.png)
.png)
Associated companies
The House of Lords has heard the Revenue's appeal against the Court of Appeal decision in the Newfields Developments case.
Associated companies
The House of Lords has heard the Revenue's appeal against the Court of Appeal decision in the Newfields Developments case.
The facts concerned a claim by a company for entitlement to the small companies' rate of corporation tax. The Revenue considered that the company was one of two associated companies by reason of the fact that its share capital was held by the trustees of a will trust in which a widow had a life interest and the other company was controlled by the trustees of a discretionary trust set up by the widow's deceased husband. The Revenue considered that under the wide definition of associates in section 417, Taxes Act 1988 this resulted in the two companies being associated for the purposes of the control test in section 416.
For the taxpayer, it was argued that section 416(6) gives the Revenue a discretion as to whether or not to exercise a power to attribute controlling interests in companies to associates of the shareholders concerned.
Unfortunately for the company, the House of Lords has rejected the argument that the Revenue has a general discretion on the matter. The legislation lays down no principles by which such a discretion could be exercised. The extended control definition appeared to make it unnecessary for the Revenue to have to make detailed factual enquiries.
Section 416(6), Taxes Act 1988 required the Revenue to make only those attributions to associates which would result in a company being treated as under the control of five or fewer participators. This served the purpose of confining the control test to a limited number of participators, where there might otherwise be a larger group of such persons. This was not applicable in the present case and the basic attribution of rights in the two companies therefore had to be made.
The Revenue's appeal against the Court of Appeal decision in favour of the taxpayer's company was therefore upheld.
(Regina v Commissioners of Inland Revenue ex parte Newfields Developments Ltd, House of Lords, 23 May 2001.)
