Union Corporation, Ltd v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judgment Date | 09 March 1953 |
| Date | 09 March 1953 |
| Court | High Court |
HIGH COURT OF JUSTICE-
COURT OF APPEAL-
HOUSE OF LORDS-
Profits Tax - Companies registered or operating abroad but also resident in the United Kingdom - Whether "ordinarily resident outside the United Kingdom" - Finance Act, 1947 (10 & 11 Geo. VI, c. 35), Section 39 (1).
The Appellant Companies in the first two cases were incorporated, and had their registered offices, in South Africa. In each case the Company's activities were carried on partly in South Africa and partly in London; a majority of each Company's staff and a number of directors holding powers of attorney empowering them, in wide terms, to manage and conduct the Company's business in South Africa, resided in South Africa. The supremacy in matters of policy was vested in the board of directors, which sat in London.
In the third case the Company was incorporated in England and carried on extensive business operations in Trinidad (through a manager there). All the directors resided in England and all formal board meetings took place there. The executive directors and other officials, however, paid frequent visits to Trinidad during which important decisions were taken by those directors.
On appeal against certain assessments to Profits Tax, while the Companies all admitted that they were ordinarily resident in the United Kingdom and subject to the tax, they all contended that they were also "ordinarily resident outside the United Kingdom" and that accordingly under Section 39 (1), Finance Act, 1947, their profits were not subject to the higher rate of tax. It was contended on behalf of the Crown that the expression in Section 39 (1) "ordinarily resident outside the United Kingdom" means "not ordinarily resident in the United Kingdom"; alternatively, that a trading company can be resident only where its central management and control abides, that it cannot be resident in two places unless its central management and control is divided and that since in each case central management and control was exercised in London each Company was not "ordinarily resident outside the United Kingdom".
The Special Commissioners held that if ordinary residence outside the United Kingdom, concurrent with ordinary residence in the United Kingdom, were established it would entitle the Company to the benefit of Section 39 (1), but that, on the facts, each Company was ordinarily resident only in the United Kingdom.
Held, that the words "ordinarily resident outside the United Kingdom" in Section 39 (1) mean "not ordinarily resident in the United Kingdom", and that therefore the Companies were not entitled to the relief in the rate of tax afforded by Section 39 (1).
Held, (In view of their decision on this question the House of Lords found it unnecessary to consider the further decision in the Court of Appeal that all three Companies were ordinarily resident outside the United Kingdom, as well as ordinarily resident in the United Kingdom.)
(1) Union Corporation, Ltd. v. Commissioners of Inland Revenue
CASE
Stated under the Finance Act, 1937, Section 24 (2) and Fifth Schedule, Part II, Paragraph 4, and the Income Tax Act, 1918, Section 149, by the Commissioners for the Special Purposes of the Income Tax Acts for the opinion of the High Court of Justice.
1. At meetings of the Commissioners for the Special Purposes of the Income Tax Acts held on 23rd and 24th February, 1950. Union Corporation, Ltd., hereinafter called "the Corporation", appealed against assessments to the Profits Tax made on the Corporation for the two chargeable accounting periods of twelve months ended respectively 31st December, 1947, and 31st December, 1948.
2. The said assessments were made in estimated amounts, the profits being charged as to part at 25 per cent. and part at 10 per cent., representing the rates applicable for the two periods in question to profits so far as distributed, and to undistributed profits respectively. The figures of the assessments are as follows:-
Amount of |
Net amount |
Rate at |
Profits |
|
Accounting |
profits |
of profits |
which |
Tax |
period |
assessed |
chargeable |
charged |
payable |
£ |
£ |
per cent. |
£ |
|
1.1.47 to 31.12.47 |
1000,000 |
890,000 |
25 |
233,500 |
110,000 |
10 |
|||
1.1.48 to 31.12.48 |
1000,000 |
900,000 |
25 |
235,000 |
100,000 |
10 |
3. The Corporation is a company incorporated under the laws of the Union of South Africa, having been incorporated on 29th December, 1897, in the former South African Republic (now the Transvaal Province), under the name of "A. Goerz & Co., Ltd." for the purpose of acquiring the business and interests in various mining and other companies and properties in South Africa of A. Georz & Co. The name of the Corporation was changed to Union Corporation, Ltd., on 21st September, 1918.
4. It is admitted for the Corporation that it is within the charge of the Profits Tax by reference to Section 19 (2) of the Finance Act, 1937, as amended by Section 31 (1) of the Finance Act, 1947.
The said Section 19 (2) is as follows :
Subject as hereafter provided, the trades and businesses to which this section applies are all trades or businesses of any description carried on in the United Kingdom, or carried on, whether personally or through an agent, by persons ordinarily resident in the United Kingdom.
Section 31 (1) of the Finance Act, 1947, has the effect of limiting the charge to trades or businesses carried on by bodies corporate or bodies unincorporate, so far as they are not partnerships or executors.
5. It is contended for the Corporation that, while ordinarily resident in the United Kingdom, it is also-on the facts, and for the reasons, hereinafter appearing-"ordinarily resident outside the United Kingdom" in terms of Section 39 (1) of the Finance Act, 1947, and that consequently any Profits Tax payable by it must be computed exclusively at the lower rate applicable to undistributed profits. Such lower rate for the two years under appeal is 10 per cent., as shown in paragraph 2 above.
The terms of Section 39 (1) and (2) of the Finance Act, 1947, are as follows-
-
39.-
(2) Where the person carrying on a trade or business is ordinarily resident outside the United Kingdom throughout a chargeable accounting period, the profits tax payable by that person shall be ascertained as if no net relevant distributions to proprietors had been made in the case of that person for that period.
-
(3) Where a trade or business is carried on by a body corporate and, throughout a chargeable accounting period, both the following conditions are fulfilled, that is to say-
(a) that that body corporate is ordinarily resident in the United Kingdom; and
(b) that another body corporate which is not ordinarily resident in the United Kingdom controls, directly or indirectly, not less than one half of the voting power in the first-mentioned body corporate,
(4) distributions to that other body corporate shall be left out of account in determining, in relation to the first-mentioned body corporate, the net relevant distributions to proprietors for that period.
Sub-section (3) of the Section, in making provision for a matter not arising in the present appeal, refers to the case where a person's franked investment income includes
income received from a body corporate ordinarily resident outside the United Kingdom to which subsection (1) or subsection (2) of this section applies.
6. The sole issue for our determination was whether the Corporation, while ordinarily resident in the United Kingdom, is also ordinarily resident outside the United Kingdom, that is to say, in South Africa, since there is no suggestion that it could be resident or ordinarily resident in any country other than England or South Africa or both.
7. In 1904, when, as indicated in paragraph 3 above, the Corporation was known as "A. Goerz & Co., Ltd.", the question arose of its residence for Income Tax purposes. The Corporation was held in Goerz v.Bell, [1904] 2 K.B. 136, to be resident in the United Kingdom, Channell, J., remarking, at page 146, that
it is possible-though I do not decide the question one way or the other- that the company may have two residences.
8. The objects for which the Corporation was formed were to adopt and carry into effect an agreement, dated 7th December, 1897, between A. Goerz & Co., the Deutsche Bank and Henry Charles Hull (acting as trustee for the Corporation), and to carry on the business of a merchant, dealer in shares, stocks and other securities, financial and general agent, miner and mining in all branches and generally to carry on and undertake any business, transaction or operation commonly carried on by capitalists, promoters, financiers, contractors for public and other works, or agents; and the other objects set out in the Corporation's memorandum of association.
9. On 21st July, 1917, new articles of association were adopted by the Corporation under the procedure of the Companies Act, 1909 (Transvaal), and these are the articles now in force. A copy of the Corporation's memorandum and articles of association, including special resolutions in force, is attached, marked "A", and forms part of this Case.(1)
10. Clause 2 of the memorandum of association provides:
The Registered Office of the Company shall be situate at Johannesburg in the Transvaal.
This provision is in accordance with the requirements of South African law. Section 57 of the Companies Act, 1926 (South Africa) provides:
Every company shall have a registered office in the Union to which all communications and notices may be addressed, and at which all process may be served.
Section 25 provides for the keeping at the registered office of a register of the company's members.
11. Articles 68 to 93 of the Corporation's articles of association deal with general meetings, and with proceedings thereat. Article...
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