Walker v Joint Credit Card Company Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 23 February 1982 |
| Date | 23 February 1982 |
| Court | Chancery Division |
Chancery Division.
Mr. R. Carnwath (instructed by the Solicitor of Inland Revenue) for the Crown.
Mr. A. Thornhill (instructed by Messrs. Wilde Sapte) for the taxpayer.
Before: Walton J.
Corporation tax - Deductible expenditure - Whether payment of capital or income nature - Payment made to close down competitor - Whether short-term or permanent advantage obtained - Income and Corporation Taxes Act 1970Income and Corporation Taxes Act 1970.
The taxpayer company is in the business of providing a credit card service in the UK. A payment made by it to secure the closure of a competitor's business in the UK was found by the Special Commissioners to have been made on income account. The Crown appealed from that finding.
The taxpayer company received an international "Master Charge" licence in 1974, that licence to be effective from April 1975.
Normally there is only one such licensee in each country but, in the UK, Eurocard Limited were also licensed. Negotiations were entered into for the taxpayer company to acquire the share capital of Eurocard but those negotiations fell through. The taxpayer's Board considered that their organisation was larger and more efficient than Eurocard's and believed they would be able to take over its share of the market. However, Eurocard published a pamphlet announcing new low rates and encouraging away the taxpayer company's clients. Counsel advised that Eurocard's actions in soliciting the taxpayer's business amounted to wrongful interference with the taxpayer's contractual relationships with its retailers and suggested that proceedings should be taken against Eurocard. In the result the taxpayer company did not proceed against Eurocard as litigation would have resulted in adverse publicity. Instead Eurocard was paid £75,000 in return for its agreement to effectively close down its UK business and to terminate its licence under the Master Charge scheme.
The claim in this case was for a deduction from profits of that £75,000 plus associated legal expenses. The taxpayer company submitted that it was not a capital payment but was made to protect its trade in the short term. In this regard it was said that Eurocard was insolvent and that its activities would have folded up in a relatively short time even had the termination payment not been made.
Held, appeal allowed.
1. The evidence does not show that the taxpayer company, at the time the payment was made, anticipated that the threat of competition from Eurocard was unlikely to continue. Eurocard was insolvent but its business was increasing and the nature of the credit card business is such that losses are to be expected in the early years of business.
2. The evidence supports a finding that the £75,000 was paid to obtain two permanent results: that the company would be the unchallenged licensee of Master Charge in the UK and that its existing goodwill would be protected for all time by the closing down of an aggressive and possibly unscrupulous rival.
Walton J.: Some time after 7th August, 1975, but during its accounting period ended 31st October, 1975, the Respondent, the Joint Credit Card Company Limited, made a payment of some £75,000 to a company called Eurocard Limited. In connection with this payment the Respondent also incurred legal fees amounting to some £1,023; and the question here at issue is whether these two sums are proper deductions in the computation of the Respondent's assessable profits as payment made on revenue account wholly and exclusively for the purposes of its trade, or otherwise.
The payment came about in this wise. The Respondent (hereinafter called "Access") was set up in 1972 by a consortium of four banks to provide a credit card service and, in particular, to compete with the Barclaycard operation which was already in existence. Access was intended to operate principally in the United Kingdom, and it has done so with conspicuous success. But from the first it also set its sights on becoming part of an international network, with all the advantages which this would bring. In pursuance of that policy, on the 4th June, 1974, it entered into an agreement with Eurocard International S.A. of Belgium, Eurocard Nord A.B. of Sweden, and Finansierings A.B. Vendor also of Sweden. The Belgian company and Eurocard Nord A.B. between them were the owners of the entire share capital of Eurocard Limited, which was a United Kingdom company. This agreement provided for Access credit cards becoming available for use at all retailer establishments in Europe at which the Belgian company's Eurocard was accepted in accordance with its Eurocard scheme, with provision for its becoming available at other outlets in other parts of the world to be agreed. As part of this agreement, Access obtained the right to acquire the issued share capital of Eurocard Limited, or 50 per cent thereof, on certain terms.
So far I have slightly condensed parts of the findings of fact of the Special Commissioners herein. I will now pick the matter up in their own findings. "Master Charge" is the service mark of the International Interbank Card Association ("Interbank") whose object is to extend the use and acceptance of credit cards as widely as possible on a reciprocal basis throughout the world. It operates by granting licence agreements for the use of the Master Charge symbol on terms which require the licensee to ensure that all cards bearing the Master Charge marks will be honoured by the retailers with whom it has agreements. The Interbank rules include as specific obligations of membership that each member will (i) accept paper from affiliated merchants arising from the use of Interbank Cards issued by other members on their affiliated banks; and (ii) accept and pay for paper received from other members or their affiliated banks arising from the use of Interbank cards issued by it.
There is normally only one Interbank licensee in each country but in May 1974 Access was accepted as a member in the United Kingdom in spite of the fact that Eurocard Limited already had a licence agreement with Interbank. Access membership was to become effective from 1st March, 1975, when Access cards would be usable at all...
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Halifax Plc v Davidson (HM Inspector of Taxes)
...as authority for the view that a new structure was a replacement and not a repair; also cited was Walker v The Joint Credit Card Co Ltd (1982) 55 TC 617 159. In considering the arguments of the parties we feel that we cannot do better than to start with the most recent authority and the wor......