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Judicial review applications against particular applications of the partnership payment notice regime introduced by the Finance Act 2014 are working their way through the courts. However, such applications do not have the effect of suspending the notices under challenge pending the determination of the judicial review. Therefore, without more, the Claimant in the judicial review application either has to pay the tax demanded under the notice or not pay and face the risk of significant penalties if the judicial review application ultimately proves to be unsuccessful. In principle, an interim injunction preventing HMRC from enforcing the notice under challenge would remove that issue.

An application for such an injunction was made in March in the case of Nigel Rowe and others v HMRC and was rejected by Simler J. A transcript of that decision is not available. However, a similar application was made in the case of Dunne and Gray v HMRC, and the decision of Mrs Justice Laing has been reported. Again, the application for an interim injunction was unsuccessful.

The Judge determined that the statutory scheme was exhaustive and unambiguous. The legislation imposes distinct and separate statutory duties on HMRC, and any interim injunction would directly interfere with the performance of those statutory duties. Additionally, there is a statutory right of appeal against the issue of any penalties. Overall, Parliament has provided that if a partnership payment notice is issued the taxpayer must decide, if they wish to seek to challenge the notice by judicial review proceedings, whether or not to pay the sum demanded or take their chances on the judicial review and in any statutory appeal against any penalty should the judicial review fail. Consequently the Judge doubted whether she had the power to grant an injunction but if she did have such a discretion, she would not exercise it to grant the relief sought. She described an argument that the choice facing the Claimant effectively rendered the judicial review application nugatory as “misconceived”.

So all now rests on the outcome of the judicial review applications themselves.

Eamonn Dunne and Vincent Gray v Revenue & Customs Commissioners [2015] EWHC 1204 (Admin) (currently only available from Lawtel, which requires a subscription)

The Austrian legislation disallowed amortisation of goodwill in cases where a holding was acquired in a company established in a Member State other than Austria. The Austrian Administrative Court asked the CJEU:

• whether the amortisation of goodwill constituted prohibited state aid, and
• whether the exclusion of non-resident group members from the amortisation of goodwill constituted a restriction on the freedom of establishment?

AG Kokott noted that although the Austrian measures amounted to a tax benefit within the meaning of TFEU’s state aid provisions, the legislation did not confer a selective advantage to the undertakings in question and it did not constitute state aid.

However the AG then concluded that the measures were discriminatory because resident and non-resident subsidiaries are in objectively comparable situations and the restriction could not be justified because there was no direct link between the amortisation of the commercial value of the shareholding in a subsidiary and the allocation of profits of a subsidiary. In her opinion therefore, the Austrian regime constituted a restriction on the freedom of establishment.

Case C-66/14 Finanzamt Linz v Bundesfinanzgericht, AG’s Opinion, 16 April 2015 (not yet available in English)

Advocate General Kokott has handed down her Opinion in Case C-105/14 Taricco and Others. The Italian courts requested a preliminary reference from the CJEU on whether EU law requires domestic courts to refrain from applying domestic limitation period provisions in order to guarantee the effective punishment of tax offences.

AG Kokott firstly confirmed that the Court had jurisdiction to hear the dispute. Although the case concerned tax offences under Italian criminal law, the Italian authorities were required to exercise their powers according to the relevant provisions and principles of EU law. Criminal proceedings in the field of VAT fell within the scope of EU law and the Court’s jurisdiction.

AG Kokott held that EU law required that Member States provide for “effective, proportionate and dissuasive penalties” for irregularities in VAT matters. In serious cases of VAT fraud this would involve deprivation of liberty. She found that domestic limitation period provisions which had the effect of exempting the perpetrators of VAT fraud from punishment breached EU law and should not be applied by the national courts.

Case C-105/14 Ivo Taricco and Others, AG’s Opinion, 30 April 2015

The Organisation for Economic Co-operation and Development (OECD) has released a discussion draft on work in relation to Action 8 of the Action Plan on Base Erosion and Profit Shifting (BEPS).

Action 8 is entitled “Assure that transfer pricing outcomes are in line with value creation: Intangibles”. It requires the development of “rules to prevent BEPS by moving intangibles among group members” and involves updating the guidance on cost contribution arrangements.

According to the OECD, the discussion draft sets out a proposed revision to Chapter VIII of the Transfer Pricing Guidelines. The draft aims to align the guidance in Chapter VIII with the other elements of Action 8 already addressed in the Guidance on Transfer Pricing Aspects of Intangibles (released in September 2014).

Written comments must be submitted by 29 May 2015. A public consultation meeting is due to be held in Paris at the OECD Conference Centre on 6 or 7 July 2015.

Public Discussion Draft, BEPS Action 8: Revisions to Chapter VIII of the Transfer Pricing Guidelines on Cost Contribution Arrangements (CCAs), 29 April 2015

The Investigatory Powers Tribunal (IPT) has held that documents protected by legal privilege and held by GCHQ should be destroyed, but compensation would not be payable to the claimant.

The IPT’s planned hearing was previously reported on the blog here. The hearing was intended to consider any remedies that the IPT should provide on the hypothetical possibility that UK intelligence agencies had unlawfully intercepted privileged communications between Libyan nationals and their lawyers.

The IPT found as follows:

• Whether there had in fact been any relevant interception of the claimants’ privileged communications: in respect of the third claimant only (Sami Al Saadi), two documents that were protected by legal privilege had been held by GCHQ.
• GCHQ was to give an undertaking that the parts of the documents containing legally privileged information would be destroyed or deleted. GCHQ was to provide within 14 days a closed report confirming that the destruction and deletion of the two documents had been carried out. A hard copy of the two documents should be delivered within 7 days to the Interception of Communications Commissioner, to be retained for a period of 5 years, should it be required for further legal proceedings or inquiry.
• However, no compensation would be payable to the third claimant in the present case. Although the information in the two documents in question was covered by privilege, it did not disclose nor refer to any legal advice. There was no use or disclosure of the privileged information for the purpose of defending the civil claim previously brought by the third claimant (Al Saadi and ors v Straw and ors [HQ12X02604]), so Article 6 ECHR had not been breached. Moreover, even if the privileged information had been disclosed to the government defence team, it would not have been of any use nor have provided any litigation advantage to them.

Belhadj and ors v Security Service and ors – judgment (29 April 2015)

Belhadj and ors v Security Service and ors – determination (29 April 2015)

The CJEU has issued a press release setting out the proposed reforms to the EU court system. The proposal “aims to reinforce the efficiency of justice at EU level in a sustainable manner in the interest of EU citizens”.

The case load of the General Court has increased significantly in recent years, from 398 cases in 2000 to 912 cases in 2014. This increase is set to continue.

In light of this issue and of the complexity of cases before the court, the court’s proposal is to create extra judges according to the following schedule:
It is hoped that this reform will allow the General Court to stop the increase in the number of pending cases and begin disposing of its caseload, and that it will simplify the judicial structure of the EU, enhance its overall efficiency and promote consistency in its case law.

• 2015: increase of 12 judges;
• 2016: upon renewal of the mandates of the General Court’s members in September, there will be an additional 7 judges appointed through the merging of the Civil Service Tribunal with the General Court. This will bring the number of General Court judges to 47; and
• In 2019, at the next renewal of the mandates of the General Court’s members, the number of judges will increase by nine, bringing the total number of judges to 56.

The total net cost of the reform for all three phases is calculated at €13.875m per year.

The General Court has annulled the listing of Mr Ayadi as regards EU terrorism-related sanctions on the same grounds as in the earlier Kadi II case.

Mr Ayadi’s UN listing (on the Al-Qaida sanctions list) had previously been annulled by the ECJ on appeal. He subsequently sought to have his relisting by the EU annulled. The ECJ referred the case back to the General Court, holding that Mr Ayadi had a continuing interest in bringing proceedings for annulment in spite of his having been delisted by then.

The General Court held as follows:

• Mr Ayadi’s submissions, which he had not made before the referral, were admissible as he “adhered to the core substance of his arguments” that he had made previously.
• The Commission had observed Mr Ayadi’s rights of defence “only in the most formal and superficial sense”, as had been the case in Kadi II. The Commission had not substantiated by any information or evidence the reasons given for the relisting: “…there is no information to be extracted from the statement of reasons from which it is possible to establish to the requisite legal standard that Mr Ayadi was materially linked to Al-Qaida on the date when he was included in the list at issue”.
• “Although it is not legally bound by [Kadi II], the General Court considers that it may be applied, by analogy, to Mr Ayadi’s case in the absence of any other information or inculpatory evidence concerning Mr Ayadi”. Based on the legal grounds which had already been stated in Kadi II, Mr Ayadi’s listing was consequently annulled, and the Commission was ordered to pay his costs (in this case, to refund his legal aid to the General Court).

Case T‑527/09 RENV Ayadi v Commission, 14 April 2015

On 24 April 2015 the latest list of Bilateral Investment Treaties (BITs) between EU Member States and third countries was published in the Official Journal.

The publication of the BIT list referred to in Article 4(1) of Regulation 1219/2012 (establishing transitional arrangements for BITs between Member States and third countries) is based on the notifications submitted by the Member States to the Commission as per Articles 2, 11(6) and 12(6) of the same Regulation.

Note, in particular, that BITs concluded with the Republic of Croatia are only subject to Regulation 1219/2012 until the country accedes to the EU.

List of the bilateral investment agreements referred to in Article 4(1) of Regulation (EU) No 1219/ 2012 of the European Parliament and of the Council of 12 December 2012 establishing transitional arrangements for bilateral investment agreements between Member States and third countries, OJ C 135/1, 24 April 2015

The new EU General Court Rules of Procedure were published in the Official Journal on 23 April 2015. The new Rules had previously been approved by the General Affairs Council on 10 February 2015.

According to the Preamble:

Full revision of the text is necessary in order to give this set of rules a new coherence, to promote consistency in the procedural provisions governing proceedings brought before the Courts of the European Union, to preserve the capacity of the General Court to rule on cases within a reasonable time, to clarify parties’ rights, to specify the General Court’s expectations regarding the parties’ representatives and to adjust a certain number of provisions to take account of certain changes, including technological changes, in relation to the lodging and service of procedural documents, and of difficulties encountered in their implementation.

In particular, key changes to the Rules are summarised as follows:

• In addition to the procedural provisions applicable to direct actions, intellectual property actions and appeals lodged against EU Civil Service Tribunal decisions have been made subject to particular procedural rules set out in special titles. For the benefit of litigants, the rules that apply to each procedure have been specified. Intellectual property proceedings have been streamlined with a view to reducing their duration.
• For clarity, requests and applications relating to judgments and orders, as well as procedures following referral by the Court of Justice have been gathered in two respective single titles.
• The adversarial principle governing proceedings has been expressly articulated in Article 64. Moreover, Article 103 sets out circumstances where the court may, exceptionally, keep certain information provided by a party confidential from the other party, where such information is necessary for the court to rule in the case.
• Provisions previously contained in practice directions to parties (for instance relating to the length of pleadings) or in instructions to the General Court registrar (for example the provision concerning anonymity and that specifying the circumstances in which a third party may be given access to thefile in the case) are intended to be elevated to the status of rules of procedure.
• At a general level across the Rules, those which are outdated or not applied have been removed, every paragraph of the articles has been numbered, a specific heading for each article has been added, and terminology has been harmonised.

Rules of Procedure of the General Court OJ L 105/1, 23 April 2015

A typical problem area encountered in EU VAT practice is how transactions consisting of separately identifiable goods or services should be treated, particularly where those elements have different VAT liabilities. The Court of Justice has once more ruled on this issue.

In the case of Minister Finansów v Wojskowa Agencja Mieszkowania w Warszawie the referring court had asked (1) whether the VAT Directive must be interpreted as meaning that the supply of electricity, heating and water and refuse collection provided by third parties for a tenant directly using those goods and services must be regarded as being supplied by the landlord where he has concluded agreements for such provisions and where he simply passes on the costs to the tenant and (2) if so, whether the costs of those supplies increased the taxable amount (rent) or were supplies separate from the letting of immovable property.

The Court answered the first question in the affirmative. On the second question, the Court recalled the relevant basic principles in its case-law. For VAT purposes every supply must normally be regarded as distinct and independent but, in certain circumstances, several formally distinct services which could be supplied separately must be considered to be a single transaction when they are not independent. This is also the case where one or several services constitute the principal service, and where the other service or services constitute one or several ancillary services which share the tax treatment of the principal service.

In order to determine whether services supplied constitute independent services or a single service it is necessary to examine the characteristic elements of the transaction.

Factors pointing towards a separate supply in principle would include a tenant’s right to choose his suppliers and/or the terms of use of the relevant goods or services, a tenant’s ability to determine his own consumption of water, electricity or heating that is verifiable by the installation of individual meters and billed according to consumption and, in all cases, itemisation of the supply separately from the rent. Services such as the cleaning of common parts of a building under joint ownership should be regarded as separate from the letting if they can be organised by each tenant individually or by tenants collectively. The fact that the tenant has the right to obtain services from the provider of his choice is not, however, in itself decisive, nor does the landlord’s ability to terminate the rental agreement for non-payment of rental charges prevent the services to which those charges relate from constituting services separate from the letting.

However, if the letting of immovable property appears objectively, from an economic point of view, to form a whole with the supplies that accompany it, that can be considered a single supply that it would be artificial to split. The Court thought this might apply to the letting of turnkey offices ready for use with the provision of utilities and certain other supplies or short lettings, in particular, for holidays and professional reasons. Where the landlord is unable to choose freely and independently the suppliers and terms of use of the goods or services provided with the letting, those supplies are generally inseparable from it.

Accordingly, the Court held that the various services in question must be regarded as distinct and to be assessed separately for VAT purposes, unless, objectively speaking, the elements of the transaction, which would include those indicating the economic reason for the contract, were so closely linked that there was a single indivisible economic supply which it would be artificial to split. It was, however, a matter for the national court to assess taking into account all the circumstances of the letting.

Minister Finansów v Wojskowa Agencja Mieszkowania w Warszawie (Case C-42/14), 16 April 2015