Lloyds Banking Group Plc v The Commissioners for HM Revenue and Customs
| Jurisdiction | England & Wales |
| Judge | Lady Justice Rose,Lord Justice Henderson,Lord Justice Patten |
| Judgment Date | 21 March 2019 |
| Neutral Citation | [2019] EWCA Civ 485 |
| Docket Number | Case No: A3/2017/0761, 0796, 0797, 0802 |
| Court | Court of Appeal (Civil Division) |
| Date | 21 March 2019 |
[2019] EWCA Civ 485
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE UPPER TRIBUNAL
(TAX AND CHANCERY CHAMBER)
WARREN J and JUDGE CHARLES HELLIER
HENRY CARR J and JUDGE CHARLES HELLIER
[2016] UKUT 543 (TCC)
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Patten
Lord Justice Henderson
and
Lady Justice Rose
Case No: A3/2017/0761, 0796, 0797, 0802
David Scorey QC (instructed by Forbes Hall LLP) for the First and Second Appellants
Andrew Hitchmough QC and Jonathan Bremner QC (instructed by Eversheds Sutherland (International) LLP) for the Third Appellant
Kieron Beal QC (instructed by PriceWaterhouseCoopers LLP) for the Fourth and Fifth Appellants
Jonathan Peacock QC and Michael Ripley (instructed by Ashurst LLP) for the Sixth Appellant
Andrew Macnab and Peter Mantle (instructed by General Counsel and Solicitor to HM Revenue and Customs) for the First Respondents
Ian Glick QC, Victoria Wakefield, and Adam Rushworth (instructed by Norton Rose Fulbright) for the Second Respondent
Hearing dates: 21, 22, 23 and 24 January 2019
Approved Judgment
CONTENTS
| I. INTRODUCTION | 1 |
| II. THE LAW: VAT GROUPING | 7 |
| (a) The EU provisions | 7 |
| (b) The domestic law provisions | 10 |
| (c) The main European authorities on VAT grouping | 14 |
| (d) The domestic case law on VAT grouping | 28 |
| III. THE LAW: SAN GIORGIO RIGHTS | 30 |
| (a) The European case law | 30 |
| (b) The VATA provisions for recovery of overpaid VAT | 60 |
| IV. THE PARTIES AND THE TRIBUNAL PROCEEDINGS | 65 |
| (a) Appeals arising out of the transactions of Chartered Trust plc | 65 |
| (b) Appeals in respect of overpayments by the Rover VAT group | 74 |
| (c) The Gala appeal | 77 |
| (d) The decision of the Upper Tribunal | 82 |
| V. THE SUPREME COURT'S DECISION IN TAYLOR CLARK | 91 |
| VI. THE APPEALS | 106 |
| (a) The concept of the single taxable person in article 11 | 112 |
| (b) The Joint Appellants' case on San Giorgio rights | 127 |
| (c) Standard Chartered's case on the dissolution of the VAT group | 145 |
| (d) Gala's case on exceptional circumstances | 161 |
| VII. CONCLUSION | 175 |
I. INTRODUCTION
From time to time it becomes apparent from a domestic or EU court ruling or after a reconsideration by HMRC that HMRC have been collecting VAT from businesses registered as taxable persons on the basis of an incorrect interpretation of the law and that the VAT collected was not as a matter of law due. The mistakes relevant to the present appeals arose in relation to the VAT treatment of the earnings of bingo halls, the cash discounts paid to purchasers of fleet cars and sums arising from the sale of fleet cars on hire purchase where the purchaser defaults and the car is sold before the hire purchase contract has run its course.
The case law of the Court of Justice of the European Union has established that where a member state has levied unlawful duties or taxes, it must reimburse a claimant who has paid those taxes. This right is generally referred to as the San Giorgio right after the judgment in Amministrazione delle Finanze dello Stato v SpA San Giorgio (Case 199/82) [1983] ECR 1595. Such a claim can be brought against HMRC under section 80 of the Value Added Tax Act 1994 (‘ VATA’). That provides, broadly, that where a person has accounted to HMRC for VAT and has brought into account as output tax an amount that was not output tax due, HMRC shall be liable to credit the person with that amount.
The issues that arise in these appeals concern who has a right to claim back the tax in a situation where the goods or services on which the tax was wrongly levied were supplied by companies which were at the time of the supply members of a VAT group formed pursuant to the UK legislation implementing article 11 of the Council Directive 2006/112/EC on the common system of value added tax (‘PVD’). Article 11 provides that member states “may regard as a single taxable person” any persons established in its territory who although legally independent are closely bound to one another by financial, economic and organisational links. Article 11 thus permits but does not require member states to adopt provisions for VAT grouping. The UK has chosen to make such provision and has enacted what are now sections 43 to 44 VATA for that purpose. One of the main issues in this case is whether those provisions, in conjunction with section 80 VATA, correctly implement the EU Directive provision and confer the rights that EU law requires. When companies apply to HMRC to be treated as a VAT group, they must appoint one of them as the “representative member” of the VAT group. Section 43(1) then provides that any business carried on by a member of the VAT group shall be treated as carried on by the representative member. Where HMRC grants an application for the formation of a VAT group, a VAT registration number is provided to the representative member and that representative member accounts to HMRC for all the VAT arising from supplies of goods or services by the members, who are referred to in these proceedings as the “real world suppliers”.
If it later becomes apparent that some of the output tax accounted for by the representative member was not lawfully due, and at the time that a claim for a refund is made the real world supplier is still a member of the VAT group, all the parties to these appeals accept that it is the representative member which is entitled to bring the claim under section 80 to recover the overpaid VAT. The parties also accept that the domestic law is compliant with article 11 to that extent. The issue that arises is what happens if the real world supplier has left the VAT group at the time the claim is made. HMRC have responded to the claims for the refund of overpayments made by the parties to these appeals by accepting the claims of the representative member of the VAT group and refusing claims by real world suppliers who have left the VAT group. Further, HMRC have applied this policy even where the VAT group has been dissolved by the time the claim is made, regarding the correct claimant under section 80 as the last representative member of the VAT group before dissolution.
The Upper Tribunal decisions challenged in these appeals upheld HMRC's interpretation of UK domestic law. In opposing the appeals to this Court, HMRC contend that their hand has been greatly strengthened by the decision of the Supreme Court delivered in July 2018 in Taylor Clark Leisure plc v Revenue and Customs Commissioners [2018] UKSC 35, [2018] STC 1556 (‘ Taylor Clark’). HMRC submit that Taylor Clark is binding on this Court and decides not only that as a matter of domestic law the correct claimant is the representative member in all these cases but also that section 43 VATA is a permissible and compliant implementation of article 11.
The Appellants accept, as they must, that the Supreme Court's decision is binding as to the proper interpretation of the domestic law provisions. They maintain, however, that those provisions are not compliant with article 11 and that that is an issue which was not before the Supreme Court in Taylor Clark and was not determined by it. They therefore submit that this Court should find that sections 43 and 80 VATA read together infringe EU law and that they must be construed, applying the principles established in Marleasing SA v La Comercial Internacional de Alimentación SA (Case C-106/89) [1990] ECR I-4135 (‘ Marleasing’), to bring them into compliance in such a way as to allow these Appellants to claim back the overpaid tax from HMRC.
II. THE LAW: VAT GROUPING
(a) The EU provisions
Article 11 PVD provides:
“After consulting the advisory committee on value added tax (hereafter, the ‘VAT Committee’), each Member State may regard as a single taxable person any persons established in the territory of that Member State who, while legally independent, are closely bound to one another by financial, economic and organisational links.
A Member State exercising the option provided for in the first paragraph, may adopt any measures needed to prevent tax evasion or avoidance through the use of this provision.”
The predecessor to article 11 was article 4(4) of the Sixth Council Directive harmonising value added tax (Directive 77/388/EC) (‘the Sixth Directive’). Article 4(4) was in similar terms providing that each member state “may treat as a single taxable person persons established in the territory of their country who, while legally independent, are closely bound to one another by financial, economic and organisational links.” The appeals before us proceeded on the basis that there was no material difference between article 11 PVD and article 4(4) of the Sixth Directive. I shall refer to article 11 in this judgment, although article 4(4) applied during some of the periods to which the appeals relate.
The term “taxable person” used in article 11 is defined in article 9 PVD. That provides:
“1. ‘Taxable person’ shall mean any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity.
Any activity of producers, traders or persons supplying services, including mining and agricultural activities and activities of the professions, shall be regarded as ‘economic activity’. The exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis shall in particular be regarded as...
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