Boake Allen Limited and others (Appellants) v. Her Majesty's Revenue and Customs (Respondents)
33. In considering the leave to amend issue the Court of Appeal do not appear to have had submissions addressed to them as to the significance of the proceedings being the subject of a GLO. No doubt it was as a result of this, that they failed to consider the question of whether an amendment was necessary and if so whether permission could be given in the context of the GLO. In the context of a GLO, a claim form need be no more than the simplest of documents. It needs to be read together with the application to register and the register bearing in mind its place in the GLO process and the need to limit pre registration costs so far as this is possible. In this case the suggested deficiency in the claim forms are that they did not sufficiently identify the basis for the revenue being under an obligation to repay the tax paid assuming this should not have been claimed by the revenue. This is an area of the law the parameters of which are still evolving. In my judgment it would be wholly inconsistent with the objective of the GLO to require the nature of the remedy claimed to be spelt out in detail in the claim forms of the taxpayers. The Revenue knew perfectly well the basis of the claims once the issues had been defined for the purpose of the GLO. For each of the parties to have to spell out details of the manner in which they would advance their claim at the outset would have caused substantial extra costs to be incurred in researching the law. Cumulatively this would have been grossly wasteful. The decision of the Court Appeal should not be treated as requiring a claim to set out more than an outline of the claim. Furthermore for limitation purposes in the case of a GLO the individual claims should be construed in conjunction with the applications for the claims to be registered and, from the time of registration, the register.
LORD WALKER OF GESTINGTHORPE
34. I am in full agreement with the opinion of my noble and learned friend Lord Hoffmann, which I have had the privilege of reading in draft. For the reasons given by Lord Hoffmann I too would dismiss this appeal.
35. I have had the benefit of reading in draft the opinion prepared by my noble and learned friend, Lord Hoffmann, with which I find myself in full agreement on the first issue, whether section 247 of the 1988 Act imposed discrimination on the appellant subsidiaries of US and Japanese companies, contrary to the respective Double Taxation Conventions. I therefore agree that this appeal should be dismissed.
36. I have also had the benefit of reading in draft the opinion of my noble and learned friend, Lord Neuberger of Abbotsbury, and I agree with what he says on the second issue: had the first issue been answered as the court below answered it (viz. that there was discrimination), it would, in my view and as the courts below held, have been discrimination in respect of which the appellants had no domestic law remedy because, properly construed, the words "corporation tax in respect of income or chargeable gains" in section 788 (3)(a) of the 1988 Act do not cover advance corporation tax.
LORD NEUBERGER OF ABBOTSBURY
37. I have had the great privilege of reading in draft the opinion of my noble and learned friend, Lord Hoffmann, and I agree with his views. Accordingly, I consider that this appeal should be dismissed on the first issue that has been argued, namely that identified in paragraphs 6 and 7 above. I agree that the denial of the right of election under section 247 of the Income and Corporation Taxes Act 1988 ("the 1988 Act") to groups with foreign parents did not infringe the non-discrimination articles of the Double Taxation Convention ("DTC") between the United Kingdom and Japan or of the DTC between the UK and the United States.
38. I would also dismiss the appeal on the second issue that has been argued, namely that identified in paragraph 8 of Lord Hoffmann's opinion. I consider that the provisions of section 788 of the 1988 Act would not have given effect to the non-discrimination articles, even if (as the Court of Appeal and Park J thought) the UK was required by those articles to give a UK subsidiary with a Japanese (or US) parent the right of election under section 247. Although this second issue does not necessarily arise in the light of our conclusion on the first issue, I propose to consider it, as it involves a fairly short point of statutory construction, which was the primary basis upon which both Park J and the Court of Appeal would have dismissed the present claims, and it has been fully argued.
39. The resolution of this second issue turns on whether ACT is within the expression "corporation tax in respect of income or chargeable gains" in section 788(3)(a), quoted in paragraph 8 above. There seems to me to be no doubt but that ACT is "corporation tax". That is clear not only from its name, but also (and primarily) from section 14(1) of the 1988 Act, which appears to be a statutory definition, in that it identifies the ACT which falls to be paid pursuant to the section as "an amount of corporation tax". The issue therefore turns on whether ACT is corporation tax "in respect of income or chargeable gains". The argument on behalf of the Revenue is that, unlike so-called mainstream corporation tax, which is payable on income and chargeable gains, ACT is payable on the making of a distribution.
40. Mr Aaronson QC for the claimants placed great reliance on section 6 of the 1988 Act, which is the first section of the Act which mentions corporation tax, and, indeed, is the first section under the heading "Corporation tax". Section 6(1) provides that "corporation tax shall be charged on profits of companies", and "profits" is defined in section 6(4)(a) as meaning "income and chargeable gains". However, that only assists the claimants if section 6(1) is, in effect, an exclusive definition of "corporation tax". But it does not appear to me to be a definition at all: it is simply a charging provision. The fact that corporation tax is chargeable on the income and chargeable gains of a company does not mean that corporation tax is not chargeable on anything else.
41. Section 6, as already mentioned, and indeed section 8, of the 1988 Act provide for corporation tax (ie "mainstream corporation tax") to be charged on a company's profits, and say so in terms - in sections 6(1) and 8(1), (2) and (3). Section 14(1) of the 1988 Act, which introduces ACT, makes no such provision. Indeed, section 14(4) states that the "provisions" of the 1988 Act "as to the charge, calculation and payment of corporation tax" should "not be construed as affecting the charge, calculation or payment of" ACT. Thus, nothing in section 14(1) or (4) suggests that ACT payable by a company is payable in respect of, or charged on, the profits of the company.
42. Sections 14(2) and (3) do not seem to me to call that conclusion into question. Section 14(2) is not of relevance for present purposes. As for section 14(3), both sides relied on the fact that it refers to ACT being "payable on an amount equal to the amount or value of the distribution". Mr Aaronson suggested that the apparently rather cumbersome dual reference to "amount" supports the notion that ACT is being treated as payable on the profits of the relevant company. I do not see how that follows as a matter of logic. I think that Mr Glick QC, for the Revenue, made a better point when he said that section 14(3) is expressed in this way to make it clear that ACT is payable on an amount calculated by reference to the value of the distribution and not on the distribution itself, and that therefore, even where the distribution is made out of profits, any ACT due would not be payable on the distributed profits of the company.
43. Accordingly, section 14, which is an important section in the present context as it introduces ACT, appears to me to indicate that (unlike mainstream corporation tax) ACT is not a tax which is charged on, or payable in respect of, or which is therefore "corporation tax in respect of", "income or chargeable gains". That conclusion seems to be reinforced when one looks elsewhere in the 1988 Act.
44. The provisions of Chapter V of Part VI of the 1988 Act, which contain sections 238 to 246, are concerned with "Advance Corporation Tax and Franked Investment Income". It seems to me that, in terms of both their effect and the way in which they are expressed, those provisions support the Revenue's contention that ACT is not corporation tax "in respect of income or chargeable gains". The important point about their effect in the present connection is that, while payments of ACT can be set off against liability for mainstream corporation tax (and hence could be said to be indirectly "in respect of income or chargeable gains"), it is clear that there will be cases where that is not so - for instance, where the company concerned does not have "profits" in the past, present or future against which the ACT can be set off.
45. As to the terms in which the sections in Chapter V of Part VI of the 1988 Act are expressed, section 239(1) refers to mainstream corporation tax as "liability to corporation tax on any profits charged to corporation tax", consistently with sections 6 and 8. By contrast, section 239(1) refers to ACT as "paid in respect of any distribution", an expression which is consistent with section 14, and is substantially repeated in subsections (2), (3) and (4), and in sections 241(1) and 246(1). Similarly, section 240(1) and (2) refer to ACT as having been paid "in respect of a [or one] dividend".
46. In other words, the 1988 Act, when dealing with the interrelationship of ACT and mainstream corporation tax, first makes it clear that there will be circumstances in which ACT will not, even indirectly through set-off against mainstream corporation tax, be connected with profits, and secondly acknowledges that mainstream corporation tax is charged on profits (ie on income and chargeable gains), whereas ACT is payable in respect of distributions.
47. The Revenue's case on this point appears to be further supported by the contrast between the reference to "corporation tax" in the opening part of section 788(3) and the reference to "corporation tax in respect of income or chargeable gains" in section 788(3)(a), and indeed in section 788(1)(b). As Lloyd LJ put it in paragraph 50 of his judgment in the Court of Appeal, it appears "that 'corporation tax' is used as a general category and 'corporation tax in respect of income or chargeable gains' as a subset". If that is right, then, so far as I am aware, the only candidate for a type of corporation tax which is in the "general category" but is excluded from the "subset" would be ACT.
48. Mr Aaronson sought to meet that point by relying on the legislative history of section 788 of the 1988 Act, namely section 347(1) of the Income Tax Act 1952, sections 39(1) and 64(1) of the Finance Act 1965, section 497(1) of the Income and Corporation Taxes Act 1970, and section 100(1) of the Finance Act 1972. In effect, he said that the reference in section 788(1)(b), and therefore in section 788(3)(a), of the 1988 Act to income or chargeable gains is attributable to the fact that, when the concept of chargeable gains was first introduced, they were originally dealt with separately from income in the legislation. Accordingly, he argued, the centrally relevant words "in respect of income or chargeable gains" are included either as an evolutionary survival or, rather than with a view to limiting the ambit of the reference to corporation tax, in order to emphasise that both forms of profit are covered. I would not myself question the propriety of invoking the legislative history of an unclear or ambiguous provision in a consolidating statute such as the 1988 Act. However, it does not appear to me that the legislative history in this case justifies our disregarding the natural meaning of the centrally relevant words, particularly as the claimants' case means, at best, that they have no meaning, or, at worst, that they are positively misleading.
49. That opinion is reinforced in the present case by considering the White Paper which gave rise to the introduction of ACT (Reform of Corporation Tax (1972) (Cmnd 4955). As Mr Glick said, it is made clear in paragraphs 22 to 25 and 32 of that Paper that, while the proposed introduction of ACT included the rights of a UK subsidiary to elect not to pay ACT in respect of dividends paid to a UK parent and, if it did not so elect, to surrender its ACT credit to its UK parent, these rights would not apply in the case of a foreign parent. This was reflected in clauses 93 and 95 of the draft Bill attached to the White Paper, which in due course became sections 98 and 100 of the Finance Act 1972 (now substantially re-enacted in the 1988 Act). If one is to consider the legislative history, therefore, it seems to me that it is very unlikely that the draftsman of the 1972 Act, introducing ACT substantially in accordance with the proposals in the White Paper, could have intended section 98 or 100 to have the effect of enabling UK subsidiaries and their foreign parents, even based in countries with whom there was a DTC in standard form, to elect or surrender as if the parents were UK-resident, or to be compensated if they could not do so.
50. Mr Aaronson pointed out that, if the Revenue were right as to the effect of section 788, it would be open to the legislature to impose more penal rates of ACT on subsidiaries of foreign companies than on subsidiaries of UK companies, and that this would be a breach of articles 25(3) and (5) of the DTC with Japan (and article 24(5) read together with article 2(4) of the DTC with the US), which prohibit discrimination in respect of "taxes of every kind and description" in such cases. In my view, there is nothing in this point. The legislature can give effect to such articles in two ways (which are not mutually exclusive), one positive and the other negative. The first is specifically to enact a stipulation such as section 788 to ensure that the articles have effect; the second is not to enact any legislation which infringes the articles. In relation to discriminatory provisions such as those described by Mr Aaronson, the legislature has simply taken the latter course. In the unlikely event that the legislature did enact such provisions, appropriate steps would no doubt be taken under the mutual agreement procedure contained in article 26 of the DTC with Japan (and article 25 of the DTC with the US).