Neeson (Inspector of Taxes) v Longford Timber Contractors Ltd
| Jurisdiction | Ireland |
| Judge | Carroll J. |
| Judgment Date | 21 July 2004 |
| Neutral Citation | [2004] IEHC 140 |
| Docket Number | HC 254\04 |
| Court | High Court |
| Date | 21 July 2004 |
[2004] IEHC 140
THE HIGH COURT
BETWEEN
AND
Citations:
TAXES CONSOLIDATION ACT 1997
TAXES CONSOLIDATION ACT 1997 S443
TAXES CONSOLIDATION ACT 1997 S443(21)
TAXES CONSOLIDATION ACT 1997 S443(6)(a)(i)
TAXES CONSOLIDATION ACT 1997 S443(6)(a)(iv)
TAXES CONSOLIDATION ACT 1997 S443 (6)
BROSNAN V LEESIDE NURSERIES LTD 1998 2 IR 304
TAXES CONSOLIDATION ACT 1997 S443(1)
MARA V HUMMINGBIRD LTD 1982 ILRM 421
CRONIN V STRAND DARIES LTD 1985 3 ITR 441
CHARLES MCCANN LTD v O CULACHAIN (INSPECTOR OF TAXES) 1986 IR 196
MCCAUSLAND V MIN FOR COMMERCE 1956 NI 36
O LAOCHDHA v JOHNSON & JOHNSON 1991 2 IR 287
Case stated - Assessment of corporation tax - Whether the process of timber harvesting qualified as a process of manufacture of goods - Taxes Consolidation Act, 1997
Facts: The respondent provided a service to a sawmill which, involved the felling and extraction of trees from various forests. The respondent also de-branched the logs and cut them to precise measurements. The respondent maintained that it provided a manufacturing service which, was not precluded form qualifying for the reduced rate of corporation tax by virtue of the provisions of the Taxes Consolidation Act, 1997 and accordingly qualified for the reduced rate of corporation tax that applied to companies carrying out a process of manufacture of goods. The learned Circuit Judge held that the respondent qualified for the reduced rate of corporation tax. Consequently, the appellant instituted a case stated pursuant to section 914 of the Taxes Consolidation Act 1997 against the decision of the Circuit Court Judge.
Held by Carroll J in determining that the learned Circuit Court judge was correct: 1. That the finding by the learned Circuit Court judge that the process carried out by the respondent was a manufacturing process was a finding of fact that could not and should not have been interfered with.
2. That the learned Circuit Court judge was correct in holding that s. 443 6(a)(i) had no application as the process involved did not prepare the product for sale or distribution. Further, the respondent did not acquire the product in bulk. In fact the respondent did not own any part of the timber.
3. That the finding by the learned circuit court judge that a treated log had a different function to an untreated one and accordingly was not excluded by the provisions of s. 443 (6)(a)(iv) was a matter of appreciation the learned circuit court judge was entitled to adopt.
Reporter: L.O’S.
21st day of July2004. Carroll J.
This is a case stated pursuant to section 941 of the Taxes Consolidation Act1997against a decision by Judge Kennedy on appeal to the Circuit Court on 31st January 2003 against an assessment of corporation tax issued by the appellant (the Inspector of Taxes) against the respondent (the tax payer) for the years of assessment ended 31/3/96, 31/3/ 97 and31/3/98.
The question for determination on appeal was whether the process of timber harvesting carried on by the respondent qualified for the reduced rate of corporation tax (10%) applying to companies carrying out a process of manufacture of goods.
The question of law for determination by the High Court is whether the learned Circuit judge was correct in law in holding that the respondent tax payer qualified for the reduced rate of corporation tax as a consequence of being engaged in a process of manufacture of goods in accordance with s. 443 of the Taxes Consolidation Act1997.
An agreed description of the process carried out by the tax payer was annexed to and formed part of the case stated. However, the process is sufficiently described in the agreed facts and it is not necessary to annex it hereto.
The following facts were agreed:
(a) The respondent provides a service to Glennon Brothers Limited (the sawmill) involving the felling and extraction of trees from various forests around the country. Plots of trees in each forest are bought by Glennon Brothers from Coillte Teo. and the respondent's felling and extraction activity is carried out in the open air on these plots.
(b) The standing trees are cut down to specified lengths by a machine called a "timberjack harvester" and are extracted from the forest floor by a machine called "forwarder". Employees of the respondent operate both machines. The "timberjack harvester" has an on-board computer system. The operator inputs details of the desired specifications required by the saw mills. This machine de-branches the trees and cuts them into predetermined lengths. The bark remains on the cut tree trunks. The forwarder machine then collects the cut tree trunks from the forest floor by means of a mechanical arm and places them into a trailer at the rear of the machine. It is then transported to the roadside and left in piles for collection to the saw mill.
(c) The company engages sub-contractors to assist when it encounters inaccessible sites and over sized trees. (It is unable to use the machines in these circumstances). The sub-contractors use chainsaws to fell the trees. It is accepted by both parties that the income from this element of the trade does not qualify for the reduced rate of 10% corporation tax (manufacturing rate).
(d) The trees remain the property of the sawmill at all times.
(e) If the sawmill carried out the above activity as part of their manufacture of products, (i.e. pallets, roofing timber and flooring timber) then they (Glennons) would be entitled to claim manufacturing relief in respect of then-total activity.
| A) | It provides a manufacturing service for the sawmill in accordance with the provisions of s. 443(21) of the Taxes Consolidation Act,1997. It renders a process of manufacturing to the timber owned by the sawmill. |
| B) | The activity carried out is not precluded from qualification for the reduced rate of corporation tax by virtue of the provisions of s. 443(6)(a)(i) of the Taxes Consolidation Act,1997. |
| C) | The activity carried out is not precluded from qualification for the reduced rate of corporation tax by virtue of the provisions of s. 443 (6)(a)(iv) of the Taxes Consolidation Act,1997. |
| D) | There is a change in character from the living trees to the finished logs de-branched and cut to precise measurements. This work is carried out with expensive computer-equipped machinery. |
| E) | There is substantial "value added" to the product from the standing tree to the cut timber. |
(a) The activity carried out by the respondent company does not constitute a manufacturing process as defined in legislation and as established by case law.
(b) The end product is not one capable of being produced by what would ordinarily be described as a process of manufacture. The company carries out a "tree felling" operation for the sawmill.
(c) The activity is further (and specifically) excluded from qualification by virtue of the provisions of the -s. 443 (6)(a)(i) of the Taxes Consolidation Act,1997.
(d) The activity is further (and specifically) excluded from qualification by virtue of the provisions ofs. 443 (6)(a)(iv) of the Taxes Consolidation Act,1997.
(e) The claim by the company of "value added" to the product relates to the cost of extraction of the trees rather than any added value to the raw material.
The cases cited are set out in the case stated.
The learned Circuit Court judge delivered judgment on the 27th March, 2003 as follows:
"At one time a woodcutter chopped down a tree and next lopped off the branches, all done with an axe. After that was done the tree trunk was hauled, with or without horse and tackle, to the roadside for collection and transport to the sawmill. The same procedure continued with the invention of the saw and the chainsaw, and would not by any stretch of the imagination constitute and "manufacturing" of the growing tree into a tree trunk. The procedure in the sawmill of turning by machine the tree trunk into timber - wood prepared for use in carpentry and construction, typically planks, beams, lengths, panels in various dimensions- would,does, constitute manufacturing. Time and technology have moved on from the days of the woodcutter's axe and chainsaw.
At the hearing of the 31st January, 2003, the evidence established that the appellant tax payer cuts down trees for a sawmiller on lands owned by Coillte. These trees are owned by the sawmiller by purchase from Coillte at auction. The appellant tax payer uses two kinds of machines, a harvester and a forwarder, operated by one worker on each machine. The harvester cuts down the standing tree. The whole cut-down tree is held by the machine and put through, passes through the rollers part of the machine to lop off the branches. The machine then cuts across the tree into sections. These sections are of a particular length to fulfil the prior order of the sawmiller. The lengths are laid on the ground (with the bark still on them). The forwarder sorts out those lengths, by length and diameter, and hauls them for stacking at the road side ready for collection by the sawmiller's transport. (Trees which are inaccessible or too big for the machine are subcontracted to be cut by chainsaw the old way) One harvester costs between €270,000 - €300,000 and has a working life of about three years. One forwarder costs between €170,000-€200,000. These machines are technically complex and sophisticated. The sawmiller programmes the computers on the appellant tax payer's machines for preordained lengths and dimensions. This is done...
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