The issue was whether the appellant company, a member of an international group of trading companies, could recover as expenses of management a commission of 0.25% per annum it had to pay to its parent as the price of obtaining a guarantee for the issue of some guaranteed unsecured loan stock. The loan stock issue was made to raise finance for the other group companies operating within the United Kingdom.
Held: the commission was not an expense of management because it could not be severed from the cost of raising the finance. (Dillon LJ) ‘In the present case it seems to me that the guarantee had to be obtained by the company from its parent in order to raise the money to invest by advances to the other United Kingdom subsidiaries and the company had to agree to pay the parent the continuing commission in order to obtain the guarantee and therefore realistically as part of the price of raising the money. The commission cannot be severed from the cost of acquisition and so equally the annual payments of the commission cannot be severed from the cost of acquisition. It is unreal to regard each annual payment as merely a payment for the current year or the current six months to keep the guarantee on foot as part of the continuing management of the company’s business, because the whole obligation in respect of the loan stock and the obligation of the guarantee was undertaken once and for all when the stock was raised and the guarantee was entered into, and, as document 5 shows, the commission was charged by the parent company for giving the guarantee. It all relates back to the giving of the guarantee.’ (May LJ) ‘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, then the payment is not an expense of management.’
Judges:
Dillon LJ, May LJ
Citations:
(1983) 56 TC 594
Jurisdiction:
England and Wales
Citing:
Cited – Sun Life Assurance Society v Davidson HL 4-Jul-1957
The court considered the question of what was meant by the phrase ‘expenses of management’
Held: The phrase (s75) could be seen ‘as apt to cover the expenses which would normally be deductible in respect of its life assurance business if an . .
Cited by:
Cited – Camas Plc v HM Inspector of Taxes ChD 7-Jul-2003
An investment company sought to set against its liability to corporation tax, the various costs of taking over another company. They argued that as an investment company these were not costs of the purchase and could be set against tax.
Held: . .
Cited – Atkinson (HM Inspector of Taxes) v Camas Plc CA 6-May-2004
An investment company made an abortive attempt to take over another. It sought to set off against its Corporation Tax, the costs of the professional advice incurred.
Held: The expenses were deductible. . .
Lists of cited by and citing cases may be incomplete.
Corporation Tax
Updated: 31 July 2022; Ref: scu.184473