The Commissioners for HM Revenue and Customs v Fce Bank Plc
| Jurisdiction | UK Non-devolved |
| Judgment Date | 13 October 2011 |
| Neutral Citation | [2011] UKUT 420 (TCC) |
| Date | 13 October 2011 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2011] UKUT 420 (TCC).
Upper Tribunal (Tax and Chancery Chamber).
Henderson J, Julian Ghosh QC.
Ian Glick QC and David Ewart QC (instructed by the Solicitor to HM Revenue & Customs) for the appellants.
John Gardiner QC and John Brinsmead-Stockham (instructed by Slaughter and May) for the respondent.
The following case was referred to in the decision:
Boake Allen Ltd v R & C Commrs UNKTAXWLR[2007] UKHL 25; [2007] BTC 414; [2007] 1 WLR 1386
Corporation tax - Group relief - Double taxation treaties - Non-discrimination provision - Group relief not available under applicable UK legislation in respect of UK subsidiaries owned by US parent - Whether taxpayer entitled to claim group relief by virtue of non-discrimination provisions of UK-US double tax agreement - Double Taxation Relief (Taxes on Income) (The United States of America) Order 1980 (SI 1980/568) - Income and Corporation Taxes Act 1988, Income and Corporation Taxes Act 1988 section 402 section 413 subsec-or-para 5 section 788 subsec-or-para 3ss. 402, 413(5), 788(3).
This was an appeal by HM Revenue and Customs against a First-tier Tribunal decision ([2010] UKFTT 136 (TC); [2010] TC 00445) that the non-discrimination provision in the UK-US double taxation treaty required the taxpayer's claim for group relief for periods before 2000 to be allowed.
The taxpayer was a UK-resident company and subsidiary of a US parent (FMC). Another UK subsidiary of FMC had trading losses available for surrender and the taxpayer made a claim for group relief for the 1994 period. It made similar claims in the five subsequent periods. HMRC denied the claim for group relief on the basis that FMC was not a UK resident, as required by ICTA 1988, s. 413(5). The taxpayer's appeal in respect of the 1994 period was the lead case in respect of a number of similar claims involving the Ford corporate group concerning the availability of claims for group relief under ICTA 1988, s. 402 before the law was changed in 2000. After 2000 group relief became available between two UK-resident 75 per cent subsidiaries of a non UK-resident parent.
The First-tier Tribunal allowed the taxpayer's appeal on the basis that the difference in treatment was because the direct holding company was US rather than UK resident. No other ground for the difference in treatment could be shown. That was therefore contrary to the non-discrimination provision in art. 24(5) of the UK-US double taxation treaty scheduled to the Double Taxation Relief (Taxes on Income) (The United States of America) Order 1980. The effect of the Income and Corporation Taxes Act 1988, s. 788(3) was to override the provisions of s. 413(5) to the extent necessary to allow the taxpayer's claim for group relief to succeed.
HMRC appealed arguing that the US residence of FMC was not the sole reason for the refusal of the claims for group relief, relying on Boake Allen Ltd v R & C Commrs [2007] UKHL 25; [2007] BTC 414, and that the real reason for discrimination was that the taxpayer and its fellow subsidiary did not have a common corporate shareholder resident in the UK.
Held, dismissing HMRC's appeal:
1.HMRC's reliance on Boake Allen was not justified. The reason why there was no breach of the non-discrimination article in Boake Allen was that ICTA 1988, s. 247 was incapable of application to a case in which the parent company, being non-UK resident, was not liable to ACT. Since the concept of a joint election was incapable of meaningful application in a cross-border context, there could be no discrimination against a US-parented group because it was denied the right to make an election which only made sense in a purely domestic context. The reason for the difference in treatment (which prohibited the non-UK tax-resident company from being a party to a group income election) was not the foreign ownership of the UK tax-resident subsidiary's share capital but rather the absence of any charge to ACT on the non-UK tax resident parent. That reasoning had no relevance to the present case, because the claim for group relief was a claim that only affected the UK tax position of the two UK subsidiaries. The claim had no effect at all on the tax position of the US parent, and the only relevance of the parent company was to establish (or not, as the case might be) the necessary group relationship between the two UK companies which surrendered and accepted the trading losses. The critical question was whether the two parties to the election were UK taxpayers, not whether they were under foreign ownership or control.
2.Boake Allen showed the need for the parent, as well as the subsidiary, to be UK-resident if a group income election was to be capable of being made. There was no corresponding necessity in the present case, save for the purpose of establishing the necessary group relationship. That showed that the real, and sole, reason for refusal of the claim to group relief was indeed the US residence of FMC, as the FTT rightly held. The FTT found further support for its conclusion in the fact that rulings consistent with it had been given by courts at the highest level in at least three other countries, namely the Netherlands, Finland and Sweden. The FTT was right to attach importance to the principle that the courts should give consistent interpretations of treaty provisions contained in the OECD Model that were widely used in tax treaties.
1.Since the law was changed in 2000, it has been possible for the group relationship necessary to found a claim for group relief to be traced through companies resident outside, as well as within, the UK. Thus group relief is now available between two UK-resident 75% subsidiaries of a common parent company, even if that parent company is resident in the USA. Before 2000, however, the position was different, and a qualifying group relationship could be traced only through companies resident in the UK. It follows that, as a matter of domestic English law, group relief could not be claimed between the two UK-resident subsidiaries in the example which we have given, even if the type of relief claimed (for example a surrender of trading losses by one subsidiary to the other) had no effect at all on the UK tax position of the US parent.
2.The issue in the present case is whether the pre-2000 position outlined above was overridden by the non-discrimination article in the 1975 double taxation agreement between the UK and the USA, scheduled to the Double Taxation Relief (Taxes on Income) (The United States of America) Order 1980 (SI 1980/568), which we will call "the Treaty". In the decision under appeal, which concerned the refusal of a group relief claim for a sample accounting period ending on 31 December 1994 of the respondent FCE Bank plc (FCE), the Tax Chamber of the First-tier Tribunal (Judges Avery Jones and Sadler) held that it was, with the result that group relief was available (see [2010] UKFTT 136 (TC); [2010] TC 00445). The Commissioners for HM Revenue & Customs (HMRC) now appeal against that decision, with permission granted by the First-tier Tribunal on 25 May 2010.
3.The parties were represented before us by the same counsel who had appeared below, Mr John Gardiner QC and Mr John Brinsmead-Stockham for FCE and Mr Ian Glick QC and Mr David Ewart QC for HMRC. Both sides agreed that the point in issue is a very short one, and the oral argument before us occupied barely two hours, the ground having been comprehensively covered in the parties' helpful skeleton arguments.
4.The relevant facts were agreed, and could hardly be simpler. At all material times FCE was a UK-resident company, as was Ford Motor Company Limited (FMCL). Both FCE and FMCL were directly owned subsidiaries...
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