The facts of the case concerned a certain type of motor vehicle finance agreement, called an “Agility Agreement”, under which the customer, having paid monthly instalments in exchange for using the vehicle for a specific period, had an option to purchase the vehicle in consideration for a “balloon” payment of approximately 40 per cent of the vehicle sale price, including the cost of financing. The issue is whether these are contracts for a supply of services (with VAT chargeable on each monthly instalment) or a supply of goods (VAT chargeable up front).
From an EU law perspective, this question turns on the interpretation of Article 14(2)(b) of the VAT Directive, which specifies that there is a supply of goods in the case of agreement where there is “the actual handling over of goods pursuant to a contract for the hire of goods for a certain period, or for the sale of goods on deferred terms, which provides that in the normal course of events ownership is to pass at the latest upon payment of the final instalment” (emphasis added).
In its judgment the CJEU has given guidance to national court on the application of the above three-stage test: Article 14(2)(b) applies to leasing contracts with an option to purchase (i.e., an express ownership transfer clause) if it can be inferred from the financial terms of the contract that exercising the option appears to be “the only economically rational choice that the lessee will be able to make at the appropriate time if the contract is performed for its full term”. This is obviously a matter for the national court to determine, but in reaching its decision the CJEU referred back to the analysis at paragraphs 50 to 53 of the Advocate General’s opinion, and observed that this might in particular be the case where the aggregate of the contractual instalments corresponded to the market value of the goods, including the cost of financing, and the customer would not be required to pay a substantial additional sum as a result of exercising the option.
It is highly likely therefore that the Court of Appeal will find the Agility Agreement to be a supply of services, but other cases will need to be considered on their own facts.
This article appears in the JHA October 2017 Tax Newsletter, which also features:
This case concerned whether the taxpayer was entitled to compound interest in addition to statutory interest on a simple basis with the repayment of overpaid VAT. It was accepted that statutory interest represented only 24% of the taxpayer’s actual time value loss from the overpayments. The two issues for the Supreme Court were:
The Supreme Court unanimously dismissed Littlewoods’ cross-appeal on the first issue. Like the lower courts it held that the correct reading of the VAT Act is that it excludes common law claims and although references are made to interest otherwise available these are clearly references to interest under other statutory provisions and not the common law. To decide otherwise would render the limitations in the VAT Act otherwise meaningless.
The court allowed HMRC’s appeal on the second issue, holding that the lower courts were wrong to construe the CJEU’s requirement of an “adequate indemnity” as meaning “complete reimbursement”. The Supreme Court construed the term as “reasonable redress”. They did so for three reasons:
This article appears in the JHA October 2017 Tax Newsletter, which also features:
With Revenue and Customs Brief 3 (2017) HMRC has announced a change in policy in the treatment of pension fund management services provided by regulated insurance companies. This means that insurers will no longer be allowed to treat their supplies of management services provided in connection with defined benefit pensions (which do not qualify as special investment funds or “SIFS”) as VAT – exempt insurance.
The CJEU found in 2014 that a pension fund which pooled investments from a number of occupational pension schemes qualified as a SIF and could benefit from a VAT exemption for fund management services (see Case C-464/12 ATP PensionService v Skatteministeriet). However, the case dealt with defined contribution pensions and not the VAT treatment of services supplied in connection with defined benefit pensions. According to the CJEU’s 2013 judgment in Case C-424/11 Wheels Common Investment Fund Trustees and Others v Commissioners for Her Majesty’s Revenue and Customs, defined benefit pensions fell outside the fund management exemption for VAT because the investment fund (which pools the assets of the scheme) was not a SIF. Following ATP PensionService, HMRC accepts that management services for funds which qualify as SIFs, with all their required characteristics, were and always have been VAT exempt. Those pension funds that do not have all those characteristics are not SIFs and are not within the scope of the exemption.
HMRC now consider that case law has finally settled in this area and there will be no further review of the EU rules until after Brexit. The new policy on non-SIF pension fund management will apply as of 1 January 2018.
This article appears in the JHA October 2017 Tax Newsletter, which also features:
Published in Litigation Funding Magazine, October 2017.
“The decision in RNB may well open the floodgates to a myriad of different ‘good reasons’ to depart from an approved costs budget.”
David Hill, costs lawyer at Joseph Hage Aaronson asks what will be a ‘good reason’ for departing from budgets.
Continue reading on the About Legal Costs blog.
The 92nd update to the Civil Procedure Rules with The Civil Procedure (Amendment) Rules 2017 includes changes to Part 47 – Detailed Assessment Proceedings. The amendments contained in the statutory instrument came into force on 1 October 2017. The Practice Direction Making Document supporting the rule changes is to be published shortly.
The draft Finance Bill (No.2) contains provisions to allow HMRC to issue “Partial Closure Notices”. Partial Closure Notices will operate substantially the same way for individuals and trusts, partnerships and companies. HMRC will be able to issue closure notices for individual aspects (“matters” as they are referred to in legislation) of an enquiry before they have to close the entire enquiry. The effect on the individual matter closed will be the same as if a closure notice had been issued under the current system, including all the usual knock-on effects of time limits for amendments, appeals etc. relating to that individual matter. This power will supposedly allow HMRC to resolve simpler issues quickly without them dragging along behind more complicated and long-running arguments.
Taxpayers remain able to apply to the tribunal for a full closure notice, but will also be able to apply for a partial closure notice.
This article appears in the JHA September 2017 Tax Newsletter, which also features:
A company, which operated an EBT, bought gold from a third party and gave it to two directors who were 49% and 51% shareholders. The directors immediately sold the gold and settled the company’s liability to pay for the gold in exchange for a director’s loan account credit. At the same time a long term obligation was created which required the directors to pay an amount at least equal to the price of the gold to the EBT at some point in the future.
The scheme attempted to avoid s.62 of ITEPA 2003 (which defines “earnings” for employment) and Part 7A of ITEPA 2003 (designed to catch “disguised remuneration”) but still entitle the company to a CT deduction.
The GAAR Panel decided that the scheme involved “contrived or abnormal steps” (FA 2013 s.207(2)(b)) as it is abnormal for an employer to reward employees with gold and for parties who choose to introduce an asset into arrangements to sell the asset immediately. In addition if cash and not gold had been used either the directors or company would have been in a substantially different economic or commercial position.
The Panel also considered that the transaction was not consistent with the principles of the relevant legislation. The most likely comparable transaction was the funding by the company of the EBT which would have given rise to a charge to income tax under Part 7A and NICs and would have resulted in a deferment of the CT deduction. The reason that the taxpayer was claiming different treatment was that a subsection relied upon (ITEPA 2003 s.554Z8(5)) did not contain an express “no connections with tax avoidance” provision, unlike other subsections (ss.(1)). The Panel did not see an obvious reason why these should be treated materially differently and that the legislation contained a shortcoming which the arrangements tried to exploit.
The Panel considered that the steps taken were not a reasonable course of action.
This article appears in the JHA September 2017 Tax Newsletter, which also features:
Trustees of the P Panayi Accumulation & Maintenance Settlements C-646/15
This case deals with s.80 TCGA 1992 which provides that the migration of a trust resulting from trustees ceasing to be UK resident is a deemed disposal for capital gains tax purposes of the trust fund at market value. The FTT referred the case to CJEU for a preliminary ruling on whether the exit charge on trust migration is compatible with the freedom of establishment, freedom to provide services and free movement of capital.
The ECJ found a difference in treatment between trusts which retain their place of management in the UK and trusts whose place of management is transferred to another Member State. The ECJ held that the legislation discourages the trustees, who manage the trust, from transferring the place of management of the trust to another Member State and deters the settlor from appointing new non-resident trustees. This difference constitutes, according to the Court, a restriction on freedom of establishment.
Moreover, as the legislation at issue provides only for the immediate payment of the tax concerned, it goes beyond what is necessary to achieve the objective of preserving the allocation of powers of taxation between Member States and constitutes, therefore, an unjustified restriction on the freedom of establishment.
This article appears in the JHA September 2017 Tax Newsletter, which also features:
In this case the Advocate General considered the application of the Halifax principle to property transactions. Mr Cussens, together with associates, built holiday homes in Ireland granting initially a long lease of the properties to a related undertaking and then cancelled the lease shortly thereafter. The properties were subsequently sold to third parties. As a result of this arrangement, no VAT was payable on sale. The question was whether these transactions were abusive.
The AG reiterated that the abuse of rights principle required there to be a transaction resulting in a tax advantage that was contrary to the purpose of the relevant provisions and that the essential aim of the transactions was to obtain that tax advantage. In the AG’s view, the transactions in this case, which were designed to artificially create a first taxable supply of the properties, so that more valuable subsequent supplies to third party purchasers were exempt from VAT, did not meet the purpose of the relevant provisions of the Sixth Directive.
The AG also opined that the subjective test, which asks whether the essential aim was to obtain a tax advantage, must be applied restrictively and that the net should not be cast too widely. The test would not be fulfilled if the transactions are found to have some economic justification other than a tax advantage.
This article appears in the JHA September 2017 Tax Newsletter, which also features:
Until 1997 exempt taxpayers such as pension funds received a tax credit refundable in cash with the receipt of a dividend from a UK company which amounted to franked investment income (FII). However dividends received from a UK company which were from foreign sources of profits (and paid under the foreign income dividend or FID regime) did not carry any such credit. The CJEU, following the opinion of the Advocate General, has concluded that exempt shareholders should have received equivalent tax credits with FIDs. Being exempt taxpayers there was however no tax to repay. The Court has concluded that under EU law charges include any deducted amount which needs to be refunded to restore equal treatment, which for shareholders who received FIDs gives rise to an entitlement to the tax credit. It is for the UK courts to determine the procedural rules determining protection of EU rights, and those rights must not be less favourable than for similar domestic actions.
The court attached no significance to the fact that the shareholders were not subject to income tax on dividends, whether or not the breach of EU rights was significant enough to give rise to non-contractual liability on the UK, nor to the fact that the companies distributing FIDs may have increased their dividends to cover any “shortfall” caused by being unable to claim a tax credit. This did not give rise to “double recovery” on behalf of the shareholders.
This article appears in the JHA September 2017 Tax Newsletter, which also features:
