Shamrock Leasing Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 18 September 1998 |
| Date | 18 September 1998 |
| Court | Value Added Tax Tribunal |
VAT Tribunal
The following cases were referred to in the decision:
ARO Lease BV v Inspecteur der Belastingdienst Grote Ondernemingen, Amsterdam VAT(Case C-190/95) [1997] BVC 547
C & E Commrs v DFDS A/S VAT(Case C-260/95) [1997] BVC 279
C & E Commrs v Chinese Channel (HK) Ltd VAT[1998] BVC 91
C & E Commrs v Kingfisher plc VAT[1994] BVC 3
C & E Commrs v Thorn Materials Supply Ltd VAT[1998] BVC 270
Canary Wharf Ltd VAT[1996] V&DR 323; [1997] BVC 2058
De Beers Consolidated Mines Ltd v Howe ELR[1906] AC 455
JP Morgan Trading and Finance VAT(LON/97/665) No. 15,373; [1998] BVC 2147
Marshall v Kerr TAX[1994] BTC 258
Polysar Investments Netherlands BV v Inspecteur der Invoerrechten en Accijnzen, Arnhem VAT(Case C-60/90) [1993] BVC 88
R v HM Treasury and IR Commrs, ex parte Daily Mail and General Trust plc TAX(Case 81/87) [1988] ECR 5483; [1988] BTC 422
Svenska International plc v C & E Commrs VAT[1997] BVC 428
Thorn EMI plc; Granada plc VAT[1993] VATTR 94; [1993] BVC 792
Triad Timber Components Ltd VAT(LON/92/2550) No. 10,694; [1994] BVC 552
Supply - Place of supply of services - Equipment leasing - Equipment leased to contractual customer outside the member states and then leased back to UK end-user under sublease - Contractual customer and end-user within same VAT group - Contractual customer had no business establishment in UK - Whether supply made to contractual customer or to VAT group - Whether permission given to contractual customer to join VAT group validly given - Value Added Tax Act 1994 section 7 section 9 section 43 subsec-or-para (1) section 43 subsec-or-para (3) schedule 5 subsec-or-para 7Value Added Tax Act 1994, ss. 7, 9 and 43(1) and (3) and Sch. 5, para. 7; SI 1992/3121 section 16Value Added Tax (Place of Supply of Services) Order 1992 (SI 1992/3121), art. 16; Directive 77/388, the sixth VAT directive, eu-directive 77/388 article 4 article 9art. 4 and 9; notice 700/2/97Notice 700/2/97.
The issue was whether the recipient of a supply of movable tangible property hired by the appellant was (1) the US-based company with which the appellant contracted under a headlease or (2) the UK-based end-user of the equipment which was within the same VAT group as the US company.
The appellant, a VAT-registered leasing company established in the UK, entered into an agreement with S, a US company with no branch or establishment in the UK, but with a director who was resident in the country, for the leasing of certain computer equipment to S. Under a subleasing agreement bearing the same date, S leased the equipment back to B, a VAT-registered company with a UK business establishment and the representative member of a VAT group which included S, for use in B's refurbished dealing room in the City of London. All three companies were ultimately owned by Bank America Corporation, a publicly quoted company resident in California with its headquarters in San Francisco. As a result of the appellant treating the leasing of the equipment to S as being outside the scope of VAT on the basis that S was established outside the Community, the commissioners issued an assessment in respect of the period ending 31 August 1996, ruling that the supply was within the scope of UK VAT, the representative member of the VAT group, V, having a business establishment in the UK.
The appellant contended that the recipient of the supply of office and computer equipment under the headlease was the customer with which it had contracted and the place of supply rules were unaffected by the fact that the representative member was a different company established in the UK. Even if grouping could affect the place of supply, the place where B had established his business was in California. This was the primary place of reference for the purpose of determining who the customer was and should only be displaced if to so treat it would produce an irrational result. The headlease supplied to S was not to be confused with the sublease by S to B of the equipment. In fact, S had no fixed establishment in the UK. The grouping did not alter the place of supply from that which would result from the location of the party with which the supplier contracted.
The commissioners contended that the VAT group of which S was a member was the customer for VAT purposes, a group being treated as a single taxable person for VAT purposes. B had a business establishment in the UK and it was the ultimate destination of the services. Treating the supplies as made where S had established its business would produce an irrational result. B was the representative member of the group and a supply of goods or services to a group member is treated as a supply to the representative member. S was a member of the group on account of the fact that a director was resident in the UK, this being sufficient to give it an "established place of business". In the context of this VAT group, the "main establishment test" did not produce a rational result for VAT purposes. Since the services of equipment leasing were supplied to the group's fixed establishment in London where the computers were physically made available, that should be treated as the place where the services were received.
In reply, the appellant argued that it was necessary to concentrate on the factual and contractual aspect and what S received was the interest under the headlease. Grouping was not designed to alter the basic place of supply rule and a loss of tax was insufficient to render it irrational to supplant the main establishment test.
Held, allowing the company's appeal:
1. eu-directive 77/388 article 4(4)Article 4(4) of the sixth VAT directive which dealt with grouping permitted member states to treat as single taxable persons groups of persons who would otherwise be separate taxable persons. Apart from the qualifications that the persons had to be closely bound to one another by financial, economic and organisational links, there was no restriction on the consequences flowing from inclusion in a single taxable person. Thus the deeming effect had to extend to any reference to a "single taxable person" in the directive unless the context required otherwise.
2. The coherent application of the scheme of the directive meant that where there was a single taxable person or group withineu-directive 77/388 article 4(4)art. 4(4) and one of the persons within that single taxable person was the customer withineu-directive 77/388 article 9(2)art. 9(2)(e), the single taxable person was to be treated as the customer rather than the legal person which was the contractual customer.
3. This, however, did not conclude the issue since there remained the question whether the commissioners had been entitled to treat S and the other companies in the group as a single taxable person, given that S had no branch or establishment outside the US. The commissioners had produced no authority to establish the proposition for the company to be established or resident in a country merely because a director who regularly attended board meetings was resident in that country. Their argument that "established in the territory" ineu-directive 77/388 article 4(4)art. 4(4) had a wider meaning that the words "established his business" ineu-directive 77/388 article 9art. 9 could not be accepted. The word "established" should, as with other words bearing the same route, be interpreted consistently throughout the directive.
4. A requirement that the persons to be grouped had to be established in the territory of the country was introduced in the directive following concern expressed by the commission regarding the international dimension given to grouping under national legislation. Customs' interpretation given to that requirement substantially stripped it of its effect. The word "resident" was not defined in the legislation and the normal test in the context in which it was used was the place where control and management was exercised. In the instant case, this was not in the UK, since it had no establishment here and the commissioners were not entitled to treat S as a member of the UK VAT group.
5. The result was that the consequences of grouping could not be applied when determining the place of supply, which accordingly had to be in the USA. To the extent that this lead to an irrational result, this flowed from the decision of the commissioners to permit S to join the group.
[The tribunal set out the facts summarised above and continued as follows.]
21. Mr Cordara produced "Heads of Submissions", which were most helpful. His submissions concentrated on eu-directive 77/388 article 9(2)art. 9(2)(e) of the sixth directive [Directive 77/388]. He said that the place where SPEF, the recipient of the supplies, has established its business is in California which is also the place where it has a fixed establishment to which the services are supplied; furthermore California is the place where it has its permanent address and usually resides. Accordingly he said that the result is the same whether the primary test is applied, see ARO Lease BV v Inspecteur der Belastingdienst Grote Ondernemingen, AmsterdamVAT(Case-190/95) [1997] BVC 547, or whether either of the other two tests under eu-directive 77/388 article 9(2)art. 9(2)(e) is applied.
22. He submitted that the scope of eu-directive 77/388 article 9(2)art. 9 cannot be affected or governed by the grouping provisions adopted by a member state undereu-directive 77/388 article 4(4)art. 4(4). SPEF is the actual contractual customer and the place where it has established its business is a factual matter not affected by whether or not it is member of a VAT group. He said that this is the first case in which the commissioners have argued that grouping affects the VAT position of a company outside the VAT group in question; he said that a third party might be unaware of the existence of a...
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