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Special Commissioners' Decision

05 February 2003 / Allison Plager
Issue: 3893 / Categories:

ALLISON PLAGER reports a recent case.

ALLISON PLAGER reports a recent case.

Value of agreement

Sun Chemical Ltd appealed against a further corporation tax assessment made in December 1998 in respect of its 1992 accounting period. The predecessor company, Sun Chemical Inks Ltd, had claimed relief for interest paid to United Kingdom banks as a charge on income. In 1991, the company was acquired by Sun Chemical, continued the claim, and in its 1992 accounting period claimed relief as a charge on income for interest accrued to the predecessor company but paid by the appellant during 1992.

An appeal against the 1992 assessment was settled in 1994 under section 54, Taxes Management Act 1970. But in 1998, the Inspector raised a further assessment for 1992 for unconnected reasons. The company appealed against this assessment. In 1997, a new accountant advised the Inspector that interest relief for United Kingdom bank interests for earlier years should have been claimed as a Case I expense.

The Inspector sought to disallow United Kingdom bank interest accrued by the predecessor company paid by the appellant in 1992 by adjusting the 1998 further assessment.

As a procedural matter, the appellant's counsel (Malcolm Gammie QC) claimed that the 1998 further assessment could not be so amended, and that even if it could, the matter had been settled by the 1994 agreement. As a separate legal argument, he said that the United Kingdom bank interest should be allowed as a charge paid by the appellant in 1992.

The Inspector argued that the 1998 assessment was under appeal and therefore could be used to disallow the charges; that the 1994 agreement did not include the bank interest since it was not clear to the Inspector that it related to United Kingdom bank interest; and that such interest was not a charge, as it was deductible in computing the predecessor company's 1991 profits.

The Special Commissioner examined first what was taken to have been agreed when the 1991 assessment was settled. He said that there was no doubt that the predecessor company was claiming relief for the interest as a charge on income, as it was specifically discussed.

With regard to the 1992 assessment settled in 1994, the Commissioner noted that the Inspector had asked for a breakdown of the interest and whether or not tax had been deducted. If, having not received a specific answer to the latter question, the Inspector had not followed up the enquiry, this was unfortunate, but not the taxpayer's fault. The Commissioner therefore concluded that in the 1994 agreement, the Inspector must have agreed the deduction of the United Kingdom bank interest as a charge.

Having found for the appellant in these two respects, the Commissioner said that the appeal was determined in favour of the appellants. However, he also commented on the other issues raised.

As to whether the further assessment made in 1998 could be increased in respect of matters other than those for which it was raised, section 50(7), Taxes Management Act 1970 states that an assessment under appeal can be increased if required, and did not appear to place any restrictions on that. Therefore, the further assessment could be increased in respect of additional liability.

Finally, as to the deductibility of the interest, the Inspector had determined the 1992 assessment on the basis that the interest was in law not properly deductible for Case I purposes, and this could not be denied by the Inspector, even if it was in fact wrong.

The appeal was allowed.

(Sun Chemical Ltd (SpC 340).)

Issue: 3893 / Categories:
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