DECISION
Introduction
1.
This decision concerns a tightly focused point on the eligibility for
group relief of underwriting losses of a corporate underwriter at Lloyd’s,
notwithstanding the restrictions contained in section 227A Finance Act 1994
(“FA94”), a provision designed to prevent “loss buying”.
The facts
2.
I received a bundle of documents (largely comprising accounts of the
Appellant and of the Lloyd’s syndicate in which it had a share) and a short
witness statement (confirmed in oral evidence) from Barbara Barnes, Tax
Operations Manager of QBE Insurance Group Limited, a member of the
Australian-based worldwide QBE insurance group which has owned the Appellant
since 31 July 2007.
Introduction – the Lloyd’s market
3.
The Lloyd’s insurance market operates under its own particular tax
rules, which are closely tied in with the market’s own rules. The Lloyd’s
market is made up of underwriting syndicates, which provide the actual
insurance cover. Each syndicate is run by a managing agent. A typical
syndicate will comprise a number of members, each of whom participates in a
particular share of the profits and losses of the syndicate as a whole.
4.
The underwriting activities of a syndicate technically last just one
year – the Lloyd’s market period of account coincides with calendar years. But
in practice a syndicate may continue from year to year, with the same members
participating in successive years or with only slight adjustments to their
respective shares. Historically, unlimited personal liability was an
underlying principle of membership of Lloyd’s, but in 1994 companies were
allowed to become underwriting members. This has resulted in many of the
traditional insurance companies becoming involved, through subsidiaries, in the
Lloyd’s market.
Summary of relevant tax rules
5.
Because of the particular nature of the insurance industry, the final profits
or losses of a particular year of operation can take a long time – sometimes
many years – to become clear. Thus under the rules of Lloyd’s, each syndicate
only declares its results for a particular calendar after a further two years
have elapsed. So the profit or loss for the calendar year 2000, for example,
would only be determined as at the end of 2002 and declared early in 2003. If
any further losses were expected, the syndicate would either seek to close the
year finally by re-insuring those losses (so-called “re-insurance to close”)
or, if it was simply unable to obtain such re-insurance, it would carry forward
estimated provisions to the following year. In the following years, any
further necessary adjustments would be made by the recognition of further
profits or losses (as the case may be) in successive years until the original
underwriting year was finally closed off by obtaining re-insurance to close.
6.
The recognition of profit or loss for corporation tax purposes basically
follows the same regime. Sections 219 and 220 FA94 provide that:
“219 (1) Corporation tax for any accounting period on
the profits arising from a corporate member’s underwriting business shall be
computed on the profits of that accounting period.
….
220 (1) For the purposes of section 219 above and all
other purposes of the Corporation Tax Acts, the profits or losses arising to a
corporate member in any accounting period directly from its membership of one
or more syndicates… shall be taken to be –
(a) if two underwriting years
each fall partly within that period, the aggregate of the apportioned parts of
those profits or losses in those years; and
(b) if a single underwriting year
falls wholly or partly within that period, those profits or losses or (as the
case may be) the apportioned part of those profits or losses in that year.
(2) Subject to the provisions of this Chapter, for the
purposes of sub-section (1) above and all other purposes of the Corporation Tax
Acts –
(a) the profits or losses arising
to a corporate member in any underwriting year directly from its membership of
one or more syndicates shall be taken to be those of any previous year or years
which are declared in that year;”
7.
Thus, a company with calendar year accounting periods which is a
corporate member of an underwriting syndicate in the calendar year 2000 would
normally first recognise its share of the syndicate’s profit or loss of the
2000 underwriting year (which would be declared in April or May 2003, following
the 2002 year end) in its 2003 accounts, and would be taxed accordingly.
8.
Continuing with the same example, the corporate underwriter’s 2003
accounts would normally include either the cost of a premium paid for re-insurance
to close, or a provision for future liabilities arising out of the 2000
underwriting year. Until 2007, the legislation (s107(4) Finance Act 2000
(“FA00”)) allowed the taxpayer to make an election to exclude any of those
expenses in the tax calculations for that year, with a corresponding uplift in
the taxable profit of that year and reduction of the taxable profit in the
subsequent year. It is common ground between the parties that such elections
could be made year after year in relation to the same expenses, allowing in
effect an indefinite deferral of losses for tax purposes.
9.
The final feature of the overall taxation of corporate underwriters’
Lloyd’s profits which needs to be mentioned at this stage is the anti-avoidance
provision which is at the core of the present appeal, s227A FA94 (inserted by s33
Finance Act 2007 (“FA07”)). This was a provision intended to prevent the
perceived abuse of “loss buying”.
10.
It can readily be seen from the broad picture given above that the
special scheme for taxation of corporate underwriting members of Lloyd’s gave
rise to some potential opportunities, arising from the fact that the net
outcome of any particular underwriting year (in terms of the broad level of
total profits or losses) would become reasonably clear well before those
profits or losses fell into charge to tax. If large losses were expected, the
opportunity arose for the lossmaking company to be effectively shut down (i.e.
cease any underwriting business) and transferred into a profitable group before
those losses were recognised for tax purposes, with the result that the losses
would then become available to shelter the profits of its new owners by way of
group relief.
11.
The new s227A FA94 (“s227A”) was introduced in 2007 to forestall such
activity, and the heart of this appeal is whether s227A applies to the facts of
the present case. Its provisions will therefore be examined in greater detail
below.
12.
The amounts of the losses made available in this way could potentially
also be increased by using elections under s107(4) FA00 (“s107(4) elections”)
to delay the recognition for tax purposes of losses until after the lossmaking
company had been acquired by the profitable group (though the efficacy of this
device is also one of the main issues in this appeal).
Agreed statement of facts
13.
Included in the bundle was a document entitled “Agreed Statement of Facts”.
Although neither party referred to it at the hearing, I take it to be agreed by
virtue of its inclusion in the bundle, and in any event it provides a short
summary of the salient facts which emerge from the rest of the material before
me. It reads as follows:
“Business of SCUL
1. The appellant company, Standfast Corporate Underwriters
Limited (“SCUL”), is a UK resident and incorporated company which at all
material times until 31st December 2000 carried on a business of
writing direct insurance business in accident fire and health, fire and other
damage to property and third party liability along with reinsurance, as a
corporate member of Lloyd’s, through Syndicate 991.
2. SCUL had different percentages of participation in
Syndicate 991 at different times. In the period 1 January 2000 to 31 December
2000, SCUL was the sole corporate member of Syndicate 991, holding 97% of the
Syndicate capacity.
3. Syndicate 991 had years of account (also called
“underwriting years”), running from 1st January to 31st
December, relating to business written in that calendar year. SCUL’s own accounts
were drawn up to 31st December until 31st December 2005
and then changed to 30th June, having a long accounting period of 18
months to 30th June 2007 and has remained at 30th June
thereafter.
4. As was normal at Lloyd’s, Syndicate 991’s 1997 year of
account “closed” after 3 years, on 31st December 1999 by it entering
into a re-insurance to close (“RITC”) contract at that point, and then the
results of the 1997 year of account were “declared”, i.e. notified to Lloyd’s,
during the 4th calendar year, i.e. in 2000.
5. However, Syndicate 991 made substantial losses in its
1998, 1999 and 2000 years of account, and it stopped writing new business as at
31st December 2000, with the result it was not possible to “close”
those years of account by entering into RITC contracts at the normal time ie at
the end of the 3rd year. Instead, therefore, those years of account
remained “open” until RITC contracts could be entered into, which for those
years of account was not until 31st December 2009.
6. Given that those years of account remained open, the
results were not declared as normal in the 4th calendar year.
Instead, Syndicate 991 moved onto a calendar year basis. For example, in
relation to the 1998 year of account, a loss was declared at the end of the 3rd
year, ie 31st December 2001 [sic], and then a result (either
a profit or a loss, based inter alia on downward or upward adjustments to the
amount of provisions for unpaid liabilities) was declared annually for each
subsequent year until 31st December 2009. Likewise in relation to
the 1999 and 2000 years of account.
7. SCUL made successive elections under section 107(4)
Finance Act 2000 to disclaim the amounts of technical provisions to each
subsequent year. The effect of such an election was that the taxable profits
of the period for which the disclaimer was made were increased by the amount
disclaimed. For periods of account ending after 19 July 2007, however,
paragraphs 4 and 5 of Schedule 11 Finance Act 2007 prevented any further
section 107(4) elections. As a result, the technical provisions for the 1998
to 2000 years of accounts could not be disclaimed any further. A final 107(4)
election [w]as made in the return for the 18 month period ended 30 June 2007.
8. A tax loss of £20,081,387 arose in the period ended 30
June 2008 most of which related to the reversal of the section 107(4) election
made in the return for the period ended 30 June 2007. Of that amount £18,407,939
was claimed as group relief by QBE UK subsidiaries.
9. Both parties have agreed that only that part of the group
relief claim that relates to the 2000 year of account is potentially subject to
the restriction that is the subject of this hearing.
Shareholdings in SCUL
10. At all material times until 31st July 2007,
all of the shares in SCUL were owned by a UK resident and incorporated company
called Standfast Holdings Limited (“SHL”). The shares in SHL were held by a
consortium of companies including Merkel Insurance Incorporated, Sheldon Mutual
and Limit Plc (now called “QBE Holdings (Europe) Limited”) which had a 23.34%
holding.
11. In August 2000, all of the shares in Limit Plc were
acquired by QBE International Holdings (UK) Plc (now called QBE European
Operations Plc – “QBE UK”), a UK resident and incorporated member of the QBE
group, a group listed in Australia carrying on business as a specialist insurer
and reinsurer through offices in 52 countries across the world.
12. Substantial losses were made within the syndicate in the
1998, 1999 and 2000 year of accounts. The syndicate was compelled to make a
cash call on its members. Limit Plc met its share of the liability by making a
loan to the Appellant. The other shareholders in SHL did not meet their
liabilities and the shortfall was made up by Lloyd’s Central Fund. The arrangement
became subject to the agreement between QBE and Lloyds dated 31 July 2007,
which is included in the Appellant’s list of documents.
13. On 24th January 2003 SHL went into member’s
voluntary liquidation. At that date it was deemed for tax purposes to have
lost beneficial ownership of its shares in the Appellant and as a result the
Consortium Relationship between QBE UK and SCUL had come to an end.
14. On 31st July 2007 QBE acquired all the shares
in SCUL for £80,000.”
The Appellant’s tax losses
14.
As can be seen from the statement of facts, a separate running account
is maintained by a syndicate for each year of its operation. Those running
accounts for each year are aggregated to establish the overall profit or loss
of the syndicate for that year.
15.
I was provided with summary calculations showing the Appellant’s share
of the successive years’ declared accounting losses of Syndicate 991 for the three
underwriting years (starting with the 2002 year-end figures). These showed the
following (subject to some “other tax adjustments” which were not explained):
|
Syndicate period of
account (underwriting year)
|
Appellant’s share of
1998 & 1999 (loss)/profit (£’000s)
|
Appellant’s share of 2000
(loss)/profit (£’000s)
|
Appellant’s total share of
(loss)/profit for the year (£’000s)
|
|
Brought forward from 2001 and
earlier
|
(16,840)
|
-
|
(16,840)
|
|
Calendar year 2002
|
(3,235)
|
(18,935)
|
(22,170)
|
|
Calendar year 2003
|
(1,795)
|
(4,462)
|
(6,257)
|
|
Calendar year 2004
|
(1,996)
|
(1,505)
|
(3,501)
|
|
Calendar year 2005
|
(668)
|
989
|
321
|
|
Calendar year 2006
|
176
|
865
|
1,041
|
|
Calendar year 2007
|
622
|
1,000
|
1,622
|
|
Totals
|
(23,736)
|
(22,048)
|
(45,784)
|
16.
It was agreed that, by virtue of the undisputed operation of the rules
summarised above, a loss for corporation tax purposes of £20,081,388 arose to
the Appellant in respect of its accounting period 1 July 2007 to 30 June 2008.
The bulk of this loss arose, in very broad summary, from the cumulative effect
of the s107(4) elections in relation to the earlier years (totalling some £37.5
million), less:
(1)
a £1.3 million reported profit during the year and
(2)
a £16.3 million profit arising under the loan relationship rules as a
result of the release of the debt owed by the Appellant in respect of the cash
contributions made on its behalf in relation to the losses.
(There were, of course, other
items but they are not relevant for the purposes of this decision). Whilst it
is not crucial for the purposes of this decision, I understand the difference
between the £37.5 million of deferred technical provisions and the total losses
of some £45.8 million (i.e. £8.3 million) incurred over the entire period is
largely made up of the net “in year” excess of claims over premiums, combined
with the aggregate of other “in year” expenses, income and gains
17.
The Appellant claims to make 11/12ths of the £20,081,388 loss (i.e. £18,407,939)
available by way of surrender of group relief to other members of the UK QBE
group in the accounting period 1 July 2007 to 30 June 2008. It only claims
11/12 because, having joined the QBE group on 31 July 2007, it was only a
member of that group for 11/12ths of its accounting period.
The disputed issues – submissions of the parties
Introduction
18.
There are three disputed issues between the parties. If I find in
favour of the Appellant on any one of these issues, then the appeal must
succeed.
19.
Relevant extracts from the legislation are set out in the Appendix to
this decision for ease of reference.
20.
The first disputed issue is whether any part of the Appellant’s 2008
losses sought to be surrendered can properly be described as “losses of the
last active underwriting year” of the Appellant, within the meaning of that
phrase as used in s227A. Mr Prosser (on behalf of the Appellant) contends that
no part of them can properly be so described and Mr Vallat (on behalf of HMRC)
contends that they can, or at least some part of them can.
21.
The second disputed issue is whether the “group-relief continuity
condition” in s227A(5) is satisfied. Mr Vallat asserts it is not, because the
nature of the group relationship during the period referred to in s227A(5) was
a “consortium” relationship, whereas the nature of the relationship on which
the Appellant relies in order to surrender the losses in 2008 is a full “group”
relationship. On a proper interpretation of s227A, he says, it requires the
nature of the relationship during the period set out in s227A(5) to be of the same
type (i.e. group or consortium) as the relationship pursuant to which the
losses are later sought to be surrendered. Mr Prosser disagrees, saying that
the wording of s227A is clear and straightforward and requires no
“interpretation” of the type contended for by Mr Vallat; a relationship of
either type, in short, will do.
22.
The third disputed issue is whether the commencement provision in s33 FA07
(which applies s227A only to specified situations) in fact applies it to this
case. The reasoning underlying this disputed issue is largely similar to the
reasoning underlying the second disputed issue.
23.
I summarise the submissions of the parties in relation to each of these
three issues in turn.
Issue 1 – Can any part of the losses sought to be surrendered properly be regarded
as “losses of the last active underwriting year”?
24.
It is common ground that the Appellant’s “last active underwriting year”
for these purposes is the calendar year 2000.
25.
Mr Prosser argued that, given the general structure of taxation for
Lloyd’s corporate underwriting summarised above, it is clear that the profits
or losses “of” any particular underwriting year (“year 1”) are those profits or
losses reported in the underwriting accounts struck two years after the end of
year 1 (i.e. in respect of “year 3”), which are reported during the following
year (“year 4”). In addition, if it has not been possible to close year 1,
then any further profits or losses reported in subsequent years (years 5 and
later) in respect of year 1 will also be profits or losses “of” year 1.
26.
Turning now to the facts of the present case, he pointed out that the
Appellant was seeking to surrender tax losses that had arisen in the accounting
period 1 July 2007 to 30 June 2008. They had admittedly arisen, at least in
part, because of the eventual belated recognition in 2007-08 (by reason of
successive s107(4) elections) of expenses that had been incurred in relation to
the 2000 underwriting year in the intervening years; however it had to be
remembered that s107(4) operated to defer expenses and not losses – by
deferring expenses, the effect of the election was to fix the profit or loss
“of” 2000 in year 4 (and/or later years, as relevant) without regard to those
expenses, and merely carry forward the expenses for later relief. The fact
that the taxable profits which might otherwise have been reported for the
2007-08 year were converted into a large loss by reason of the brought forward
expenses (some of which had their origin in the 2000 underwriting year) did not
mean that any part of the 2007-08 losses could be regarded as losses “of” 2000
for the purposes of s227A.
27.
On Mr Vallat’s submission, however, the losses reported in the 2007-08
computations (or at least a proportion of them) could be clearly traced back to
the 2000 underwriting year. They undoubtedly had their origin then and on any
sensible interpretation any losses which could be traced back to 2000 should be
regarded as losses “of” that year. He submitted that I should read the phrase
“losses of the last active underwriting year” to mean “the actual underwriting
losses of that year, regardless of when they are calculated or declared, and
regardless of any subsequent adjustments for tax (whether under s107(4) or
otherwise).” He submitted that this interpretation was “consistent with the
scheme of the legislation”.
28.
He pointed to the fact that s220(2) FA94 provides that:
“… the profits or losses arising to a corporate member in any
underwriting year directly from its membership of one or more syndicates shall
be taken to be those of any previous year or years which are
declared in that year…” [emphasis added]
This, he submitted, highlighted the fact that the year in
which profits or losses “arose” was explicitly linked to the fact that those profits
or losses were “of” an earlier year or years. This effectively provided a
warrant to investigate any particular figure of profit or loss that had arisen
(in the sense of being “declared”) in a particular year, in order to ascertain
the earlier year or years of which it was the profit or loss. This in
turn implied a two stage process in which, for the purposes of ascertaining the
amount of profit or loss “arising” in any particular year, one first identified
the profits or losses “of” the individual previous years that made up that
profit/loss, and only then aggregated them to form an overall profit/loss
“arising” in the later year. He asserted that s107(4) FA00 took effect, if an
election under it was made, as an adjustment at the second stage of this
process; as a result of this approach, it was still perfectly possible to
discern the individual years’ profits or losses that formed part of the
aggregation, so that s227A could apply to any losses that could be so discerned
as being “of” the last underwriting year.
29.
He pointed out that if Mr Prosser’s argument were followed to its
natural conclusion, the result would be that the obviously intended purpose of s227A
could be sidestepped almost at will, simply by making a s107(4) election in
respect of the technical provisions for the last year of underwriting, thus
supposedly rolling that part of the loss forward so that it became, for the
purposes of s227A, the losses of a later year rather than of the last year of
underwriting.
30.
He accepted that his approach might lead to some problems in actually
quantifying the “losses of the last active underwriting year” which were
included in an overall loss figure, but he considered those problems were not
insuperable.
31.
In the present case, for example, it was agreed that there were
technical provisions of £37,563,242 carried forward to the accounting period 1 July
2007 to 30 June 2008. That figure represented an aggregation of all technical
provisions for the three underwriting years 1998, 1999 and 2000. However, it
was possible to identify the amounts of technical provisions from the three
years in question that made up the overall figure. 35.1% (approximately) of
the total technical provisions brought forward to the 2007-08 accounting period
originated from the 2000 year of account and therefore it was arguably
appropriate to allocate 35.1% of the total losses as originating from the 2000
year of account (and therefore ineligible for surrender under s227A). He
acknowledged that there were other arguable ways of determining what part of
the losses were losses of the last underwriting year and asked that if I was
with him in principle I should say so, permitting the parties to reach
agreement on an appropriate method if possible.
32.
Mr Prosser pointed out that even if his main argument failed and we did
therefore have to ascertain the quantum of the “losses of” 2000 for the
purposes of s227A, the approach suggested by Mr Vallat was just one of a number
of possible ways of doing so. He submitted that any approach suggested by HMRC
would have to be capable of rational operation in all situations. He
illustrated by a short example that HMRC’s proposed approach would not, indeed
he questioned whether (in the absence of specific guidance in the statute) any
approach would. As he put it:
“Suppose, for example, that losses are declared for the last
active underwriting year of 10, and an element in the computation of those
losses is technical provisions of 15; and there are tax losses otherwise
eligible for surrender of 20, an element in the computation of which is 5 of
the technical provisions. Is the tax loss ineligible for surrender (i) 5, (ii)
10, (iii) 15, or (iv) 20?”
33.
He suggested an alternative approach, following the principle applied in
The Sterling Trust Limited v IRC [1925] 12 TC 868 and approved in later
cases. In Sterling the company had mixed two funds, one of which had
borne tax whilst the other had not. It had then made a payment out of the
mixed fund. The Court of Appeal rejected the Revenue’s argument that the
payment should be treated for tax purposes as having been paid rateably out of
the two funds, holding instead that the company was entitled to say it had made
the payment “out of the fund which is most favourable to the company”.
Transferring that principle to the present case, it should be open to the
Appellant to say that the 2008 tax losses were comprised entirely of 1998 and
1999 underwriting year losses, and its surrender of those losses represented
its election (if any were necessary) that they were so comprised.
34.
Mr Prosser did not explore all the details and implications of this
suggested alternative approach; rather he used it to illustrate a wider point,
namely that if HMRC were correct in their argument that we should effectively
“look past” the s107(4) elections and seek to identify what HMRC argued to be
the real “losses of” 2000, that would only be the beginning of a far more
complex exercise of navigation across open territory for which no hint of a map
was provided in the legislation. Any attempt on the part of the Tribunal to
draw up such a map was bound to cross the line from “interpretation” to
“legislation”.
Issue 2 – Is the “group-relief continuity condition” satisfied?
35.
Mr Prosser’s approach to this question was simple. There was agreement
that the period we were concerned with under s227A(5) was the period from 31
December 2000 to 1 January 2003. There was agreement that throughout that
period, the Appellant (as the surrendering company) and each relevant QBE group
company (as the claimant company) met the conditions in s402(3) Income &
Corporation Taxes Act 1988 (“ICTA”) (the “consortium claim” conditions). The
language of s227A(5) simply required that throughout the relevant period, the
eventual surrendering and claimant companies met “the conditions in section
402(2) or (3)”. By meeting the conditions in s402(3), this requirement was
satisfied. Because the “group-relief continuity condition” was therefore satisfied,
the restriction in s227A(1) had no application. One is tempted to add “QED”.
36.
If it were necessary to provide any explanation for the clear language
used by Parliament, such explanation was to be found in the Explanatory Notes
(“the ENs”) which accompanied the Finance Bill 2007 through Parliament. The
ENs made it clear that the anti-avoidance rule was directed to a situation in
which the parties with “no previous economic relationship” were seeking to
exploit the Lloyd’s taxation rules to sell losses. In the present case, the
parties clearly had such a previous economic relationship, so it could be
assumed that the anti-avoidance provisions were not intended to apply to them.
37.
In any event, he pointed out, if Parliament had intended to require the
same type of relationship, it would have been very easy to say so – as
was already done in s403A(10) ICTA for other purposes:
“(a) if… the claim is a group claim…, whenever the conditions
in paragraphs (a) to (c) of section 402(2) are satisfied;
…
(b) if … the claim is a consortium claim…, whenever the
conditions specified in section 402(3)… are satisfied..”
38.
Mr Vallat submitted things were a little less black and white. He
submitted that it was appropriate, in construing s227A(5), to give it what he
described as “a natural and obvious interpretation” by implying into it a
requirement that “the companies must satisfy whichever conditions are relevant
to the relief being claimed”. Thus, since the companies were making a group
claim (rather than a consortium claim) for group relief, they must demonstrate
that, during the relevant period, they satisfied the conditions for a group
claim – which they did not. He submitted that reference to the ENs was not
necessary as this interpretation was clear from the language of the section
itself; but in any event, the ENs did not really add anything because they only
referred to the most blatant example of the mischief to which the provision was
being aimed.
39.
Mr Prosser pointed out that if Mr Vallat was correct in his argument, it
would disqualify companies from relief in a situation where they had been
within a 100% group during the s227A(5) period but were only seeking the less
valuable consortium claim relief in the later period. There was no logic to
this, and no indication in the ENs that it was perceived to be a mischief that
was being attacked by s227A. Why should relief be denied altogether in such a
situation on the basis that the previous economic relationship had been “too
close”?
40.
Mr Vallat’s only answer to this was that such a situation was extremely
unlikely and would only arise if the parties chose for some reason to
“downgrade” the group relationship to a consortium relationship – and in doing
so, they would obviously include the loss of the relief as part of their
overall decision. In any event, he submitted, it was a lot less surprising to
lose relief in that situation than it was to gain it simply because of the
historical accident of owning as little as 5% of the surrendering company
during the relevant historical period.
Issue 3 – Does the commencement provision in s 33(2) FA07 apply to this
case?
41.
Section 33(2) FA07 provides that the anti-avoidance provisions in s227A
only have effect where the two companies “first meet the conditions in section
402(2) or (3) of ICTA on or after 21st March 2007”.
42.
On Mr Prosser’s interpretation of the phrase “meet the conditions in
section 402(2) or (3)” identified in issue 2 above, it was self-evident that in
the present case (where the companies were in a consortium relationship as far
back as August 2000), the facts fell outside s33(2) FA07 and therefore s227A
(whatever its true meaning) did not even apply to the later group relief claim.
43.
It is equally self-evident that on Mr Vallat’s interpretation of the
same phrase as identified in issue 2 above, the full 100% group relief
relationship between the companies only arose on 31 July 2007, well after the 21
March 2007 cut-off.
44.
Mr Prosser had a further point to make in relation to issue 3. As he
put it in his skeleton argument:
“In any event, and as an entirely separate submission,… Parliament
cannot possibly have intended s.227A to apply in circumstances where, as in the
present case, the period relevant to the group-relief continuity condition had
already expired before 21/3/07. After all, it is logically impossible to
satisfy that condition in those circumstances.
This result is avoided if s.33 is read as a whole, and in
particular if s.33(2) is read together with s.227A(5). So read, s.227A applies
only if the conditions in s.402(2) or (3) are first met on or after 21/3/07 and
the period mentioned in s. 227A(5) has not ended before that date.”
45.
He only spent a few seconds on this point in argument, and described it
as his “last throw of the dice”. If I have understood his argument correctly,
it is this. In the case of a corporate underwriter whose last active
underwriting year was 2000 (such as the Appellant), it was common ground that
the relevant period during which the “group-relief continuity condition” would
be required to be satisfied under s227A(5) in order to avoid falling foul of
the anti-avoidance provision (if it applied at all) was from 31 December 2000
to 1 January 2003. This period had ended long before 21 March 2007. In those
circumstances, on a straight reading of s33(2) FA07 (the commencement
provision), it was impossible for the group-relief continuity condition to be
“first” met on or after 21 March 2007; thus the commencement provision could,
on its face, never take effect in that situation. To remedy this perceived
problem, some wording along the lines of the last sentence of [44] above needed
to be read into the commencement provision.
46.
Mr Vallat acknowledged it was logically impossible for such a company to
“first” meet the group-relief continuity condition on or after 21 March 2007,
but said that did not matter, essentially because Mr Prosser’s argument was
based on a fundamental misunderstanding of the proper interaction between the
commencement and substantive provisions. He pointed out that the legislation
was structured on a two-stage basis. First, it was necessary to consider
whether s227A applied at all, and this was done by reference to s33(2) FA07 –
on the basis of whether the group/consortium relationship was first formed on
or after the commencement date (Budget Day 2007). Only if that hurdle was
cleared by HMRC was it then necessary to consider whether, in order to sidestep
the restriction, the taxpayer had established the existence of the necessary
group/consortium relationship during the entire period from the last day of its
last active underwriting year to the first day of the year in which the losses
were declared. Obviously, that would be an unnecessary exercise if HMRC had
failed to clear the first hurdle.
Discussion
Issue 1
47.
At first sight, the reference in s227A(1) to “losses of the last active
underwriting year” must be to losses as computed for tax purposes, as it is
only such losses that are potentially “eligible for surrender” as contemplated
by s227A(1).
48.
But on considering even a simplified example, it is not immediately clear
how the tax losses “of” an underwriting year can be identified in practice for
these purposes.
(a)
Consideration of a simplified example
49.
Let us take three possible examples of a declaration of underwriting
results made in 2003 on the basis of the 31 December 2002 syndicate accounts,
for a syndicate which at the end of 2002 still had three “open” years (as in
the present appeal). Let us assume that in 2003, a corporate underwriter’s
share of the declared results for the year ended 31 December 2002 is as follows
and no adjustment is required to the profits/losses for tax purposes (and in
particular, no s107(4) elections have been made):
|
Scenario
|
Underwriting year 1998
profit/(loss) £
|
Underwriting year 1999
profit/(loss) £
|
Underwriting year 2000
profit/loss £
|
Total profit/(loss) £
|
|
A
|
(15)
|
10
|
(20)
|
(25)
|
|
B
|
(10)
|
15
|
(20)
|
(15)
|
|
C
|
(15)
|
15
|
(20)
|
(20)
|
50.
Assuming for the moment that 2000 was the last active underwriting year,
and that the company wishes to surrender the maximum possible group relief in
its 2003 calendar year accounting period, in spite of s227A admittedly
applying, how does one assess the restriction imposed by s227A in each of the
above three scenarios? It seems to me that unless a rational answer can be
supplied to this question, a workable way of operating s227A cannot be
identified and there would be a gap which could only be filled by stepping
beyond judicial interpretation and into judicial legislation. Mr Prosser would,
I think, urge me to that conclusion.
51.
I consider first scenario A.
52.
On one view (which I will call the “draconian” approach), the company
has overall available losses of £25, and £20 of those losses are clearly
referable to the 2000 underwriting year therefore the s.227A restriction should
prevent it from surrendering £20 of its losses, leaving £5 eligible for
surrender.
53.
An alternative view (which I will call the “middle way”) is that it has £25
of total losses, made up in the proportion 15:20 by the 1998 and 2000 losses,
thus 20/35ths of the total available losses of 25 (i.e. £14.29) should be
regarded as ineligible, with the remaining 15/35ths (£10.71) eligible for
surrender.
54.
A third approach (which I will call the “liberal” approach) would be to
say that of the potentially available £25 of losses, £15 can clearly be
attributed to 1998, therefore only the remaining £10 should be regarded as
attributable to 2000. It would follow that only £10 would be ineligible for
surrender, with the remaining £15 being eligible.
55.
I turn now to scenario B.
56.
Here, the company has potentially available losses of just £15. Since
the loss arising from its last year of underwriting exceeds that amount, the draconian
approach would be to say that therefore the s227A restriction prevents the
surrender of any of the net loss of £15.
57.
The middle way would say that 20/30ths of the total net loss of £15
should be apportioned to 2000, thus disallowing surrender in relation to £10 of
the overall loss and leaving £5 eligible for surrender.
58.
The liberal approach would say that of the potentially available loss of
£15, £10 can clearly be attributed to 1998, thus allowing the surrender of that
£10 (thereby restricting only £5 from surrender under s227A).
59.
Finally, I consider scenario C.
60.
Here, the company has potentially available losses of £20. Since the
loss arising from its last year of underwriting is exactly that amount, the draconian
view would be to say that the whole £20 is rendered ineligible for surrender by
s227A.
61.
The middle way would say that 20/35ths of the net loss should be
apportioned to 2000, thus disallowing surrender in relation to 20/35 x £20 = £11.43,
leaving £8.56 eligible for surrender.
62.
The liberal approach would say that, of the potentially available loss
of £20, £15 can clearly be attributed to 1998, thus allowing the surrender of
that £15 (thereby restricting surrender of the remaining £5 under s227A).
63.
The above examples and the various outcomes are summarised in the
following table (it being remembered that in each case, the losses “of” the
underwriting year 2000 are £20):
|
Scenario
|
Total
available loss
|
Ineligible
under draconian approach
|
Ineligible
under middle way
|
Ineligible
under liberal approach
|
|
A
|
£25
|
£20
|
£14.29
|
£10
|
|
B
|
£15
|
£15
|
£10
|
£5
|
|
C
|
£20
|
£20
|
£11.43
|
£5
|
64.
Which of these three basic approaches is correct? Or is some other
interpretation appropriate? It was clearly the intention of Parliament to
prevent some element of the losses from being eligible for surrender, so
it is incumbent upon me, if at all possible, to try to give some meaning to the
provision (rather than simply say that it is so ambiguous that it cannot be
given any practical meaning).
65.
Mr Prosser’s submissions would point me towards the liberal approach.
Mr Vallat’s argument was that the approach to be adopted should depend on the
context, and in particular care should be taken in mapping across a liberal
approach from cases which were not concerned with anti-avoidance provisions.
In a case such as the present, he was arguing that the “middle way” of some
kind of apportionment was most appropriate (though he acknowledged that the
existence of the s107(4) elections complicated matters somewhat). He was not
arguing for the draconian approach.
(b)
The case law relevant to apportionment/seggregation
66.
A brief summary of the main cases cited to me is appropriate at this
point.
67.
In Sterling, the taxpayer company had received and commingled two
sources of income, and it had paid out certain sums from the commingled fund.
Its liability to tax depended on the source out of which the payments were
made. It was held that in the circumstances, there was no binding authority
that required the sum to be regarded as paid proportionately out of the two
sources of income. The Court of Appeal held that:
“…[the company was] entitled to assume and deem that it has
paid the money that it ought to pay according to the most businesslike way of
appropriating the revenue to the expenses; further, that even though that has
not been done in fact by any separate allocation of the money…..you are still
entitled to treat the money as having been paid out of the fund which is most
favourable to the company…” (per Lord Justice Pollock MR);
“… we ought to hold that there is no principle of law by
which apportionment can be introduced, and that it was open to the Company to
pay as they pleased; that it was more advantageous to them to pay it out of
assessable income, therefore they must be taken to have so paid it.” (per Warrington LJ); and
“… inasmuch as it was a business-like thing to do, and the
advantageous thing for the Company to do, to pay those annuities out of the
tax-paid income they must be deemed to have so paid it….” (per Atkin LJ).
68.
The limits of this principle have been explored in other cases. In Bowater
Paper Corporation Limited v Murgatroyd [1969] 46 TC 37, the House of Lords
considered the potential application of the Sterling principle in a
different situation:
“The claim to relief arises from the fact that the appellant,
a United Kingdom company, has a subsidiary, a Canadian company, Bowater
Corporation of North America Ltd., which in turn has a number of subsidiaries
in the United States of America and in Canada. Dividends from these
subsidiaries are paid to the Canadian parent and by that company to the
appellant and become liable to United Kingdom income tax. It is not disputed
that some allowance against that tax has to be made in respect of United States
and Canadian taxes on the profits of the (sub)-subsidiaries. The dispute
relates to the amount and large sums are involved.
The difference between the appellant and the revenue arises
by reason of the fact that the profits of the sub-subsidiaries as computed for
the purposes of the relevant United States or Canadian taxes differ from these
profits as shown in the sub-subsidiaries' profit and loss accounts. The reason
for this lies in a difference between the amount or rate of depreciation
charged by the companies in their accounts and that which is allowed by the
foreign revenue authorities for tax purposes, the latter amounts being, in the
relevant years, greater than the former. Under the relevant enactment, the
lower the amount of profits which has to be brought into the calculation, the
greater the relief: hence the appellant's claim that the calculation is to be based
on the profits computed for tax purposes, rather than on the profits as shown
in the accounts.
One illustration may help to explain the difference. The
accounts of Bowaters Mersey Paper Co. Ltd., a Canadian company, show in its
profit and loss account for the year ended December 31, 1959, a profit of
$2,359,151. But after adjustments have been made to take account of capital
cost allowances and other matters, tax is payable only on $1,298,166. On this
latter figure the tax charge is $641,833. The company contends that the rate of
foreign tax to be credited is 641,833/1,298,166, namely, 49.44 per cent. The
revenue contends that it is 641,833/2,359,151, namely, 27.21 per cent. - the
larger figure being, obviously, more favorable for the appellant. The question,
therefore, resolves itself into this: which is the correct denominator of the
fraction, the numerator being the same? This, translated into legal terms,
means which are the relevant profits - the profits computed for the foreign
tax, or the profits as shown in the company's profit and loss account?” (per
Lord Wilberforce at p56 C-G)
69.
After deciding that, on the wording of the relevant statutory
provisions, the better interpretation was that contended for by the revenue, Lord
Wilberforce went on to consider an “alternative contention” put forward by the
taxpayer:
“This was to invoke a principle which has some place in the
law of taxation according to which if a payment may be made out of either of
two funds, the taxpayer may, in his dealings with the revenue, claim to be
dealt with on the basis that it was made out of whichever fund produces the
more favorable result. The appellant invoked for this the case of [Sterling]. Accepting that this
principle may be invoked in a proper case, I think that in any event it is not
available to the taxpayer here. I cannot do better than adopt the passage in
which Cross J., dealt with the argument ….:
"There are not, as I see it,
two funds of profit here, the accounts profits, only part of which are taxed,
and the assessed profits, all of which bear tax. What are taxed are, I think,
the company's profits for the year, whatever they may be; but they are taxed
according to a yardstick which may compute them at less or more than they
appear in the company's accounts."”
70.
In Collard v Mining and Industrial Holdings Limited [1989] 62 TC
448, the House of Lords was again considering an argument that a particular
disagreement (this time as to allocation of advance corporation tax between
different tranches of income for the purposes of calculating overseas tax
relief) should be settled by a simple apportionment pro rata between all the
tranches. They refused to follow that approach, on the basis that the proper
interpretation of the relevant provisions showed that no such apportionment was
necessary or appropriate. As to the propriety of reading in an implied
requirement for an apportionment (which would have the effect of increasing the
company’s tax liability) Lord Oliver (with whom the other Law Lords agreed),
after stating that it was not a legitimate use of the purposive approach to
interpretation “for the purpose of imposing a tax which the legislature has not
sought to enact in express terms…”, went on to say:
“I can… see no rational or practical justification for the
scheme of the Act for which the Crown so strenuously contends, beyond a desire
to extract the maximum amount of tax…. I can see no logical or rational
justification for imposing in the absence of compelling statutory words, an
additional tax burden on a company simply because it has made distributions on
which it has paid tax in advance.”
(c)
Applying the principles from the case law
71.
So how can these various statements of higher authority be interpreted
as applying in the “simple” examples set out at [49] above, remembering that we
are still at this stage considering a situation which has not been complicated
by the operation of s107(4) elections?
72.
In none of the authorities cited to me was an apportionment of any kind
actually approved by the Courts. The cases are mainly of assistance in
providing guidance as to the sort of considerations which should militate against
an apportionment.
73.
The main practical assistance I derive from the cases is the indication,
from Collard, that before any question of an apportionment is
considered, it is appropriate to consider the purpose of the relevant provision
and the overall scheme of the legislation within which it sits. In the present
case, we are dealing with an anti-avoidance provision designed to prevent the
“buying” of losses arising from the last year of active underwriting and it
seems to me that in such a case one should be wary of applying it in a way that
might significantly limit its effectiveness. On that basis alone, I would
discount the “liberal” approach set out in [54], [58] and [62], which might be
likened to the Sterling approach. It can readily be seen from the table
at [63] that the “liberal” approach results in restrictions of either 25% or
50% of the actual losses incurred in 2000, and that seems an illogical result
for an anti-avoidance provision.
74.
At the other extreme, the “draconian” approach has a certain hard-edged
simplicity, and it does also seem to align the amounts disallowed much more
closely with the underlying purpose of s.227A when the table at [63] is
considered.
75.
It seems to me that the chief benefit of the “middle way” approach is
that denoted by its name: it involves a middle course between the obvious
laxness of the liberal approach and the apparent harshness of the draconian
approach.
(d)
The additional complication caused by s.107(4) elections
76.
If that is my starting point for a greatly-simplified example, how might
it apply in a situation which has been complicated by s107(4) elections?
77.
Mr Prosser argued strongly that by the operation of basic concepts of
tax law, the effect of the 107(4) elections was that in the 2007-08 accounting
period (the year in which surrender is being claimed) the losses could not be
regarded as being to any extent losses “of” the 2000 underwriting year; rather,
they arose as a result of a composite tax computation which involved a great
many credits and debits, only two of which (the £37.6 million of expenses
arising on reversal of the earlier s107(4) elections and the £932,657
apportioned declared profit deriving from 2000) contained any element which
might be considered to arise in any way from the 2000 underwriting year. In
that situation, it was quite simply wrong to characterise any particular part
of the overall £20,081,387 loss for 2007-08 as being a loss “of” the 2000
underwriting year.
78.
It is effectively implicit in this line of argument that s227A could generally
be sidestepped in a situation in which s107(4) elections were made (the ability
to make such elections having been only prospectively removed in FA07). As Mr
Vallat put it, “SCUL’s interpretation completely undermines the purpose of
s227A. On SCUL’s interpretation, any election under s107(4) allows a company
with no previous economic relationship with the loss-making underwriter to
sidestep the restriction under s227A and purchase known tax losses.” I agree;
it seems to me that this would be such a massive gap in the intended
anti-avoidance purpose that I should only agree with Mr Prosser’s proposition
if the language of s227A admits of no other interpretation.
79.
I am mindful of the guidance in the cases to the effect that “judicial
legislation is not an option open to an English judge” (per Scarman LJ in Western
Bank Limited v Schindler [1977] 1 Ch 1 at 18E); however, I am also mindful
of the “duty of giving effect to the intention of Parliament, if it be
possible, even though the process requires a strained construction of the
language used or the insertion of some words in order to do so” (ibid at
18E-F).
(e)
Conclusion on issue 1
80.
In the circumstances, I do not consider Parliament would have intended
the words of s227A to be interpreted so narrowly as to rob them of their
intended effect in circumstances such as the present. Attractive though it is
at first sight, I therefore reject Mr Prosser’s submission referred to at [77]
and find that s227A must be interpreted, when it refers to the “losses of” the
last active underwriting year, as referring to the losses which ultimately
derive from that source, including losses which have effectively been postponed
to a later tax year by virtue of s107(4) elections.
81.
The task then remains of ascertaining what part of the Appellant’s tax
losses of £20 million (approximately) in 2007-08 should be regarded as being
“losses of” the 2000 underwriting year. Because of the view I have reached on
issues 2 and 3 below, and because the parties indicated they would prefer only
a decision in principle on this point, I do not propose to lengthen this
already long decision by exploring that issue in any more detail. I should
only mention that, as a matter of general approach:
(1)
I would reject any suggestion that a “liberal” approach should be taken
in the task of ascertainment; and
(2)
If the “middle way” rather than the “draconian” approach is adopted, an
apportionment of the actual losses should be made on a basis that fairly
represents the respective contributions to them ultimately deriving from the
relevant underwriting years, effectively “looking through” any distortions
introduced by s107(4) elections.
Issue 2
82.
At first sight, the language of the “group-relief continuity condition”
in s227A(5) is clear: if either limb of the condition is satisfied, then the
condition as a whole is satisfied. The key question is whether, as Mr Vallat
contends, this apparent clarity is a mirage which will rapidly disappear in the
face of a purposive construction of the section.
83.
In this context, it is insufficient to refer to s227A as an “anti-avoidance”
provision and say that it is to be interpreted broadly in line with its
intended purpose. The intended purpose must first be discerned with sufficient
precision to establish whether the particular facts of this case fall within
that purpose.
84.
The parties have essentially identified two places to look to discern the
underlying purpose of s227A, the language of the section itself (including
inferences from the language that it does not contain), and the ENs.
85.
So far as the wording of the section itself is concerned, it would
clearly have been very straightforward to include provisions, either along the
lines of s403A(10)(a) and (b) ICTA, or even (certainly more briefly though
perhaps less definitively) by insertion of the words “as the case may be” (or
something similar) after the reference to subsections 402(2) or (3). The
draftsman did neither of these things, either because he never thought about
the point or because he specifically did not wish to “catch” a situation such
as the present. I therefore consider that, insofar as the precise purpose of
the provision can be discerned from its wording, it was not explicitly intended
to apply to the present situation.
86.
I consider that this is sufficient to dispose of the point in favour of
the Appellant, but I also note that the ENs do not conflict with this view.
87.
The only statement of the intended purpose contained within the ENs says
that s227A was intended to be:
“… a narrowly targeted rule designed to prevent companies
acquiring tax losses from corporate members of Lloyd’s with which they had no
previous economic relationship and which are leaving the insurance market…. The
rule will extend the period during which the claimant and surrendering
companies must satisfy relationship tests.”
88.
It seems to me that this text, to the extent it addresses the issue at
all, points both ways. First, the reference to “no previous economic
relationship” points towards Mr Prosser’s argument (and my view as expressed
above) being correct. Second, however, the reference to the concept of “extend[ing]
the period” during which relationship tests must be satisfied connotes some
aspect of continuity which, it might be argued, implies that we should be
looking for a continuation of an existing relationship (as Mr Vallat contends).
However, this very ambiguity within the ENs themselves persuades me that they
have nothing useful to add to my initial view on the purpose of s227A as derived
from the language of the provision itself.
Issue 3
89.
The bulk of the argument on this issue simply tracked the argument on
issue 2 above. The parties were agreed that the words “meet the conditions in
s402(2) or (3)” must have the same meaning where they appear in s227A(5) and in
the commencement provision in s33(2) FA07.
90.
Because of the view I have taken on issue 2 above, I consider Mr
Prosser’s argument must also succeed on issue 3.
91.
I should however mention that I do not consider there is anything in Mr
Prosser’s “entirely separate submission” referred to at [44] to [45] above. I
accept Mr Vallat’s argument in reply to that point as summarised at [46] above.
Summary and conclusion
92.
I find in favour of HMRC on issue 1 – that is to say, I find that on a
purposive interpretation of the phrase “losses of the last active underwriting
year”, it is apt to cover the losses ultimately deriving from that year,
irrespective of the fact that, by virtue of elections under s107(4) FA00, most
of those losses have not crystallised for tax purposes until the 2007-08
accounting period of the Appellant, at which time they have also been commingled
with other losses and profits before arriving at a final overall tax loss for
the accounting period. See [80] above.
93.
It therefore becomes necessary to apply some method to extract, from the
overall tax loss figure for 2007-08, an amount which derives from the underwriting
year 2000. Whilst noting that a number of different approaches to achieve this
have been put forward, I express no decided view on the appropriate method to
apply, except that:
(1)
I consider it would be incorrect and inappropriate to apply an approach
which shelters the maximum amount of losses from the effect of the restriction
in s227A in a manner analogous to the approach sanctioned in Sterling
(see [81(1)] above);
(2)
If an apportionment approach is taken, then an apportionment of the
actual losses should be made on a basis that fairly represents the respective
contributions to them ultimately deriving from the relevant underwriting years,
effectively “looking through” any distortions introduced by s107(4) elections
(see [81(2)] above). I make no further comment on the appropriate method
because:
(a)
in view of my findings on the other issues before me, it is unnecessary
to do so;
(b)
the parties specifically asked me, if I agreed with the broad principle
of apportionment, not to decide the point in detail at this stage; and
(c)
whilst both parties appeared to tend to the view that an apportionment
in proportion to the technical provisions arising in relation to each
underwriting year would yield an appropriate result, with the technical
provisions offering the nearest proxy for the relevant losses, the point was
not fully addressed in argument to the degree required to ensure that all
implications of that approach could properly be considered in this decision.
94.
I find in favour of the Appellant on issues 2 and 3 – see [86], [87] and
[90] above. As the effect of my decision on both issues is that the
restriction in s227A does not apply, no decision is required as to any amount
of losses to be restricted. As the Appellant only needed to win on one of
those two issues, I therefore allow the appeal in full.
95.
This document contains full findings of fact and reasons for the decision.
Any party dissatisfied with this decision has a right to apply for permission
to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier
Tribunal) (Tax Chamber) Rules 2009. The application must be received by this
Tribunal not later than 56 days after this decision is sent to that party. The
parties are referred to “Guidance to accompany a Decision from the First-tier
Tribunal (Tax Chamber)” which accompanies and forms part of this decision
notice.
KEVIN POOLE
TRIBUNAL JUDGE
RELEASE DATE: 12 February 2014
Appendix
Relevant Statutory
Provisions
Section 107(4) Finance Act
2000 (and associated definitions)
(4) A general insurer may,
before the end of a prescribed period, elect that any part of the technical
provisions made by him for a period of account shall not be taken into account
in computing for tax purposes the profits of his trade for that period, and
where he does so, the profits of his trade for the next period of account shall
be adjusted accordingly for the purposes of any computation for tax purposes.
(7) In this section –
…
“period of account” –
… means an underwriting year in
which profits or losses are declared for an earlier underwriting year
…
“technical provisions”… means –
(a) so
much of the premiums paid, or treated (in accordance with the rules or practice
of Lloyd’s) as paid, by him under reinsurance to close contracts; and
(b) so
much of any provisions made for the unpaid liabilities of an open syndicate of
which he is a member,
as may be determined by or under
regulations…”
Section 33 Finance Act 2007
33. Lloyd’s corporate
members: restriction of group relief
(1) In FA 1994, after
section 227 insert –
“227A Restriction
of group relief
(1) Losses
of the last active underwriting year of a corporate member are not eligible for
surrender by the corporate member as group relief to another company unless the
group-relief continuity condition is satisfied.
(2) In
this section, “last active underwriting year”, in relation to a corporate
member, means –
(a) if
the corporate member writes insurance business in only one underwriting year,
that underwriting year, and
(b) otherwise,
the last underwriting year in which the corporate member writes insurance
business.
(3) Where
in an underwriting year –
(a) the
corporate member writes an amount of insurance business which is insignificant
when compared with that written by it in the preceding underwriting year, or
(b) the
only insurance business written by the corporate member consists of acceptance
of reinsurance to close premiums,
the
underwriting year is not to be regarded for the purposes of subsection (2)(b)
above as an underwriting year in which the corporate member writes insurance
business.
(4) In
subsection (3)(b) above “reinsurance to close premium” means a premium or other
consideration under a contract in pursuance of which, in accordance with the
rules or practice of Lloyd’s, one underwriting member agrees with another to
meet liabilities arising from the latter’s underwriting business in an
underwriting year so that the accounts of the business for that year may be
closed.
(5) The
group-relief continuity condition is satisfied if the corporate member (as the
surrendering company) and the other company (as the claimant company) meet the
conditions in section 402(2) or (3) of the Taxes Act 1988 throughout the period
–
(a) beginning
with the last day of the last active underwriting year of the corporate member,
and
(b) ending
with the first day of the first underwriting year in which losses of the last
active underwriting year are declared.”
(2) The amendment made by
sub-section (1) has effect in relation to any case where the corporate member
(as the surrendering company) and the other company (as the claimant company)
first meet the conditions in section 402(2) or (3) of ICTA on or after 21st
March 2007.
