First published in CCH Daily incorporating Accountancy Live.
On 3 April 2017, Marcus Smith J delivered judgment in the High Court in Jazztel plc v HMRC [2017] EWHC 677 (Ch), the test case in the Stamp Taxes GLO. The claimant here sought recovery of UK stamp duty reserve tax (SDRT) that it had paid on the issue of shares to clearance houses and in exchange for depository receipts. Under ss 96 and 93 respectively of the Finance Act 1986, such transactions gave rise to a charge to SDRT at a higher rate of 1.5%, as compared with the 0.5% charge that applied to a standard transfer of shares.
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It seems that a refusal to mediate is not an unreasonable choice after all.
In Graham Gore v (1) Kishwar Naheed and (2) Asim Suhail Ahmed [2017 EWCA Civ 369], Lord Justice Patten outlined that a party was not unreasonable in refusing mediation in favour of using the Courts, if the circumstances in the particular case meant that decision was vindicated.
Mr Justice Toulson has recently been scathing of Defendants who apply tactics in the costs management process.
In Findcharm Ltd v Churchill Group Ltd, the Defendant’s Precedent R document reduced the Claimant’s budget to less than half. The Judge deemed this completely unrealistic.
nterpol has, by a decision taken at its session of 27 February to 3 March 2017, deleted from its databases the Red Notice issued in July 2015 in respect of President Viktor Yanukovych, and the data held on its files concerning President Yanukovych’s son, Oleksandr Yanukovych. Interpol has confirmed that President Yanukovych and Oleksandr Yanukovych are not subject to an Interpol Red Notice or Diffusion, and that they are not known on Interpol’s databases.
This action by Interpol follows applications in 2015 to Interpol by Joseph Hage Aaronson LLP on behalf of President Yanukovych and Oleksandr Yanukovych seeking their removal from the Interpol list of wanted persons, including on the basis that the cases against them were politically motivated, lacked an evidentiary basis, and lacked due process. Following these requests, Interpol had suspended a Red Notice issued against President Yanukovych and a so-called Diffusion (a request for co-operation in relation to a police investigation) concerning Oleksandr Yanukovych, and blocked the access of Interpol member countries to data concerning them, while it considered the concerns raised.
During this process Interpol considered further information provided by Joseph Hage Aaronson LLP on behalf of President Yanukovych and Oleksandr Yanukovych, and consulted the National Central Bureau of Ukraine, including on its further requests for Red Notices made during that time, which have not been granted. This decision confirms that the retention of the data held in respect of President Yanukovych and Oleksandr Yanukovych is contrary to and that all international police cooperation via Interpol’s channels in this case would not be in conformity with Interpol’s Constitution and Rules.
Enquiries to: Joseph Hage Aaronson LLP, Tel: +44 (0)2078518888
C-682/15 Berlioz
A French subsidiary paid dividends to its Luxembourg parent (B) without deducting WHT on the basis that they were exempt. The French tax authorities requested information from the Luxembourg tax authorities, which sought the relevant information from B. B refused to provide some information and a fine was imposed. B appealed because the information requested was not foreseeably relevant. The Luxembourg Tribunal refused to consider this question. B argued that this refusal violated its rights to an effective judicial remedy under the European Charter of Human Rights.
The CJEU held that protection against arbitrary involvement by public authorities in the private activities of any natural or legal person is a basic principle of EU law. The Luxembourg Tribunal was wrong to refuse to consider B’s challenge to the legality of the information request. The CJEU stressed that an information order is lawful only if the information requested is ‘foreseeably relevant’ for the purposes of the tax investigation in the Member State seeking it. Member States cannot engage in ‘fishing expeditions’ or request information that is of no relevance to the investigation concerned. The case is available here.
This article appears in the JHA May 2017 Tax Newsletter, which also features:
C-164/16 Mercedes-Benz v HMRC
Mercedes offered vehicles to customers in so-called ‘Agility Agreements’, under which the lessee paid monthly instalments in exchange to use the vehicle for a specified period. At the end of the period, the lessee had an option to purchase the vehicle in consideration for a ‘balloon’ payment (varying between 42% and 48% of the initial purchase price). The question for the CJEU is whether such an agreement constitutes a supply of goods or services under the VAT Directive.
The AG considers that they constitute agreements for the supply of services. Article 14(2) of the Directive provides that an agreement is a supply of goods where it “provides that in the normal course of events ownership is to pass at the latest upon payment of the final instalment”. The AG states that this only covers agreements where the right to purchase, although formally optional, is the only economically rational course of action. Where, as here, the lessee has a genuine choice whether to purchase, the agreement will be a supply of services for VAT purposes. The case is found here.
This article appears in the JHA May 2017 Tax Newsletter, which also features:
C-39/16 Argenta
Under Belgian interest limitation rules, a deduction of interest payments is disallowed where the taxpayer receives exempt dividends from shares held by the company for less than a year. The question for the CJEU was whether the Belgian rules are compatible with the Parent-Subsidiary Directive (PSD).
The Advocate General (AG) reasoned that the Directive did not apply because Argenta did not meet the one-year holding period requirement. The AG also held that Article 3(2) of the PSD, which gives MS the option of exempting companies from the PSD benefits if they have not remained in possession of a holding for a period of at least two years, is not time constrained. In any event, the PSD only allows Member States to provide that ‘the costs relating to the holding in the subsidiary’ are non-deductible. Consequently, the Directive precludes the Belgian interest limitation rules as they do not take into account the situation where the interest cost was connected to the holdings for which an exemption was granted. Further, the AG found that the rules are not provisions of domestic law preventing tax evasion and abuse. The case is available here.
This article appears in the JHA May 2017 Tax Newsletter, which also features:
The case concerned claims made by certain investment trust companies (“ITCs”) for refunds of VAT which they had paid to investment managers on the supply of management services, which later turned out not to be due since the supplies in question were exempt under EU law.
On discovering that the VAT was not in fact due, the investment managers made statutory refund claims and then passed on the refunded VAT and interest to the ITCs. Such statutory claims were however (1) subject to a three year limitation period and (2) incapable of recovering the input VAT which the managers had deducted from the amounts paid on to HMRC. The ITCs therefore did not receive the full amount of the VAT that they had been charged and, as a result, brought claims in unjust enrichment against HMRC claiming that they should be able to recover the gross amount of VAT paid and that their claims should not be limited to the three year statutory period.
The Supreme Court held that the ITCs’ claims in respect of the input tax failed and that HMRC’s enrichment was limited to the amount which they had actually received from the investment managers. The enrichment did not include the amounts retained as input tax credits since the supplies should have been exempt, and so there had been no entitlement to deduct input VAT. The Court went on to hold that the ITCs had, in any event, been unable to make out a claim in unjust enrichment since there had been no direct transfer of funds from them to HMRC and, therefore, HMRC’s enrichment could not be said to have been at their expense. As a result, the ITCs’ claims for VAT paid outside of the three year statutory period also failed. Finally, the Court held that the statutory repayment scheme created an exhaustive code of remedies and, as such, was effective in excluding any common law claims which the ITCs may otherwise have had.
This article appears in the JHA April 2017 Tax Newsletter, which also features:
The Supreme Court has made a reference to the Court of Justice of the European Union (“Court of Justice”) concerning the allowable proportion of residual input tax (i.e., general business overheads not directly attributable to particular supplies) attributed to hire purchase transactions. The background to the dispute is that Volkswagen Financial Services (“VFS”) provided hire purchase (“HP”) finance for the sale of vehicles manufactured by the Volkswagen Group. HP supplies comprise exempt supplies of finance and taxable supplies of cars. In December 2007 HMRC agreed to a new updated version of a (sectorised) partial exemption special method (“PESM”) for determining the deductible proportion of residual input tax, but HMRC disagreed with VFS’s proposed methodology for its retail sector, under which its HP supplies fall. VFS argued for a transaction-count method, which had the effect of splitting the residual input tax 50/50 (because each HP supply consisted of two separate supplies, as indicated above). HMRC maintained that overheads were all attributable to the exempt supplies of finance. VFS’s argument was successful in the First-tier Tribunal (“FTT”) and Court of Appeal.
HMRC’s position is based upon an argument that the overhead costs have been incorporated only into the price of the exempt supplies of finance (in a typical HP transaction there will be no mark-up on the taxable supply of the vehicle).
The questions referred to the Court of Justice ask (1) whether a taxable person has a right to deduct any of the input VAT on general overhead costs attributed to HP transactions where they have been incorporated only into the price of the exempt supplies of finance and (2) whether it can be legitimate in principle to ignore the value of the taxable supplies of cars or their value for the purposes of arriving at a PESM (provided for by Article 173(2) of Council Directive 2006/112/EC).
These are questions of fundamental importance on how the concept of “direct and immediate link” should be construed. The Supreme Court also decided a secondary issue between the parties concerning HMRC’s alternative argument that it had a fall-back position on the amount of apportionment (lower than 50%) that the FTT had failed to consider. That latter ground of appeal was dismissed. The Court held that if HMRC believed that the judge had misunderstood their position and failed to deal with a significant issues, they should have raised it upon receiving the decision. There may, the Court said, be some circumstances where a more inquisitorial approach is appropriate, but they did not apply in this case.
This article appears in the JHA April 2017 Tax Newsletter, which also features:
HM Revenue and Customs (“HMRC”) have issued Revenue and Customs Brief 1 (2017) setting out their position on claims for historical bad debt relief following the conclusion of part of the long-running litigation on this issue, in particular on the bad debt relief legislation that existed between 1978 and 1997.
Before 1 April 1989 the VAT bad debt relief scheme required the defaulting customer to be formally insolvent (“the Insolvency Condition”) and until 19 March 1997 there was also a condition that title in any goods must have passed to the customer (“the Property Condition”). The latter condition was more problematic than one might first think because it excluded relief in the case of any contract for the supply of goods which contains a retention of title (“Romalpa” clause).
The Court of Appeal held most recently in HM Revenue and Customs v GMAC (UK) Plc [2016] EWCA Civ 1015 that an EU Member State may decline to implement a system of relief for non-payment altogether, but if it does decide to implement a partial system of relief, its exercise of the power to derogate cannot escape scrutiny.
The Court had no hesitation in finding both the Insolvency Condition and the Property Condition to be disproportionate. However, this did not assist the taxpayer for supplies made prior to 1 April 1989 because the Court also held that such claims were time barred under section 39(5) Finance Act 1997: that provision did not render the exercise of the taxpayer’s EU law rights excessively difficult or virtually impossible because the company had more than adequate time to do so and was given adequate notice of the withdrawal of the scheme. By contrast, the Court rejected HMRC’s argument that the taxpayer, in asserting EU law rights, had to act within a reasonable period of time: the domestic legislation was to be read as being silent as to any time limit and therefore not imposing any, which was not incompatible with EU law.
Floyd LJ considered that this result might have been different if GMAC’s case had been that it was entitled to enforce its EU law rights without reference to any domestic mechanism.
HMRC will now pay claims relating to supplies of goods made between 1 April 1989 and 19 March 1997, but only subject to satisfactory evidence that the bad debts occurred and that the VAT had not previously been claimed. Because HMRC accepted, between 1989 and 1997, that title in goods would pass and therefore bad debt relief would apply where (1) goods had been sold on to a third party by the debtor or (2) the supplier chose to write to the customer and give up title in the goods to the customer, some businesses may previously have claimed relief. To ensure that they have not, HMRC will require claims to meet the requirements set out in conditions 1 to 5 in paragraph 2.2 of Notice 700/18. However, HMRC will consider alternative evidence as to amount and methodology, provided claimants can demonstrate (1) that they suffered bad debts on supplies of goods made under retention of title term (2) that they didn’t previously claim relief and (3) that the amount claimed is correct.
