Appeal To The Court Of Session By Taylor Clark Leisure Plc Against A Decision Of The Upper Tribunal (tax And Chancery Chamber) Dated 8 September 2014
| Jurisdiction | Scotland |
| Judge | Lord Drummond Young,Lady Smith,Lord Menzies |
| Judgment Date | 14 July 2016 |
| Neutral Citation | [2016] CSIH 54 |
| Court | Court of Session |
| Published date | 14 July 2016 |
| Docket Number | XA53/15 |
| Date | 14 July 2016 |
EXTRA DIVISION, INNER HOUSE, COURT OF SESSION
[2016] CSIH 54
XA53/15
Lord Menzies
Lady Smith
Lord Drummond Young
OPINION OF THE COURT
delivered by LORD DRUMMOND YOUNG
in an appeal to the Court of Session
by
TAYLOR CLARK LEISURE PLC
Appellant;
against
A decision of the Upper Tribunal (Tax and Chancery Chamber)
dated 8 September 2014
in respect of an appeal by
THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS
Respondent:
Act: Simpson, QC; Burness Paull LLP
Alt: Young, QC; Office of the Advocate General
14 July 2016
[1] The appellant was incorporated in 1935 under the name Caledonian Associated Cinemas Ltd, and has been engaged since then in a range of trading activities, generally in the leisure sector. After VAT was introduced in the United Kingdom in 1973 the appellant charged VAT on its relevant supplies at the standard rate. It established a VAT group and became the representative member of that group. The VAT group continued in existence until 2009, when it was dissolved. The appellant remained the representative member of the group throughout that period. The concepts of the VAT group and the group’s representative member are of fundamental importance to the issues in the present appeal, and are discussed below at paragraphs [9] et seq, and in particular at paragraphs [14]-[17]. At this stage it is sufficient to note that when a VAT group is established all supplies made to or by members of the group that are subject to VAT are treated for the purposes of VAT as made by the representative member, which is regarded as embodying the group.
[2] The appellant’s business included bingo and similar games of chance. In 1990 Carlton Clubs Ltd (“Carlton”) was incorporated as a wholly‑owned subsidiary of the appellant, and the appellant transferred its bingo and related businesses to Carlton with effect from 1 April 1990. The related businesses included the operation of gaming machines and mechanized cash bingo. Carlton became a member of the appellant’s VAT group. It remained a member of the Taylor Clark VAT group until 1998, when it was sold to outside shareholders and left the group. Because of Carlton’s membership of the Taylor Clark VAT group during the period from 1990 to 1998, all of the VAT paid in respect of its activities during that period was accounted for to the Commissioners of Customs and Excise by the appellant as the representative member of the group. Similarly, all supplies made by Carlton were treated as made by the appellant as representative member.
[3] On 17 February 2005 it was established by the European Court of Justice that income from gaming machines was not subject to VAT: Finanzamt Gladback v Linneweber (Case C-453/02), [2005] ECR I-1131; [2008] STC 1069. HMRC did not accept that that decision was relevant to the United Kingdom, but they nevertheless invited claims for repayment of VAT in relation to gaming machines and analogous activities. HMRC’s view on this matter was challenged in a series of cases brought in the British courts, and on 10 November 2011 the European Court of Justice decided, in Rank Group PLC v HMRC, [2011] ECR I-10947, that bingo was not subject to VAT.
[4] Meanwhile, on 23 January 2008, the House of Lords decided in Fleming (t/a Bodycraft) v HMRC, [2008] UK HL 2; [2008] STC 324; [2008] 1 WLR 195, that the United Kingdom legislation that imposed a statutory time bar for the refund of overpaid VAT was contrary to EU law in respect of the period from the inception of VAT in 1973 to 4 December 1996. Following the Fleming decision, section 121 of the Finance Act 2008 was enacted, which permitted claims to be made for VAT overpaid in respect of accounting periods prior to 4 December 1996. Section 121 provided that such claims, which are generally referred to as “Fleming claims”, could be made until 31 March 2009.
[5] On 16 November 2007 Carlton submitted four claims to HMRC in respect of the VAT that was said to have been overpaid in accounting periods from 1973 to 1998; the claims related to VAT paid on mechanized cash bingo, gaming machines, participation fees for bingo played for cash prizes, and added prize money in bingo games (the latter having been revised on 8 January 2009). Those claims are discussed in detail below at paragraphs [20] et seq. All of those claims were rejected by HMRC, and Carlton appealed against them to the First-tier Tribunal. On 27 April 2009 HMRC sent a notice of voluntary disclosure addressed to the appellant which showed that £667,069 was due to the appellant in respect of overpaid VAT on additional prize money. On the same date HMRC gave notice to the appellant that the foregoing sum plus interest of £663,300 was to be repaid to it. On 11 May 2009 that interest was paid to the appellant, and the following day the claim for VAT in respect of additional prize money was also paid to the appellant. On 7 July 2009, however, HMRC made assessments on the appellant for repayment of the VAT and interest that had been repaid in this way. Thereafter, on 14 September 2009, the appellant sought review of the foregoing recovery assessments, and on 4 May 2010 it sought repayment of the VAT that formed the subject of the other claims that had been submitted by Carlton. All of these claims by the appellant were made after the expiry of the time limit for such claims on 31 March 2009.
[6] All of the claims made by the appellant were rejected by HMRC by letter dated 23 September 2010; in that letter HMRC reversed its earlier decision and confirmed the assessments made on 7 July 2009. At the same time payment of the claims made by Carlton was refused. On 28 February 2011 the appellant appealed to the First‑tier Tribunal against HMRC’s decision to uphold the assessments made on 7 July 2009. On 14 April 2011 the appellant asserted that it was entitled to repayment of the claims that had been submitted by Carlton; this was rejected by HMRC on 4 May 2011, and the appellant appealed to the First‑tier Tribunal against that decision on 2 June 2011. The appeals were heard together, and were rejected by the First‑tier Tribunal on 19 December 2012. By the time when the appellant’s appeals were heard Carlton’s appeals had been withdrawn. The appellant then appealed to the Upper Tribunal against the decision of the First‑tier Tribunal, but that appeal was rejected by decision dated 8 September 2014. Leave to appeal to the Court of Session was subsequently granted.
[7] A number of issues that are no longer relevant were debated before the First‑tier and Upper Tribunals. The issue that remains relevant is as follows. The only timeous claim for repayment of VAT paid by the appellant’s VAT group was made by Carlton. No timeous claim was made by the appellant itself, whether in its capacity as the representative member which embodies the VAT group or as an entity in its own right. The critical question is accordingly what the effect is of the claims by Carlton: can the VAT group embodied in the appellant as representative member rely on those claims for repayment of VAT overpaid by the group, when the claims were made timeously but by another member of the VAT group rather than the representative member?
[8] Before we address that question directly, we propose first to consider the European Union and domestic legislation that governs VAT groups and their members, and the implications that that has for assessment of claims made by members of a VAT group. This necessarily involves consideration of the concept of the VAT group and its legal effect; the position of the representative member of such a group; and the position of the members of the group apart from the representative member. Thereafter we will consider the claims made by Carlton in the present case, and will analyze those claims in the context of the legal framework governing VAT groups and their tax liability; we consider that context to be of vital importance. We address in particular the critical question: whether on a proper legal analysis the claims intimated by Carlton may be properly treated as made of behalf of the appellant as representative member of its VAT group. Thereafter we will consider certain aspects of the decisions of the First‑tier and Upper Tribunals, and finally certain aspects of the arguments raised by HMRC, particularly with regard to the practical consequences of our analysis.
Value added tax and groups of companies
Legislation in the European Union and the United Kingdom
[9] At the material time, the relevant European legislation was found in the principal VAT Directive, Council Directive 77/388/EEC (the Sixth Directive), which authorized Member States to:
“treat as a single taxable person persons established in the territory of the country who, while legally independent, are closely bound to one another by financial, economic and organizational links”.
That provision has been repeated in article 11 of Council Directive 2006/1.2/EEC, the current Principal VAT Directive. The United Kingdom made use of the foregoing power to enact provisions in the Value Added Tax Act 1994 dealing with groups of companies. The principal section is section 43, which in its present form is as follows:
“(1) Where under sections 43A to 43D any bodies corporate are treated as members of a group, any business carried on by a member of the group shall be treated as carried on by the representative member, and –
(a) any supply of goods or services by a member of the group to another member of the group shall be disregarded; and
(b) any supply which is a supply to which paragraph (a) above does not apply and is a supply of goods or services by or to a member of the group shall be treated as supplied by or to the representative member; and
(c) any VAT paid or payable by a member of the group on the acquisition of goods from another member State or on the importation of goods from a place outside the member States shall be treated as paid or payable by the representative...
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