Court upholds Ford's UK tax relief appeal

Companies outside the EU will find it easier to claim tax relief on UK subsidiaries following a recent Court of Appeal ruling.

The court ruled that US car maker Ford is entitled to group tax relief on its UK subsidiaries FCE Bank and Ford Motor Company Limited.

Before 2000, a group relationship for UK tax purposes could not be traced through non-UK resident companies.

HMRC therefore refused a claim for group relief by FCE from its sister company Ford Motor Company Limited, because both were directly owned UK resident subsidiaries of Ford Motor Company.

FCE maintained that it was entitled to that claim, relying on the US-UK double tax treaty.

They claimed that this represented discrimination against the two UK companies because of their ownership by a US resident.

Such discrimination is prohibited by the double taxation agreement between the UK and US. Both the first-tier tribunal and the upper tribunal accepted this argument.

However, the Court of Appeal held that whether or not the US parent was within the charge to UK corporation tax was irrelevant to the claim for group relief, which was a claim that only affected the UK tax position of the two UK subsidiaries.

The only reason for the refusal of the group relief claim was FMC’s US residence, said law firm Slaughter and May, which represented Ford Motor Company in the case. 

Commenting on the case, Michael Anderson, head of direct tax litigation at KPMG said: “Although this decision will not affect many companies directly, it will be encouraging news for companies which are seeking to rely on a double taxation agreement between the UK and a non-EU country to support a group relief claim where losses have been made by an EU fellow-subsidiary of a non-EU parent.”