Royal Bank of Scotland Group Plc v R & C Commissioners
| Jurisdiction | Scotland |
| Judgment Date | 21 February 2007 |
| Date | 21 February 2007 |
| Court | Court of Session (Inner House - Second Division) |
Court of Session (Inner House, Second Division).
Lord Justice Clerk (Gill), Lord Osborne and Lady Cosgrove.
Colin Tyre QC (instructed by MacRoberts) for the appellant.
Heriot W Currie QC (instructed by Shepherd & Wedderburn WS) for the respondents.
The following cases were referred to in the judgment:
BLP Group plc v C & E CommrsVATECAS (Case C-4/94) [1995] BVC 159; [1995] ECR I-983
National Provident InstitutionVAT No. 18,944; [2005] BVC 2,398
R v C & E Commrs, ex parte EMU TabacECAS (Case C-296/95) [1998] ECR I-1605
R v International Stock Exchange, ex parte Else (1982) LtdELR [1993] QB 534
Value added tax - Input tax - Partial exemption - Deductible proportion of residual input tax - Rounding up - Whether applicable to special method - Court of Session making reference to ECJ - Value Added Tax Regulations 1995 (SI 1995/2518), SI 1995/2518 regulation 101 regulation 102regs. 101, 102 - Council Directive 77/388, eu-directive 77/388 article 19art. 19.
This was an appeal by the taxpayer bank from a decision of a tribunal (No. 19,429; [2006] BVC 4,057) on a preliminary issue relating to a special method of calculation of recoverable input tax and raising two questions, namely whether, in such a method, the taxpayer was entitled to round up the deductible proportions of VAT calculated for each of the sectors of its business "to a figure not exceeding the next unit", and whether, in rounding up to a figure not exceeding the next unit, the taxpayer was entitled to round up to the next whole number.
Customs had entered into a framework agreement with Scottish banks which provided for the banks to use a special method under which the various sectors of their businesses could have their own procedures for the calculation of recoverable input tax. The agreement did not specify the details of the special method that had been agreed. It provided, in general, for a value-based calculation of input tax in certain circumstances, but also for any other method of calculation that might be agreed on, including attribution based on head counts, units of time and floor area. It also provided that where any part of the method required a recovery of input tax based on a calculated percentage, that percentage would be rounded up to two decimal places; and that, unless the parties otherwise specified, reg. 101(4) of the Value Added Tax Regulations 1995, which at the time of the agreement provided for rounding up to the next whole number, would not apply. The taxpayer took the view that the rounding in respect of each sector should conform to the nearest whole number provision in art. 19 of Council Directive 77/388 (the sixth directive).
The tribunal concluded that art. 19(1) specifically dealt with partial exemption standard methods and allowed rounding up to the next unit in respect of such methods. The sub-paragraphs of art. 17 allowed member states to implement special methods. No restriction was placed on the special methods, no mention was made of rounding and, since by definition a special method derogated from the prescribed standard method, there was no objection to an agreement allowing for a different form of rounding than to the next whole unit. However, if rounding to the nearest whole unit was thought to be advantageous then the standard method had to be used. Accordingly, the preliminary issue was decided in favour of Customs on the first issue (Decision No. 19,429; [2006] BVC 4,057). The tribunal would have found for the taxpayer on the second issue on the basis that the unit referred to had to be a whole number. The taxpayer appealed to the Court of Session arguing that rounding up was not confined to the standard method.
Held, making a reference to the European Court of Justice:
1. The court inclined to the view that Customs' position on the first issue was sound. A value-based calculation made under art. 19(1) applied only to the standard method to which the first and second paragraphs of art. 17(5) referred. Both sides accepted that the value-based standard method was at best a reasonable proxy for what was a use-based entitlement to deduct input tax (cf. art. 17(1)). It was to be inferred that the primary reason for having a special method was that in certain cases such a method might be capable of achieving a greater degree of accuracy. The details of a special method in a case such as this were a matter for agreement. If such a method should involve the calculation at any stage of a fraction of the kind prescribed by art. 19(1), the resulting proportion might be rounded up in any way that the parties might choose.
2. However, the solution to the first issue depended critically on the construction of the directive and was by no means cut and dried. It could not be said that it could be resolved with the complete confidence. It was pre-eminently a Community law issue; and it was an important issue on which it was desirable that the ECJ should rule. (R v International Stock Exchange, ex parte Else (1982) Ltd [1993] QB 534 applied.)
3. The second question was more straightforward. The court agreed with the submission for the taxpayer. But the second issue was ancillary to the first and involved the interpretation of a provision in the directive on which the other language versions seemed not to be uniform. Counsel agreed that if there were to be a reference, it should comprehend both questions and the court was of the same view.
(Delivered by Lord Justice Clerk Gill )
[1] The appellant has appealed to the VAT and Duties Tribunal on a question as to the appropriate recovery method on input tax on its general overheads and costs in the various sectors of its business. This is an appeal against a decision of the Tribunal dated 20 January 2006 on a preliminary issue that has arisen in those proceedings (see [2006] BVC 4,057). It relates to a special method of calculation of recoverable input tax.
[2] This appeal raises two questions; namely (1) whether, in such a method, the appellant is entitled to round up the deductible proportions of VAT calculated for each of the sectors of its business "to a figure not exceeding the next unit"; and (2) whether, in rounding up to a figure not exceeding the next unit, the appellant is entitled to round up to the next whole number.
[3] The Tribunal found against the appellant on the first question...
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