Revenue and Customs Commissioners and Another v MG Rover Group Ltd; Lloyds Banking Group Plc and Another v Revenue and Customs Commissioners; Standard Chartered Plc v Revenue and Customs Commissioners
| Jurisdiction | UK Non-devolved |
| Judgment Date | 19 October 2016 |
| Neutral Citation | [2016] UKUT 434 (TCC) |
| Date | 19 October 2016 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
Mr Justice Warren, Judge Charles Hellier
Andrew Hitchmough QC and Jonathan Bremner instructed by Eversheds for MG Rover Group Limited
David Scorey QC instructed by Deloitte for the Lloyds Appellants
Ian Glick QC, Derek Spitz, Victoria Wakefield, and Adam Rushworth instructed by Norton Rose Fulbright for BMW (UK) Holdings Limited
Tim Eicke QC and Edmund King instructed by PwC for the Standard Chartered Appellants
Andrew Macnab and Peter Mantle, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for Her Majesty's Revenue and Customs
Value added tax – Grouping – Claim for overpaid tax where company leaves VAT group – Correct entity to make claim – Last representative member – First appeal (BMW/MGR) allowed – Second and third appeals (Lloyds/Standard Chartered) dismissed.
The appeals from the First-tier Tribunal concerned how the grouping provisions in the Value Added Tax Act 1994 (“VATA 1994”), s. 43 operate when a company moves into or out of a VAT group, and who has the right to make a claim under VATA 1994, s. 80 for overpaid VAT. The Upper Tribunal (UT) held that such rights fell to the group representative member and not to the individual company which made the supplies giving rise to the overpayment. The first appeal (BMW (UK) Holdings Ltd (BMW)/ MG Rover Group Ltd (MGR) was allowed but the second and third appeals (Lloyds/Standard Chartered) were dismissed.
The positions of the parties were that HMRC and BMW argued that where a supply was made to or by a member of a VAT group the right to make a claim for overdeclared VAT in relation to that supply rested with the representative member of the group for the time being.
Lloyds and MGR argued that the right to make a claim in respect of a supply made by the company which provided the goods or services giving rise to the overpayment (the real world supplier (RWS)) rested in the representative member of the VAT group while the RWS was a member of that group but once it left the group the right became that of the RWS and not any member of the remaining VAT group. Standard Chartered argued that the right to make a claim in respect of a supply made by a company while it was a member of a VAT group rested in the representative member while the group was extant but, on the coming to an end of the group, devolved to the company which suffered the economic burden of the overpayment.
Broadly, therefore, three possibilities were canvassed before the UT, namely that the right to claim:
i) lay with the representative member for the time being of the VAT group of which the RWS had been a member at the time of the supply;
ii) lay with the representative member of that group until the RWS left it, when it reverted to the RWS, and
iii) lay with the representative member while the VAT group was extant but on the coming to an end of the VAT group devolved on the company which had borne the economic burden of the wrongly charged VAT.
The parties relied on a number of decisions of the ECJ in relation to the interpretation of EC Directive 77/388 (the sixth VAT directive), art. 4(4) and also upon the principles of the San Giorgio line of cases. Having considered the relevant legislation and the many authorities relied on by the parties, the UT concluded that a construction of VATA 1994, s. 43 and s. 80 under which the only person entitled to receive payment in the s. 80 claim was the representative member for the time being was not only a permissible construction but, in fact, one which was required by the words and purpose of s. 43. In effect, art. 4(4) invited, and s. 43 provided, a two stage process. At the first stage, the VAT rights and obligations of a notional single person were determined and in the second stage those rights and obligations were attributed to the members who had been treated as that single person. That was different from treating the members as holding the rights and obligations which they would have held in the absence of the grouping.
The UT concluded that s. 43 required, and art. 4(4) permitted, rights in relation to wrongly paid tax arising under s. 80 to be held only by the representative member both before and after the relevant RWS had left the group, or the group had been dissolved.
Applying its findings to the matters under appeal and to the conflicting decisions of the First-tier Tribunal (FTT), the UT concluded that the FTT in Lloyds/Standard Chartered had come to the correct conclusions for the correct reasons and that the appeals against those decisions should be dismissed. However, in the judgment of the UT, the FTT in BMW/MGR had erred in law in finding that BMW was not entitled to make the s. 80 claims. The UT, therefore, set aside the decision of the FTT in that case.
The UT considered it unnecessary to make a reference to the ECJ, since it had reached its conclusion on the requirements of art. 4(4) as they affected s. 43 in the circumstances of the appeals with confidence. Whilst there was no decision of the ECJ in which the specific issues in this appeal issues had been addressed, the UT was confident that the applicable principles were clear.
The UT decided, in effect, that the status of local authorities providing commercial waste collection services should be determined on the facts of each case, but that such services would normally be activities in which the provider is engaged as a public authority with a legal duty to arrange collections and, therefore, would not be taxable services for the purposes of VAT. Although this was a preliminary ruling it will be welcomed by affected local authorities, who feared a combined annual loss in revenue of as much as £77m if it were to be decided that their collection services were subject to VAT.
[1] The decisions of the First-tier Tribunal (the “FTT”) in Standard Chartered plc; Lloyds Banking Group plc TAX[2014] TC 03450 (“Lloyds/SC”), and MG Rover Group Ltd (in creditors' voluntary liquidation) TAX[2014] TC 03461 (“BMW/MGR”), relate to how the grouping provisions in section 43 Value Added Tax Act 1994 (“VATA”) operate when a company moves into or out of a VAT group, and which company has the right to make a claim under section 80 VATA for the repayment of VAT on a supply on which VAT should not have been paid or accounted for. Relevant to both decisions is the extent and effect of the authority conferred by what was article 4(4) of the Sixth Directive to treat a number of closely linked companies as a single taxable person.
[2] The Lloyds/SC and the BMW/MGR decisions gave answers to the questions which arose in the appeals whose reasoning conflicted. In the Lloyds/SC appeal the tribunal regarded the section 43 grouping provisions as being in compliance with the authority of article 4(4) and interpreted the grouping rules with reference to EU principles. It found that the EU law was clear and that there was no need for a reference to the Court of Justice. We will refer to the Court as “the CJEU” or “the Court”. In BMW/MGR the tribunal considered that article 4(4) did not authorise the form of the grouping rules enacted by the UK, interpreted the UK rules on domestic principles only, and indicated that if it had to apply EU law there was sufficient uncertainty to justify a reference to the CJEU.
[3] In each of Lloyds/SC and BMW/MGR the FTT gave permission for the losing parties to appeal to this tribunal. It was directed that the appeals be heard together. We use “Lloyds”, “SC”, “BMW”, “MGR” and “HMRC” in this decision to refer to the relevant appellants in these appeals. We use “Lloyds” to embrace the company now known as Blackhorse Limited which was at times relevant to these appeals called Chartered Trust plc and is now a subsidiary of Lloyds.
[4] We shall return to the provisions of section 43 VATA later but for the following summary it is sufficient to note that when a VAT group is formed it requires that one member of the group be designated as the “representative member” and that what would otherwise have been supplies to and by third parties by and to the individual members for the purposes of VATA are treated as supplies by and to the representative member. In what follows we follow the parties' terminology and call the company which made the provision of goods or services which is treated as a supply for VAT purposes by the representative member, the Real World Supplier or RWS.
[5] In the BMW/MGR appeal the FTT decided the question of who was entitled to make a claim for overpaid VAT as a preliminary issue. The hearing proceeded on the following basis: VAT had been overdeclared at various times in relation to the provision of motor vehicles by Rover Company Ltd, Rover Wholesale Ltd and MGR when they had been members of a VAT group; those companies left the VAT group; at that time and subsequently BMW was the representative member of that VAT group; Rover Company Limited executed an assignment to MGR of any claim they might have to the repayment of the overdeclared VAT. (MGR also claimed that Rover Wholesale Ltd had assigned its repayment right to it but the FTT did not consider the terms of that assignment.) Later BMW claimed repayment of the overdeclared VAT under section 80 VATA as representative member of the VAT group, and MGR claimed repayment for itself and as assignee of Rover Company Ltd and Rover Wholesale Ltd (although the claim in relation to Rover Wholesale was not considered by the FTT).
[6] The FTT held that when a company which, apart from the effects of the VAT grouping provisions would be treated as having made the supply to which the claim relates left the VAT group, it became thereafter the person entitled to make the claim. It therefore decided the...
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