Commissioners of Customs and Excise v Barclays Bank Plc
| Jurisdiction | England & Wales |
| Judge | THE VICE-CHANCELLOR,LORD JUSTICE BUXTON,LORD JUSTICE ARDEN,the Vice-Chancellor's |
| Judgment Date | 17 October 2001 |
| Neutral Citation | [2001] EWCA Civ 1513 |
| Docket Number | Case No: A3/2000/2637 |
| Court | Court of Appeal (Civil Division) |
| Date | 17 October 2001 |
[2001] EWCA Civ 1513
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM MR. JUSTICE FERRIS
CHANCERY DIVISION
Royal Courts of Justice
Strand,
London, WC2A 2LL
The Vice-chancellor
Lord Justice Buxton And
Lady Justice Arden
Case No: A3/2000/2637
Mr. Nigel Pleming QC and Miss Alison Foster (instructed by Commissioners of Customs & Excise for the Appellants) Mr. David Milne QC, Mr. Greg Sinfield and Mr. James Henderson (instructed by Messrs Lovells for the Respondents)
At all material times down to, but not including, 28th February 1995 Thamesbank Developments Ltd ("TDL") was a wholly owned subsidiary of Barclays Bank plc ("Barclays"). It was treated as a member of the Barclays' Group for VAT purposes. On 24th February 1995 Barclays contracted with TDL for the latter to fit out premises at Canary Wharf which it was intended should be occupied by BZW, a division of Barclays, and paid to TDL the sum of £149.6m due thereunder. On 28th February 1995 the shares in TDL held by or on behalf of Barclays were transferred to the trustees of a charitable trust called the Felix Trust. On the same day Barclays informed the Commissioners of Customs & Excise ("Customs") of that fact, claimed that TDL was no longer eligible to be treated as a member of the Barclays Group for VAT purposes and requested Customs to exclude TDL from the Barclays Bank VAT group from midnight on 28th February 1995.
Customs did not accept that the consequence of the change in control of TDL was that it automatically ceased to be a member of the Barclays VAT group. On 15th June 1995 Customs notified Barclays that TDL would be removed from the VAT group at the beginning of the accounting period to commence next after the expiration of 90 days from the first notification on 28th February 1995, that is on 1st July 1995.
Thus the issue is whether TDL ceased to be a member of the Barclays VAT group on 28th Febuary 1995, as Barclays contends, or on 1st July 1995, as maintained by Customs. The materiality of the issue derives from s.25 Finance Act 1995. It came into force on 1st March 1995 and affects the liability of Barclays for VAT. If TDL was a member of the Barclays VAT group on that date then the liability of Barclays for VAT is substantially greater than if it were not. Both the VAT and Duties Tribunal (Mr Stephen Oliver QC) and Ferris J, whose judgment is reported at [2000] STC 665, concluded that TDL had automatically ceased to be a member of the Barclays VAT group on the change of control occurring on 28th February 1995. This is the appeal of Customs brought with the permission of Aldous LJ.
There is no dispute as to the relevant facts. The issue depends on the true construction of s.43 VAT Act 1994 in the context of the Sixth VAT Directive (77/388/EEC).
The Sixth Directive constituted a further stage in the evolution of the common system of turnover tax for which provision was made in Art 99 EEC. It superseded the earlier directives on the basis of which VAT was introduced into the United Kingdom by Finance Act 1972. So far as relevant it provides:
"Article 4
1. "Taxable person" shall mean any person who independently carries out in any place any economic activity specified in paragraph 2, whatever the purpose or results of that activity.
2. The economic activities referred to in paragraph 1 shall comprise all activities of producers, traders and persons supplying services…
3….
4. The use of the word "independently" in paragraph 1 shall exclude employed and other persons from the tax in so far as they are bound to an employer by a contract of employment or by any other legal ties creating the relationship of employer and employee as regards working conditions, remuneration and the employer's liability.
Subject to the consultations provided for in Article 29, each Member State may treat as a single taxable person, persons established in the territory of the country who, while legally independent are closely bound to one another by financial, economic and organisational links."
As is apparent from the terms of Article 4.4 employees cannot be independent of their employers; but in the case of persons legally independent but closely bound to one another by financial, economic or organisational ties Member States have a discretion whether or not to treat them as independent.
Effect was given to the Sixth Directive in the United Kingdom at the relevant time by s.43 VAT Act 1994. Where in accordance with the provisions of the section any bodies corporate are treated as members of a group then any business carried on by any of them is treated as carried on by the representative member thereof. To that end supplies by one member of the group to another are disregarded, supplies by or to any member of the group to or by someone outside the group are treated as being made by or to a representative member of the group and imports by any member of the group are treated as made by the representative member.
The provisions relating to its application are contained in subsections (3)-(8) in the following terms:
"(3) Two or more bodies corporate are eligible to be treated as members of a group if each is resident or has an established place of business in the United Kingdom and-
(a) one of them controls each of the others; or
(b) one person (whether a body corporate or an individual) controls all of them; or
(c) two or more individuals carrying on a business in partnership control all of them.
(4) Where an application to that effect is made to the Commissioners with respect to two or more bodies corporate eligible to be treated as members of a group, then, from the beginning of a prescribed accounting period they shall be so treated, and one of them shall be the representative member, unless the Commissioners refuse the application; but they shall not refuse it unless it appears to them necessary to do so for the protection of the revenue.
(5) Where any bodies corporate are treated as members of a group and an application to that effect is made to the Commissioners, then, from the beginning of a prescribed accounting period-
(a) a further body eligible to be so treated shall be included among the bodies so treated; or
(b) a body corporate shall be excluded from the bodies so treated; or
(c) another member of the group shall be substituted as the representative member; or
(d) the bodies corporate shall no longer be treated as members of a group,
unless the application is to the effect mentioned in paragraph (a) or paragraph (c) above and the Commissioners refuse the application; but they shall not refuse it unless it appears to them necessary to do so for the protection of the revenue.
(6) Where a body corporate is treated as a member of a group as being controlled by any person and it appears to the Commissioners that it has ceased to be so controlled, they shall, by notice given to that person, terminate that treatment from such date as may be specified in the notice.
(7) An application under this section with respect to any bodies corporate must be made by one of those bodies or by the person controlling them and must be made not less than 90 days before the date from which it is to take effect, or at such later time as the Commissioners may allow.
(8) For the purposes of this section a body corporate shall be taken to control another body corporate if it is empowered by statute to control that body's activities or if it is that body's holding company within the meaning of section 736 of the Companies Act 1985; and an individual or individuals shall be taken to control a body corporate if he or they, were he or they a company, would be that body's holding company within the meaning of that Act."
There are a number of points to be noted. First eligibility for membership of a VAT group depends on both (a) residence or an established place of business in the United Kingdom and (b) the relevant control. S.43(3). Second, the question of corporate control is to be determined in accordance with the provisions of the Companies Act 1985. S.43(8). It has been held and is not in dispute that such test is exhaustive. British Airways Board v Commissioners of Customs & Excise [1979] Vat Dec 846. Third, where the two conditions of eligibility are satisfied membership of the group still depends on an application being made to the Customs for the purpose. Customs may only reject the application if it is necessary to do so for the protection of the revenue. S.43(4) and (5)(a). In each case membership starts at the beginning of a prescribed accounting period. Fourth, the express provisions dealing with the exclusion of a member of the group, s.43(5)(b) and (6), depend on a prior application to or notice from Customs and take effect from dates not referable to the cesser of eligibility.
Mr Oliver QC, the chairman of the VAT and Duties Tribunal, rejected the submissions of Customs that the provisions of s.43(6) were inconsistent with the contention that membership of a group automatically ended when the condition for control ceased to operate but did entitle Customs to specify the date on which membership should come to an end. In paragraph 12 of his decision he said:
"This argument is, I think, based on a misinterpretation of subsection (6). In the scheme of section 43, the function of subsection (6) is to empower the Commissioners of their own initiative to direct that one or more companies are to be degrouped with effect from a particular date. Subsection (6) stands independent of subsections (5) and (7) and the 90 day time delay has no bearing on the...
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