Shop Direct Group v Revenue and Customs Commissioners
| Jurisdiction | England & Wales |
| Judge | Lord Justice Briggs,Sir Stanley Burnton,Lord Justice Rimer |
| Judgment Date | 11 March 2014 |
| Neutral Citation | [2014] EWCA Civ 255 |
| Docket Number | Case No: A3/2013/1532 |
| Court | Court of Appeal (Civil Division) |
| Date | 11 March 2014 |
[2014] EWCA Civ 255
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE UPPER TRIBUNAL (TAX AND CHANCERY CHAMBER)
FTC30332012
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Rimer
Lord Justice Briggs
and
Sir Stanley Burnton
Case No: A3/2013/1532
David Goldberg QC and Michael Jones (instructed by WEIL, GOTSHAL & MANGES) for the Appellant
Malcolm Gammie QC and Elizabeth Wilson (instructed by SOLICITOR TO HER MAJESTY'S REVENUE AND CUSTOMS) for the Respondent
Hearing dates: 24 th to 26 th February 2014
This appeal represents the third stage of the (thus far unsuccessful) endeavour by Shop Direct Group ("SDG") to challenge the assessment to corporation tax of a very large repayment of VAT, together with an even larger amount of interest thereon, both of which were received by SDG on 19 th September 2007. The repayment was £124,963,600 and the statutory interest thereon was £174,828,209. Both the repayment and the interest formed items in a series about which there were conjoined appeals by SDG and associated companies, within which they acquired the acronyms "VRP2" and "IP2". They are however the only payments in the series in respect of which SDG has pursued its challenge to this court. I shall continue to use those acronyms, not least because they provide a useful link between this judgment, the Decision of the First-tier Tribunal ("FTT") by Judge Berner and Miss O'Neill published on 14 th February 2012 and the judgment of Asplin J. in the Upper Tribunal ("UT") released on 19 th April 2013.
SDG was assessed to corporation tax in relation to VRP2 on the basis that it was a post-cessation receipt under section 103(1) of the Income and Corporation Taxes Act 1988 (" ICTA"), by which it is chargeable under Case VI of Schedule D. It was assessed to corporation tax on IP2 on the basis that the interest payment represented a profit arising from a loan relationship within the meaning of the corporation tax version of Case III under section 18(3A)(a), by reason of the extended meaning given to "loan relationship" in section 100(1) of the Finance Act 1996. In both cases I refer to the provisions of those Acts as they were in force in 2007.
HMRC repaid VRP2 because it represented the aggregate of a series of overpayments of VAT many years previously by SDG and various other trading companies within the same VAT Group when the overpayments were made, pursuant to a statutory obligation to do so under section 80 of the Value Added Tax Act 1994. It made IP2 pursuant to a statutory obligation to do so under section 78 of that Act. The overpayments had been made between 1978 and 1996 inclusive. Only £200,000-odd of the overpayment was made by SDG itself. As to the balance, £72.8 million was overpaid by GUS Plc ("GUS"), £50 million by two companies, Kay & Company and Abound Limited ("Kay and Abound"), and £1.9million by Reality Group Limited ("RGL"). In their very helpful written submissions, Mr. David Goldberg QC and Mr. Michael Jones for SDG labelled those overpayments as follows:
Part A: The £2.1million aggregate of the overpayments by SDG and RGL
Part B: The overpayments of £50million by Kay and Abound
Part C: The £72.8million overpayment by GUS.
It is common ground that, by September 2007 when VRP2 was repaid, all the trades during the course of which the overpayments had been made had been permanently discontinued within the meaning of sections 103(1) and 106(2) of ICTA. SDG had indeed been dormant since it transferred its trade to Shop Direct Home Shopping Limited ("SDHSL") in October 2005.
The making of an overpayment of VAT gives rise to a statutory right to be repaid under section 80 of the VAT Act. In theory the right arises as soon as the overpayment is made. There was an intense debate, before the FTT, the UT and before this Court, as to the devolution of the repayment rights which arose upon the overpayments which I have summarised. The FTT held that all those repayment rights had become vested in SDG by the time that VRP2 was repaid, so that SDG was beneficially entitled to receive that repayment and IP2 which was the interest payable upon it. The FTT held that Section 103(1) applied to SDG's receipt of VRP2, since all the trades from the carrying on of which that aggregate sum arose had been permanently discontinued. It held that IP2 was chargeable under Case III of Schedule D because VRP2 represented a money debt as respects which SDG stood in the position of a creditor, and the statutory interest was payable to SDG. The UT dismissed SDG's appeal, broadly on the grounds that the FTT's conclusions disclosed no perversity in its finding of beneficial entitlement, and no error of law.
In this court SDG pursued its appeal on two main grounds, one in relation to VRP2, and the other in relation to IP2. In relation to VRP2, Mr. Goldberg submitted that Section 103(1) charges to tax receipts after a permanent discontinuance of a trade only if those sums are received by the trader who or which discontinued the trade from the carrying on of which those sums arose. I will refer to that person as "the original trader". Apart from Section 103(1), he submitted that there was no other qualifying source upon the basis of which SDG could be charged to corporation tax for the receipt of VRP2.
As to IP2, Mr. Goldberg submitted that the FTT had indeed been perverse, or erred in law, in finding that SDG had been beneficially entitled to any of VRP2. It therefore could not have stood in the position of a creditor in relation to VRP2 so as to give rise to a qualifying loan relationship, nor was IP2 "interest of money" within the meaning of Section 18(1)(b) of ICTA so as to be chargeable to corporation tax under Case VI.
Those were by no means all Mr. Goldberg's submissions on this appeal. For example, he submitted that no part of VRP2, as received by SDG was a "sum arising from the carrying on of the trade" within Section 103(2), because what he described as the "proximate cause" of its payment to SDG was a decision by SDG's parent company that a gift of it should be made to SDG. In relation to IP2, he submitted that HMRC's statutory liability to repay over-paid VAT was not, in any event, a "money debt" within the meaning of Section 100(1) of the 1996 Act so that, even if SDG had been entitled to receive it, the interest payable did not arise from a qualifying loan relationship.
This appeal, and the litigation which preceded it, has been greatly complicated by two factors. The first is that all the overpayments and repayments of VAT were, at every stage, made by and to representative members of VAT Groups within the meaning of sections 43 and following of the VAT Act, rather than by or to the trading companies concerned, and the identity of the relevant representative members, and the constitution of the relevant VAT Groups, has changed over time. The second factor is that the FTT was obliged to address the issue of entitlement by reference to sparse documents, in a context where no requirement for disclosure of anything other than documents to be relied upon had been imposed, and in circumstances where SDG decided, at a late stage, to call no oral evidence at the hearing.
I have come to the conclusion that SDG was assessable to corporation tax both on VRP2 and IP2 for reasons which do not require an in-depth analysis of the devolution of the repayment rights for the purpose of deciding whether and by what route SDG became entitled to them, and in relation to which the intervention between HMRC and SDG of VAT Group representative members is an irrelevance. It will clarify and I hope shorten this judgment if I describe first my reasons for that conclusion, and then address those submissions which I have, on the way, rejected to the extent necessary thereafter. I mean thereby no discourtesy to Mr. Goldberg, whose quite extraordinarily clear and persuasive submissions about this at first sight complicated case have been of the greatest assistance throughout.
VRP2 / Post-cessation receipts
Section 103 of ICTA provides, so far as is relevant, as follows:
"(1) Where any trade, profession or vocation… the profits of which are chargeable to tax… has been permanently discontinued, corporation tax shall be charged under Case VI of Schedule D in respect of any sums to which this section applies which are received after the discontinuance.
(2) Subject to Section (3) below, this section applies to the following sums arising from the carrying on of the trade, profession or vocation during any period before the discontinuance (not being sums otherwise chargeable to tax) –
(a) where the profits for that period were computed by reference to earnings, all such sums insofar as their value was not brought into account in computing the profits for any period before the discontinuance, and
(b)…"
Section 110(1B) provides:
"In the case of a trade carried on by a company, any reference to the permanent discontinuance of a trade includes a reference to the occurrence of an event treated under section 337(1) below as a discontinuance…"
Section 337(1) provides that:
"Where a company begins or ceases –
(a) to carry on a trade or
(b) to be within the charge to corporation tax in respect of a trade,
the company's income shall be computed for the purposes of corporation tax as if that were the commencement or, as the case may be, the discontinuance of the trade, whether or not the trade is in fact commenced or discontinued."
In the present case, the...
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