DANCKWERTS L.J. - This is an appeal by Bowater Paper Corporation Ltd. against a decision of Cross J. dated December 13, 1967. He dismissed an appeal from the special commissioners against their decision of January 1, 1964. The case stated by the commissioners was dated May 16, 1967. It is a case which involves the question of relief against double taxation.
The appellant company has a Canadian subsidiary, called Bowater Corporation of North America Ltd. The matter arises originally, of course, under the Order in Council, the Double Taxation Relief Order, 1946. It has got a slightly longer title, but I have abbreviated it slightly for the present purpose. The question which we have to decide depends upon the Income Tax Act, 1952, section 347, but more particularly upon Schedule 16 thereto, and entirely on paragraph 9 of that schedule. Indeed, it turns really on three words - 'the relevant profits'. Unfortunately, the legislators (as sometimes happens) have not expressed their intention very clearly, and the matter of solution gives a considerable amount of trouble. Anyhow, it has given me a lot of trouble.
The parties have put forward four different possible constructions of the words in question. [His Lordship then read paragraph 9 (1) of Schedule 16 and continued :]
The Canadian company which I have mentioned had a number of subsidiaries both in Canada and in the United States. In making up the companies accounts (that is to say, the Canadian companies accounts) in regard to depreciation, they adopted what is called the straight line basis; that is to say a reduction in the value of the assets concerned was taken so that they would be exhausted (if I may use that phrase) in accordance with their useful working life. The United States and Canada in their taxation provisions, however, pursued a different course. The United States pursued a course called the double declining basis which was about twice the rate of depreciation of that adopted by the company and would in fact work at such a rate that it was capable of producing, I gather, in the present case, or in certain circumstances perhaps, not a profit at all but a loss. The Canadian statutes also adopted the reducing balance basis. Consequently, there are considerable difference between whether you adopt the basis used by the United States and the Canadian legislation or whether you apply it to the accounts drawn up for the purpose of the Canadian corporation. Indeed, the matter is of great importance, obviously, not only because of the difficulty of the statutory provision which we have to consider but because it apparently makes a difference in the amount of the taxation which the appellant corporation may have to pay over pounds 841,000. So we are dealing with big money.
Four different possible solutions have been put forward, if I understand the arguments correctly. Mr. Heyworth Talbot, on behalf of the appellant taxpaying company, has put forward three, I think, altogether. The first, he says, is that profits, for the purpose of this paragraph, should be treated as for foreign tax. The second one he puts forward is that the dividend should be deemed to be paid primarily out of taxed profits, and he bases his contention on Sterling Trust Ltd. v. Inland Revenue Commissioners, a decision of the Court of Appeal. I would say at once that I find it difficult to apply that decision to the circumstances of the present case, and I find, therefore, that it is not really the right one to apply.
The third one is the basis as computed for United Kingdom tax. That was, I think, rather a third choice, to put it that way if I may, by Mr. Heyworth Talbot, and not one which I think he favoured very readily.
The remaining construction is the one which is put forward on behalf of the Crown, and that is that the dividend should be taken from the profits shown by the companys accounts as available for distribution.
Now, I do not propose to go into the facts because very little turns upon the facts. It is simply a question, as I have said, of construing those three words 'the relevant profits.' Anyhow, the case is reported and consequently is set out quite fully and I do not think it is necessary for me to repeat it.
The first contention on behalf of the appellant company has a certain appeal. It seems a natural argument and logical that if you are calculating relief in respect of a foreign tax and the amount thereof you should take the basis upon which those calculation, computations and so forth are made, producing, I suppose one might say, like to like. There is, therefore, something to be said for that view, and indeed I thought that Mr. Heyworth Talbots arguments had considerable force. But on the whole I have come to the conclusion that it will not really fit in in the present case, and the point which strikes me as of great importance is in (c), where there is a reference to 'the last period for which accounts of the body corporate was made up.' If you are going to refer to the period of the accounts for the purpose of computing the allowances under this paragraph, it seems to me that it is logical to take the figures which were given by those accounts. Consequently, I think that that is the right basis and I think the matter has been very well stated by the special commissioners in their case.
[His Lordship read the decision of the special commissioners, omitting the first and last paragraphs, and continued :]
Cross J. in his judgment adopted very much the same line, and I think he comes to the right conclusion. At the conclusion of his judgment he says :
'There are not, as I see it, two funds of profits here, the accounts profits, only part of which are taxed, and the assessed profits, all of which bear tax. Which are taxed are, I think, the companys 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 companys accounts,'
and he concludes that it is the companys accounts that is the appropriate figure to go by.
I think that the special commissioners and the judge have reached the right conclusion and I agree with their conclusion, and, therefore, I would dismiss the appeal.
SALMON L. J. I agree with my Lord and there is nothing that I wish to add.
FENTON ATKINSON L.J. I, too, agree, and there is nothing that I wish to add.
Appeal dismissed with costs.
Leave to appeal.
Solicitors : Allen & Overy; Solicitor of Inland Revenue.