Wednesday Law Report: Computation of Profits for Corporation Tax

Article excerpt

13 January 1999

Commercial Union Assurance Co plc v Shaw (HMIT)

Court of Appeal (Lord Woolf, Master of the Rolls, Lord Justice Peter Gibson and Lord Justice Brooke) 21 December 1998 A TAXPAYER company which had made payments of interest constituting charges on income and received foreign income subject to foreign tax qualifying for double taxation relief was not entitled to compute its profits in such a way as to produce an excess of charges on income capable of being carried forward to a subsequent accounting period. The Court of Appeal dismissed Commercial Union's appeal against a decision of Harman J, dismissing its appeal against corporation tax assessments for the eight accounting periods in the years 1984 to 1991 and against the Revenue's refusal to allow its claim to carry forward losses in the form of excess charges on income in respect of the last three of those periods. Commercial Union had profits including dividends in respect of which tax was payable under the laws of territories outside the UK. In each of the relevant periods Commercial Union had made payments of interest constituting charges on income and received foreign income subject to foreign tax qualifying for double taxation relief ("DTR"). It had purported to allocate to its foreign income only so much of the charges on income as would leave the corporation tax otherwise payable on that foreign income equal to and offset by DTR. The primary issue on the appeal was whether Commercial Union was entitled to compute its profits in that way, producing an excess of charges on income capable of being carried forward to a subsequent accounting period. Graham Aaronson QC and Malcolm Gammie (Linklaters & Paines) for Commercial Union; Ian Glick QC and Jonathan Peacock (Solicitor of Inland Revenue) for the Crown. Lord Justice Peter Gibson said that Commercial Union submitted that DTR came within the words "other relief from tax" in section 338(1) of the Income and Corporation Taxes Act 1988, so that the total profits had to be treated as reduced by DTR. …