Shepherd (Inspector of Taxes) v Law Land Plc
| Jurisdiction | England & Wales |
| Judgment Date | 23 November 1990 |
| Date | 23 November 1990 |
| Court | Chancery Division |
Chancery Division.
Ferris J.
Mr Christopher McCall QC and Mr Thomas Ivory (instructed by the Solicitor of Inland Revenue) for the Crown.
Mr David Milne QC (instructed by Travers Smith Braithwaite) for Law Land plc.
The following case was referred to in the judgment:
Pilkington Bros Ltd v IR Commrs TAXTAX(1982) 55 TC 705; [1982] BTC 79
Corporation tax - Group relief - "Arrangements" barring group relief - Option entitling outside purchaser to acquire share capital of surrendering company - Option lapsed after one month - Option was an "arrangement" precluding group relief - Whether group relief lost for whole of accounting period or only during currency of the option -Finance Act 1973 section 29 subsec-or-para (1)Finance Act 1973, sec. 29(1) (see now Income and Corporation Taxes Act 1988 section 410 subsec-or-para (1)Income and Corporation Taxes Act 1988, sec. 410(1)).
This was an appeal by the Crown from the decision of a special commissioner that entitlement to group relief under the Income and Corporation Taxes Act 1970 section 258Income and Corporation Taxes Act 1970, sec. 258 (now Income and Corporation Taxes Act 1988 section 402sec. 402 of the 1988 Act) was not lost for the whole of an accounting period where "arrangements" within theFinance Act 1973 section 29 subsec-or-para (1)Finance Act 1973, sec. 29(1), causing group relief to be unavailable, were in existence for part of the period.
Throughout its accounting period ending 31 March 1983 the taxpayer "Law Land" owned all the shares in a company "Mercure". Mercure, whose accounts were also made up to 31 March, made a trading loss of £234,466 which it wished to surrender to Law Land.
On 6 January 1983 Law Land granted a series of options to an outside purchaser to acquire all the shares of Mercure. The options lapsed on 11 February 1983 so that they were exercisable for some five weeks during the accounting period ending 31 March 1983.
It was common ground that the options were "arrangements" within theFinance Act 1973 section 29 subsec-or-para (1)Finance Act 1973, sec. 29(1) requiring Mercure to be treated as if it were not a 75 per cent member of the same group as Law Land. The question was whether the existence of such arrangements between 6 January and 11 February 1983 required Mercure to be treated as not being a member of the same group of companies as Law Land throughout the period ending 31 March 1983 or only during the period of some five weeks in which those arrangements subsisted.
Law Land appealed against the Revenue's refusal of any group relief in relation to Mercure's losses for the 1983 accounting period claiming that relief in respect of some eleven-twelfths of Mercure's loss, apportioned under the Income and Corporation Taxes Act 1970 (nowIncome and Corporation Taxes Act 1988 section 409sec. 409 of the 1988 Act), Income and Corporation Taxes Act 1970 section 262sec. 262, should be allowed. A special commissioner allowed the appeal.
The Crown appealed contending that the words in Finance Act 1973 section 29 subsec-or-para (1)sec. 29(1)(a), "in an accounting period which ends on or after 6th March 1973" applied to the subsection as a whole, not merely to the circumstances described inFinance Act 1973 section 29 subsec-or-para (1)para. (a). On that footing, the consequence introduced at the end of the subsection applied throughout that same accounting period, and the subsection should be read as if that were made clear.
Alternatively the Crown relied on the differences betweenFinance Act 1973 section 28 section 29sec. 28 and 29and the mischief at which the section was aimed contending that an anti-avoidance provision must be widely construed and unlessFinance Act 1973 section 29sec. 29 were read in the sense contended for by the Crown, abuses of group relief might still succeed.
Law Land contended that the Revenue's construction of Finance Act 1973 section 29sec. 29 involved rewriting the section. The consequence provided by the concluding words of Finance Act 1973 section 29 subsec-or-para (1)sec. 29(1) could apply only while the statutory pre-conditions prescribed in Finance Act 1973 section 29 subsec-or-para (1) section 29 subsec-or-para (1)para. (a) and (b) were satisfied. While no arrangements of the kind referred to in Finance Act 1973 section 29 subsec-or-para (1)sec. 29(1)(b) were in existence, the statutory pre-conditions were not satisfied.
Held, dismissing the Crown's appeal:
A company would be treated as not being a group member only during the time in which arrangements within Finance Act 1973 section 29 subsec-or-para (1)sec. 29(1) of the 1973 Act existed. If such arrangements existed during part only of an accounting period, losses to be surrendered might be apportioned under Income and Corporation Taxes Act 1970 section 262sec. 262 of the 1970 Act. The words in Finance Act 1973 section 29 subsec-or-para (1)sec. 29(1)(a) "in an accounting period which ends on or after 6th March 1973" applied only to Finance Act 1973 section 29 subsec-or-para (1)para. (a), fixing the time at which it had to be considered whether relevant arrangements existed. Those words did not apply to the subsection as a whole.
1. On 15 March 1988 I, one of the special commissioners, heard the appeal of Law Land plc ("Law Land") against an assessment to corporation tax for its accounting period to 31 March 1983. The assessment was in the estimated sum of £1,000,000.
2. The sole issue in the appeal concerned Law Land's entitlement to group relief (under Income and Corporation Taxes Act 1970 section 258sec. 258 et seq. of the Income and Corporation Taxes Act 1970) in respect of a trading loss incurred by one of its subsidiary companies. It was common ground that the right to such relief was, in the events which had occurred, affected by the provisions ofFinance Act 1973 section 29 subsec-or-para (1)sec. 29(1) of the Finance Act 1973. The matter for my decision was whether, on the true construction of Finance Act 1973 section 29 subsec-or-para (1)sec. 29(1), Law Land's entitlement to such relief was (as the Crown contended) wholly lost, or whether it was lost only in part.
3. There was no oral evidence. The facts, which were not in dispute, were wholly contained in an agreed statement of facts to which there were attached copies of the relevant agreement, accounts and correspondence.
4. The facts of the case and the contentions of the parties are set out in my decision, which I issued in writing on 18 July 1988. A copy of my decision is annexed hereto and forms part of this case. For the reasons therein stated I upheld the company's contention; and the appeal was adjourned to enable the parties to reach agreement on the quantum of the assessment upon that basis.
5. In due course such agreement was reached and in accordance with it I, on 25 May 1989, formally determined the amount of the company's chargeable profits for the accounting period to 31 March 1983 in the sum of £3,106,059.
6. Immediately after the determination of the appeal HM Inspector of Taxes declared his dissatisfaction therewith as being erroneous in point of law and on 14 June 1989 required us to state a case for the opinion of the High Court pursuant to the Taxes Management Act 1970 section 56Taxes Management Act 1970, sec. 56.
7. The question of law for the opinion of the court is whether my construction of Finance Act 1973 section 29 subsec-or-para (1)sec. 29(1) of the Finance Act 1973 was erroneous.
This case raises a short point on group relief, and it is directly concerned with the effect of Finance Act 1973 section 29sec. 29 of the Finance Act 1973. Together withFinance Act 1973 section 28sec. 28, it was, it seems, introduced in order to deny group relief in certain cases where, in broad terms, the surrendering and claiming companies are members of the same group only in a formal sense or for temporary tax-related purposes.Finance Act 1973 section 29Section 29 is clearly designed to counter artificial manoeuvres whereby a group of companies could (through an appropriate transfer for consideration) immediately reap the benefit of a loss incurred by one of its members, although the ordinary condition therefor (the existence of profits made by another member or members) was then absent. Legislation against such manoeuvres is sometimes couched in wide terms, so that it operates in terrorem: and if the scarcity of authority is any measure, the section appears to have been successful in this respect. Finance Act 1973 section 29Section 29hangs on the existence of "arrangements", defined (in Finance Act 1973 section 32 subsec-or-para (6)sec. 32(6)) as being "of any kind, whether in writing, or not" - a very wide concept, as the decision of the House of Lords in Pilkington Bros Ltd v IR CommrsTAXTAX(1982) 55 TC 705; [1982] BTC 79 demonstrates. But the use of such wide language is liable to bring within the net more than was aimed at: and I am bound to say that the "arrangements" which undoubtedly existed in the present case do not seem to have had anything to do with abuse of the group relief system. However, as Lord Russell of Killowensaid in Pilkington at p. 732; p. 83:
The solution to the appeal must depend upon the impact, or lack of impact, of the relevant statutory provisions.
The facts are agreed and straightforward. The taxpayer company, Law Land plc, is a property investment and holding company incorporated and resident in the UK. Throughout the year to 31 March 1983, Law Land owned all the shares in a Belgian société anonyme, Mercure Centre SA ("Mercure"). Mercure was resident in the UK for tax purposes (presumably on the ground that management and control of its activities was exercised here). Both companies made up their accounts to 31 March in each year.
The principal activity of Mercure was the letting of land - in, I suppose, Belgium, since its accounts are expressed in that currency. In...
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