BIM35555 - Capital/revenue divide: intangible assets: exclusivity ties: reimbursed repairs, etc
Tie for petrol retailer
A sales rebate is an allowable revenue deduction. It does not
matter that such a rebate is paid in a single sum or in
instalments.
Bolam v Regent Oil Co Ltd [1956] 37TC56 was concerned with
agreements under which Regent Oil undertook to reimburse sums
expended by the petrol retailer on decoration of the premises,
resiting and maintenance of petrol pumps, etc. In return the
retailer agreed to buy for resale only Regent petrol. Payments were
based on the quantity of petrol supplied. Initially payments were
for periods of a year or less and were made after the retailer had
incurred approved expenditure. Later on payments were made in
advance. In response to competition, agreements were (in some
cases) offered for longer terms, up to five or six years.
Danckwerts J at page 68 explains that a rebate would give
rise to an allowable deduction and that it makes no difference if
the rebate takes the form of an up-front payment intended to cover
several years:
It seems to me that there would have been no doubt if the payments had been made by reference to the amount of petrol sold to the retailers in each year; it would plainly have been expenditure, particularly if paid in the form of a rebate, which was expended by Regent Oil Co. in the course of its trade in the making of its profits. Does it make any difference because in the circumstances of the case there has to be some lump sum fixed which is paid to secure the same result, and even if payment is made in advance for several years?…It seems to me that this expenditure, adopted by reason of the policy of the competitors of the Regent Oil Co., was an expense which the trading company, the Regent Oil Co., had to incur from time to time in order to earn its profits, and in the course of earning those profits.. Therefore, it seems to me that the Commissioners reached the right conclusion in holding that it was expenditure of a nature which was deductible.
