Ing Intermediate Holdings Ltd v The Commissioners for HM Revenue and Customs
| Jurisdiction | England & Wales |
| Judge | Lady Justice Arden,Lord Justice Kitchin,Lord Justice Floyd |
| Judgment Date | 13 December 2017 |
| Neutral Citation | [2017] EWCA Civ 2111 |
| Docket Number | Case No: A3/2016/3645 |
| Court | Court of Appeal (Civil Division) |
| Date | 13 December 2017 |
[2017] EWCA Civ 2111
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM
UPPER TRIBUNAL (Tax and Chancery Chamber)
MR JUSTICE MORGAN AND JUDGE FALK
Royal Courts of Justice
Strand, London, WC2A 2LL
Lady Justice Arden
Lord Justice Kitchin
and
Lord Justice Floyd
Case No: A3/2016/3645
Kevin Prosser QC and James Rivett (instructed by PricewaterhouseCoopers Legal LLP) for the Appellant
Kieron Beal QC and Peter Mantle (instructed by HMRC) for the Respondents
Hearing dates: 10�11 October 2017
issues on this appeal arise from claim to recover vat
This appeal essentially concerns the recoverability of VAT. The appellant wishes to recover (via deduction against the outputs of a separate investment business) a proportion of VAT expenses incurred in connection with a deposit-taking business. It contends that this did not involve any VATable supply at all. HMRC contend, and did so successfully before both tribunals, that it is more than a deposit-taking business and involved the provision of banking services.
Questions also arise as to whether the banking services were provided for consideration and, if so, how that consideration ought to be monetised for VAT purposes. This is because the public were not charged any or any separate fee for the banking services.
The appellant is the representative member of a VAT group. It did not itself carry on the deposit-taking business. Two members of its VAT group did so in succession. I will refer to them simply as "IDUK".
This is an appeal from orders of the Upper Tribunal (Morgan J and Judge Falk) dated 18 May 2016, dismissing an appeal from the First-Tier Tribunal ("FTT") (Judge Mosedale) dated 7 October 2014.
issues to be determined by this court
There are three issues:
Issue 1: Did IDUK in law supply services or do the facilities it provided fall to be treated in law for VAT purposes simply as the receipt of deposits made by the public in return for interest?
Issue 2: if the answer to Issue 1 is yes, were the services provided for consideration?
Issue 3: if the answer to Issue 3 is yes, can that consideration be expressed in a monetary form?
We have already informed the parties that we intend to dismiss the appeal. In my judgment, the tribunals were correct to hold that IDUK provided banking services. Moreover, consideration was implicitly given by the depositors in the form of their agreement to IDUK's terms and conditions, including the interest rate which served both as a return on the deposit and as a payment for the banking services, and that consideration was capable of being expressed in a monetary form. It is common ground that this Court need not prescribe the precise method of valuation.
Background Facts
There is no dispute about the background facts in this case, and in appendix 1 to this judgment I set out the overview of the facts from the judgment of the Upper Tribunal. We were taken to the terms and conditions that the customers signed, and I have summarised the key elements of those terms and conditions in appendix 2 to this judgment.
Basic Principles of Vat
There is little dispute about the basic principles of VAT, and, like counsel, I will use the EU measure now in force, that is, the Principal VAT Directive 2006/112/EC ("the PVD").
VAT is charged on a "supply", which may be of goods or services (Article 2). Supplies must be effected "for consideration" (Article 2), which has an autonomous meaning in EU law. Non-monetary consideration must be capable of being expressed in a monetary form. The value of the consideration is based on its value to the supplier, to be determined on a subjective basis.
A supply of goods is the transfer of the right to dispose of tangible property as owner (Article 14(1)). The supply of services is residually defined as any transaction which does not constitute a supply of goods (Article 24).
In C-4/94 BLP Group v Customs and Excise Commissioners [1995] STC 424 at [47], the Court of Justice of the European Union ("the CJEU") held that to take out a loan does not involve a VATable transaction by the borrower at all, even if he pays interest: he is the mere recipient of a service provided by the lender:
47. The objectives of the common system of VAT do not by any means require all forms of raising money to be treated alike. If the harmonisation introduced with that system is intended to prevent distortion of conditions of competition, as is expressed in the recitals to the First Directive, that can only mean that operations of the same type are to be treated in the same way. The taking up of a loan and the selling of an interest in a company are not, however, operations of the same type for the purposes of the VAT system � nor are they, moreover, for an undertaking's operational purposes, since the income from the sale of shares is part of the undertaking's own resources, whereas the loan is part of its borrowed resources � because that system focuses on transactions and makes a clear distinction between taxable and exempt transactions. If a taxable person sells an interest in a company, he is effecting an (independent) transaction within the meaning of the common VAT rules which, being an exempt transaction, excludes deduction of the incident input tax. If, by contrast, he takes up a loan, he does not himself thereby effect a transaction within the meaning of those rules. Instead he is the recipient of a service, which is the subject of a transaction by a third party. Under those circumstances the input tax charged on the advisory services supplied in connection with taking up the loan may be deducted, if it is attributable to taxable transactions. (Emphasis added)
By contrast, banking business is an exempt business. Article 135 PVD provides that member states must exempt (among other matters) "(b) the granting and the negotiation of credit and the management of credit by the person granting it;" and "(d) transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments, but excluding debt collection;�". It follows that inputs are irrecoverable.
There are rules ("the single and multiple supply rules") which apply to the case where there is a supply of more than one thing, or service, and they are VATable at different rates, or some are exempt and some not. VAT law requires there to be determined whether there is a single composite supply or two or more supplies. If the latter, there is a single VAT rate, being that applicable to the principal supply. In determining whether various supplies are each a separate supply, or whether they form a single composite supply, the court will look at all the circumstances of the transaction. The supply of a single service should not be artificially split. A service is ancillary if it does not constitute an aim in itself but simply a means of better enjoying the principal service.
One authority cited on these issues was C-208/15 Szolg�ltat� Zrt. V Nemzeti Ad��s V�mhivatal D�l-dun�nt�li Region�lis Ad� Foigazgat�s�ga (" Stock 94"), where the CJEU held:
26. In that regard, it must be recalled that, for VAT purposes, every supply must normally be regarded as distinct and independent, as follows from the second subparagraph of Article 1(2) of the VAT Directive (judgment of 16 April 2015, Wojskowa Agencja Mieszkaniowa w Warszawie, C-42/14, EU:C:2015:229, paragraph 30 and the case-law cited).
27. Nevertheless, in certain circumstances, several formally distinct services, which could be supplied separately and thus give rise, in turn, to taxation or exemption, must be considered to be a single transaction when they are not independent. There is a single supply where two or more elements or acts supplied by the taxable person to the customer are so closely linked that they form, objectively, a single, indivisible economic supply, which it would be artificial to split. That is also the case where one or more supplies constitute a principal supply and the other supply or supplies constitute one or more ancillary supplies which share the tax treatment of the principal supply. In particular, a supply must be regarded as ancillary to a principal supply if it does not constitute for customers an end in itself but a means of better enjoying the principal service supplied (judgment of 16 April 2015, Wojskowa Agencja Mieszkaniowa w Warszawie, C-42/14, EU:C:2015:229, paragraph 31 and the case-law cited).
28. In order to determine whether the services supplied constitute independent services or a single service it is necessary to examine the characteristic elements of the transaction concerned (judgments of 17 January 2013, BGZ Leasing, C-224/11, EU: C:2013:15, paragraph 32, and of 16 April 2015, Wojskowa Agencja Mieszkaniowa w Warszawie, C-42/14, EU:C:2015:229, paragraph 32).
29. In that regard, it should be noted, first, that, in order to determine whether a transaction that comprises several supplies constitutes a single transaction for the purposes of VAT, the Court takes into account the economic objective of that transaction (see, to that effect, judgments of 19 November 2009, Don Bosco Onroerend Goed, C-461/08, EU:C:2009:722, paragraph 39; of 28 October 2010, Axa UK, C-175/09, EU:C:2010:646, paragraph 23; and of 27 September 2012, Field Fisher Waterhouse, C-392/11, EU:C:2012:597, paragraph 23). In its analysis, the Court also takes into account the interests of the recipients of the supplies (see, to that effect, judgment of 16 April 2015, Wojskowa Agencja Mieszkaniowa w Warszawie, C-42/14, EU: C:2015:229, paragraph 35).
30. Second, it is important to recall that, in the context of the cooperation...
To continue reading
Request your trial
-
Regency Factors Plc v Revenue and Customs Commissioners
...(Case C-38/93) EU:C:1994:188; [1994] ECR I-1679; [1994] STC 543, ECJING Intermediate Holdings Ltd v Revenue and Customs Comrs [2017] EWCA Civ 2111; [2018] STC 339, CAInventive Tax Strategies Ltd (in liquidation) v Revenue and Customs Comrs [2019] UKUT 221 (TCC); [2019] STC 1665KrakVet Marek......
-
Borough Council of King's Lynn and West Norfolk v R & C Commissioners
...does not reflect the true agreement between the parties. In this respect, we were referred in particular to the judgment of Arden LJ in ING Intermediate Holdings Limited v R & C Commrs [2018] BVC 4 (“ING”), where she said (at [37]): [37] I accept that, when determining the nature of a trans......
-
Virgin Media Ltd
...the Court of Appeal has released their decision on the appeal to them in the ING case (ING Intermediate Holdings Ltd v R & C Commrs [2018] BVC 4) in which Arden LJ (with whom the other members of the Court of Appeal agreed) expressed a similar view. She said, at [37], that, in her view, “th......
-
The Borough Council of King's Lynn and West Norfolk v HM Revenue and Customs [2022] UKUT 00326 (TCC
...does not reflect the true agreement between the parties. In this respect, we were referred in particular to the judgment of Arden LJ in ING Intermediate Holdings Limited v HMRC [2017] EWCA Civ 2111 (“ING”), where she said (at 37. I accept that, when determining the nature of a transaction f......