Commissioners of Customs and Excise v UBAF Bank Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 06 February 1996 |
| Date | 06 February 1996 |
| Court | Court of Appeal (Civil Division) |
Court of Appeal (Civil Division).
Neill and Aldous L JJ and Sir John Balcombe.
Kenneth Parker QC (instructed by the solicitor for Customs and Excise) for the Crown.
Perdita Cargill-Thompson (instructed by McKenna & Co) for UBAF Bank.
The following cases were referred to in the judgment:
BLP Group plc v C & E Commrs VAT(Case 4/94) [1995] BVC 159
Rompelman v Minister van Financiën VAT(Case 268/83) [1985] ECR 655; (1985) 2 BVC 200,157
Value added tax - Partial exemption - Attribution of input tax between taxable and non-taxable supplies - Special method agreed with Customs - Whether special method applied to professional fees incurred in connection with bank's acquisition of leasing companies to expand its leasing business - Whether fees were for supplies used for making taxable supplies of leasing - Value Added Tax (General) Regulations 1985, reg. 30(1)(b),(5) (reg. 30, as substituted by SI 1992/645, reg. 3 was replaced by the SI 1995/2518 section 101Value Added Tax Regulations 1995 (SI 1995/2518), reg. 101).
This was an appeal by Customs against a decision of Macpherson of Cluny J ([1995] BVC 69) that VAT paid in respect of professional fees incurred by a bank in connection with the acquisition of the shares and businesses of three leasing companies to add to its own existing leasing activity was recoverable as input tax.
Between December 1990 and April 1991 the bank ("UBAF"), which had suffered trading losses in respect of its leasing business, decided to purchase three leasing companies. In each case UBAF acquired the share capital of the company concerned, and on the next day acquired the company's business. After completion of the transactions the three companies became dormant subsidiaries of UBAF and the leasing businesses were conducted by UBAF itself. UBAF had at no time been a pure holding company.
UBAF made both exempt and taxable supplies and had agreed with Customs a "special partial method" for attribution of input tax to exempt and taxable supplies pursuant to the Value Added Tax (General) Regulations 1985, reg. 30(5), with effect from 1 June 1987. A letter from Customs dated 24 March 1988, set out the method as agreed. Tax was to be attributed between taxable and non-taxable supplies to the fullest extent possible and input tax attributable to taxable supplies might be recovered in full.
The question was whether, as UBAF contended, the VAT charged by solicitors and brokers could be recovered in full as input tax or whether, as Customs contended, only a proportion of that tax could be recovered as residual input tax.
Customs contended that the judge had erred in holding that the VAT tribunal had correctly concluded, as a matter of fact, that the purpose underlying the acquisition of the shares and the businesses of the three companies was directly linked to the bank's taxable supplies of leasing. The professional services were attributable solely to the acquisition of the shares and the businesses of the three companies. There was no sufficient or direct link between the services in question and the taxable supplies of leasing. Thus the services were not "wholly used or to be used" by UBAF in making taxable supplies within the meaning of reg. 30(1)(b) of the regulations.
Customs accepted that if the services had been in relation to physical assets acquired for use in the making of taxable supplies by UBAF, the input tax would have been deductible. Customs also accepted that it was irrelevant that the shares and the businesses were not transferred at the same time.
Held, dismissing Customs' appeal:
The VAT tribunal had found as a fact that the transactions whereby UBAF acquired the three companies and their businesses were intended to and did enable UBAF to add to its own existing leasing business and to make taxable supplies of leasing. That amounted to finding that there was a direct link between the acquisitions and the making of taxable supplies. Although the assets acquired were not physical assets to be used in making taxable supplies, the assets included rights under existing leases which were acquired to be included in UBAF's leasing business. BLP Group plc v C & E Commrs (Case 4/94)VAT [1995] BVC 159 distinguished.
This appeal is concerned with sums of VAT charged on fees paid by UBAF Bank Ltd ("UBAF") to solicitors and brokers in connection with the acquisition by UBAF of the issued share capital of three leasing companies and the acquisition of the businesses of those three companies.
The question raised in the appeal is whether, as UBAF contends, the VAT charged by the solicitors and brokers, amounting in total to £103,327.35, can be recovered in full as input tax or whether, as Customs contend, only a proportion of this tax can be so deducted.
The principal business activity of UBAF is that of international banking. Since about 1977, however, UBAF has had an equipment leasing business. It is common ground that equipment leasing is taxable as a supply of services. It follows therefore that UBAF supplies both ordinary financial services, which are exempt supplies, and services which are taxable.
In 1987 the bank suffered trading losses on its leasing business and suspended writing new leases. In both 1987 and 1989 the bank had significant losses for corporation tax purposes. It was therefore attractive to the bank to purchase companies which were carrying on similar businesses of leasing and to arrange for these businesses to be transferred to UBAF and to be carried on as part of UBAF's existing leasing business. The concept of purchasing other companies was introduced to UBAF by Cipher Resources Ltd ("Cipher") who identified suitable companies and assisted with the evaluation of the credit risk and with the funding required for the purchases.
Proposals to buy other leasing companies and their businesses were considered by the board of UBAF at a meeting held on 7 December 1990. The relevant minute of the meeting was in these terms:
The Board received a presentation by Management, which had been delivered to Management Committee earlier the same morning, concerning proposals designed to improve profitability. These proposals, which involved the acquisition of leasing companies and businesses at yields reflecting the availability to the bank of accumulated tax losses, were endorsed by the Committee and recommended to the Board.
It was noted by the Board that under the proposals the existing leasing operations of the bank would be extended by adding to the leasing portfolio the assets of one or more leasing companies or businesses to be acquired, and that the business so acquired would be merged with, managed or otherwise carried out as an integral part of the existing leasing operations of the bank.
The Board approved the proposals and agreed...
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