DANCKWERTS L.J. - (1.) 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.
(2.) 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.
(3.) 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.;