and in such cases the profit figure represented the total of profit earned from trade and other sources. Sometimes, however, companies made trading losses but earned profits from other sources which outweighed those losses. In such cases Unilever's almost invariable practice was to set a company's losses against its profits from other sources during the same accounting period. So it would enter in column 4 the net profit figure, after deducting the losses from the profits, so taking the benefit of same-year loss relief. But the schedule supplied by the Revenue made no reference to loss relief or any other relief, and when filling in the schedule Unilever did not identify the cases in which trading losses had been deducted to reach the profit figure entered. So it was not possible, simply by looking at the schedule (which was all the Revenue received at this stage), to know which profit figures were shown net of trading losses.
On receiving the completed schedules back from Unilever, the Revenue would raise assessments based on the information provided. Unilever would appeal (to preserve its position pending finalisation of the accounts) but paid the tax assessed.
This consensual procedure had important practical benefits for both Unilever and the Revenue. It was Unilever's policy, for sound fiscal reasons, to calculate likely taxable profits as accurately as it could at this first stage, so that it could then pay as nearly as possible the tax that would ultimately become due. The Revenue for its part collected the tax which was due (subject to final adjustment).
That was stage 1 of the procedure. At stage 2, Unilever sent to the Revenue the accounts for each company and a detailed tax computation. There was inevitably a lapse of time before this stage could be accomplished, since final figures had to be obtained and accounts drawn up and audited. On receiving the accounts and tax computation the Revenue would review them to see if any adjustment or further assessment was needed. Since Unilever took great pains to give accurate estimates at stage 1, adjustments were generally relatively minor.
The tax computations supplied by Unilever would show a trading loss where such had been incurred and a deduction from profit from other sources where there had been such profit. So the computation would make plain that the relevant company was taking the benefit of loss relief.
On receiving the accounts and tax computations the Revenue would have no reason to look back at the estimated profit schedules received some time earlier at stage 1, and in practice did not do so. But since at this second stage it was plain when the company was taking the benefit of loss relief, and the adjustments made at that stage were usually relatively minor, it was obvious that the assessment at stage 1 had been based on substantially the same calculation as was particularised at stage 2 and therefore must have taken the benefit of loss relief.
This consensual procedure worked harmoniously for many years. The evidence suggests that Unilever was a model taxpayer. There is no suggestion that Unilever has ever sought to evade...
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