HM Revenue and Customs v Isle of Wight Council and Others (Case C-288/07)
Jurisdiction | UK Non-devolved |
Judgment Date | 12 October 2012 |
Neutral Citation | [2012] UKFTT 648 (TC) |
Date | 12 October 2012 |
Court | First-tier Tribunal (Tax Chamber) |
[2012] UKFTT 648 (TC)
Sir Stephen Oliver QC, Nicholas Paines QC, Philip Gillett FCA
Julian Ghosh QC and James Henderson and Jonathan Bremner, counsel, instructed by Rowel Genn, solicitors, appeared for the Appellants
Christopher Vajda QC and Ben Rayment and Brendan McGurk, counsel, instructed by the General Counsel and Solicitor to the Commissioners of HM Revenue and Customs, appeared for the Respondents
Value added tax - Taxable person - Local authority - Provision of off-street car parking - Impact of exemption on relevant market - Distortion of competition - Whether local authorities taxable persons in respect of provision of such parking - Questions referred to ECJ for determination - Application of ruling of ECJ (R & C Commrs v Isle of Wight Council (Case C-288/07) [2008] BVC 799) - EC Council Directive 77/388, eu-directive 77/388 subsec-or-para 5 article 4art. 4(5) (now eu-directive 2006/112 article 13art. 13 of Directive 2006/112)
The First-tier Tribunal decided that the European Court of Justice (ECJ), in R & C Commrs v Isle of Wight CouncilECAS (Case C-288/07) [2008] BVC 799, did not permit the Tribunal to presume that the non-taxation of the taxpayer local authorities' operation of off-street car parking facilities under the Sixth Council Directive (77/388/EEC), eu-directive 77/388 subsec-or-para 5 article 4art. 4(5) ("art. 4(5)") would distort competition. Pursuant to the ECJ's ruling in that case, the Tribunal was required to make an enquiry into the existence, as well as, the scale of any distortion under eu-directive 77/388 subsec-or-para 5 article 4art. 4(5)(2). The Tribunal also decided that the non-taxation would distort competition to a more than negligible extent in the areas of pricing and outsourcing. It would result in a lower off-street car parking charge by the local authority, which would then lead to lower commercial off-street car parking charges where the commercial car park faced local authority competition. Consequently, more local authority car parks would open or remain open, in pursuance of the taxpayers' duty to seek to ensure adequate off-street car parking pursuant to the Road Traffic Regulation Act 1984 ("RTRA 1984"), s. 122. That would cancel out the alteration in the balance of supply and demand.
The taxpayers appealed against HMRC's decision rejecting the taxpayers' claim for repayment of VAT previously paid in respect of the operated off-street car parking.
The taxpayers, along with other local authorities in the UK, operated off-street car parking facilities, on which they were accountable for VAT. Many local authorities claimed repayment of VAT previously paid under eu-directive 77/388 subsec-or-para 5 article 4art. 4(5). The taxpayers' appeals were in the nature of test cases. In Isle of Wight CouncilVAT[2004] BVC 2181, the VAT and Duties Tribunal held that the taxpayers provided off-street car parking under a "special legal regime" under eu-directive 77/388 subsec-or-para 5 article 4art. 4(5). On appeal (C & E Commrs v Isle of Wight CouncilVAT[2005] BVC 228), the Chancery Court held that although eu-directive 77/388 subsec-or-para 5 article 4art. 4(5) had not been implemented in national law in the UK, the Tribunal could not accede to the local authorities' claim for non-taxable treatment without investigating whether non-taxable treatment was liable to give rise to a serious distortion of competition. In Isle of Wight CouncilVAT[2006] BVC 2524, the Tribunal allowed the taxpayer's appeal against HMRC's refusal to refund the VAT previously accounted for by them. In HMRC's appeal (R & C Commrs v Isle of Wight CouncilVAT[2007] BVC 209), Rimer J referred questions of interpretation of eu-directive 77/388 subsec-or-para 5 article 4art. 4(5) to the ECJ.
In R & C Commrs v Isle of Wight CouncilECAS (Case C-288/07) [2008] BVC 799, the ECJ held that the Tribunal, should consider the question of distortion of competition by reference to the activity of providing off-street car parking in the UK as a whole, rather than focussing on the circumstances obtaining in each individual local authority's area. It also held that eu-directive 77/388 subsec-or-para 5 article 4art. 4(5) extended to distortion of potential competition and that the word "significant" meant "more than negligible".
In R & C Commrs v Isle of Wight CouncilVAT[2009] BVC 684, Rimer LJ rejected HMRC's submission that the taxpayers' appeals should be dismissed in the light of the ECJ's judgment. Rimer LJ remitted the appeals to the Tribunal for re-hearing.
HMRC submitted that non-taxation would significantly reduce local authorities' operating costs and give them much greater pricing flexibility, ability to invest in improving their car parks and ability to operate loss-making car parks for social reasons. It would also discourage forms of outsourcing of car parking that would entail a loss of non-taxable status. HMRC also submitted that eu-directive 77/388 subsec-or-para 5 article 4art. 4(5)(2) operated on the basis of a presumption that competition was distorted where public bodies were not taxed and their competitors were.
The taxpayers submitted that non-taxation would not lead them to reduce prices, alter their investment decisions as regards off-street car parking or alter their approach to outsourcing, joint ventures or partnership agreements with the private sector. Non-taxation could not have those effects because the legislative and policy regime under which they operated demanded of them an attitude to pricing, investment and outsourcing that ignored the incidence or non-incidence of VAT. Moreover, the taxpayers contended that they were obliged to ensure that competition was not adversely affected by their decisions about the exercise of charging powers. That meant that they should ensure that non-taxation of off-street car parking charges did not affect competition. Finally, any distortion of competition would not be significant, being limited to postcode sectors accounting for less than eight per cent of those containing car parks. Direct competition between them and commercial operators was limited to a small number of areas of the country as a whole.
-
(2) Whether the ECJ, in [2008] BVC 799, permitted the Tribunal to presume that the non-taxation of local authority off-street car parks would distort competition.
-
(3) Whether the taxpayers' non-taxation would distort competition to a more than negligible extent.
Held, dismissing the taxpayer's appeal:
In respect of the first issue, the Tribunal held that it was clear from the ECJ's judgment in [2008] BVC 799 that it interpreted eu-directive 77/388 subsec-or-para 5 article 4art. 4(5)(2) as permitting non-taxation in circumstances in which it would lead to no or only negligible distortion of competition and, thus, requiring taxation in the converse situation. Deciding which was the case necessarily involved an enquiry into the existence, as well as, the scale of any distortion. That enquiry could only be conducted compatibly with HMRC's presumption if the enquiry were only into the scale of local authority provision of the goods or services in question. However, the ECJ did not say that it was. It noted that eu-directive 77/388 subsec-or-para 5 article 4art. 4(5)(3) used the scale of provision by public authorities as the criterion of a significant distortion and said that eu-directive 77/388 subsec-or-para 5 article 4art. 4(5)(3) assumed that the distortions of competition resulting from an activity conducted on a negligible scale would themselves be negligible. However, it did not say that eu-directive 77/388 subsec-or-para 5 article 4art. 4(5)(2) worked in exactly the same way as the criterion was more than negligible distortion of competition. Therefore, the ECJ's decision did not permit the Tribunal to presume that the non-taxation of local authority off-street car parks would distort competition.
In respect of the second issue, the Tribunal held that taxpayers' non-taxation would distort competition in the off-street car parking market in the areas of pricing and outsourcing. The taxpayers' charges would find a lower level in circumstances of non- taxation than of taxation. It would, in turn, affect the pattern of provision of off-street car parking in two respects. First, fewer commercial car parks would open or remain open. Non-taxation would result in a lower off-street car parking charge by the local authority. It would also affect consumer's behaviour since there was an uncontroversial fact that the taxpayers used charging structures, such as low pricing, with a view of influencing the consumer's parking choices. The lower levels of charging that would be reached in circumstances of non-taxation would lead to correspondingly lower commercial off-street car parking charges where the commercial car park faced local authority competition. Second, and in consequence, more local authority car parks would open or remain open in pursuance of the taxpayers' duty to seek to ensure adequate off-street car parking pursuant to RTRA 1984, s. 122. That would tend to cancel out the alteration in the balance of supply and demand. In any event, whether local authority's non-taxation led to lower profits for commercial operators, lower volumes of commercial provision, higher volumes of local authority provision or a combination of those, the effect would in each case amount to a distortion of competition.
In addition, decisions on forms of "outsourcing" would tend to be distorted in favour of forms that left the local authority as the provider of off-street car parking, with the commercial sector providing, at most, the management. A situation in which off-street car parking was not taxable when provided by local authorities but was taxable when provided by private operators would self-evidently affect the economics of different models of...
To continue reading
Request your trial-
North Wiltshire District Council v HM Revenue and Customs
... ... then, subject to the final decision in the test case R & C Commrs v Isle of Wight Council [2009] BVC 684 , any ... in the case of the Isle of Wight Council and others has disagreed with that approach, and the matter has now ... ...
-
Sub One Ltd (t/a Subway) v Revenue and Customs Commissioners
... ... Comercial Internacional de Alimentacion SA (Case C-106/89) [1990] ECR I-4135, the Upper Tribunal ... [2005] BVC 4,009 R & C Commrs v Isle of Wight CouncilECASVAT (Case C-288/07) [2008] ... 93 TEC) provides: The Council shall, acting unanimously in accordance with a ... Some customers re-heated the food, while others ate it without re-heating it. There was no ... ...
-
Northumbria Healthcare NHS Foundation Trust v R & C Commissioners
...by both the local authorities and HMRC. [88] The FTT's substantive decision following the remittal was given in Isle of Wight Council [2012] TC 02320. At the outset, the FTT considered the argument by counsel for HMRC yet again that there was a presumption that where there was actual compet......
-
Isle of Wight Council and Others v Revenue and Customs Commissioners
...the Upper Tribunal (UT) in 2014 ([2014] BVC 538) dismissing the appellants' appeals from the First Tier Tribunal (FTT) decision in 2012 ([2012] TC 02320). The FTT had itself dismissed their appeals against the rejection by HMRC of their claims under VATA 1994, s. 80 for repayment of VAT tha......
-
Weekly Tax Update - Monday 5 November 2012
...would distort competition; but they found as a fact that it would do so to a more than negligible extent. www.bailii.org/uk/cases/UKFTT/TC/2012/TC02320.html TAX PUBLICATIONS NTBN237 - Transfer pricing in the UK This briefing note provides a brief summary of the UK transfer pricing requireme......