NRS Media Holdings won twice over; exempt foreign income totalling $3.67 million tumbled into the till while it was also able to claim expenses of $3.88 million against this tax free income for the cost of monitoring its Australian subsidiary.
Exploiting a since-repealed loophole which appeared during legislative changes to the controlled foreign corporations regime, NRS Media Holdings Ltd argued successfully in the Court of Appeal that it could both have its cake and eat it. NRS Media is the sole or majority shareholder of subsidiaries in the United Kingdom, Australia and Canada. They purchase media time for client advertisers. The Court of Appeal hearing concerned the tax effect of NRS Media’s relationship with its Australian subsidiary. Two tax years were at issue: 2011 and 2012. For those two tax years NRS Media received tax free dividends totalling $3.67 million. It claimed as a NRS Media tax expense costs for payroll, consultants, marketing and travel, rent and overheads totalling $3.88 million; costs incurred to ensure proper legal governance of its Australian subsidiary, it said. NRS Media established and managed strategic and business plans for the group, with staff travelling to and reviewing subsidiary performance on a regular basis. NRS Media said it did not manage its subsidiary’s operations. Each has its own board and management team.
The Court of Appeal ruled the claimed deductions were allowed under the general deductibility rules in tax law. The costs amounted to oversight of its subsidiaries, facilitating their operations. These were recurrent and regular business expenses, allowed as a tax deduction against revenue.
NRS Media Holdings Ltd v. Inland Revenue - Court of Appeal (1.11.18)
18.220