Steele v E.v.C. International N.v (formerly European Vinyls Corporation (Holdings) B.v)
| Jurisdiction | England & Wales |
| Judgment Date | 16 December 1994 |
| Date | 16 December 1994 |
| Court | Chancery Division |
Chancery Division.
Lightman J.
Launcelot Henderson (instructed by the Solicitor of Inland Revenue) for the Crown.
Robert Venables QC and Rogert Grierson (instructed by Allen & Overy) for the taxpayer.
The following cases were referred to in the judgment:
Barclays Bank Ltd v IR Commrs ELR[1961] AC 509
IR Commrs v Harton Coal Co Ltd ELR[1960] Ch 563
Nichols v IR Commrs [1974] WLR1 WLR 296 (ChD); [1975] 1 WLR 534 (CA)
Corporation tax - Double tax agreement - Netherlands company set up by UK company as joint venture with Italian company - Neither could act without the consent of the other - Dividends paid by UK subsidiary to Netherlands company - Claim for tax credit - Credit not available if Netherlands company controlled by two or more connected persons one of whom not entitled to credit - Whether shareholders of Netherlands company connected with each other - Whether shareholders acting together to secure or exercise control - Income and Corporation Taxes Act 1988 section 839 subsec-or-para (7)Income and Corporation Taxes Act 1988, s. 839(7); SI 1980/1961 section 10 subsec-or-para (3) section 10 subsec-or-para (3)Double Taxation Relief (Taxes on Income) (Netherlands) Order 1980 (SI 1980/1961), art. 10(3)(c), (d).
This was an appeal by the Revenue against the decision of a special commissioner allowing a claim by a Netherlands company for tax credit in respect of dividends paid to it by a UK subsidiary.
In 1986 Imperial Chemical Industries plc ("ICI") set up a Netherlands company ("EVC Holdings") as a joint venture with an Italian company, EniChem SpA ("EniChem") with a view to producing PVC.
ICI and EniChem were to be equal shareholders, ICI holding 180,000 A shares and EniChem holding 180,000 B shares. Both classes of shares carried equal voting rights and there was to be no casting vote in the event of disagreement between the parents. Resolutions of the shareholders in general meeting had to be passed by an absolute majority of the valid votes cast and at least two-thirds of the issued share capital was required to be represented at the meeting.
The shareholders appointed a supervisory board and a management board to provide for the management of EVC Holdings. The management board was to report to the supervisory board and to obtain the supervisory board's approval for certain decisions. It was the supervisory board's duty to exercise supervision over the management board's conduct of the company. Neither shareholder could act at either management board or supervisory board level without the consent of the other.
On 24 May and 30 December 1988 a UK subsidiary paid two dividends to EVC Holdings of nearly £3m and over £14m respectively. EVC Holdings claimed payment of the half tax credit provided for by SI 1980/1961 section 10 subsec-or-para (3)art. 10(3)(c) of the UK/Netherlands Double Tax Agreement ("the order"). However, bySI 1980/1961 section 10 subsec-or-para (3)art. 10(3)(d)(i) of the order tax credit was not payable if the beneficial owner of the dividend was a company controlled by a person, or two or more associated or connected persons together, who would not have been entitled to a tax credit if he had been the beneficial owner of the dividend. By SI 1980/1961 section 10 subsec-or-para (3)art. 10(3)(d)(ii) a person was to be treated as having control of a company if "for any purpose" that person was associated or connected with the company. It was accepted that EniChem would not have been entitled to tax credit.
By the Income and Corporation Taxes Act 1988 section 839 subsec-or-para (7)Income and Corporation Taxes Act 1988, s. 839(7), any two or more persons acting together to secure or exercise control of a company shall be treated as connected with each other.
The appeal raised two questions. The first was whether EVC Holdings was required to show as a condition of entitlement to tax credit that its own shareholders, ICI and EniChem were not at the dates of payment of the dividends "acting together to secure or exercise control" over EVC Holdings within the meaning of the Income and Corporation Taxes Act 1988 section 839 subsec-or-para (7)Income and Corporation Taxes Act 1988, s. 839(7). The second question was whether, if the answer to the first question was in the affirmative, EVC Holdings could satisfy that condition. On the second question the critical issue was the meaning and ambit of the words "acting together to secure or exercise control".
While it was common ground that ICI and EniChem had control of EVC Holdings within the meaning of Income and Corporation Taxes Act 1988 section 416Income and Corporation Taxes Act 1988, s. 416,EVC Holdings contended that even if its shareholders were "connected" within the meaning of Income and Corporation Taxes Act 1988 section 839 subsec-or-para (7)s. 839(7) of the 1988 Act, they were not disentitled to tax credit since the exclusion would apply only to persons who were genuinely connected otherwise than through the mere coincidence of exercising joint control of a company. However, if the shareholders were "connected", it was submitted, they were not "acting together to secure or exercise control".
The Revenue contended that both questions should be answered in the affirmative, and even if ICI and EniChem were not persons acting together to exercise or secure control of EVC Holdings at the time that the dividends were paid, nevertheless, ICI and EniChem had acted together to establish EVC Holdings as a joint venture in 1986, and thereafter on the true construction of the Income and Corporation Taxes Act 1988 section 839 subsec-or-para (7)Income and Corporation Taxes Act 1988, s. 839(7), ICI and EniChem remained connected persons in relation to EVC Holdings whether or not they exercised control of it.
Held, allowing the Revenue's appeal:
1. The width of the words "for any purpose" in SI 1980/1961 section 10 subsec-or-para (3)art. 10(3)(d)(ii) of the Double Taxation Agreement embraced a connection which came withinIncome and Corporation Taxes Act 1988 section 839 subsec-or-para (7)s. 839(7) of the 1988 Act. The shareholders of EVC Holdings were therefore to be regarded as connected for the purpose of the application of the Double Taxation Agreement.
2. The ongoing shareholders' agreement constituted the necessary "acting together" and in 1988 the parties to the shareholders' agreement were acting together to secure, in the sense of safeguarding and protecting, their control of the company. Accordingly, at the relevant dates in 1988 ICI and EniChem were acting together to secure control of EVC Holdings. Consequently EVC Holdings was not entitled to any tax credit in respect of the dividends.
Per Curiam: it was not necessary to decide the remaining point but through the continuing effect of the provisions of the shareholders' agreement, ICI and EniChem were also acting together to exercise control.
1. On 25, 26, 27, 28 and 29 October 1993, I being one of the commissioners for the special purposes of the Income Tax Acts (Mr T K H Everett) heard the appeals of European Vinyls Corporation (Holdings) BV ("EVC Holdings") against two decisions of the Inland Revenue inspector of Foreign Dividends notified by a letter dated 25 November 1991 to the effect that it is not entitled to tax credits in accordance withIncome and Corporation Taxes Act 1988 section 231 subsec-or-para (3)s. 231(3) of the Income and Corporation Taxes Act 1988 and SI 1980/1961 section 10art. 10of the Double Taxation Relief (Taxes on Income) (Netherlands) Order 1980 (SI 1980/1961) ("the order") in relation to dividends paid to it by European Vinyls Corporation (UK) Ltd on 24 May 1988 and 30 December 1988. The amount of the first such dividend was £2,923,308.16 producing a claim to a tax credit of £316,691.72. The second dividend was in the amount of £14,249,999.33 producing a tax credit claimed of £1,543,749.93.
2. The questions for my decision, my findings of fact and my conclusions are set out in my written decision dated 22 November 1993 allowing the appeals. A copy of that decision is annexed to and forms part of this case.
3. Mr John York, the former chief executive Officer of EVC Holdings gave evidence before me.
4. [Paragraph 4 listed the documents admitted in evidence.]
5. The appellant immediately after the determination of the appeals declared to us his dissatisfaction therewith as being erroneous in point of law and on 2 December 1993 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, s. 56.
6. The question of law for the opinion of the court is whether, on the facts as found, I erred in holding that EniChem and ICI did not act together to secure or exercise control of EVC Holdings at the relevant times.
European Vinyls Corporation (Holdings) BV ("EVC Holdings") appeals against decisions of the Inland Revenue inspector of Foreign Dividends notified by a letter dated 25 November 1991 to the effect that it is not entitled to tax credits in accordance with Income and Corporation Taxes Act 1988 section 231 subsec-or-para (3)s. 231(3) of the Income and Corporation Taxes Act 1988 andSI 1980/1961 section 10art. 10 of the Double Taxation Relief (Taxes on Income) (Netherlands) Order 1980 (SI 1980/1961) ("the order") in relation to dividends paid to it by European Vinyls Corporation (UK) Ltd on 24 May 1988 and 30 December 1988. The amount of the first such dividend was £2,923,308.16 producing a claim to a tax credit of £316,691.72. The second dividend was in the amount of £14,249,999.33 producing a tax credit claimed of £1,543,749.93.
EVC Holdings is a Dutch private company established in 1986 as a joint venture between Imperial Chemical Industries plc ("ICI"), an English chemical company, and EniChem SpA ("EniChem"), an Italian chemical company. The shares in EVC Holdings...
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