Gmac UK Plc

JurisdictionUK Non-devolved
Judgment Date06 May 2010
Date06 May 2010
CourtFirst Tier Tribunal (Tax Chamber)

[2010] TC 00504.

[2010] UKFTT 202 (TC).

Theodore Wallace (Chairman); Miss S C O'Neill.

GMAC UK plc

Roderick Cordara QC and Jessica Wells, instructed by KPMG LLP, for the Appellant

Paul Lasok QC and Ian Hutton, instructed by the Solicitor for the Revenue and Customs, for the Respondents

The following cases were referred to in the judgment:

Ampafrance SA v Directeur des Services Fiscaux de Maine-et-LoireECASVAT (Case C-177/99) [2002] BVC 664

Aprile SrL v Ammistrazione delle Finanze dello Stato (No. 2) ECASWLR (Case C-228/96) [1998] ECR I-7141; [2000] 1 WLR 126

Becker v Finanzamt Munster-InnenstadtECAS (Case 8/81) [1982] ECR 53

BLP Group plc v C & E CommrsECASVAT (Case C-4/94) [1995] BVC 159

C & E Commrs v Cantor Fitzgerald InternationalECASVAT (Case C-108/99) [2002] BVC 9

C & E Commrs v Chinese Channel (HK) LtdVAT [1998] BVC 91

C & E Commrs v General Motors Acceptance Corporation (UK) plcVAT [2004] BVC 611

C & E Commrs v Robert Gordon's CollegeVAT [1996] BVC 27

EC Commission v GermanyECASVAT (Case C-427/98) [2003] BVC 205

EC Commission v NetherlandsECASVAT (Case C-338/98) [2003] BVC 598

Elida Gibbs Ltd v C & E CommrsECASVAT (Case C-317/94) [1997] BVC 80

Emmott v Ministry of Social Welfare and Attorney General ECAS (Case C-208/90) [1991] ECR I-4296

Finanzamt Gladbeck v LinneweberECASVAT (C-453/02) [2007] BVC 227

Fleming (t/a Bodycraft) v R & C Commrs; Conde Nast Publications Ltd v R & C CommrsVAT [2008] BVC 221

General Motors Acceptance Corp (UK) plcVAT No. 19,989; [2007] BVC 2,302

Goldsmiths (Jewellers) Ltd v C & E CommrsECASVAT (Case C-330/95) [1997] BVC 494

Halifax plc v C & E Commrs ECASVAT (Case C-255/02) [2006] BVC 377

Imperial Chemical Industries plc v Colmer (No. 2)TAXWLR [1999] BTC 440; [1999] 1 WLR 2035

John Wilkins (Motor Engineers) Ltd & Ors v R & C CommrsVAT [2009] BVC 1,503

JP Morgan Fleming Claverhouse Investment Trust plc & Association of Investment Trust Companies v R & C CommrsECASVAT (Case C-363/05) [2010] BVC 337

Marks & Spencer plc v C & E CommrsECASVAT (Case C-62/00) [2002] BVC 622

Marleasing SA v La Commercial international de Alimentation SAECAS (Case C-106/89) [1990] ECR I-4135

R & C Commrs v IDT Card Services Ireland LtdVAT [2006] BVC 244

R & C Commrs v Rank GroupVAT [2009] BVC 598

Vodafone 2 v R & C CommrsVAT [2009] BVC 273

Bad debt relief - Insolvency requirement before FA 1990 - Property requirement before FA 1997 - Whether compatible with fiscal neutrality - Whether repayment claim resulted in windfall contrary to Community law - Retrospective time bar under Finance Act 1997 section 39 subsec-or-para 5FA 1997, s. 39(5) - Whether contrary to Community law - Finance Act 1978 section 12 subsec-or-para 2FA 1978, s. 12(2)(c); Finance Act 1990 section 11FA 1990, s. 11; Finance Act 1997 section 29 subsec-or-para 5 section 39 subsec-or-para 1FA 1997, ss. 29(5) and 39(1); eu-directive 77/388 subsec-or-para 4 article 5 subsec-or-para 1 article 11CSixth VAT directive (Directive 77/388), art. 5(4) and 11(C)(1); Value Added Tax Act 1983 section 22 subsec-or-para 2 section 22 subsec-or-para 4VATA 1983, ss. 22(2)(c) and (4)(b); Value Added Tax Act 1994 section 36 subsec-or-para 4 schedule 4 subsec-or-para 1VATA 1994, s. 36(4)(b) and Sch. 4, para. 1(2); Value Added Tax Regulations 1995 (SI 1995/2518), reg. 38; Value Added Tax (Cars) Order 1992 (SI 1992/3122), art. 4.

The appeal concerned the entitlement of the appellant to relief for bad debts totalling £2,302,743 for the period 1978 to 1997 arising out of hire purchase contracts terminated early without the buyer becoming owner of the goods. The specific issues were: firstly, whether the bad debt relief conditions were compatible with Community law (the compatibility issue); secondly, if the conditions were compatible, whether the appellant's claim would result in distortion and lack of fiscal neutrality contrary to Community law (the windfall issue); and thirdly, whether the claims in respect of supplies before 1 April 1989 could not be pursued in the tribunal by reason of the Finance Act 1997 section 39 subsec-or-para 5Finance Act 1997, s. 39(5) (the time-limit issue).

The appellant's business included the sale of motor cars on hire purchase to the public. The appellant purchased the cars from independent Vauxhall dealers, who had agreed sales with customers, and it supplied them on to the customers under hire purchase agreements. Under eu-directive 77/388 subsec-or-para 4 article 5art. 5(4) of the sixth VAT directive, the appellant accounted for VAT on the full sale price when the customer took possession of the car. Bad debts arose when a car was repossessed following a breach and was sold at a loss or when a customer defaulted and the car was not repossessed. Relief for VAT on bad debts was introduced by the Finance Act 1978 section 12Finance Act 1978, s. 12 in relation to supplies where the property passed to the recipient and the debtor became insolvent. The insolvency requirement was removed by the Finance Act 1990 and the property requirement was removed by the Finance Act 1997. The parties agreed that eu-directive 77/388 subsec-or-para 1 article 11Cart. 11(C)(1) of the sixth VAT directive provided the authority for bad debt relief, but there was a dispute as to whether the UK conditions were compatible with Community law.

On the first issue, the compatibility issue, the appellant submitted that the bad debt relief conditions requiring property in the goods to pass to the recipient and for the recipient to be insolvent were incompatible with Community law. The appellant contended that the property condition discriminated against hire-purchase transactions and against conditional-sale agreements with retention of title as compared with standard conditional-sale agreements. In the appellant's view, the insolvency condition was disproportionate and could not commercially be satisfied by the company. In up to 95 per cent of repossessions, there was no insolvency and the bad debt relief conditions could not be complied with as a matter of ordinary business practice.

The commissioners submitted that the passing of title and insolvency conditions were not inconsistent with Community law. The statutory requirements were intended to ensure that the non-payment was established and was not temporary. The commissioners said that credit-sale agreements were obviously different in nature to hire-purchase agreements with different legal consequences. In their view, where transactions were genuinely different, there was no breach of fiscal neutrality if they were treated differently. The tribunal found that both the property and insolvency requirements for bad debt relief went beyond what was appropriate or necessary to achieve the intended objective. It was not the appellant's policy to institute bankruptcy proceedings against defaulters as this was uncommercial and the distinction between supplies where title passed on delivery and those where title was retained produced an unjustified difference in treatment between hire purchase and credit sales transactions.

The commissioners submitted in respect of the windfall issue that the effect of combining the bad debt relief claim with the adjustments under the Value Added Tax Regulations 1995 (SI 1995/2518), s. 38 and the de-supply under the Value Added Tax (Cars) Order 1992 (SI 1992/3122) was that the appellant would recover more VAT than was attributable to its economic loss. This would result in a breach of fiscal neutrality and a distortion of competition, since the appellant would receive a windfall exceeding the amount properly recoverable under the sixth directive. The appellant argued that it was not part of the tribunal's obligation to cut down otherwise directly effective rights simply because, if exercised, some other domestic right would give too much money. The rights under reg. 38 and to bad debt relief arose from one transaction, whereas the de-supply was a separate transaction in a different supply chain to a different customer. In the appellant's opinion, the commissioners' complaint arose from the working of the de-supply when combined with bad debt relief and reg. 38. There was no contrivance or departure from the usual arrangements, which were standard industry practice.

The tribunal agreed with the appellant. There was no authority for limiting the exercise of directly effective rights in the way suggested by the commissioners. In the judgment of the tribunal, the appellant's rights to bad debt relief were not defeated or curtailed by the end result of the combination of that relief with other reliefs and adjustments. Even if the appellant received a windfall, it was likely to have sustained a commercial loss as a result of the customer defaulting on the payment.

On the final issue of time-limits, the commissioners contended that the tribunal had no jurisdiction over bad debt relief except under the Value Added Tax Act 1994, s. 83(h), which covered a claim for refund under the Value Added Tax Act 1983 section 36Value Added Tax Act 1983, s. 36 or Value Added Tax Act 1983 section 2222. The claim relating to supplies before 1 April 1989 was, in the commissioners' view, excluded by the Finance Act 1997 section 39 subsec-or-para 5Finance Act 1997, s. 39(5). The appellant responded that Value Added Tax Act 1994 section 83 subsec-or-para hs. 83(h) should be read purposively to cover bad debt relief claims generally. Alternatively, Value Added Tax Act 1994 section 83 subsec-or-para bs. 83(b) covered the VAT on a supply including the amount chargeable and was not limited to the tax initially chargeable and extending to that due ultimately after bad debt relief. The tribunal held that the appellant's right of appeal was under s. 83(h) via Value Added Tax Act 1983 section 22s. 22 of the 1983 Act and for the period from 1 April 1989 was under Value Added Tax Act 1983 section 36s. 36.However, it did not accept that s. 22 could be...

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2 cases
  • Revenue and Customs Commissioners v GMAC UK Plc
    • United Kingdom
    • Upper Tribunal (Tax and Chancery Chamber)
    • 3 August 2012
    ...(BT) before the FTT, and an appeal by HM Revenue and Customs against a decision of the First-tier Tribunal (Tax) ([2010] UKFTT 202 (TC); [2010] TC 00504) allowing the appeal of the taxpayer (GMAC) against HMRC's refusal of VAT bad debt relief in relation to supplies of cars made on hire-pur......
  • R & C Commissioners v GMAC UK Plc (formerly General Motors Acceptance Corporation (UK) Plc)
    • United Kingdom
    • Upper Tribunal (Tax and Chancery Chamber)
    • 22 October 2012
    ...before the Upper Tribunal. One was an appeal by HMRC against the decision of the First-tier Tribunal (Tax) ([2010] UKFTT 202 (TC); [2010] TC 00504) allowing GMAC's appeal against HMRC's refusal of VAT bad debt relief. The other was the determination of three preliminary issues in BT's appea......

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