Blackqueen Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 30 May 2002 |
| Date | 30 May 2002 |
| Court | Value Added Tax Tribunal |
VAT Tribunal
The following cases were referred to in the decision:
"Au Blé Vert"(Case 229/83) [1985] ECR 1
BUPA Hospitals Ltd VAT[2002] BVC 2155
C & E Commrs v Reed Personnel Services Ltd VAT[1995] BVC 222
C & E Commrs v West Herts College UNK[2001] STC 1245
Card Protection Plan Ltd v C & E Commrs VAT(Case C-349/96) [1999] BVC 155
Coates v Arndale Properties Ltd TAX[1984] BTC 438
Covita AVE v Greece (Case C-370/96) [1998] ECR I-7711
Direct Cosmetics Ltd v C & E Commrs (No. 2) VATVAT(1989) 4 BVC 673; (Case 138/86) (1988) 3 BVC 354
EC Commission v France VAT(Case 50/87) (1990) 5 BVC 205
EC Commission v Netherlands (Case 235/85) [1987] ECR I-1471
EC Commission v Spain (Case C-16/95) [1996] ECR I-4883
Elida Gibbs Ltd v C & E Commrs VAT(Case C-317/94) [1997] BVC 80
Emsland-Stärke GmbH v Hauptzollamt Hamburg-Jonas (Case C-110/99) [2000] ECR I-11569
EMU Tabac, ex parte (Case C-296/95) [1998] ECR I-1605
Enkler v Finanzant Homburg VAT(Case C-230/94) [1997] BVC 24
Ensign Tankers (Leasing) Ltd v Stokes TAX[1992] BTC 110
FA and AB Ltd v Lupton ELR[1972] AC 634
Faaborg-Gelting Linien A/S v Finanzamt Flensburg VAT(Case C-231/94) [1996] BVC 436
First National Bank of Chicago v C & E Commrs VAT(C-172/96) [1998] BVC 389
Fischer v Finanzamt Donaueschingen VAT(Case C-283/95) [1998] BVC 431
Gallaher Ltd VAT[1997] BVC 4091
General Milk Products GmbH v Hauptzolamt Hamburg-Jonas (Case C-8/92) [1993] ECR I-779
Halifax plc v C & E Commrs VATVAT[2001] BVC 2240; [2002] BVC 370
Harbig Leasing Two Ltd VAT[2001] BVC 2134
Harnas & Helm v Staatssecretaris van Financiën VAT(Case C-80/95) [1997] BVC 358
Kuwait Petroleum (GB) Ltd v C & E Commrs VAT(Case C-48/97) [1999] BVC 250
Lease Plan Luxembourg SA v Belgium VAT(Case C-390/96) [1998] BVC 412
Marleasing SA v La Comercial Internacional de Alimentación SA(Case C-106/89) [1993] 1 CEC 124; [1990] ECR I-4135
Naturally Yours Cosmetics Ltd v C & E Commrs VAT(Case 230/87) (1988) 3 BVC 428
Reed v Nova Securities Ltd TAX[1985] BTC 121
Régie Dauphinoise - Cabinet A Forest SARL v Ministre du Budget VAT(Case C-306/94) [1996] BVC 447
Société Générale des Grandes Sources d'Eaux Minérales Françaises (SGS) v Bundesamt für Finanzen VAT(Case C-361/96) [1999] BVC 3
Staatssecretaris van Financiën v Shipping and Forwarding Enterprise Safe BV VAT(Case 320/88) [1991] BVC 119
Swedish State v Stockholm Lindöpark VAT[2001] BVC 93
Verbond van Nederlandse Ondernemingen v Inspecteur der Invoerrechten en Accijnzen (Case 51/76) [1977] ECR 113
Wellcome Trust Ltd v C & E Commrs VATVAT(Case C-155/94) [1996] BVC 377; [1995] BVC 1011
WT Ramsay Ltd v IR Commrs ELR[1982] AC 300
Tax avoidance scheme - Motor cars - Circular series of transactions within a group of companies for the purpose of obtaining full input tax credit and paying output tax only on the margin - Application for refund of VAT made by appellant under Directive 79/1072, the eighth VAT directive - Whether transactions were economic activities - Whether applications were an abuse of rights by the appellant.
The issues were firstly, whether the commissioners' decisions refusing the appellant's applications for refund of VAT were announced within the six-month time-limit in art. 7(4) of Directive 79/1072, the eighth VAT directive, and, if not, whether the decisions were invalid; secondly, whether the appellant's applications should be refused on the ground that related supplies to and by the appellant were not economic activities; and thirdly, whether the applications should be refused on the basis that they were an abuse of rights.
The appellant company was a member of a corporate group, not a VAT group, and was established in the Republic of Ireland. The principal activities of the group were the sale and lease of motor vehicles and parts and the provision of associated services. The main trading company within the group, Dixon Motor Holdings Ltd (Holdings), deducted input tax in respect of cars used in its fleet hire business and accounted for output tax on the full selling prices when the cars were subsequently disposed of as retail sales. For cars adopted as demonstrator and courtesy cars, Holdings was unable to deduct any input tax upon purchase.
In 1998, Holdings established a scheme involving a series of transactions within the group starting with the sale of cars by Holdings to the appellant and ending three months later with the sale of the cars back to Holdings by Strong Run Ltd, another company within the group. The scheme was designed to ensure that Holdings did not own the cars but, by means of leasing arrangements, it retained possession of the vehicles as part of its hire fleet or as demonstrator or courtesy cars in its retail and servicing trade. There was no dispute that the sole reason and intention of each of the companies in entering into the transactions was tax avoidance, namely to enable the group to deduct input tax on the purchase of the cars but to account for output tax on the subsequent sale of the vehicles only on the profit margin, if any.
In the first series of transactions under the scheme, Holdings sold cars to the appellant at a total price of £1,361,450 plus VAT and in July 1999 the appellant submitted to the commissioners an application under the eighth directive for refund of the VAT paid. The application was refused by the commissioners. In the following year, the series of transactions was repeated four more times and four further applications were made, which were also refused. By the time a fifth series of transactions was completed, new legislation was introduced by the inclusion of Sch. 3A in the Value Added Tax Act 1994 requiring VAT to be charged on the full price of the cars when sold by Strong Run Ltd to Holdings.
The first issue for the tribunal was whether the refusals of the applications were made within the time-limit established by the eighth directive. The appellant contended that the time-limit commenced on the day that the application was lodged, but the commissioners argued that the six-month period commenced only after all the relevant documents had been produced. They submitted that it was necessary to take a purposive approach to the interpretation of the legislation and that the purpose of the time-limit was to enable member states to verify the application; that could not happen until all the necessary information was available. The appellant submitted that all the required information was available to the commissioners in early 2000, so that the decision was still out of time. The commissioners disputed that they had sufficient information at the time claimed by the appellant, but submitted that whether or not the decisions were made in time, the claims were bad and they acted correctly in refusing them.
The second issue was whether the applications should be refused on the basis that the supplies to and by the appellant were not economic activities and so were outside the scope of VAT, in accordance with the tribunal's decision in Halifax plc VAT[2001] BVC 2240. In that case, the principle established was that where the sole reason for transactions is the avoidance of a liability to VAT, those transactions have no business purpose and so do not constitute economic activities, with the result that the supplies are not made by a taxable person acting as such and are, therefore, outside the scope of VAT. A number of further issues arose from the Halifax principle and these were considered in turn by the tribunal: whether the principle applied to goods as well as services; whether the series of transactions in which the appellant took part complied with the purposes of the legislation; whether the transactions constituted economic activities; when viewed in isolation, whether the supply by Holdings to the appellant was, or was deemed to be, in the course of the business of Holdings; when viewed in isolation, whether the supplies by the appellant were made direct to Holdings and not to Strong Run; and whether there should be a reference to the Court of Justice.
The third issue in the appeal, alternative to the second, was whether the applications should be refused on the ground that they were an abuse of rights. The concept of abuse of rights, considered in BUPA Hospitals Ltd VAT[2002] BVC 2155, applied if two conditions were satisfied: there should be a combination of objective circumstances in which the purpose of Community rules was not achieved; and that there should be an intention to obtain an advantage from the Community rules by creating artificially the conditions for obtaining it. The appellant submitted that it could not be said that the purpose of the Community rules had not been achieved The appellant had not abused its rights as it had not created the artificial advantage which followed from the scheme; it had genuinely paid the tax to Holdings and had made no supplies in the UK. The commissioners argued that the appellant was party to a scheme the purpose of which ran counter to the spirit and purpose of the sixth directive. It had also achieved the conditions for the grant of the refund to facilitate the use by Holdings of the margin scheme and the avoidance of blocked input tax.
Held, dismissing the company's appeal:
1. The decisions by the commissioners to refuse the applications were not announced within the time-limit established by the eighth directive, but that did not mean that the refunds had to be made. The tax was required to be refunded only if the applications complied with the conditions of the directive, including art. 2, which requires that the supplies must be used for the purpose of transactions relating to economic activities, and art. 5, which requires that the supplies must be goods or services used for the purposes of the applicant's taxable transactions.
2. The supplies to and by the appellant were not, in fact, economic activities and were therefore outside of the scope of VAT. This conclusion...
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