Ingenious LLPs v HMRC – Permission to appeal partially granted
This is a long-running dispute between HMRC and investors over tax liabilities related to film and game investment schemes promoted by the Ingenious group of LLPs. Having lost the appeal to the First-Tier Tribunal, the LLPs appealed to the Upper Tribunal on eight grounds. HMRC cross-appealed on two grounds.
The hearing at the Upper Tribunal centred on, among other points, whether the LLPs were trading with a view to a profit. If not, HMRC argued, they were not entitled to offset losses amounting to over £1.6bn against their other taxable income. By judgment released on 26 July 2019, the LLPs’ appeal was dismissed and HMRC’s cross-appeal was allowed.
The LLPs sought permission to appeal to the Court of Appeal on seven grounds. Permission has now been granted to appeal only on Grounds 1 and 3, namely, whether the partnerships were carrying on business “with a view to profit” and whether the tribunal was wrong to conclude that the partnerships were not trading.
Interestingly the Court has refused permission to appeal on the issue of whether the expenses were income or capital in nature. The refusal of this ground appears to render the hearing of Grounds 1 &3 pointless. If it remains that the expenditure incurred by the LLPs was of a capital rather than revenue nature then no deduction could be made whatever the outcome of the appeal
This, however, is not the end of the road as Ingenious can renew its application for permission on the rejected grounds at an oral hearing. If that oral hearing for permission occurs at the same time as the main appeal hearing (which is the usual practice) then the appeal will extend to consideration of the dismissed issues anyway.
SHORT CASE REPORT FTT DECISION – ‘MTIC’ FRAUD – KITTEL TEST PTGI International Carrier Service Limited v. HMRC  UKFTT 20 (TC)
- A so-called “MTIC case”, in which HMRC alleged knowledge or means of knowledge of fraud. The taxpayer, PTGI, denied those states of knowledge. After a relatively lengthy trial, the Tribunal allowed the appeal of PTGI.
- The decision represents a good reminder that HMRC’s “MTIC” decision-making mould is not a “one size fits all”, unbeatable formula at the Tribunal. The Tribunal will robustly analyse HMRC’s (usually) inference-led allegations.
HMRC consultation on the OECD mandatory disclosure rules
HMRC has published a consultation on draft regulations to implement the Organisation for Economic Cooperation and Development (OECD) rules on mandatory disclosure of certain avoidance arrangements. Helen McGhee and Nahuel Acevedo-Peña explain the background to the new rules and their implications.
Post-Prudential: Decision released by the FTT
On 8 December 2021, judgment in the Post Prudential Group Litigation was handed down by the First-tier Tribunal (Tax Chamber) (“FTT”). These were appeals and applications for closure by approximately 200 taxpayers, who had made a variety of claims seeking repayment of unlawful DV tax imposed on dividends received from foreign portfolio holdings. The FTT considered the validity of these various statutory claims following decisions in test cases in the CFC & Dividend GLO, namely Claimants in Class 8 of the CFC and Dividend Group Litigation v Revenue and Customs Commissioners  EWHC 338 (Ch),  1 WLR 5097 (“Class 8”) and Prudential Assurance Co Ltd v HMRC  UKSC 39;  AC 929 (“Prudential SC”).
S&S Consulting Services (UK) Ltd v HMRC: Can a company be re-registered for VAT pending appeal?
On 26 November 2021, the High Court of Justice issued its judgment in S&S Consulting Services (UK) Ltd, R (On the Application Of) v HM Revenue and Customs  EWHC 3174. The case concerned the issue of availability of injunctive relief in the context of VAT deregistration appeals in the First-tier Tribunal (“FTT"). S&S also made an application for judicial review of HMRC’s decision to deregister it for VAT, which at the time of the hearing, had not yet been considered on the papers.
HMRC cancelled S&S’s VAT registration because it concluded that the company had been principally or solely registered to abuse the VAT system by facilitating VAT fraud. S&S denied any wrongdoing and claimed that it might become insolvent before the hearing of its appeal as a result of the deregistration.
It was also common ground that although S&S had lodged an appeal to the FTT, the FTT had no power to require HMRC to re-register S&S by way of interim relief pending the outcome of the appeal. S&S made an application to the High Court for relief.
Held: Application rejected.
VAT De-registration: the CJEU decision in the Promexor case
On 18 November 2021, the Court of Justice of the European Union (the “CJEU”) delivered its judgment in Case C-385/20 (Promexor Trade SRL v Directia Generala a Finantelor Publice Cluj – Administratia Judeteana a Finantelor Publice Bihor). Promexor is a Romanian company whose VAT number was revoked by the local tax authorities following a period of six months in which its VAT returns did not record any transactions subject to VAT. Under Romanian legislation, a company whose VAT number has been revoked could re-register and retroactively deduct input VAT for the period when it was not registered. However, in this case, Promexor was prevented from doing so because its director was also a shareholder of a company that was going through insolvency proceedings.