South Shore Mutual Insurance Company Ltd v HM Inspector of Taxes
| Jurisdiction | England & Wales |
| Judgment Date | 28 September 1999 |
| Date | 28 September 1999 |
| Court | Special Commissioners |
special commissioners decision
DR A N BRICE (SPECIAL COMMISSIONER)
1. South Shore Mutual Insurance Company Limited (the Appellant) appeals against a refusal by the Inland Revenue, contained in a letter dated 18 August 1997, to allow a claim for group relief for the accounting period ending on 31 March 1993 on the ground that the Appellant was not a member of the Blackpool Pleasure Beach Group of companies (the Group). The parties agreed to treat the appeal against the decision for the accounting period ending on 31 March 1993 as determinative of the group relief position for all open years.
2. Part X (Income and Corporation Taxes Act 1988 section 379Asections 379A to 413) of the Income and Corporation Taxes Act 1988 (the Taxes Act) contains provisions relating to loss relief and group relief. Chapter IV of Part X (Income and Corporation Taxes Act 1988 section 402sections 402 to 413) contains the provisions relating to group relief. Income and Corporation Taxes Act 1988 section 402 subsec-or-para (1)Section 402(1)provides that relief for trading losses, and other amounts eligible for relief from corporation tax, may be surrendered by one company and claimed by another in the cases set out in subsections (2) and (3) and that such relief is called group relief. Income and Corporation Taxes Act 1988 section 402 subsec-or-para (2)Section 402(2)provides:
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(2) Group relief shall be available in a case where the surrendering company and the claimant company are both members of the same group.
3. Subsection (3) provides that group relief is also available for consortium companies; that provision was relevant to earlier claims for group relief made by the Appellant but is not in issue in this appeal.
4. Income and Corporation Taxes Act 1988 section 413Section 413 contains provisions relating to the interpretation of Chapter IV and the relevant parts of Income and Corporation Taxes Act 1988 section 413 subsec-or-para (3)section 413(3) provide:
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(3) For the purposes of this Chapter-
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(a) two companies shall be deemed to be members of a group of companies if one is the 75% subsidiary of the other or both are 75% subsidiaries of a third company.
5. Income and Corporation Taxes Act 1988 section 413 subsec-or-para (7) schedule 18Section 413(7) and Schedule 18contain other conditions for the availability of group relief. These include conditions that the parent company is entitled to 75% of the profits available for distribution to equity holders of the subsidiary company and that the parent company would be beneficially entitled to 75% of the assets of the subsidiary company available for distribution to its equity holders on a winding up. It was agreed that those conditions were complied with in the present appeal.
6. Part XIX (Income and Corporation Taxes Act 1988 section 817sections 817 to 845) of the Taxes Act contains supplemental provisions and Income and Corporation Taxes Act 1988 section 831sections 831 to 842A contain provisions relating to interpretation. The relevant parts of Income and Corporation Taxes Act 1988 section 838 subsec-or-para (1)section 838(1)provide:
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838(1)… a body corporate shall be deemed to be-…
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(b) a "75% per cent subsidiary" of another body corporate if and so long as not less than 75% of its ordinary share capital is owned directly or indirectly by that other body corporate.
7. "Ordinary share capital" is defined in Income and Corporation Taxes Act 1988 section 832 subsec-or-para (1)section 832(1), the relevant part of which provides-
"ordinary share capital", in relation to a company, means all the issued share capital (by whatever name called) of the company, other than capital the holders of which have a right to a dividend at a fixed rate but have no other right to share in the profits of the company.
8. The Appellant is a company limited by guarantee and was incorporated in 1945. Its memorandum of association states that it does not have a share capital and provides that the liability of every member in a winding up is limited to £1. Its articles of association provide that it has both ordinary members and founder members. Every person who takes out a policy of insurance with the Appellant is deemed to have agreed to become an ordinary member and the subscribers to the memorandum of association are also ordinary members. Those ordinary members who deposit with the company a sum of not less than £1,000 become founder members and the articles of association provide that the company may not commence trading until the total sum deposited by the founder members is not less than £40,000.
9. The Appellant claimed group relief in respect of losses surrendered by other companies in the Group. The Appellant argued: that the founder members' deposits were ordinary share capital within the meaning ofIncome and Corporation Taxes Act 1988 section 832 subsec-or-para (1)section 832(1) because they were "issued share capital (by whatever name called)"; that not less than 75% of that ordinary share capital was owned directly or indirectly by Blackpool Pleasure Beach (Holdings) Limited (Holdings); that accordingly the Appellant and the other companies in the Group were members of a group as defined in Income and Corporation Taxes Act 1988 section 413 subsec-or-para (3)section 413(3); and that the Appellant was entitled to claim group relief. The claim was refused by the Inland Revenue on the ground that the Appellant did not have any ordinary share capital and so was not a 75% subsidiary of any company and so was not a member of the Group.
10. Accordingly, the issue for determination in the appeal was whether the founder members' deposits were ordinary share capital within the meaning of Income and Corporation Taxes Act 1988 section 838 subsec-or-para (1)section 838(1) and, specifically, whether they were "issued share capital (by whatever name called") within the meaning of Income and Corporation Taxes Act 1988 section 832 subsec-or-para (1)section 832(1).
11. The parties produced a statement of agreed facts. An agreed bundle of documents was produced. A copy of a brochure entitled "Blackpool Pleasure Beach - A Hundred Years of Fun", published to celebrate the centenary of the Pleasure Beach in 1996, was also produced by the Appellant. Oral evidence was given on behalf of the Appellant by Mr David Edward Cam, the Group company secretary. Mr Cam is a barrister and has worked full-time with the Group since 1980; he is the company secretary of Holdings and also a director of other companies in the Group, including Blackpool Pleasure Beach Limited (Pleasure Beach Limited), Frontierland Limited (Frontierland) and Pleasureland Limited (Pleasureland); he was appointed the company secretary to the Appellant in 1987 and a director in 1989; he now acts as the Appellant's chief executive.
12. From the evidence before me I find the following facts.
13. The companies in the Group own and operate amusement parks at South Shore, Blackpool, Southport and Morecambe, all in Lancashire.
14. As at 31 March 1993 members of the Thompson family held all the shares in Cable Chutes (Blackpool) Limited (Cable Chutes) and in Holdings. Holdings had two subsidiaries. The first was Pleasureland; Holdings owned all the non-voting shares in Pleasureland which represented 95.24% of the total issued share capital of Pleasureland; the balance, being the voting shares, was held by the Thompson family. The other subsidiary owned by Holdings was Pleasure Beach Limited; Holdings owned all but one of the 120,000 issued shares in Pleasure Beach Limited; the other share was owned by a dormant nominee company totally owned by Holdings. Pleasure Beach Limited had one subsidiary called Morecambe Pleasure Park (Holdings) Limited (Morecambe); Pleasure Beach Limited held 100% of the non-voting shares of Morecambe which represented 78.125% of the total issued share capital of Morecambe; the balance, being the voting shares, was held by members of the Thompson family. Morecambe had one subsidiary, namely Frontierland, of which Morecambe owned 499 of the 500 issued shares, the remaining share being held by the dormant nominee company totally owned by Holdings.
15. Pleasure Beach Limited is the principal operating company of the Group and accounts for approximately 90% of the business of the Group. At the relevant time it had made 38 of the 41 founder members' deposits of £1,000 in the Appellant. If the Appellant's arguments are correct then the Appellant would be a 92% subsidiary of Pleasure Beach Limited and thus also a subsidiary of Holdings.
16. During the 1940s the Group formed the view that the insurance market tended to over-estimate the risk when providing cover for the amusement devices at Blackpool Pleasure Beach. A pleasure beach sells the perception of danger but the Group knew that the risk was not exceptional. With its long experience in the management of amusement devices the Group had confidence in the safety of its operations and wished to persuade the insurance market to have the same confidence. Accordingly, the Group decided to establish a mutual insurance company to provide cover at a competitive price for the companies in the Group and to sustain a surplus over the longer term. The Appellant was incorporated to provide mutual insurance for the liabilities of the group with a view to minimising the Group's insurance exposure.
17. The Appellant does not insure all the risks of the Group but a proportion only; the proportion is reviewed annually. The Group instructs insurance brokers who take its portfolio of risks to the market and obtain quotations for cover; the Appellant then decides what part of the total risks it will cover. In evidence which I accept Mr Cam said that, in recent...
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...Companies Act 2006, originally introduced by the Companies Act 1989. [43] In South Shore Mutual Insurance Co Ltd v HM Inspector of Taxes (1999) Sp C 215 the Special Commissioner (Dr Brice) was concerned with a company limited by guarantee which claimed entitlement to group relief in respect......