Tax Advisor 2010 tax avoidance case law review - Olswang

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never realised a commercial loss for the purposes of paragraph 14A. The decision is being appealed to the UT. VAT GMAC UK Plc v Revenue and Customs Commissioners [2010] UKFTT 202 (TC) The decision in GMAC UK Plc is interesting in that it did not involve tax avoidance, yet HMRC stilltried to apply the Halifax decision. GMAC bought cars and resold them under hire purchase agreements. GMAC would repossess the cars of defaulting customers and resell them. At the relevant time this resale was not a supply for VAT purposes. GMAC made claims for bad debt relief in connection with the sale of cars to defaulting customers in relation to periods before 1997 on the basis that UK law (as it then stood) was incompatible with the VAT Directive, in that it required the customer to be insolvent and property in the goods had to have passed to the customer in order for the supplier to claim bad debt relief. GMAC successfully argued that the UK law as it stood before 1997 was incompatible with the VAT Directive such that, on the face of it, it should be entitled to make bad debt claims. However, HMRC argued that, where GMAC bought a car, resold it under a hire purchase agreement, then repossessed it and sold it again, the transactions should be redefined, following Halifax, as a single supply to the final customer, with output tax being due on this supply. Otherwise, GMAC would be at a competitive advantage as compared with other car dealers, which would distort fiscal neutrality. The FTT rejected HMRC’s argument and allowed the taxpayer’s appeal. Halifax could not apply outside the context of a tax avoidance scheme. This conclusion is a sensible one and restricts the role of Halifax to policing the "wild west" of VAT avoidance (which was clearly the intention of the ECJ). Paul Newey T/A Ocean Finance v Revenue and Customs Commissioners [2010] UKFTT 183 In this case the FTT had to consider how Halifax would apply where a taxpayer had migrated his loan broking business to Jersey. The clear intention of the reorganisation was that irrecoverable VAT on advertising costs would be avoided, because the advertising services would be supplied to the new Jersey entity (Alabaster) in Jersey, and so would be outside the scope of VAT. HMRC argued that, applying Halifax, the taxpayer should be seen as still supplying the loan broker services, and so the advertising services should be viewed as supplied to him. However, 4
the FTT determined that, as a question of fact, Alabaster was a genuine commercial entity which was not simply "rubber stamping" decisions of the taxpayer; it was carrying out the business of loan broking itself. In light of these determinations of fact the FTT held that Halifax could not apply to recharacterise the transactions in terms of the entity supplying the loan broking services so that the recipient of the advertising services changed. This was a wholesale reorganisation of the business, which it was legitimate for the taxpayer to undertake, and was not contrary to the purpose of the VAT Directive. The fact that the essential aim of the reorganisation was to ensure that a VAT saving was achieved did not alter this conclusion. The taxpayer’s appeal therefore succeeded. HMRC are appealing the decision to the UT. Moorbury Limited v Revenue and Customs Commissioners [2020] UKUT 360 (TCC) The taxpayer in this case accepted that Halifax could apply where it had implemented a scheme to try to ensure that the VAT costs on the development of a piece of land could be recovered in circumstances where the taxpayer would itself not be able to recover this VAT, because it was making exempt supplies of land. However, the taxpayer argued that, because the transactions were redefined in accordance with Halifax, it had wrongly accounted for output tax as part of the scheme. HMRC argued that to recover this output tax the taxpayer had to make a claim under section 80 VAT Act 1994, which the taxpayer was out of time to do. The UT allowed the taxpayer’s appeal, finding that the consequence of a Halifax redefinition was that the taxpayer was automatically entitled to recover any output tax it had accounted for which was no longer due under the redefined transaction. This conclusion is a sensible one and ensures that Halifax applies in an even-handed way as between taxpayer and HMRC. Weald Leasing v Revenue and Customs Commissioners (Case C-103/09) (Opinion of A-G Mazak) The Advocate General delivered his long awaited opinion in this case On 26 October 2010. The taxpayer had put in place a structure to try to defer irrecoverable VAT by acquiring goods into one company, which leased them at less than market value to an unconnected third party, which then leased them on to a member of the same group (but not VAT group) as the first company, making a small profit. The intention of the structure was to allow the recovery of VAT on the supply of the goods, with irrecoverable VAT accruing on the lease of the goods to the second group company. The interposition of the third party was to ensure that a market value rent under the lease to the second company could not be directed by HMRC under Schedule 6 VAT Act 1994. 5
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Tax Advisor 2010 tax avoidance case law review - Olswang

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