UK: England and Wales: an investment company?

Judgment was given earlier this week in Dawsongroup Plc v Revenue & Customs [2010] EWHC 1061 (Ch). The case concerned a company - Dawsongroup plc - the holding company for a group of companies carrying on the business of renting trucks, trailers, buses, coaches and other specialist equipment. The company undertook two activities: [1] providing services to the subsidiary companies (including banking, financial, legal and IT services) and [2] holding the shares of the subsidiary companies and arranging the affairs of the group (which included the disposal and acquisition of companies, the general control of the subsidiaries to ensure the maintenance of their value, and receiving income from the subsidiaries in the form of dividends).

Last year, in the First-tier Tribunal (Tax) (see [2009] UKFTT 137 (TC)) it was held that the company was not an investment company, defined by Section 130 of the Income and Corporation Taxes Act (1988) as "any company whose business consists wholly or mainly in the making of investments and the principal part of whose income is derived therefrom...". As such, the company was unable to deduct certain expenditure under Section 75 of the 1988 Act when calculating its profits for corporation tax purposes.

The company appealed. Mann J. heard the appeal and held that the company was an investment company although, for other reasons, the disputed expenditure was not deductible. In holding that the company was an investment company, Mann J. held that the First-tier Tribunal judge had incorrectly decided that the company's exercise of control over the subsidiaries was a trading activity. HMRC argued that the company's investment activity was ancillary to its main trading activity of providing services. Mann J rejected this argument because it failed to describe the company's raison d'être and the overall picture of its functions. He instead found that the company was "primarily a holding company ... which also happens to provide services to the rest of the group ... its main activity is being a holding company with a degree of real control over the rest of the group" (para. [39]).