MG Rover Group Ltd (in creditors' voluntary liquidation)
| Jurisdiction | UK Non-devolved |
| Judgment Date | 31 March 2014 |
| Neutral Citation | [2014] UKFTT 327 (TC) |
| Date | 31 March 2014 |
| Court | First-tier Tribunal (Tax Chamber) |
[2014] UKFTT 327 (TC)
Judge Barbara Mosedale
Mr R Codara QC, and Mr J Bremner, Counsel, instructed by Eversheds , for the Appellant
Mr A Macnab, Counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the First Respondents
Mr I Glick QC and Mr D Spitz, Counsel, instructed by Norton Rose Fulbright for the Second Respondent
The Third Respondent was unrepresented.
Value added tax - Group registration - Claim for overpaid output tax - Company which made the sales in respect of which VAT overpaid leaving VAT group - Whether claim rests with that company or with the representative member for the time being of the group - The former is correct answer for UK law - EU law does not need to be considered although is likely to give same result - Appellant succeeds on preliminary issue.
The First-tier Tribunal considered a preliminary issue in relation to a claim by the taxpayer for repayment of overdeclared output tax. This concerned the VAT grouping rules and, specifically, determination of who, in the event of a valid claim, was the person entitled to make the claim. The Tribunal found as a matter of UK law that the effect of VATA 1994, section 43 subsec-or-para 1s. 43(1)(b), which deems supplies to or by any member of a VAT group to be made to or by the representative member, ceases when the company which actually made the sales giving rise to the overpayment leaves the group. That company, or its new representative member if it joins another VAT group, is able to make and assign a section 80s. 80 claim for VAT overpaid. The Tribunal found that the taxpayer, MG Rover Group Ltd (MGR), subject to it demonstrating that it had been assigned such rights, was the person entitled to make the claim.
The appeal concerned a claim made by MGR under VATA 1994, section 80s. 80 for recovery of overpaid VAT in excess of £56m. The claim was for output tax overdeclared in the period 1973 to 1996 in respect of sales of fleet cars built by MGR or its predecessor where bonuses were later paid by MGR or its predecessor to the fleet purchasers. The appellant had contended that a repayment of output tax was due in accordance with the decision of the ECJ in Elida Gibbs Ltd v C & E CommrsECAS (C-317/94) [1997] BVC 80. HMRC had rejected the claim on the grounds that MGR had not accounted for the VAT overpaid, if indeed it was overpaid. HMRC took the view that at the time of the claimed overpayments, MGR was a member of a VAT group and any overpayments would have been made by the representative member of the VAT group. BMW (UK) Holdings Ltd (BMW), the second respondent, had made a separate appeal in which it had reclaimed effectively the same VAT because it considered that it, and not MGR, was entitled to the repayment. Rover Company Ltd (RCL) the third respondent, considered that it had the right to repayment. The preliminary hearing was to settle whether MGR was entitled to the repayment, if any.
The primary issue for the Tribunal was whether, on the simple application of s. 80. VATA, the "person" to whom the repayment should be made was the representative member of the VAT group which had originally accounted for the VAT or the current representative member. HMRC saw the VAT group as an entity distinct from its members, so that it did not matter if the representative member changed or if companies joined or left the VAT group. BMW's case was that the VAT group continued as long as it was identifiable by its unique VAT registration number and that the current representative member of the VAT group was the person entitled to recover any VAT overpaid under the particular VAT number at any time in its history. MGR disagreed. It considered that it, as the actual supplier within the group, was the entity which bore the economic burden of the overpaid tax and was, therefore, "the person" which accounted to HMRC for the overpaid tax.
VATA 1994, Value Added Tax Act 1994 section 43s. 43, read literally, implies that as it is the representative member at the time of the sales by the "real world supplier" (the company which actually sold the cars to the independent fleet purchasers and bore the economic burden of the overpayment of the tax) which is deemed to have made the supplies. It is that representative member who is the person who accounts for the VAT and the person entitled to repayment under s. 80. However, even this view would give rise to anomalous results if it applied after the real world supplier and representative member ceased to be VAT grouped together with, theoretically, a VAT repayment going to a company with no connection to the VAT group. In the Tribunal's view, such result cannot have been intended by Parliament when the purpose of VAT grouping is to provide for a state of affairs to subsist while the companies are grouped. The purpose of VAT grouping was not served by deeming the erstwhile representative member to have made the supplies after the real world supplier was no longer grouped with it. It seemed to the Tribunal that anomalous results would be avoided, while the purpose of s. 43 was still given effect, if when the real world supplier left the VAT group it took with it accrued VAT overpayments or underpayments. HMRC countered that there was no unfairness in the deeming effect of s 43, even after the real world supplier had left the VAT group because it could rely on rights to recover the tax from the representative member of its old VAT group.
The Tribunal observed that the purpose of s. 43 is to enable companies in common control to be treated for VAT purposes as a single entity. However, this purpose is limited in time to when the companies are in common control. If the effect of section 43 subsec-or-para 1s. 43(1)(b), which deems that a supply of goods or services by or to a member of a VAT group is a supply by or to the representative member, does not end when the real world supplier leaves the VAT group, absurd, unjust and anomalous consequences follow in cases involving VAT overpayments, bad debt relief claims, underpayments and assignments of rights to VAT overpayments. The Tribunal duly held that, as a matter of UK law, the deeming effect of section 43 subsec-or-para 1s. 43(1)(b) ceases when the real world supplier leaves the group. At that point, the real world supplier, or its new representative member if it joins another VAT group, is able to make or assign section 80s. 80 and bad debt relief claims for VAT accounted for by the real world supplier.
The Tribunal's finding concluded the preliminary issue in favour of MGR in so far as the period 1 January 1990 to 24 November 1995 was concerned. MGR was entitled to rely on its UK law rights. While it was a member of the VAT group the section 80s. 80 right could only be asserted by its representative member. MGR left the VAT group on 9 May 2000 and at that point it could assert its accrued s. 80 rights as real world supplier. For the period prior to 1 January 1990, any s. 80 right would have been with the representative member and not with RCL. RCL would have acquired the right when it left the VAT group on 9 May 2000. Whether MGR could now assert that right depended on whether RCL assigned future rights to it when it assigned to MGR its business. HMRC contended that RCL had no rights to assign. However, the Tribunal found that the agreement was intended to include everything, including any unanticipated future entitlement to tax repayments arising out of anything that had happened prior to the transfer. So far as the period after 24 November 1995 was concerned, again the Tribunal's analysis was that the representative member was the person entitled to make the s. 80 claim up until Wholesale Ltd, a company which at that time made the sales in respect of which VAT was overpaid, left the group. At that point the right became that of Wholesale Ltd as the deeming effect of s. 43 came to an end with retrospective effect. Wholesale Ltd was free to assign its s. 80 right and it was for MGR to prove that a valid assignment had been made to it.
The Tribunal went on to set out its views on the position as a matter of EU law even though, since MGR succeeded on all parts of its claim subject to proving assignment of rights, the Tribunal was not required to consider the EU law position. The Tribunal found that, during the currency of the VAT group, the right to deduction belonged to the group as a whole. Whether MGR could claim for the period in which it was the real world supplier depended on whether EU law transferred the right to it when it left the VAT group. The Tribunal was inclined to believe that it did. Whether MGR could claim for the periods in which others were the real world supplier depended on the answer to the same question and whether there was a valid assignment to MGR of the rights. So far as RCL was concerned, there was an assignment. The Tribunal observed that the issues on which it expressed preliminary views were novel ones in EU law and that it would have referred them to the ECJ had it been necessary in order to decide the appeal. However, the Tribunal did not consider referral to the ECJ necessary because MGR's case succeeded under UK law.
The Tribunal recognised that whilst Value Added Tax Act 1994 subsec-or-para 1s. 43(1)(b) VATA deems that supplies by or to VAT groups are made through the representative member and that member is the person entitled to make a claim for overpaid VAT, this provision is limited in time to when the companies are in common control within the VAT group. Once the company which actually made the original supplies leaves the VAT group it, or its new representative member if it joins another VAT group, is the person entitled to make or assign the claim.
[1]MG Rover Group Ltd ("MGR") submitted a claim to HMRC on 31 March 2009 under s 80...
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