Ball UK Holdings Ltd v The Commissioners for HM Revenue and Customs
| Jurisdiction | UK Non-devolved |
| Judge | Mrs Justice Falk,Judge Cannan |
| Neutral Citation | [2018] UKUT 0407 (TCC) |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
| Subject Matter | Tax,10 December 2018 |
| Date | 10 December 2018 |
| Published date | 10 December 2018 |
[2018] UKUT 0407 (TCC)
Appeal number:UT/2017/0160
Corporation tax – loan relationships – change in functional currency –
interpretation of FRS 23 – principles to apply in determining whether
accounts were in accordance with GAAP
UPPER TRIBUNAL
TAX AND CHANCERY CHAMBER
BALL UK HOLDINGS LTD
Appellant
- and -
THE COMMISSIONERS FOR HER MAJESTY’S
Respondents
REVENUE & CUSTOMS
TRIBUNAL:
MRS JUSTICE FALK
JUDGE JONATHAN CANNAN
Sitting in public at The Rolls Building, Fetter Lane, London EC4A 1NL on 19 to
21 November 2018
Nicola Shaw QC, instructed by Hogan Lovells International LLP, for the
Appellant
James Henderson, counsel, instructed by the General Counsel and Solicitor to
HM Revenue and Customs, for the Respondents
© CROWN COPYRIGHT 2018
2
DECISION
1. This appeal relates to a short, but important, point of law. It raises the question of
the proper role of the Tribunal in disputes over the correct interpretation of accounting
standards.
2. The background facts can be stated very briefly. The appellant Ball UK Holdings
Ltd (“Ball UK”) is a UK intermediate holding company indirectly owned by a US
corporation, Ball Corporation (“Ball US”). It was set up in 2002 to hold certain UK
subsidiaries acquired by Ball US as part of an acquisition of another group. Ball UK’s
material activities were limited to holding the shares in its subsidiaries, and borrowing
from and making loans to group companies, including its subsidiaries. In 2005,
prompted by changes in US tax law, it also paid a large dividend to its parent. At
material times Ball UK undertook all its activities (and in particular its lending and
borrowing activities) in sterling, with the exception of the derivative mentioned
below. The interest rates on its borrowing and lending transactions were determined
by reference to sterling LIBOR or other UK prime rates.
3. For periods up to 31 December 2005 Ball UK’s accounts were prepared in sterling
in accordance with Statement of Standard Accounting Practice 20 (“SSAP 20”). Near
the end of 2006, on the advice of PwC, a transaction was entered into with the
intention of changing the “functional currency” used in preparing the accounts from
sterling to US dollars, by triggering the right to move from SSAP 20 to Financial
Reporting Standard 23 (“FRS 23”). Like SSAP 20, FRS 23 is a UK accounting
standard, but it adopts the 2003 version of International Accounting Standard 21
(“IAS 21”).
4. Under the transaction Ball UK entered into a derivative contract with a group
member, worth about $30,000. This gave Ball UK the ability to choose to apply fair
value accounting, which it did. The exercise of that choice in turn triggered a
requirement to comply with FRS 26 and also with FRS 23, which determines
functional currency. The derivative itself was not relevant to the determination of
functional currency.
5. Based on PwC’s advice, the Ball group concluded that the effect of FRS 23 was to
change the functional currency of Ball UK to US dollars. The result of this was to
trigger a foreign exchange (“FX”) loss in its accounts for the year ended 31 December
2006. This arose because its assets and liabilities were revalued in the new currency.
The accounts were audited by PwC, who confirmed that in their view they gave a true
and fair view in accordance with UK generally accepted accounting principles
(“GAAP”).
6. The loss shown in Ball UK’s accounts included a significant loss on its sterling
denominated borrowings. Ball UK sought tax relief for this loss for corporation tax
purposes under the “loan relationship” rules contained in what was then Chapter 2 of
Part 4 of the Finance Act 1996 (“FA 1996”). The loss claimed for tax purposes was
about £24.6m.
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