The Commissioners for HM Revenue and Customs v Fce Bank Plc
| Jurisdiction | England & Wales |
| Judge | Lord Justice Rimer,Lady Justice Black,Lord Justice Pill |
| Judgment Date | 17 October 2012 |
| Neutral Citation | [2012] EWCA Civ 1290 |
| Docket Number | Case No: A3/2011/3302 |
| Court | Court of Appeal (Civil Division) |
| Date | 17 October 2012 |
[2012] EWCA Civ 1290
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE UPPER TRIBUNAL (TAX AND CHANCERY CHAMBER)
Mr Justice Henderson and Mr Julian Ghosh QC
Appeal No: FTC/50/10
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Pill
Lord Justice Rimer
and
Lady Justice Black
Case No: A3/2011/3302
Mr Ian Glick QC and Mr David Ewart QC (instructed by the General Counsel and Solicitor to HM Revenue and Customs) for the Appellants
Mr John Gardiner QC and Mr John Brinsmead-Stockham (instructed by Slaughter and May) for the Respondent
Hearing date: 10 July 2012
Introduction
By a decision released on 1 April 2010, the First-tier Tribunal (Tax) (John Avery Jones CBE and Edward Sadler) allowed an appeal by FCE Bank PLC ('FCE') against the refusal by the Commissioners for Her Majesty's Revenue and Customs ('HMRC') of its claim for group relief for its accounting period ended 31 December 1994. HMRC appealed against that decision to the Upper Tribunal (Tax and Chancery Chamber) (Henderson J and Mr Julian Ghosh QC) but by a decision released on 13 October 2011 the Upper Tribunal dismissed the appeal. This second appeal, brought with the permission of the Upper Tribunal, is HMRC's appeal against that decision of the Upper Tribunal. In giving its reasons for permitting a second appeal, the Upper Tribunal noted that the interpretation and application of the relevant legislation raised points of general interest and importance, that an appeal had a real prospect of success and that there were therefore compelling reasons for the Court of Appeal to hear it. The result of the appeal will have an impact on other appeals by FCE and other companies within the Ford corporate group.
The issue, one of law, is whether FCE was entitled to claim group relief in reliance on a provision in a Double Taxation Convention between the United Kingdom and the United States of America. The FTT and Upper Tribunal held that it was. If, as HMRC contend, they were wrong, the appeal must succeed. Otherwise it must fail.
The facts
FCE was at the material times a company resident in the UK. So was Ford Motor Company Limited ('FMCL'). FCE and FMCL were both owned and controlled by Ford Motor Company ('FMC'), a company resident not in the UK but in the USA. FMCL made trading losses during the relevant accounting period and claimed to surrender a proportion of them to FCE. FCE claimed group relief of £538,521. If its claim was good, it was entitled to a tax repayment of some £177,712 (excluding interest), although that figure has not been finally agreed.
HMRC refused the claim. They did so because, under the then applicable legislation, the status of FMC (the parent company) as a non-UK resident company prevented it and the two subsidiaries (FCE and FMCL) from constituting a relevant 'group' and only a 'group' company was entitled to group relief. Subject to the effect of the applicable Double Tax Convention, FCE accepts that HMRC's reading of the legislation was correct.
The legislation
The applicable statutory provisions are those in force prior to changes effected by the Finance Act 2000. Section 402 (in Part X, Chapter IV, 'Group Relief') of the Income and Corporation Taxes Act 1988 ('the Taxes Act') provided so far as material:
'402. Surrender of relief between members of groups and consortia
(1) Subject to and in accordance with this Chapter and section 492(8), relief for trading losses and other amounts eligible for relief from corporation tax may, in the cases set out in subsections (2) and (3) below, be surrendered by a company ("the surrendering company") and, on the making of a claim by another company ("the claimant company") may be allowed to the claimant company by way of a relief from corporation tax called "group relief".
(2) Group relief shall be available in a case where the surrendering company and the claimant company are both members of the same group.
A claim made by virtue of this subsection is referred to as a "group claim". …'
The working of that subsection, in particular the meaning of a 'group', requires a reference to section 413, the interpretation section. The material provisions are subsections (3)(a) and the opening words of subsection (5):
'(3) For the purposes of this Chapter –
(a) two companies shall be deemed to be members of a group of companies if one is the 75 per cent. subsidiary of the other or both are 75 per cent. subsidiaries of a third company; …
(5) References in this Chapter to a company apply only to bodies corporate resident in the United Kingdom; …'.
The interpretation of section 413(3)(a) in turn requires a reference to section 838, 'Subsidiaries', of the Taxes Act, which provided so far as material:
'(1) For the purposes of the Tax Acts a body corporate shall be deemed to be –
(a) …
(b) a "75 per cent. subsidiary" of another body corporate if and so long as not less than 75 per cent. of its ordinary share capital is owned directly or indirectly by that other body corporate; …
(2) In subsection (1)(a) and (b) above "owned directly or indirectly" by a body corporate means owned, whether directly or through another body corporate or other bodies corporate or partly directly and partly through another body corporate or other bodies corporate.'
It follows from those provisions that as FMC, the parent, was not a 'company' for the purposes of section 413, FMCL and FCE were not members of a 'group' of companies for the purposes of group relief and that, without more, FCE's group relief claim had to fail. There is no dispute that, if FMC had been resident within the UK at the material time, FMCL and FCE would have been members of a 'group' for the purposes of group relief and that HMRC would have had to accept FCE's claim. That is because each was a '75 per cent. subsidiary' of FMC within the meaning of section 413(3)(a).
Chapter IV of Part X of the Taxes Act is not, however, the end of the story because Part XVIII, headed 'Double Taxation Relief', includes another relevant chapter, Chapter 1, 'The Principal Reliefs'. That provides so far as material (as did its predecessor section 497 of the Income and Corporation Taxes Act 1970):
'788. Relief by agreement with other countries
(1) If Her Majesty by Order in Council declares that arrangements specified in the Order have been made with the government of any territory outside the United Kingdom with a view to affording relief from double taxation in relation to –
(a) income tax,
(b) corporation tax in respect of income or chargeable gains, and
(c) any taxes of a similar character to those taxes imposed by the laws of that territory,
and that it is expedient that those arrangements should have effect, then those arrangements shall have effect in accordance with subsection (3) below. …
(3) Subject to the provisions of this Part, the arrangements shall, notwithstanding anything in any enactment, have effect in relation to income tax and corporation tax in so far as they provide –
(a) for relief from income tax, or from corporation tax in respect of income or chargeable gains; …'.
The Order in Council relevant to the present case was made on 21 April 1980 and gave domestic effect to the Double Taxation Convention of 31 December 1975 between the UK and the USA. The Order is the Double Taxation Relief (Taxes on Income) (The United States of America) Order 1980 ( SI 1980 No 568), and Schedule 1 sets out the terms of the Convention. Article 24 is headed 'Non-discrimination'. Article 24(5), relating to 'enterprises' is the key provision, although I shall also set out article 24(1) relating to individuals which it mirrors:
'(1) Individuals who are nationals of a Contracting State and who are residents of the other Contracting State shall not be subjected in that other State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances are or may be subjected. …
(5) Enterprises of a Contracting State, the capital of which is wholly or partly owned or controlled, directly or indirectly, by one or more residents of the other Contracting State, shall not be subjected in the first-mentioned Contracting State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which other similar enterprises of the first-mentioned State are or may be subjected.'
Matters of common ground
In opening HMRC's appeal, Mr Glick QC helpfully indicated the several areas of relevant common ground between HMRC and FCE, and I shall set them out here. HMRC and FCE agree that:
(i) FCE and FMCL are relevant 'Enterprises of a Contracting State [the UK]' and so capable of benefiting from the protection of article 24(5): they are objects of article 24(5).
(ii) The relevant hypothetical comparator consists of UK-resident companies carrying on the same business and in the same fiscal position as FCE and FMCL, but owned or controlled by a UK-resident company to the same extent as FCE and FMCL were owned by FMC.
(iii) The group relief provisions – including section 413(5) of the Taxes Act as to the availability of group relief – and the denial of that relief fall within the concept of 'any taxation or any requirement connected therewith' in article 24(5).
(iv) The hypothetical comparator companies would have been able to surrender trading losses between one another through a...
To continue reading
Request your trial
-
Esso Exploration and Production UK Ltd and Others v Commissioners for Revenue and Customs
...BTC 19 and R & C Commrs v Philips Electronics UK Ltd (Case C-18/11) [2012] BTC 438 – US ultimate parent – R & C Commrs v FCE Bank plc [2012] BTC 462 – Boake Allen Ltd (including NEC Semi-Conductors Ltd) v R & C Commrs [2007] BTC 414 – No possibilities test – Impact of domestic law – Appeal ......
-
Percival
...analysis of the non-discrimination provisions has been subject to recent analysis by the Court of Appeal in R & C Commrs v FCE Bank plcTAX[2012] BTC 462. In that case the Court of Appeal was able to reach a different conclusion on the application of the non-discrimination article to the UK ......
- Percival v Revenue and Customs Commissioners