Belville Holdings Ltd v Cronin
Jurisdiction | Ireland |
Judge | Miss Justice Carroll |
Judgment Date | 14 May 1985 |
Neutral Citation | 1985 WJSC-HC 843 |
Court | High Court |
Docket Number | 681R/1984,[1984 No. 681R] |
Date | 14 May 1985 |
1985 WJSC-HC 843
The High Court
and
Citations:
CORPORATION TAX ACT 1976 S2
CORPORATION TAX ACT 1976 S24(1)
CORPORATION TAX ACT 1976 S24(2)
CORPORATION TAX ACT 1976 S25(1)
CORPORATION TAX ACT 1976 S25(2)(a)
CORPORATION TAX ACT 1976 S88
FINANCE ACT 1978 S28
PETROTIM SECURITIES V AYRES 1964 1 AER 269 41 TC 389, 1964 1 WLR 190
SHARKEY V WERNHER 1955 3 AER 493 36 TC 275
Synopsis:
REVENUE
Corporation tax
Holding company - Subsidiary - Holding company providing gratis management services for subsidiary - Notional value of services included in assessment of holding company's profits - Appeal Commissioner's valuation of services not supported by evidence - Corporation Tax Act, 1976, s. 25 - (1984 No. 681R - Carroll J. - 14/5/85).
Belville Holdings v. Cronin
Judgment of Miss Justice Carroll delivered the 14th day of May 1985
The Appellant ("the parent company") has six subsidiaries and one associated company. In addition to being a holding company it has also been accepted by the Revenue Authorities as carrying on the trade of managing the subsidiary companies and providing them with finance.
Up to the 30th of October 1978 the parent company charged out between its subsidiaries the total expenses of the parent company. In the financial period of eight months ending the 30th of June 1979 and in the financial year ending the 30th of June 1980 the parent company made no charge to its subsidiaries for the services it provided at the cost to itself of £60,403.00 in 1979 and £220,055.00 in 1980, thus creating losses.
Two of the subsidiaries paid over their entire profits to the parent company as dividends. They deducted tax at 30percnt; and issued tax credits in accordance with Section 88 of the Corporation Tax Act 1976("The 1976 Act") as amended by Section 28 of the Finance Act 1978. In 1979 subsidiary (A) paid a dividend of £59,064.00 and a tax credit of £25,313.00. In 1980 subsidiary (A) paid a dividend of £116,229.00 with a tax credit of £49,812.00 and subsidiary (B) paid a dividend of £43,035.00 with a tax credit of £18,443.00.
The income of the parent company from the subsidiaries is referred to as franked investment income by virtue of Section 24 (1) of the 1976 Act. The sum of the amount of the distribution and the amount of the tax credit is referred to as "franked payment" by virtue of Section 24 (2) of the 1976 Act.
Under Section 2 of the 1976 Act the parent company would be not chargeable to Corporation Tax in respect of dividends from its subsidiaries.
However, in this case the parent company invoked Section 25 (1) of the 1976 Act and required that its franked investment income from the two subsidiaries should be treated as profits chargeable to Corporation Tax for the purpose of setting its trading losses against total profits (sub-section 2 (a)) and, accordingly, claimed to be entitled (also under Section 25 (1)) to have paid to it the value of the tax credits comprised in the income.
Neither of the subsidiaries were liable to tax for the two periods involved due to group tax relief.
The Appeal Commissioner held as follows in paragraph 8:-
"On the foregoing facts and submissions I came to the conclusion that dividends paid by subsidiaries could not "be regarded in whole or in part, as fees paid to Appellant for providing management and financial services. If that was the intention, it would have been improper to pay such fees as dividends which carried a tax credit of thirty-seventieths. I was satisfied that the dividends were paid on the Appellant's shares in the subsidiary companies. Having so decided, I found that, in the period from the 1st of November 1978, to the 30th of June, 1980, substantial expenses were charged in the Appellant's accounts, as the cost of managing and financing subsidiary companies. There was no corresponding income, however, so that the management and financial services were provided gratis by the Appellant to associate companies at considerable cost."
This position was dealt with in the case of Petrotim Securities Limited .v. Ayres 41 T.C. 389 and the Judgment of Lord Denning M.R. at page 407 is particularly in point.
Any third party providing services similar to those provided by Appellant would be expected to charge for those services fees in excess of the expenses incurred. Following the decision of the Petrotim case, I decided that in computing the taxable profits or losses of Belville Holdings for the eight months ended the 30th of June 1979 and for the year ended the 30th of...
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