Hibernian Insurance Ltd v Inspector of Taxes
| Jurisdiction | Ireland |
| Judge | Miss Justice Carroll |
| Judgment Date | 20 January 2000 |
| Neutral Citation | [1997] IEHC 132 |
| Date | 20 January 2000 |
| Court | High Court |
| Docket Number | [1996 No. 110R, S.C. No. 307 of 1998] |
[1997] IEHC 132
THE HIGH COURT
BETWEEN
AND
Citations:
INCOME TAX ACT 1967 S428
CORPORATION TAX ACT 1976 S146
CORPORATION TAX ACT 1976 S107
CORPORATION TAX ACT 1976 S15
CORPORATION TAX ACT 1976 S15(b)
CORPORATION TAX ACT 1976 S15(1)
CORPORATION TAX ACT 1976 S11
CORPORATION TAX ACT 1976 S116
INCOME TAX ACT 1967 S61
INCOME TAX ACT 1967 S11(1)
LONDON COUNTY FREEHOLD & LEASEHOLD PROPERTIES LTD V SWEET (INSPECTOR OF TAXES) 24 TC 412
INCOME TAX ACT 1918 S33(1)
INCOME TAX ACT 1918 S33
CAPITAL & NATIONAL TRUST LTD V GOLDER (INSPECTOR OF TAXES) 31 TC 265
SUN LIFE ASSURANCE SOCIETY V DAVIDSON (INSPECTOR OF TAXES) 37 TC 330
HOECHST FINANCE LTD V GUMBRELL (INSPECTOR OF TAXES) 1983 STC 150
STEPHEN COURT LTD V BROWNE (INSPECTOR OF TAXES) 1984 ILRM 231
INCOME TAX ACT 1967 S81(5)(d)
COMMISSIONERS OF INLAND REVENUE V WILSONS EXECUTORS 18 TC 465
INCOME TAX ACT 1918 SCHED A NO 5 RULE 8
ATHERTON V BRITISH INSULATED & HELSBY CABLES LTD 10 TC 155
SERGEANT (INSPECTOR OF TAXES) V EAYRS 48 TC 573
COMMISSIONERS OF INLAND REVENUE V GRANITE CITY STEAMSHIP CO LTD 13 TC 1
LOTHIAN & CHEMICAL CO LTD V ROGERS 11 TC 508
TUCKER (INSPECTOR OF TAXES) V GRANADA MOTORWAY SERVICES LTD 1979 STC 393
Synopsis:
Revenue
Excess management expenses; whether expenses are expenses of management; meaning of management expenses within the meaning of s. 15 Corporation Tax Act,1976; whether revenue/capital issue is to be considered in "expenses of management"; distinction between expenses of management and expenses by management; s. 428 Income Tax Act,1967; s.146 Corporation Tax Act,1976 Held: Expenses incurred not expenses of management High Court: Carroll J. 25/071997
Hibernian Insurance Company Limited v. Macuimis - [2000] 2 IR 263
Judgment of Miss Justice Carroll delivered the 25th day of July, 1997 .
This is a Case Stated under Section 428 of the Income Tax Act, 1967as applied by Section 146 of the Corporation Tax Act, 1976concerning a refusal by the Respondent to allow excess management expenses incurred by the Hibernian Group Plc. (the Group) and surrendered by the Group to the Appellant pursuant to Section 107 of the Corporation Tax Act, 1976which was confirmed by the Appeal Commissioners and on appeal, by the Circuit Court on 10th March 1995.
It was agreed that the entitlement to surrender excess management expenses from the Group to the Appellant was not in issue and that the Group is an investment company within the meaning of Section 15 of the Corporation Tax Act, 1976. It was further agreed that the only question for a decision was whether certain expenses totalling £404,720.00 incurred by the Group in the year ended 31st December, 1990, constituted management expenses for the purposes of Section 15 of the Corporation Tax Act, 1976.
The facts admitted or proved before the learned Circuit Judge are set out at paragraph 4 of the Case Stated as follows:-
a "(a) The Group was incorporated on the 7th April, 1986 and on the 30th May, 1986 adopted a new memorandum of association authorising it to carry on the business of an investment company. The Group was set up with the objective of facilitating the expansion of life and general insurance business and other financial services activities to be carried on through subsidiary companies, both through organic growth and through investments when suitable opportunities arose.
(b) The business of the Group consisted wholly or mainly in the making of investments and the principle part of its income has been derived from the making of investments. The Group's business of making investments required:-
i (i)the maintaining and evaluating of its existing investments; and
(ii) evaluating potential investment opportunities.
(c) On the 30th May, 1986 the Group was established and acquired the entire share-holding in the previous existing Hibernian Insurance Company Limited which became an operating subsidiary. On the 21st August, 1987 the Group acquired 50% of the shares in Hibernian Life Association from Hibernian Insurance. This was effectively a reorganisation within the Group, a change in the way in which Hibernian Life Association was held rather than a change in the business of Hibernian Group Plc.. The Group incorporated Hibernian Reinsurance on the 20th December, 1988 and Hibernian Investment Managers on the 29th June, 1989 which was essentially a recognition of existing activities in Hibernian Insurance in that these companies were formed effectively by the upgrading of departments within the general company (Hibernian Insurance) to the status of separate companies. The structural developments in the Group, between 1986 and 1990, were in effect reorganisations of the business that was there into a different corporate structure. In the case of Hibernian Reinsurance and Hibernian Investment Managers the purpose of the creation of separate companies was to enable them to invest more resources and expand the businesses previously carried on by departments of Hibernian Insurance. In the case of Hibernian Reinsurance this required the investment of approximately £12m share capital in the new company. The Group had therefore as a consequence of the above, four principle operating subsidiaries involved in:-
(i) general insurance in Ireland and the U.K.;
(ii) life assurance in Ireland;
(iii) international reinsurance;
(iv) fund management.
Hibernian Group Plc. has been accepted by the Revenue Commissioners as an investment company within the meaning of Section 15(b) of the Corporation Tax Act, 1976. The Corporation Tax Returns made by Hibernian Group Plc, described the company as an investment holding company.
(d) In the period since 1986, apart from the activities mentioned at (c), two significant investment opportunities arose for the Group in Ireland, viz. P.M.P.A. and I.C.I. and one in Spain, viz. Vimar. In addition over this time, consideration was being given to acquiring the remaining 50% of Hibernian Life Association Limited, a transaction which subsequently took place in November 1991.
(e) In 1990 costs amounting to £0.404m were charged in the accounts of the Group as management expenses. A breakdown of these costs is as follows:-
| Investment Bank of Ireland | P.M.P.A & I.C.I. | IR£187,500.00 |
| Buck Paterson | I.C.I. | £ 16,441.00 |
| Coopers & Lybrand | H.L.A. | £ 9,269.00 |
| Coopers & Lybrand | I.C.I. | £ 6,620.00 |
| Coopers & Lybrand | Vimar | £ 70,443.00 |
| William Fry | Vimar | £ 25,980.00 |
| Jones Lang & Wootton | Vimar | £ 3,967.00 |
| Stibbe Blaisse & de Jong | Vimar | £ 3,325.00 |
| Other Costs | Vimar | £ 81,175.00 |
| TOTAL | £404,720.00 |
(f) The business of the Group was managed by the Board of Directors which in the year ended 31st December, 1990, comprised Mr. Eamon Walsh, Group Chief Executive, and other executive and non-executive directors. In practice, the function of management was delegated to a Sub-Committee of the Board which then procured the necessary appraisal skills and advice from professional experts, both internally within the Group structure and also externally.
(g) A number of advisors were retained to assist management in the appraisal of these potential investments and to advise and assist the Board in its deliberations on making any or all of such potential acquisitions. Details of the costs and the work involved are set out in the annexed Schedule.
(h) In assessing any potential investment opportunities, it was the Group's policy to exercise considerable care and appraisal skills in order to protect the existing investments of the Group. The costs for the Group of evaluating potential acquisitions varied enormously depending on the size and complexity of the transaction and depending on whether the acquisition was actually made or alternatively a decision was made at some point not to proceed. The process required an active role for the management beginning with the identification of possible acquisitions, setting the evaluation process in train, co-ordinating the efforts of the management team and the professional advisors involved in considering the acquisition, investigating the possible sources of finance and deciding how the investment would fit in with the Group's current portfolio of investments. At any stage, the process could be discontinued whether due to the investment turning out to be unsuitable, the breakdown in negotiations or otherwise.
(i) The appraisal and investigation carried out in respect of the investment opportunities set out in (d) above was detailed and involved of necessity understanding the nature of the business underwritten by the target enterprise, in particular the long term nature of risks and the quality of the rating applied to these risks, the adequacy of claims reserves involving both the case by case review, assessment of financial provisions and supporting actuarial appraisal and assessment.
(j) This type of evaluation activity continued in years subsequent to 1990.
(k) At the time of the proposed acquisitions of I.C.I., P.M.P.A. and Vimar, the valuation of Hibernian Group Plc. was in the region of £100m. The purchases of I.C.I., P.M.P.A. and Vimar would have involved sums of approximately £100m, £50m and £10m respectively. In the event, none of these companies were ultimately acquired by Hibernian Group Plc.."
In the Schedule to the Case Stated, the purpose and nature of the work for which the expenditure was incurred is dealt with. In summary these were:-
I.B.I. were retained to assist management in providing critical appraisals and advice to the Board of the Group on the proposed investments in I.C.I. and P.M.P.A.. In the...
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