[New search]
[Printable RTF version]
[Help]
Hibernian Insurance v. Macuimis [1997] IEHC 132; [2000] 2 IR 263 (25th July, 1997)
THE
HIGH COURT
(REVENUE)
1996
No. 110R
BETWEEN
HIBERNIAN
INSURANCE COMPANY LIMITED
APPELLANT
AND
MACUIMIS
(INSPECTOR OF TAXES)
RESPONDENT
Judgment
of Miss Justice Carroll delivered the 25th day of July, 1997.
1. 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.
2. The
facts admitted or proved before the learned Circuit Judge are set out at
paragraph 4 of the Case Stated as follows:-
"(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) 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.."
3. 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:-
1. INVESTMENT
BANK OF IRELAND:
4. 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 case of P.M.P.A., a bid did not emerge. In the case of I.C.I., two
offers were made but not accepted. In both cases the sale involved purchase of
shares in a new company which would have become a subsidiary of the Group.
2. BUCK
PATERSON:
5. Buck
Paterson carried out an examination and verification of aspects of the pension
scheme of I.C.I. for the Group.
3. COOPERS
& LYBRAND:
6. This
fee was charged for an actuarial review and valuation of "in force" business of
H.L.A. which was 50% owned by Hibernian. The appraisal was carried out to give
assurance on the existing investment of 50% and to assist in forming a
preliminary view on the potential acquisition of the remaining 50%.
4. COOPERS
& LYBRAND - I.C.I.:
7. This
fee related to advisory services on taxation matters relating to the proposed
acquisition of I.C.I..
5. COOPERS
& LYBRAND - VIMAR:
8. These
fees were incurred for detailed audit and evaluation work on this potential
Spanish general insurance acquisition.
6. WILLIAM
FRY - VIMAR:
9. These
fees were incurred in investigating and evaluating a proposal to acquire Vimar
and in drafting correspondence and other work.
7. JONES
LANG & WOOTTON - VIMAR:
10. These
costs were incurred in obtaining an independent professional property
evaluation on the properties of Vimar in Spain.
8. STIBBE
BLAISSE & DE JONG:
11. These
fees related to investigation of aspects of the structure of the acquisition of
Vimar.
9. OTHER
COSTS:
12. Other
costs related to salary costs and direct general expenses incurred in
investigating Vimar.
13. In
January of 1990, it was agreed in principle to proceed with an offer for an 80%
holding in Vimar subject to satisfactory finalisation of the 1989 trading
results. These results turned out to be worse than had been anticipated and a
decision was taken not to proceed.
14. The
learned Circuit Judge decided that he could not classify or describe the four
year period of intense and sustained research and consultation between 1986 and
1990 as management expenses. He said the subject of the claim,
£404,720.00, was expended in looking at projects which he would regard as
being in the category of merger/takeovers and would be in the category of
capital expenditure.
15. The
question of law for the opinion of the Court is whether the learned Circuit
Judge was correct in holding that the expenses of £404,720.00 incurred by
way of expenses by the Appellant were not expenses of management within the
meaning of Section 15(1) of the Corporation Tax Act, 1976.
"In
computing for purposes of corporation tax the total profits for any accounting
period of an investment company resident in the State there shall be deducted
any sums disbursed on or after the 6th day of April, 1976 as expenses of
management (including commissions) for that period, except any such expenses as
are deductible in computing income for the purposes of Case V of Schedule D."
16. The
proviso to the sub-section does not apply.
"Except
as otherwise provided by
this Act and any other enactment relating to income
tax or corporation tax, the amount of any income shall for the purposes of
corporation tax be computed in accordance with income tax principles, all
questions as to the amounts which are or are not to be taken into account as
income, or in computing income, or charged to tax as a person's income, or as
to the time when any such amount is to be treated as arising, being determined
in accordance with the income tax law and practice as if accounting periods
were years of assessment."
18. Group
relief and kinds of Group relief are dealt with in Sections 107 and 116. Since
the only question is whether the sum of £404,720.00 was disbursed as
"expenses of management" for the purposes of Section 15, nothing turns on these
sections.
"(1) Subject
to the provisions of
this Act in computing the amount of profits or gains to be
charged, no sum shall be deducted in respect of -
.......
(f) any
capital withdrawn from, or any sum employed or intended to be employed as
capital in such trade or profession."
19. Mr.
O'Keeffe for the Appellant made the point that Section 15 of the Corporation
Tax Act, 1976 stands on its own. Section 11 says "except as otherwise
provided" by the Act and Section 15 provides "otherwise". Section 61 of the
Income Tax Act 1967 sets out matters to be deducted in calculating
profits/gains of trade under Schedule D/Case 1. It is only when these are
calculated that the profits are known. The structure of Section 15 is totally
different. It provides for calculating the total profits and then deducting
the expenses of management. Therefore there are two distinct matters, what are
total profits and what are expenses of management. He said capital
considerations do not arise where expenses of management are being considered.
He said the Group is on the lookout for investments. In order to make
acquisitions they have to have investigation and evaluation. Expenses has a
broad meaning. Whether the acquisition is completed or not, on-going expenses
are expenses of management. If appraisals lead to investment, expenses of
management up to the moment of decision can be severed. He said the Judge's
finding was a mistake of law. A company whose business is mergers/takeovers is
not protected by Section 15. The business in question is the making of
investments and the income derived. It is open to the Court to find on the
basis of the facts found, that these are expenses of management and therefore
allowable. The expenses are the expenses of evaluation and appraisal up to the
time of decision. They are management expenses whether carried out by
management or delegated to outside experts. The principles apply whether the
investments are part of circulating capital or fixed assets. The words should
be given a wide meaning.
20. Mr.
Clarke for the Respondent argued that the principles of Income Tax are borrowed
under Section 11(1) of the Income Tax Act, 1967. He said that the company for
the first time in four years were looking at buying in from outside new
substantial businesses. The case comes down to whether the capital/revenue
distinction is properly made in the phrase "expenses of management". The
relevant consideration comes down to the interpretation of "expenses of
management". It is appropriate to distinguish between capital and revenue
expenses. Management implies something of regular expenditure in the same way
as trade implies regular business. One manages in an active way, not by
leaving it there. A live company with a portfolio of investments needs to keep
it under constant review and to "manage it", as implied in the term "fund
manager". For a life assurance company, Sections 33 to 50 provide a special
and curious tax requirement. It puts them into a different category and
creates a hybrid. It is treated in the same way as a bank that makes current
profits. Here it is not a regular general management of assets. These are
manifestly one off transactions. Management would not include consideration of
those types of investments. Taking over a company that is the same size or
half the size or one-tenth the size is not managing it; it is the consideration
of a take-over. The authorities do not decide in absolute terms. From first
principles these are not management expenses. By their nature they are
designed to achieve capital.
The
cases cited do not have an application where the acquisition would not be a
regular acquisition but a major increase equal to capital. The expense is not
related to management at all. The legal test to be applied is whether capital
or revenue is relevant. If it is capital it cannot be considered as revenue.
The distinction is a matter of law. If it was capital expenditure and the
Court was satisfied that expenditure in considering investments of a capital
nature was not allowable, there was ample evidence on which the learned Circuit
Judge could reach a conclusion. The scale of the acquisition is undisputed.
If this submission in law is correct, the factual decision of the learned
Circuit Judge stands up to scrutiny. The appropriate test is whether it was a
decision that the learned Circuit Judge could have come to. There is only one
issue: whether the revenue/capital issue is imported into consideration by use
of the words "expenses of management".
21. In
the course of argument the following cases were referred to:-
In
London
County Freehold and Leasehold Properties Limited -v- Sweet (H.M. Inspector of
Taxes)
,
(24 T.C. 412), the appellant was an investment company. It was held that the
Special Commissioners were correct in deciding that expenses incurred in the
issue of new stock were not expenses of management within the meaning of
Section 33(1) of the Income Tax Act, 1918. In that case MacNaughton J. at page
416 referred to the fact that the Special Commissioners held that the
disbursements claimed were (1) disbursements of capital and (2) were not
expenses of management within the meaning of Section 33 (of the Income Tax Act,
1918). He said:-
"The
statement that they were disbursements of capital has been criticised. Its
meaning is not quite clear but I think it means that if the company were
assessed to tax in accordance with the rules under Case 1 of Schedule D, that
then those expenses would be regarded as capital expenses and not as income
expenses. The statement that the expenses were disbursements of capital is,
however, I think, immaterial. The question is whether they were expenses of
management, for if they were not expenses of management then no claim can be
made under Section 33".
22.
He held that the expenses incurred in the rearrangement of the loan capital of
a company stand on the same footing as expenses incurred in raising loan
capital. They could not be regarded as expenses of the management of the
business of the appellant company and the appeal was dismissed.
Capital
and National Trust Limited -v- Golder (H.M. Inspector of Taxes)
,
31 T.C. 265. This was a case where brokerage and stamp duties on changes of
investments were claimed for relief in respect of management expenses under the
Income Tax Act, 1918. In this case it was held that the brokerage and stamp
duty on change were not management expenses. In the Court of Appeal, Tucker
L.J. at p.773 referring to an argument that the expenses were "expenses of
management" because they were expenses incurred by the management in carrying
out the business of the company, said "that seems to me a totally different
thing from that with which we are concerned in the present case, namely the
expenses
of
management not expenses incurred
by
the management in carrying out the proper business of the company".
In
Sun
Life Assurance Society -v- Davidson (H.M. Inspector of Taxes)
,
(37 TC 330), the appellant carried on a life assurance business and made
claims to relief from income tax in respect of brokerage and stamp duties
disbursed in connection with purchases and sales of investments as being
expenses of management. It was held by the House of Lords that the Special
Commissioners were correct in holding that the sums were not admissible as
expenses of management. Lord Morton of Henryton said at page 357:-
"It
has been common ground between the parties throughout all Courts that 'expenses
of management' do not include the price of investments brought by the society
in the course of its business. Now it is clear that the sums now in question
are not part of the price, for the price of an investment, purchased or sold,
is the sum which is paid by the purchaser to the seller. These expenses are,
however, so closely linked with the transaction of purchase that they may
naturally be considered as items in the total cost of a purchase which has
already been resolved upon by the management of the company and not as expenses
of management. This is the short and simple ground upon which the
Commissioners decided the case in favour of the Crown and I have arrived at the
conclusion, though with considerable doubt, that it is a sound ground."
23. Lord
Reid said at page 360:-
"I
do not think it is possible to define precisely what was meant by 'expenses of
management'. It has not been argued that these words have any technical or
special meaning in this context. They are ordinary words of the English
language and like most words their application in a particular case can only be
determined on a broad view of all relevant matters. I cannot accept the
argument for the Appellants that every sum spent by the company is an expense
of management unless it can be brought within certain limited classes of
expenditure which are admittedly not expenses of management, such as payments
to policy holders and the purchase price of investments acquired by the
company. It is not enough to show negatively that a particular sum does not
fall into any other class; it must be shown positively that it ought to be
regarded as an expense of management. But looking to the purpose and content
of the section it appears to me that the phrase has a fairly wide meaning, so
that, for example, expenses of investigation and consideration whether to pay
out money either in settlement of a claim or in an acquisition of an investment
must be held to be expenses of management. And the collocation of the words
'(including commissions)' shows that a sum can be an expense of management
whether the work in question is done by the company's staff or done by someone
else on a commission basis and it must follow that if work of an appropriate
kind is done for a fixed fee that fee may also be an expense of management."
And
later:-
"It
seems to me more reasonable to ask with regard to a payment, whether it should
be treated as part of the cost of acquisition on the one hand or on the other
hand something severable from the costs of acquisition which can properly be
regarded as an expense of management."
In
Hoechst
Finance Limited -v- Gumbrell (Inspector of Taxes)
(1983 S.T.C. 150), the taxpayer company had to obtain a guarantee in order to
raise the money for financing the other U.K. subsidiaries and to obtain the
guarantee it had to agree to pay the parent company continuing commission. It
was held by the Court of Appeal that the commission could not be severed from
the cost of acquisition of the funds. It followed that the commission payments
were not management expenses within the meaning of Section 304(1) of the Income
and Corporation Taxes Act, 1970. Lord Justice Dillon at page 155 said that the
commission could not be severed from the cost of acquisition and Lord Justice
May at page 156 referring to the Sun Life Assurance Society case said:-
"In
my opinion the result of that case is that in this type of situation one has to
ask whether the relevant payment can be regarded as properly severable from the
costs of acquisition of an investment or the issue of loan stock on the one
hand or a direct and necessary part of the cost of a normal method of purchase
or issue on the other. If, posing that question, the answer is that it is the
latter, than the payment is not an expense of management."
In
Stephen Court Limited -v- J.A. Browne (Inspector of Taxes)
(1984 I.L.R.M. 231). The capital asset of the appellant consisted of the
premises known as Stephen Court and the business of the company was both the
letting of the premises and the collection of the rent. It was held that the
auctioneers commission and the solicitors' costs incurred with the creation of
the lease could not be said to be expenses of a capital nature. The expenses
of negotiating the lease and preparing the necessary documents were expenses of
management within the meaning of
Section 81(5)(d) of the
Income Tax Act, 1967
and were an authorised deduction in calculating the appellant's profits.
McWilliam J. said at page 236:-
"I
am of opinion that the view of Lord Reid (in the Sun Life case) is correct when
he indicated that if expenses incurred for work performed by a member of the
staff of a business would be classed as management expenses, such expenses
would not cease to be management expenses because independent qualified persons
were employed for the same work."
In
Commissioners
of Inland Revenue -v- Wilson's Executors
,
18 T.C. 465, the respondent claimed relief from Income Tax in respect of the
cost of maintenance, repairs, insurance and management of his estate. He
contended that a sum paid to a farm tenant in settlement of an action and the
amount of his own expenses in the litigation were admissible deductions. The
General Commissioners allowed the claim insofar as it related to compensation
for disturbance and the expenses of the litigation. But it was held by the
Court of Session (Scotland) that these payments were not costs of "management"
within the meaning of Rule 8 of No. 5 of Schedule A of the Income Tax Act, 1918.
In
Atherton
-v- British Insulated and Helsby Cables Limited
,
the respondent company contributed a loan sum of £31,784.00 irrevocably as
the nucleus of a pension fund established by trust deed for the benefit of its
clerical and technical salaried staff. It was held that it was not an
admissible deduction for income tax purposes. Viscount Cave L.C. said at page
192:-
"But
when an expenditure is made not only once and for all, but with the view to
bringing into existence as asset or an advantage for the enduring benefit of a
trade, I think that there is a very good reason (in the absence of special
circumstances leading to an opposite conclusion) for treating such an
expenditure as properly attributable not to revenue but to capital."
In
Sergeant
(H.M. Inspector of Taxes) -v- Eayrs
,
(48 TC 573) the respondent visited Australia to investigate conditions with a
view to emigrating and buying a farm there. On appeal against an assessment to
income tax the General Commissioners allowed his travelling expenses as a
deduction. In the High Court it was contended that the expenditure in question
was capital expenditure being expenditure for the purpose of setting up a new
or extended business. Goff J. at page 577 said the respondent had really no
answer to that way of putting the matter. At page 578 he cited the dictum of
Viscount Cave L.C. in
Atherton
-v- British Insulated and Helsby Cables Limited
(see above).
24. He
also referred to
Commissioners
of Inland Revenue -v- Granite City Steamship Company Limited
,
(13 TC 1) where Lord Sands said at page 14:-
"Broadly
speaking, outlay is deemed to be capital when it is made for the initiation of
a business or extension of a business or for a substantial replacement of
equipment."
"What
the respondent did in this case appears to me, applying the principles so laid
down, to have been something in which he incurred not revenue but capital
expenditure. In the result the business was not extended because he found
prices in Australia prohibitive and therefore the expenditure was abortive. But
Lothian
& Chemical Company Limited -v- Rogers
,
1926 11 T.C. 508 shows, as one would expect, that this is an irrelevant
consideration. The expenditure does not change its nature according to whether
it be successful or unsuccessful".
In
Tucker
(Inspector of Taxes) -v- Granada Motorway Services Limited
(1979
STC 393) where the question was whether a lump sum paid to the landlord to get
rid of an annual charge against revenue in the future thus reducing the rent
payable was capital expenditure, Lord Fraser of Tullybelton said at page 403:-
"The
question whether particular payment is of capital or of revenue character has
had to be decided in many recorded cases including several in your Lordship's
House. The reasons for the decisions having been related to the particular
facts of each case have naturally differed widely."
26. He
cited the statement by Viscount Cave L.C. in the Atherton case (already quoted)
and then continued:-
"That
statement was the foundation of the argument for the Appellant in this instant
appeal. The expenditure of £122,220.00 was evidently made once and for
all and thus satisfies the first limb of the test but it was said that it did
not satisfy the second limb because it was not made with a view to bringing
into existence an asset or an advantage for the enduring benefit of the
Appellant's trade. I cannot accept that argument. In my opinion it represents
the wrong approach to the problem because it treats what I may call the
Atherton test as if it were the only one capable by itself of providing an
answer to the question without regard to other factors. That is not so. There
is high authority for the view that no single rule or touchstone has been
devised for distinguishing between capital and revenue payments..... On the
contrary there are many factors some or all of which may be relevant in the
circumstances of each particular case. In the present case the fact that the
payment was made once and for all is an indication though not a conclusive
indication that the payment was of a capital nature. The second limb of the
Atherton test seems to me inappropriate in respect that it tends to concentrate
attention too much on the reason why the expenditure was incurred ("with a view
to" what purpose?). A more relevant test to the present case is to see for
what the payment was made. It was made for commuting part of the liability for
additional rent payable under the lease. That fact goes a long way to stamp it
with the character of a capital payment because the lease is, in my opinion, a
capital asset of the Appellant, as indeed was conceded."
27. In
my opinion certain guidelines can be extracted from these cases. No single
rule has been devised for distinguishing between capital and revenue payments.
The phrase "expenses of management" does not have a technical or special
meaning. They are ordinary words whose application in a particular case should
be determined on a broad view of all relevant matters. Expenses of management
are not all expenses incurred by management in carrying out the business of the
company. There is a distinction between expenses
of
management and the expenses incurred
by
management. Expenditure does not change its nature according to whether the
project on which it is made is successful or unsuccessful. If expenses
incurred for work performed by a member of the staff would be classified as
management expenses, they do not cease to be management expenses because
independent qualified persons were employed for the same work.
28. Expenses
so closely linked with the transaction of purchase that they may naturally be
considered as items in the total costs of a purchase are not expenses of
management. It is possible to sever from the costs of acquisition, costs which
are not a direct and necessary part of the cost of a normal method of purchase
and can properly be regarded as an expense of management.
29. In
order to answer the question for determination in the Case Stated it is
necessary to decide whether the various items of work included in the sum of
£404,720.00 are so closely linked with the proposed acquisitions that they
should be naturally considered as items in the total cost of the purchases or
whether they are not a direct and necessary part of the cost of a normal method
of purchase. No submissions were made that differing considerations vis-a-vis
revenue/capital, applied to the various items of expenditure that made up the
sum in question. Accordingly I have dealt with the case on that basis
30. Outlay
is deemed to be capital when it is made for the initiation of a business or
extension of a business (see
Sergeant
-v- Eayrs
and
The
Commissioners for Inland Revenue -v- Grannit City Steamship Company
).
In this case the expenditure was made for the extension of a business. The
dictum of Lord Reid in the Sunlife case that the expenses of investigation in
the acquisition of an investment must be held to be an expense of management
would appear to qualify this proposition. However, I think Lord Reid's dictum
must be interpreted in the context of a life assurance company which is a
trading company unlike an investment company which is not a trading company.
In this case the expenditure was made once and for all with a view to bringing
assets into existence (see
Atherton
-v- British Insulated and Helsby Cables Limited
).
31. While
Mr. O'Keeffe submitted that capital/revenue considerations do not apply and
that only the question of what are expenses of management has to be considered,
it seems to me that the expenses of management cannot be examined without
analysing whether the expenditure is so closely linked with the acquisition of
assets that it can be categorised as a capital payment.
32. I
do not think it could be said that the various items of expenditure were not a
direct and necessary part of the proposed capital acquisitions. The learned
Circuit Judge had evidence on which he could hold that the expenditure would be
in the category of capital expenditure. He also said he considered the subject
of the claim as being in the category of merger/takeovers. While mergers might
not apply, it appears to me that the learned Circuit Judge could severally
describe the transactions as being in the category of take-overs and this did
not detract from his finding of capital expenditure.
33. Accordingly,
the question whether the learned Circuit Judge was correct in holding that the
expenses of £404,720.00 incurred by way of expenses by the Appellant were
not expenses of management within the meaning of Section 15(1) of the
Corporation Tax Act, 1976 must be answered in the affirmative.
© 1997 Irish High Court
BAILII:
Copyright Policy |
Disclaimers |
Privacy Policy |
Feedback |
Donate to BAILII
URL: http://www.bailii.org/ie/cases/IEHC/1997/132.html
