Revenue and Customs Commissioners v GMAC UK Plc

JurisdictionUK Non-devolved
CourtUpper Tribunal (Tax and Chancery Chamber)
Judgment Date03 August 2012
Neutral Citation[2012] UKUT 279 (TCC)
Date03 August 2012

[2012] UKUT 278 (TCC);

[2012] UKUT 279 (TCC).

Upper Tribunal (Tax and Chancery Chamber).

Warren J, Judge Charles Hellier.

British Telecommunications plc
Revenue and Customs Commissioners
Revenue and Customs Commissioners
GMAC UK plc (formerly General Motors Acceptance Corp (UK) plc)

Paul Lasok QC and Eleni Mitrophanous (instructed by the Solicitor to HM Revenue and Customs).

Roderick Cordara QC and Jessica Wells (instructed by KPMG LLP) for GMAC UK PLC.

Roderick Cordara QC and Lyndsey Frawley (instructed by BT Legal) for British Telecommunications plc.

The following cases were referred to in the judgment:

Allen v EC CommissionECAS (Case T-433/10P) 14 December 2011

Aluminium Industrie Vaassen BV v Romalpa AluminiumWLR [1976] 1 WLR 676

Ampafrance SA v Directeur des Services Fiscaux de Maine-et-LoireECASECASVAT (Joined Cases C-177/99 and C-181/99) [2002] BVC 664; [2000] ECR I-7013

Autologic plc v IR CommrsTAXELR [2005] BTC 402; [2006] 1 AC 118

Barclays Bank plcVAT No. 18,410; [2004] BVC 2,064

Becker v Finanzamt Münster-InnenstadtECAS (Case 8/81) [1982] ECR 53

BLP Group plc v C & E CommrsECASVAT (Case C-4/94) [1995] BVC 159; [1995] ECR I-983

Card Protection Plan Ltd v C & E CommrsECASVAT (Case C-349/96) [1999] BVC 155; [1999] ECR I-973

CR Smith Glaziers (Dumferline) Ltd v C & E CommrsVAT [2003] BVC 249

C & E Commrs v Cantor Fitzgerald InternationalECASVAT (Case C-108/99) [2002] BVC 9; [2001] ECR I-7257

C & E Commrs v General Motors Acceptance Corp (UK) plcVAT [2004] BVC 611

C & E Commrs v Robert Gordon's CollegeVAT [1996] BVC 27

Eagle v EC CommissionECAS (Case T-144/02) [2007] ECR II-2721

EC Commission v GermanyECASVAT (Case C-427/98) [2003] BVC 205; [2002] ECR I-8315

EC Commission v IrelandECAS (Case 17/84) (1985) 2 BVC 200,139; [1985] ECR 2375

EC Commission v ItalyECASVAT (Case C-45/95) [1997] BVC 536; [1997] ECR I-3605

Elida Gibbs Ltd v C & E CommrsECASVAT (Case C-317/94) [1997] BVC 80; [1996] ECR I-5339

Fantask A/S v Industrieministeriet (Erhvervministeriet)ECAS (Case C-188/95) [1997] ECR I-6783

Finanzamt Uelzen v ArmbrechtECASVAT (Case C-291/92) [1996] BVC 50; [1995] ECR I-2775

Fleming (t/a Bodycraft) v R & C CommrsUNKVAT [2008] UKHL 2; [2008] BVC 221

Garage Molenheide BVBA v BelgiumECASECASECASECASVAT (Joined Cases C-286/94, C-340/95, C-401/95 and C-47/96) [1998] BVC 106; [1997] ECR I-7281

Gemeente Leusden v Staatssecretaris van FinanciënECASVAT (Joined Cases C-487/01 and C-7/02) [2006] BVC 740; [2004] ECR I-5337

Grendel GmbH v Finanzamt für Körperschaften, HamburgECAS (Case 255/81) [1982] ECR 2301

Grundig Italiana SpA v Ministero delle FinanzeECAS (Case C-255/00) [2002] ECR I-8003

Halifax plc v C & E CommrsECASVAT (Case C-255/02) [2006] BVC 377; [2006] ECR I-1609

Imperial Chemical Industries plc v ColmerTAXWLR [1999] BTC 440; [1999] 1 WLR 2035

Kloppenburg v Finanzamt LeerECAS (Case 70/83) (1984) 3 BVC 65; [1984] ECR 1075

Kuwait Petroleum (GB) Ltd v C & E CommrsECASVAT (Case C-48/97) [1999] BVC 250; [1999] ECR I-2323

Marks & Spencer plc v C & E CommrsECASVAT (Case C-62/00) [2002] BVC 622; [2002] ECR I-6325

Minister Finansów v Kraft Foods Polska SAECAS (Case C-588/10) 26 January 2012

Optigen Ltd v C & E CommrsECASECASECASVAT (Joined Cases C-354/03, C-355/03 and C-484/03) [2006] BVC 119; [2006] ECR I-483

Plantanol GmbH & Co KG v Hauptzollamt DarmstadtECAS (Case C-201/08) [2009] ECR I-8343

R v Secretary of State for Transport, ex parte Factortame LtdELR [1990] 2 AC 85

R & C Commrs v Rank Group plcUNKVAT [2009] EWHC 1244 (Ch); [2009] BVC 598

R & C Commrs v Rank Group plcECASECASVAT (Joined Cases C-259/10 and C-260/10) [2011] BVC 389

Rewe-Zentral AG v Landwirtschaftskammer für das SaarlandECAS (Case 33/76) [1976] ECR 1989

Sanders v EC CommissionECAS (Case T-45/01) [2007] ECR II-2665

Sunningdale Golf ClubVAT [1997] BVC 2,400

University of Sussex v C & E CommrsVAT [2004] BVC 151

Value added tax - Bad debt relief - EU law - Time limits - Cars purchased on hire-purchase terms and subsequently repossessed - Insolvency and property conditions in former bad debt relief provisions incompatible with EU law - Directly enforceable EU law right to bad debt relief not time-barred - Inadequate notice given of withdrawal of ability to claim - "Desupply" of repossessed cars and reduction of consideration giving rise to "windfall" - Whether windfall permissible under EU law not acte clair - Possible need for reference to ECJ - Council Directive 77/388, eu-directive 77/388 subsec-or-para C article 11art. 11(C)(1) - VATA 1983, s. 22(2)(c) - Value Added Tax (Cars) Order 1992 (SI 1992/3122), art. 4 - FA 1997, Finance Act 1997 section 39 subsec-or-para 5s. 39(5) - VATA 1994, Value Added Tax Act 1994 section 80s. 80 - Value Added Tax Regulations 1995 (SI 1995/2518), reg. 38.

These were the determination of three preliminary issues in a tax appeal by the taxpayer (BT) before the FTT, and an appeal by HM Revenue and Customs against a decision of the First-tier Tribunal (Tax) ([2010] UKFTT 202 (TC); [2010] TC 00504) allowing the appeal of the taxpayer (GMAC) against HMRC's refusal of VAT bad debt relief in relation to supplies of cars made on hire-purchase terms between 1978 and 1997.

GMAC's business included the supply of motor cars on hire-purchase terms. When a car was repossessed on a customer's default, GMAC would already have accounted for VAT on the full (VAT-inclusive) purchase price. It was entitled to adjust its accounts in respect of the amount at which the car was resold at auction, pursuant to reg. 38 of the Value Added Tax Regulations 1995. That adjustment did not, however, cover the amount remaining outstanding, and unpaid, by the customer. The appeal concerned whether GMAC was entitled to some form of VAT bad debt relief in respect of the amount it did not receive. The "old scheme" for bad debt relief was brought in by FA 1978 and became settled in s. 22 of VATA 1983; in 1990 it was replaced by the "new scheme"; there was an overlap period between 1 April 1989 and 26 July 1990 when a taxpayer had a choice of which scheme to use. Section 39(5) of FA 1997 prevented further claims under the old scheme after 19 March 1997. During the period 1978 to 1997, the domestic VAT bad debt relief provisions imposed one or both of two conditions which had to be satisfied before bad debt relief was available: (1) the property condition, which required that property had passed on a supply of goods; and (2) from 1978 to 1990 only, the insolvency condition which required that the debtor was formally insolvent and, for part of that period, that the taxpayer had proved in the insolvency.

Under the HP agreements in question, property in a repossessed car had not passed to the customer prior to the repossession. GMAC was therefore unable to satisfy the property condition at any time in the period. Further, since GMAC did not in all cases itself wish to commence insolvency proceedings against a defaulting customer, it did not, in many cases, satisfy the insolvency condition. Moreover, in some cases, the amount outstanding was less than the relevant bankruptcy or insolvency limit so that bankruptcy or winding-up proceedings could not be instituted. The result was that GMAC was not entitled in any of those cases to bad debt relief under UK domestic legislation. GMAC's case was that the property condition and the insolvency condition were incompatible with art. 11(C)(1) of Council Directive 77/388 (the sixth directive). It asserted that the directive provided a directly enforceable right to relief for non-payment on which it could rely.

If a car was repossessed and sold, then, by virtue of the Value Added Tax (Cars) Order 1992 (and similar predecessor provisions), the sale was, for UK domestic purposes, not treated as a supply: it was "desupplied". HMRC took the view that the application of the Cars Order and the reduction of consideration under reg. 38 produced, in the case of a default, a "windfall" for GMAC, which was inconsistent with the result intended by the directive. HMRC argued that GMAC could not at the same time benefit from the windfall which arose as a result of a combination of the Cars Order and reg. 38, and then seek the benefit of the direct application of the directive further to reduce its tax liability. It was wrong to apply the directive to the unpaid consideration but to apply domestic legislation in relation to the desupply, by the Cars Order, on the resale of the car.

In February 2006, GMAC made a claim for bad debt relief in respect of HP supplies between 1978 and 1997. The claim was refused by HMRC. On the taxpayer's appeal, the FTT decided that the insolvency and property conditions were incompatible with the sixth directive and fell to that extent to be disapplied. On the windfall issue, it held that the taxpayer's rights to bad debt relief under the sixth directive were not defeated or curtailed by the result of a combination of that relief with other domestic provisions, including reg. 38 of the 1995 Regulations and the Value Added Tax (Cars) Order 1992. The FTT further held that FA 1997, s. 39(5) retrospectively curtailed the taxpayer's rights under the sixth directive without an adequate transitional period following the repeal of s. 22 of the 1983 Act. Therefore, it had to be disapplied so that no time bar applied to the claims in relation to the period 1978 to 1990 ([2010] UKFTT 202 (TC); [2010] TC 00504). HMRC appealed.

BT had made a claim for bad debt relief in 2009 in an amount of nearly £92m plus interest in respect of unclaimed bad debt relief in the period 1 January 1978 to 31 March 1989. HMRC refused to grant relief and that refusal was upheld on review. The taxpayer's appeal against that decision gave rise to the three preliminary issues which were considered together with the GMAC appeal and all related to the time within which claims had to be made.

Held, ruling accordingly:

1.The second part of art. 11(C)(1) provided a power of...

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