Royal Bank Of Scotland Group Plc V. The Commissioners For Her Majesty's Revenue And Customs
| Jurisdiction | Scotland |
| Judge | Lord Justice Clerk,Lord Osborne,Lady Cosgrove |
| Judgment Date | 21 February 2007 |
| Neutral Citation | [2007] CSIH 15 |
| Published date | 21 February 2007 |
| Court | Court of Session |
| Docket Number | X30/00 |
| Date | 21 February 2007 |
| SECOND DIVISION, INNER HOUSE, COURT OF SESSION | |
| Lord Justice Clerk Lord Osborne Lady Cosgrove | [2007] CSIH 15 X30/00 OPINION OF THE COURT delivered by THE LORD JUSTICE CLERK in the appeal by ROYAL BANK OF SCOTLAND GROUP plc Appellant; against THE COMMISSIONERS FOR HER MAJESTY'S REVENUE AND CUSTOMS Respondents: ______ |
For appellant: Tyre QC; MacRoberts
For respondents: Currie QC; Shepherd & Wedderburn WS
21 February 2007
Introduction
[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. 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 and, by way of obiter dictum, favoured the appellant's argument on the second.
[4] The questions turn on the construction of articles 17 and 19 of the EC Sixth VAT Directive, which has been implemented in domestic law in Part XIV of the Value Added Tax Regulations 1995 (SI No 2518, as amended) (the Regulations).
[5] Title XI of the Directive sets out the rules governing the right of a taxable person to deduct from the tax that he is liable to pay the tax due or paid by him in respect of goods or services supplied to or to be supplied to him by another taxable person.
[6] Article 17 provides inter alia as follows:
"1 The right to deduct shall arise at the time when the deductible tax becomes chargeable.
2 In so far as the goods and services are used for the purposes of his taxable transactions, the taxable person shall be entitled to deduct from the tax which he is liable to pay:
(a) value added tax due or paid within the territory of the country in
respect of goods of services supplied or to be supplied to him by another taxable person;
(b) value added tax due or paid in respect of imported goods within the
territory of the country;
(c) value added tax due pursuant to Articles 5(7)(a), 6(3) and 28a(6);
(d) value added tax due pursuant to Article 28a(1)(a).
3 Member States shall also grant every taxable person the right to the deduction or refund of the value added tax referred to in paragraph 2 in so far as the goods and services are used for the purposes of
(a) transactions relating to the economic activities referred to in Article
4(2), carried out in another country, which would be deductible if they had been performed within the territory of the country;
(b) transactions which are exempt pursuant to Article 14(1)(g) and (i), 15,
16(1)(B), (C), (D) or (E) or (2) or 28c(A) and (C);
(c) any of the transactions exempt, pursuant to Article 13(B)(a) and (d)(1)
to (5), when the customer is established outside the Community or when those transactions are directly linked with goods to be exported to a country outside the Community ...
5 As regards goods and services to be used by a taxable person both for transactions covered by paragraphs 2 and 3, in respect of which value added tax is deductible, and for transactions in respect of which value added tax is not deductible, only such proportion of the value added tax shall be deductible as is attributable to the former transactions.
This proportion shall be determined, in accordance with Article 19, for all the transactions carried out by the taxable person.
However, Member States may:
(a) authorise the taxable person to determine a proportion for each sector
of his business provided that separate accounts are kept for each sector;
(b) compel the taxable person to determine a proportion for each sector of
his business and to keep separate accounts for each sector;
(c) authorise or compel the taxable person to make the deduction on the
basis of the use of all or part of the goods and services;
(d) authorise or compel the taxable person to make the deduction in
accordance with the rule laid down in the first sub-paragraph, in respect of all goods and services used for all transactions referred to therein;
(e) provide that where the value added tax which is not deductible by the
taxable person is insignificant it shall be treated as nil."
[7] Article 19 governs the calculation of the deductible proportion. It provides inter alia as follows:
"1 The proportion deductible under the first sub-paragraph of Article 17(5) shall be made up of a fraction having:
―as numerator, the total amount, exclusive of value added tax, of turnover per year attributable to transactions in respect of which value added tax is deductible under Article 17(2) and (3)
―as denominator, the total amount, exclusive of value added tax, of turnover per year attributable to transactions included in the numerator and to transactions in respect of which value added tax is not deductible. The Member States may also include in the denominator the amount of subsidies, other than those specified in Article 11A(1)(a).
The proportion shall be determined on an annual basis, fixed as a percentage and rounded up to a figure not exceeding the next unit.
2 By way of derogation from the provisions of paragraph 1, there shall be excluded from the calculation of the deductible proportion, amounts of turnover attributable to the supplies of capital goods used by the taxable person for the purposes of his business. Amounts of turnover attributable to transactions specified in Article 13B(d), in so far as these are incidental transactions, and to incidental real estate and financial transactions shall also be excluded. Where Member States exercise the option provided under Article 20(5) not to require adjustment in respect of capital goods, they may include disposals of capital goods in the calculation of the deductible proportion."
[8] Article 17(2) entitles the taxable person to deduct input tax in so far as the goods and services supplied to him are "used" for the purposes of his taxable transactions. The proportion of the VAT that is deductible under the first sub-paragraph of article 17(5) is calculated under article 19(1) as a fraction of which both the numerator and denominator relate to turnover. The calculation is therefore value-based, reflecting, it seems, the theory that value is a reasonable proxy for use (cf National Provident Institution v CCE, Tribunal Decision No. 18944, 18 February 2005, at paras 87-88). The method of calculation prescribed in article 19(1) is the method that normally applies. In the United Kingdom it is known as the standard method.
[9] The other methods referred to in the third sub-paragraph of article 17(5) are described as special methods.
The Regulations
[10] Regulation 101, so far as relevant to this appeal, provides as follows.
"101-(1) Subject to regulation 102 and 103B, the amount of input tax which a taxable person shall be entitled to deduct provisionally shall be that amount which is attributable to taxable supplies in accordance with this regulation.
(2) In respect of each prescribed accounting period- ...
(d) there shall be attributed to taxable supplies such proportion of the input tax on such of those goods or services as are used or to be used by him in making both taxable and exempt supplies as bears the same ratio to the total of such input tax as the value of taxable supplies made by him bears to the...
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