HSBC Electronic Data Processing (Guangdong) Ltd and Others
| Jurisdiction | UK Non-devolved |
| Judgment Date | 12 October 2020 |
| Neutral Citation | [2020] UKFTT 402 (TC) |
| Date | 12 October 2020 |
| Court | First-tier Tribunal (Tax Chamber) |
[2020] UKFTT 402 (TC)
Judge Greg Sinfield
Value added tax – Removal of companies from vat group – VATA 1994, s. 43A – Directive 2006/112/EC, art. 11 – Procedure – Preliminary issues – Application for agreed issues to be determined at preliminary hearing – Application granted – Case transferred to the Upper Tribunal.
The First-tier Tribunal (FTT) decided there should be a preliminary hearing of four issues in this case, and that it should be transferred to the Upper Tribunal since the parties agreed any decision of the FTT on these points would inevitably be appealed, therefore the UT's binding guidance on the law and its application should assist and save time in any further substantive hearing by the FTT.
This decision of the First-tier Tribunal (FTT) concerned an application to make directions for the hearing of certain preliminary issues in the appeal on an urgent basis.
The first five appellants in this case (the GSCs) had all been removed from the HSBC VAT group. HMRC claimed they had not been established or had a fixed establishment in the UK since at least 1 October 2013 and had therefore ceased to be eligible to be members of the group from that date. Alternatively, they should be removed from the HSBC VAT group under VATA 1994, s. 43C(1), and with effect from 1 January 2018, for the protection of the revenue.
HSBC questioned the interpretation of “established” and “fixed establishment” within the meaning of VATA 1994, s. 43A, the vires of s. 43C(1) and (2), and whether HMRC were entitled to remove the GSCs for the protection of the revenue. HSBC applied to have the FTT make directions for the hearing of two preliminary issues on an urgent basis - the interpretation of “established” and “fixed establishment”, and whether the measures a member state may adopt under Directive 2002/112/EC, art. 11 are limited to those needed to prevent tax evasion and avoidance caused by an abusive practice. This was opposed by HMRC. They contended there were no grounds for treating the case as urgent. They also, however, requested if there was to be a preliminary hearing it should be transferred to the Upper Tribunal (UT), and proposed two further preliminary issues. The relevance, or otherwise, of the UK's obligation to consult the VAT Committee, and whether VATA 1994, s. 84(4D) applied.
The FTT was guided by the decision of the UT in Wrottesley v R & C Commrs [2015] BTC 537 which set out the proper approach on deciding whether to order a hearing of a preliminary issue. There were 8 key principles to be considered
- The power to deal with matters in this way should be exercised with caution and used sparingly.
- It should only be exercised where there is a succinct, knockout point.
- The point must be capable of being decided at a relatively short hearing, and without significant delay, therefore the questions would usually have to be points of law.
- Determination of the preliminary hearing should not hinder the tribunal at any subsequent hearing of the remainder of the case.
- Account should be taken of any overall delay the hearing might cause.
- Consideration should be given to whether the determination of a preliminary hearing meant there would be no need for a further hearing.
- Consideration should be given to whether it would significantly cut down the cost and time required overall.
- The overall objective of the tribunal rules, to deal with cases fairly and justly, should be borne in mind.
The FTT tested the issues against each of these factors and was satisfied all the relevant criteria had been met and, therefore, there should be a preliminary hearing of all four issues.
This was also a suitable case for transfer to the UT since the parties agreed any decision of the FTT on these points would inevitably be appealed.
In accordance with r. 28 of the FTT rules, the tribunal, with the consent of the parties, therefore requested the issues be transferred to the UT and the President of the Tax and Chancery Chamber of the UT agreed.
The preliminary issues would be transferred to, and determined by, the UT.
There is likely to be considerable interest in this case. The fact the preliminary issues will now have an expedited hearing in the UT is therefore to be welcomed, and the decision itself is a useful analysis of all the factors to be weighed in deciding whether such a preliminary hearing should be granted.
[1] The Appellants (together “HSBC”) have appealed to the First-tier Tribunal (“FTT”) against decisions of the Respondents (“HMRC”), dated 22 December 2017, that removed the first five Appellants (together the “GSCs”) from the HSBC VAT Group with effect from 1 October 2013 or, alternatively, with effect from 1 January 2018. HMRC's primary case is that the GSCs have not been established or had a fixed establishment in the UK since at least 1 October 2013 and accordingly, ceased to be eligible to be members of the HSBC VAT Group from that date. HMRC's alternative case is that they had made decisions to remove the GSCs from the HSBC VAT group with effect from January 2018 in exercise of their powers for the protection of the revenue under section 43C(1) of the Value Added Tax Act 1994 (“VATA”).
[2] The parties have produced an agreed statement of facts and issues. It is not necessary to set out the facts that have been agreed but it is sufficient to note that it is clear that several matters of fact remain to be found by the FTT before it can determine the outcome of the appeals. In the agreed statement, the parties set out the following issues which form the substance of HSBC's appeals and will have to be decided by the Tribunal:
- Are the GSCs, or any of them, established or have a fixed establishment in the United Kingdom within the meaning of those expressions in section 43A VATA?
- Are section 43C(1) and (2) VATA 1994 ultra vires?
- Were HMRC entitled to remove the GSCs from the HSBC VAT Group on the grounds that this was necessary for the protection of the revenue?
[3] This decision does not determine HSBC's appeals but concerns an application, dated 16 July 2020, by HSBC for the FTT to make directions for the hearing of certain preliminary issues in the appeals on an urgent basis. That application proposed that the FTT should consider two issues. In the course of correspondence, HMRC suggested changes to the descriptions of the issues and proposed two issues in addition to the two originally put forward by HSBC. The parties agreed the wording of four preliminary issues which are set out in an annex to this decision.
[4] Although they have agreed the wording of the four issues, HMRC oppose HSBC's application for a preliminary hearing. HMRC also contend that there are no grounds for treating the case as urgent but ask that, in the event that there is to be a preliminary hearing, the case be transferred to the Upper Tribunal (“UT”) on the ground that it would minimise any delay. HSBC support that application and seek an expedited hearing before the UT.
[5] I set out my reasons below but, in summary, I have decided that there should be a preliminary hearing of the issues identified and agreed by the parties. Further, I have consulted with the President of the Tax and Chancery Chamber of the UT and we both agree that this is a suitable case for transfer to the UT. Whether the hearing of the preliminary issues should be expedited is now a matter for the UT and I make no further comment about it.
[6] HSBC also applied to amend their grounds of appeal. HMRC do not object to HSBC's application and, if it is granted, ask for permission to amend their own pleadings in response. In the circumstances, I can see no reason why the parties should not be permitted to amend their pleadings and I grant permission accordingly. HSBC have already served amended grounds of appeal and I direct that HMRC should serve their amended pleadings in response within seven days of the date of release of this decision.
[7] The Tribunal is able to direct that an issue in proceedings can be dealt with as a preliminary issue by rule 5(3)(e) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (“FTT Rules”). The relevant parts of rule 5 are as follows:
(1) Subject to the provisions of the 2007 Act and any other enactment, the Tribunal may regulate its own procedure.
(2) The Tribunal may give a direction in relation to the conduct or disposal of proceedings at any time, including a direction amending, suspending or setting aside an earlier direction.
(3) In particular, and without restricting the general powers in paragraphs (1) and (2), the Tribunal may by direction
…
- (e) deal with an issue in the proceedings as a preliminary issue …
[8] There is no dispute between the parties about the relevant legal principles and the approach to be taken in deciding whether a matter should be determined as a preliminary issue. The parties disagree, however, as to the application of those principles to this case. HSBC's application refers to the decision of the UT in Wrottesley v R & C Commrs [2015] BTC 537 (“Wrottesley”) which discusses the proper approach to the question of whether to order a hearing of a preliminary issue. HSBC contend that the agreed preliminary issues satisfy the criteria set out by the UT in Wrottesley. HMRC also refer to Wrottesley but contend otherwise and submit that it is more appropriate for the issues to be addressed at the substantive hearing of the appeals.
[9] In Wrottesley, the Upper Tribunal set out, at [28], eight key principles to be considered by a tribunal when dealing with an application for a preliminary hearing as follows:
- The matter should be approached on the basis that the power to deal with matters separately at a preliminary hearing should be exercised with caution and used sparingly.
- The power should only be...
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