INTM501050 - Intra-group funding: legislation and case law

SpC94: Ametalco UK and Ametalco Ltd V CIR

The 1996 Special Commissioners' decision in the case of Ametalco v CIR endorsed HM Revenue & Customs' view that the reference in ICTA88/S773(4) to "the giving of business facilities of whatever kind" was very wide and on the natural meaning of the words included the advancing of money for business purposes. The Commissioners also noted that the word "facility" was commonly used to refer to bank lending or similar financial assistance.

It is to be remembered that the particular advances which were the subject of this case were, in the words of the Commissioners, "ad hoc credits" not fixed, formal loans, a fact which underlines the point that there is no requirement for the presence of formal arrangements for ICTA88/S773(4) to apply.

Summary of the case

Facts

Between 1986 and 1993 Ametalco UK (`AUK') and Ametalco Ltd (`AL') made interest-free loans to a fellow-subsidiary Ametalco Inc and to their ultimate parent company Amax Inc. The lenders were resident in the UK, the borrowers in the USA.

Neither AUK nor AL was at any time in the business of lending money.

Contentions

HM Revenue & Customs sought to impute interest under ICTA88/S770 ICTA 1988, as extended by ICTA88/S773(4) ICTA 1988.

The taxpayers argued that

1. Sections 770 and 773 do not apply to loans at all; alternatively
   
2. if loans are within the legislation, then only loans made in the course of a money lending business are caught. A number of points were made in relation to the imputation of interest on loans made otherwise than in the course of a trade, most particularly that in such circumstances the relevant charging machinery simply would not work.

Decision

The Commissioners rejected both of the taxpayers' contentions.

The Commissioners found that the words `the giving of business facilities of whatever kind' in ICTA88/S773(4) were very wide and would naturally include the lending of money. Furthermore, excluding loans would go a considerable way to defeating the purpose of the legislation; they found nothing to justify such a restriction.

This proposition was held to be wholly unconvincing. The Commissioners found nothing in the legislation which restricted its operation to transactions entered into by the `seller' in the course of his trade. They also rejected the taxpayers' contention regarding the charging machinery.