Jupiter Asset Management Group Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 09 April 2021 |
| Neutral Citation | [2021] UKFTT 96 (TC) |
| Date | 09 April 2021 |
| Court | First-tier Tribunal (Tax Chamber) |
[2021] UKFTT 96 (TC)
Judge Tony Beare, Mr Chris Jenkins
Mrs A Brown QC and Mr M Brady, of KPMG, appeared for the appellant
Mr M Jones QC and Mr N Macklam, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents.
Value added tax – Single corporate group with two separate vat groups – Management services supplied between VAT groups – Imposition of open market value – VATA 1994, s. 19(5) – VATA 1994, Sch. 6, para. 1(1) – EC Directive 2006/112, art. 72 – No comparable supplies therefore OMV calculated from full cost of making supplies – What is included in full cost – Whether output tax assessments were reasonable – Yes – Whether input tax incurred on overhead charges recoverable by a holding company when sole economic activity is management services – VATA 1994, s. 26 – Yes.
The First-tier Tribunal dismissed an appeal against output tax assessments issued following a Notice of Direction of Open Market Value in relation to supplies of management services between two VAT groups within a single corporate group.
The Jupiter Group provided a range of asset management products. They operated as a single corporate group but were structured into two separate VAT groups. The appellant was the representative member of JAMG (Jupiter Asset Management Group Ltd) which included Jupiter Fund Management Plc (Jupiter PLC), the ultimate parent company of the group since 1 June 2010 following an IPO on the London Stock Exchange.
JAMG provided management services to a second VAT group, JIMG, the representative member of which was Jupiter Investment Management Group Ltd, a subsidiary of the appellant. The management services were provided under sequential management service agreements referred to as the First MSA and Second MSA.
HMRC issued a Notice of Direction of Open Market Value (OMV) in relation to any supplies made after 31 May 2010 for a consideration less than OMV to a connected person not entitled to full recovery of input tax. Assessments were subsequently issued for under-declarations of output tax on the basis JAMG charged JIMG less than OMV. They were made to the best judgement of HMRC. There is no dispute that was the case. Alternative input tax assessments were also issued on the basis JAMG were carrying out non-economic activities. The appellant had to show, on the balance of probabilities, the assessments were incorrect and, if they were, whether they should be discharged entirely or reduced by some amount.
Three issues were considered by the FTT.
- What was the OMV of the supplies of management services?
- To what extent were goods and services used for the purpose of the management services?
- Was there any relationship between the right to deduct and OMV?
It was common ground the supplies made by JAMG to JIMG were the supplies of various and strategic management services described, in the MSAs, as including
- development of group strategies and policies;
- support for the implementation of group strategies and policies;
- oversight and monitoring of the operation and management of group companies; and
- maintenance and support for relationships with key stakeholders of the group, including regulators
The appellant argued this should be narrowly construed and was almost entirely limited to the role of non-executive directors (NEDs), the executive directors (EDs) being paid directly by members of the JIMG VAT group. HMRC, however, put forward a much wider construction arguing the description encompassed much more of the EDs activities than the appellant had been prepared to accept.
It was fundamental to the issues raised in the appeal to determine what was included in services provided. The FTT considered significant documentary evidence and outlined, in some detail, further evidence obtained from six witnesses, including two expert witnesses who provided guidance on how the arm's length principle (ALP) for transfer pricing, before deciding that, in this case, identification of the activities involved in the supplies of the management services was a mixture of fact and contractual analysis. This was particularly so in relation to the role of EDs who were employed solely by PLC but remunerated by an entity in the JIMG group (the Payer). The Payer was not reimbursed by PLC. The FTT considered Jupiter personnel had misunderstood the contractual position and thought the EDs were employed by the Payer rather than PLC. Additionally, the FTT pointed out, although the MSA was a legal construct Jupiter had adopted to characterise the relationship between the two VAT groups it had to be respected. Accordingly the FTT accepted the witness evidence as to the nature of activities carried out within the Jupiter group but took no account of their view as to what entity or VAT group that activity was being carried on for if it was inconsistent with the contractual analysis.
The FTT concluded the description in the MSA should be regarded as exhaustive and limited to the 4 bullet points specifically mentioned. These were focussed on the nature of the relevant activity and therefore capable of being performed by an ED as well as a NED but that did not mean everything an ED did fell within the MSA. A relevant individual might carry out their duty as an officer of a member of JIMG group or carry out duties as an employee of PLC providing management services to the JIMG group.
It was common ground the management services provided by JAMG to JIMG were a taxable, economic activity. JAMG did not hold shares in any entity it did not provide with management services. It therefore had no non-economic activities. It also did not make any exempt supplies. The appellant therefore argued all its input tax must be recoverable, including that related to the IPO.
HMRC contended input tax was only recoverable if it had a direct and immediate link to taxable supplies. The FTT agreed that, logically, if a holding company is both holding shares and making supplies of management services it should be treated as carrying on two activities and not able to recover all of its input tax. However, the ECJ had held (in Beteiligungsgesellschaft Larentia + Minerva mbH & Co KG v Finanzamt Nordenham; Finanzamt Hamburg-Mitte v Marenave Schiffahrts AG (Joined Cases C-108/14 and C-109/14) [2015] BVC 33, in Marle Participations SARL v Ministre de l'Économie et des Finances (Case C-320/17) [2018] BVC 32 and others) that the fact it supplied management services was enough to allow the non-economic activity of holding shares should be disregarded and all of the input tax deemed recoverable.
Each of the assessments was based on an OMV equal to the cost of all goods and services (taxable or exempt) received by JAMG from third parties. There was no dispute the conditions for imposing OMV were satisfied. The FTT therefore considered the following three questions
- What was the nature of the supplies from JAMG to JIMG?
- What was the consideration?
- What was the OMV?
The nature of the management services had been considered earlier, and potentially included the activities of EDs and NEDs as well as third party legal and professional services.
The consideration, HMRC argued, was not simply the quarterly fee due under the relevant MSA but should also include payments from the Payer to EDs. The FTT agreed there was no evidence Payer had formally assumed the contractual obligations to remunerate the EDs, but it had discharged them. No one in the Jupiter group considered PLC should reimburse Payer, and they had not done so, therefore the full consideration for the management services was the money paid.
In relation to the third question, VATA 1994, s. 19(5) provided the OMV was the consideration that would have passed between unconnected parties. Article 72 sets out how to eliminate the effect of the connection – either identify a comparable arms-length transaction, or if that is not possible, deem the consideration to be the full cost of making the supply.
As it was not possible to find a comparable arms-length transaction – management services such as these would always be between connected parties – the OMV in this instance must be an amount not less than the full cost to the JAMG group of providing the management services.
As noted earlier, the ECJ disregarded the costs of the non-economic holding of shares when considering the input tax recovery position of holding companies making supplies of management services. The FTT considered whether the same fiction should be applied here so that the vatable costs of the IPO would be deemed to be cost components of the management services. The FTT noted they may have been minded to refer this matter to the ECJ if it had still been within its remit. Instead they decided, on balance, if the input tax was recoverable, the costs must be cost components of the management services and part of the “full cost” of making these supplies.
Zero rated or exempt costs incurred by JAMG should be included in the calculation of the full cost of providing the management services, to the extent they were used to make the supplies of management services. This included the cost of EDs. The portion of their remuneration attributable to activities in carrying out the supplies of management services (the 4 bullet points in the MSA) was part of the full cost to JAMG group, because PLC had a reimbursement obligation to Payer whether or not it was still enforceable. It was suggested a time apportionment would be appropriate to decide how much of the EDs remuneration should be included.
In conclusion, there was no comparable supply at arms-length so that the OMV of the management services had to be calculated on the full cost basis. The full cost included all input tax bearing costs, since they were all deemed to be cost components of the management services, as...
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V@ Update - May 2021
...value direction included overhead costs in respect of which input tax had been recovered In Jupiter Asset Management Group Ltd v HMRC [2021] UKFTT 96 (TC), Jupiter Asset Management Group Ltd (JAMG), was the representative member of a VAT group (the JAMG group) and a member of a corporate gr......