Norseman Gold Plc v Revenue and Customs Commissioners
| Jurisdiction | UK Non-devolved |
| Judgment Date | 04 February 2016 |
| Neutral Citation | [2016] UKUT 69 (TCC) |
| Date | 04 February 2016 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
The Hon Mr Justice Warren
Tarlochan Lall, instructed by Keystone Law, appeared for the Appellant
Hui Ling McCarthy, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the Appellants
Value added tax – Input tax – Whether appellant carrying on economic activity – UK management company providing management services to overseas subsidiaries – No agreement on amount of consideration to be paid by subsidiaries – Whether taxable supplies made – No – Directive 2006/112 (the Principal VAT Directive (PVD)), art. 9(1) – Company's appeal dismissed.
The Upper Tribunal (UT) dismissed the company's appeal against the decision of the First-tier Tribunal (FTT) ([2014] TC 03698) to uphold HMRC's rejection of its claim to recover input tax on the basis that no economic activity was being carried out.
Norseman was a UK-registered company and a holding company, whose operating subsidiaries ran mines in Australia. HMRC registered Norseman for VAT with the trade classification “management consultancy”. The day-to-day management of the subsidiaries took place in Australia. Despite the incomplete overlap of directors, Norseman and its subsidiaries held joint board meetings. As most of the directors were in Australia, the meetings of the directors were there. However, Norseman's statutory meetings took place in the UK.
No output tax was declared on the VAT returns because, although it had been intended that Norseman would charge management fees to the subsidiaries, that did not happen during the relevant period. If it had charged, it would have been required to provide the money to pay them. The subsidiaries were making losses, so there was little purpose in sending invoices. After six successive repayment VAT returns had been submitted, without any declared output tax liability, HMRC enquired and issued the disputed assessments.
The disputed input tax concerned fees for accountancy, audit, raising finance, Registrars' and the Stock Exchange, public relations and website design. Norseman had no offices in the UK and no employees, other than (if they were employed at all) its directors.
HMRC decided that Norseman was not carrying on an economic activity and so was not making taxable supplies. The issue was whether:
-
1) it was a passive holding company; or
-
2) it actively managed the subsidiaries in a way that made it a “taxable person” within art. 9(1).
Essentially, it is a question of fact whether an economic activity was carried on.
The FTT agreed with HMRC and accepted that what Norseman supplied to its subsidiaries was capable of amounting to a taxable supply. However, what it supplied was not supplied for consideration and so was not a taxable supply. Any understanding between Norseman and its subsidiaries about payment for services provided was insufficient to establish that supplies would be made for consideration, so there was no right to recover input tax. Norseman actively managed its subsidiaries, but its services were not made for consideration. Norseman had not established that the rather vague intention to levy an unspecified charge at some time in the future was enough to establish the existence of consideration.
Norseman appealed to the UT on two grounds:
-
1) the FTT had applied the wrong test in identifying what is required to establish consideration chargeable to, or within the scope of, VAT; and
-
2) the evidence did not support the FTT's findings.
The UT held that Norseman's appeal must be determined on the basis of the findings of fact made by the FTT (para. 117 of the decision).
The UT held that, in relation to the central issue concerning the necessary link between payment and supplies, there are two questions, although the answers to each go together:
-
1) whether the supplies actually made by Norseman in the relevant period were made for consideration and were thus taxable supplies when made; and
-
2) whether there was, before or during the relevant period, an intention to make future supplies (whether in the relevant period or thereafter) for consideration so that such supplies would constitute taxable supplies (para. 119 of the decision).
The UT held that the answer to the first question was that the supplies were not made for consideration; they were made gratuitously (para. 120 of the decision). A charge would be made only when the subsidiaries could afford to pay.
What must be established is a direct and immediate link between the services supplied and the charges levied or to be levied (para. 124 of the decision).
The UT held that an intention to charge the full cost would be likely to demonstrate an intention to make supplies, which would be taxable. In contrast, if the intention had been to charge a nominal amount of, say £100 per annum, that would be unlikely to satisfy the requirements of EU law necessary to establish consideration. Accordingly, the UT rejected the submission by Norseman that, because it intended to make supplies, the FTT had for that reason wrongly concluded that the failure to determine the amount of the charge was fatal. Also, the UT rejected the submission that, because some payment was intended, it necessarily followed that the intention was to make supplies, which would be taxable supplies (para. 126 of the decision).
The UT held that, on the facts found, it cannot be said that the intended payment would be full-cost recovery (although even if the intention was full-cost recovery, there would still remain uncertainty about whether payment would be made at all, let alone about exactly when). Since payment per se is not enough to establish consideration, Norseman failed to establish that it had an intention, during the relevant period, to make taxable supplies at any time in the future. Also, it failed to establish that consideration was given for the services actually provided during the relevant period (para. 136 of the decision).
Norseman supplied services to closely related parties (its subsidiaries) with, at best from Norseman's point of view, an intention on its part to charge at some unspecified time in the future for its services, but with no agreement with the subsidiaries to that effect (even to the effect that the subsidiaries would pay if and when they had funds available) and no understanding of the amount of timing of such payment. The charge/payment, if and when introduced, might or might not match or exceed recovery of the costs incurred in providing the service and might or might not include a profit element. It might even be nominal. This was an insufficient basis on which to say, at any time before or during the relevant period, that the eventual charge and payment would have the immediate and direct link with the services provided (para. 137 of the decision).
Thus, Norseman's appeal was dismissed (para. 139 of the decision).
If Norseman had made supplies of management services to the subsidiaries, such supplies would have been taxable supplies until 31 December 2009, when VATA 1994, s. 7A applied and the law on the place of supply were changed.
[1] This is an appeal by the appellant, Norseman Gold plc, (“Norseman”) against the decision of the First-tier Tribunal (Judge Bishopp (“the Judge”)) released on 12 June 2014 (“the Decision”). The question is whether Norseman is entitled to recover input tax for the period 10/07 to 01/09 (“the relevant period”). The Judge decided that taxable supplies had not been made by Norseman to its subsidiaries in the relevant VAT accounting periods and that the input tax for which the tax credit was claimed was not properly allowable. The Judge refused permission to appeal. However, the Upper Tribunal (Judge Berner) gave permission on paper although the precise scope of that permission is a matter of contention with which I will need to deal. I will refer to paragraphs of the Decision in the format “Decision [xx]” or simply “[xx]”, and similarly with other decisions and judgments to which I refer.
[2] HMRC's position is that Norseman was not carrying on economic activity during the relevant period because it was not making, nor did it have an intention to make in the future, supplies for consideration for VAT purposes. The Judge agreed with HMRC. He accepted (see Decision [47]) that what Norseman supplied to its subsidiaries was in principle capable of amounting to a taxable supply. But what it supplied in the relevant period was not in fact supplied for consideration and was not therefore a taxable supply. He held that any understanding between Norseman and its subsidiaries about payment for services provided was insufficient to establish that supplies would be made for consideration with the result that there was no right to recover input tax incurred during the relevant period. Norseman's position, in contrast, is that it was during the relevant period carrying on economic activity. Its intention in relation to charging when it made the supplies was such as to qualify the supplies made during the relevant period as taxable supplies, alternatively was such as to qualify supplies in the future as taxable supplies. In either case, the input tax incurred in the relevant period was deductible.
[3] Norseman applied to the Judge for permission to appeal. There were essentially two grounds of appeal:
-
a) First, that the Judge had applied the wrong test in identifying what is required to establish consideration chargeable to or within the scope of VAT.
-
b) Secondly, that the evidence did not support the findings, in effect a challenge on Edwards (HMIT) v Bairstow TAX(1955) 36 TC 207 grounds. It was said that the Judge erred in finding that there was a “rather vague intention” (Decision [48]) to levy unspecified charges and that there was “lacking … any common understanding of what was payable”...
To continue reading
Request your trial
-
The Commissioners for HM Revenue and Customs v Tower Resources PLC [2021] UKUT 0123 (TCC)
...time in the future” by way of consideration for services supplied by a parent company to its subsidiaries: Norseman Gold v HMRC [2016] UKUT 69 (TCC), [2016] STC 127, §§94 and 53. Likewise in Bastova (Case C-432/15) EU:C:2016:855 the CJEU held that the supply of a horse by its owner to the o......
-
Norseman Gold Plc v The Commissioners for HM Revenue and Customs
...[2016] UKUT 0069 (TCC) Appeal number FTC/118/2014 VALUE ADDED TAX – input tax –whether Appellant carrying on economic activity – UK management company providing management services to overseas subsidiaries – no agreement on amount of consideration to be paid by subsidiaries – whether taxabl......
-
W Resources PLC v The Commissioners for Her Majesty's Revenue & Customs, TC 06879
...hearing in relation to the Upper Tribunal decision in the domestic law case of Norseman Gold plc v Revenue and Customs Commissioners [2016] UKUT 69 (TCC) (“Norseman”). 29. In Norseman, which was also a case involving costs incurred by a holding company of a mining group in relation to one o......
-
Hedge Fund Investment Management Ltd
...the two cases with most relevance to the issues in these appeals, namely the Upper Tribunal decision in Norseman Gold plc v R & C Commrs [2016] BVC 504 (“Norseman Gold”) and the First-tier Tribunal decision in W Resources plc [2019] TC 06879 (“W Resources”). Neither cases were in the author......