Her Majesty's Commissioners For Revenue And Customs V. Rbs Deutschland Holdings Gmbh
| Jurisdiction | Scotland |
| Judge | Lord Osborne,Lady Dorrian,Lord Clarke |
| Judgment Date | 13 January 2006 |
| Neutral Citation | [2006] CSIH 10 |
| Published date | 17 February 2006 |
| Docket Number | XA57/05 |
| Court | Court of Session |
| Date | 13 January 2006 |
| EXTRA DIVISION, INNER HOUSE, COURT OF SESSION | |
| Lord Osborne Lord Clarke Lady Dorrian | [2006] CSIH 10 XA57/05 OPINION OF THE COURT delivered by LORD OSBORNE in APPEAL TO THE COURT OF SESSION under section 11 of the Tribunal and Inquiries Act 1992 by HER MAJESTY'S COMMISSIONERS FOR REVENUE AND CUSTOMS Appellants; against RBS DEUTSCHLAND HOLDINGS GmbH Respondents: _______ |
Alt: Tyre, Q.C.; MacRoberts (Respondents)
13 January 2006
The background circumstances
[1] The respondents carry on business providing banking and leasing services from premises in Frankfurt am Main in the Federal Republic of Germany. They are registered for the purposes of United Kingdom value added tax as a non-established taxable person under registration number 674 3878 86. They are a wholly owned subsidiary of the Royal Bank of Scotland Group of Companies.
[2] The respondents purchase assets, more particularly new motor cars, from United Kingdom suppliers. These are subsequently leased to United Kingdom customers for a prime period of no more than two years and are used for business and private purposes by employees of the United Kingdom customers. The respondents reclaim input tax on the purchase of the assets, but do not pay output tax in either the United Kingdom or Germany on the supplies made by way of lease agreement, asserting that the supplies are outside the scope of both the United Kingdom and German value added tax legislation. A lease of a motor car may be treated either as a supply of goods or of services. Normally such a lease is treated as a supply of services, but it will be treated as a supply of goods if ownership of the asset passes on the date of the final instalment payable. To the extent that such leases are treated as supplies of goods, they are subject to value added tax in the State where the goods are located when supplied. To the extent that such leases are treated as a supply of services, they are taxed in the State where the lessor has established his business. All Member States of the European Union ought to establish and interpret rules relating to the characterisation of such leases, so that they are treated in an identical manner. In practice, differences exist.
[3] It was stated to us on behalf of the appellants that the respondents had developed a form of lease which, under the relevant German rules, was treated as involving the supply of goods, but, under United Kingdom rules, was to be treated as a supply of services. The practical consequence of these characterisations was that no value added tax was payable in either country on the supply during the currency of the lease. The leases were for periods of less than two years. During the currency of the leases, the motor cars concerned remained in the United Kingdom and, at the end of the period of the leases, were sold there, when output tax on sale was paid and rendered. In pursuance of these arrangements, the respondents claimed credit for input tax on the purchase of the motor cars, but made no charge to output tax when leasing them to a United Kingdom customer.
[4] Following a course of correspondence between the appellants and the respondents, the appellants notified the respondents in a letter dated 22 August 2003 of their contentions that:
(1) The respondents were not entitled to claim credit for input tax on the vehicles
purchased as they could not be said to have been purchased with the intention of using them for the purposes of a business carried on by the respondents, as the vehicles were not being used for a transaction on which value added tax was to be charged. (The preferred analysis).
(2) In the alternative, the onward supplies made by the respondents should attract
value added tax in accordance with the reverse charge mechanism under section 8(1) and paragraph 9, Schedule 5 of the Value Added Tax Act 1994. As a consequence, the respondents would be entitled to claim credit for input tax incurred on the purchase of the vehicles, but the customer would be liable to account for output tax on the supplies made under the lease agreements. (The first alternative analysis).
(3) In the further alternative, the respondents and their customers had artificially
created conditions in order to obtain a tax advantage against the spirit and purpose of the value added tax legislation, amounting to an abuse of rights. Accordingly, the respondents should be denied input tax recovery on the purchase of the vehicles. (The second alternative analysis).
[5] As a consequence of the preferred analysis, the appellants assessed the respondents to the sum of £205,001, being input tax claimed by the respondents in the months of March, July, August, October and December 2001. The assessments were duly notified to the respondents by notice of assessments dated 22 August 2003. The appellants also declined to repay a sum of £109,053.17, being input tax claimed by the respondents for the months of May and June 2002.
[6] By a letter dated 16 February 2004, the respondents' representative contested the appellants' assessment of the transactions and contended that the respondents' treatment of the lease agreement was in accordance with both United Kingdom and German legislation. It did not amount to an abuse of rights and, even if such a concept were applicable to taxation matters, the appellants' interpretation and application of paragraph 9 (Schedule 5) was incorrect. By a letter dated 23 June 2004, the appellants responded to the points made by the respondents' representative and upheld the earlier alternative decisions and, in particular, the decision to recover by assessment and to refuse the respondents' input tax claim in the total sum of £314,056.24.
[7] By a notice of appeal dated 9 July 2004, the respondents appealed against the assessment for input tax recovered totalling £205,001 in periods between 1 March and 31 December 2001 and the refusal of the appellants to meet claims for input tax totalling £109,053.17 in the periods 1 May to 30 June 2002. That appeal currently stands undetermined before the Value Added Tax and Duties Tribunal in Edinburgh (hereafter referred to as "the Tribunal").
[8] By an application for directions and a notice of application for disclosure of documents, as amended, dated 22 March 2005, the appellants applied to the Tribunal for a direction that the second alternative analysis, relating to the European Union principle of abuse of right should be stayed, pending the decision of the European Court of Justice in joined cases Halifax plc, BUPA Hospitals Limited and Huddersfield University (Case-255/02), with liberty to the appellants to make a further application to the Tribunal in relation to the disclosure of any evidence not already disclosed to them which might be determined by the European Court of Justice as relevant to the application of the principle of the abuse of right. Further, the appellants applied for an order of the Tribunal, by way of amendment to their application to the Tribunal dated 17 January 2005, that the respondents, within 30 days of the application should supply to the appellants a list of specified documents, which were said to be in the possession, custody or power of the respondents, together with copies of all such documents which were not subject to a claim for legal privilege pursuant to Rule 20(3) of the Value Added Tax Tribunal Rules 1986. The application went on to specify a wide range of documents relating to the leasing arrangements described, and associated matters. These applications came before the Tribunal for hearing on 26 April 2005. The decision of the Tribunal, against which the present appeal has been taken, was dated 3 May and was communicated to the parties on 5 May 2005. The Tribunal decided to decline to sist any part of the appeal to the Tribunal and further refused to make an order in relation to the production of further documents.
[9] The reasoning of the Tribunal included the following paragraphs:
"The non-preferred contention for HM Revenue and Customs was that the appellants (the present respondents) were not entitled to claim the recovery of the input tax in question because there had been what they called an abuse of rights.
Assuming, but without deciding and without expressing any opinion on the soundness of the argument that the way in which transactions are structured as opposed to their genuineness or reality could ground a contention based upon a theory of abuse of rights the matter for the Tribunal at this stage was whether that part of the appeal be sisted pending the outcome of the proceedings before the ECJ in Halifax and Others.
By the stage this matter reached the Tribunal the Advocate General had delivered an opinion in that case on 7 April 2005. Again without affirming that his opinion would necessarily be followed it contains strong indications that a key question is whether there was an economic justification for the activity under scrutiny other than that of a tax advantage (para. 87). Further the Advocate General said, (para. 89) the prohibition of abuse as a principle of interpretation is no longer relevant where the economic activity carried out may have some explanation other than the mere attainment of tax advantages against tax authorities. Earlier in his opinion the Advocate General said, (para. 84) there is no legal...
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