ING Intermediate Holdings Limited v The Commissioners for HM Revenue and Customs
| Jurisdiction | UK Non-devolved |
| Judge | Mr Justice Morgan,Judge Sarah Falk |
| Neutral Citation | [2016] UKUT 0298 (TCC) |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
| Date | 05 July 2016 |
| Subject Matter | Tax,5 July 2016 |
| Published date | 22 February 2017 |
[2016] UKUT 0298 (TCC)
Appeal number: UT/2015/0004
VAT –deductibility of input tax- whether provision of deposit accounts
involved a supply by bank – whether supply was for consideration capable of
quantification- whether investment by bank of funds received was an
economic activity
UPPER TRIBUNAL
TAX AND CHANCERY CHAMBER
ING INTERMEDIATE HOLDINGS LIMITED Appellant
- and -
THE COMMISSIONERS FOR HER MAJESTY’S Respondents
REVENUE & CUSTOMS
TRIBUNAL:
MR JUSTICE MORGAN
JUDGE SARAH FALK
Sitting in public at The Royal Courts of Justice, Rolls Building, Fetter Lane,
London EC4A 1NL on 16, 17 and 18 May 2016
Kevin Prosser QC and James Rivett, instructed by PricewaterhouseCoopers
LLP, for the Appellant
Kieron Beal QC and Peter Mantle, instructed by the General Counsel and
Solicitor to HM Revenue and Customs, for the Respondents
© CROWN COPYRIGHT 2016
2
DECISION
1. The appellant, ING Intermediate Holdings Ltd, is the representative member of
a VAT group. This appeal relates to voluntary disclosures made in respect of its VAT 5 periods 10/02 to 03/11 inclusive to the effect that it was entitled to deduct input tax in
a total amount of £6,032,280. HMRC refused the claims and the appellant’s
consolidated appeals against the refusals were considered and dismissed by Judge
Mosedale in the First-tier Tribunal (“FTT”) at [2014] UKFTT 938 (TC).
Overview- issues in dispute 10
2. The claims relate to a business known as ING Direct which was carried on in
the UK successively by two companies in the VAT group. In essence the business
involved taking cash deposits from retail customers and deploying the funds raised,
mainly via the acquisition of bonds, in such a way as to make a profit. Up to 31
December 2003 the business was carried on by ING Direct (UK) NV. After that date 15 and following a statutory merger under Dutch law the business was carried on by its
parent company ING Direct NV. In common with the FTT we will use the acronym
IDUK to refer to whichever of these companies carried on the business at the relevant
time. Since nothing turns on it, we will also not draw a distinction between IDUK and
the appellant, which as the representative member of the VAT group was the entity 20 which would be treated as making and receiving any relevant supplies for VAT
purposes.
3. The input tax in dispute arose on expenses incurred in relation to deposit taking.
The key issues before the FTT and before us can be summarised as follows:
(1) whether the deposit taking activity involved a supply of services by 25 IDUK or was merely the lending of money to IDUK in a way that did not
involve a supply by IDUK for VAT purposes;
(2) whether, if there was a supply by IDUK, that supply was for
consideration for VAT purposes which was capable of being expressed in
monetary form (and the possible methods of doing so); 30
(3) if there was no supply by IDUK or no supply for consideration,
whether the deployment by IDUK of the funds raised was an economic
activity for VAT purposes;
(4) if there was an economic activity in those circumstances, whether and
if so how a proportion of the input tax could be attributed to “specified 35 supplies” made in the course of that activity and so qualify as deductible;
and
(5) whether the recovery could extend to input tax incurred before the
statutory merger, relying on regulation 109 of the Value Added Tax
Regulations 1995 (SI 1995/2518) (the “VAT Regulations”). 40
3
It was accepted before the FTT and before us that if IDUK had made supplies for
consideration (issues (1) and (2)) then HMRC had correctly denied recovery of the
disputed input tax on the basis that the expenses incurred had a direct and immediate
link with exempt supplies made in the course of the deposit taking activities.
4. The FTT decided that IDUK had made supplies for consideration so that it did 5 not strictly need to deal with the other points. It did however express the view that
IDUK would not have being carrying on an economic activity if it had not been
making supplies to depositors and that IDUK would also have failed on the regulation
109 issue.
5. An additional question before the FTT which was also raised before us was 10 whether, even if IDUK succeeded on other aspects, its appeal should be dismissed on
the basis that it had not produced sufficient evidence to prove the quantum of its claim
and had not taken steps prior to the hearing to establish that the hearing would be a
hearing in principle only. The FTT did not need to reach a conclusion on this point
either but indicated that if it had then it would also have been inclined to dismiss the 15 appeal on that point.
6. There was one further issue argued before the FTT and referred to at [183] to
[185] of the FTT decision. This related to the decision of the ECJ in Le Crédit
Lyonnais v Ministre du Budget (case C-388/11) [2014] STC 245. HMRC argued
before the FTT that the effect of the decision was that any input tax recovery could 20 only be made from the Spanish tax authorities. HMRC did not seek to pursue this
point before us.
7. We should say at the outset that we are grateful to both Mr Prosser QC and Mr
Beal QC for their clear and helpful submissions. We also pay tribute to the FTT for its
clear findings of fact and its clear and impressive statement of its reasons for its 25 decision.
The facts
8. The relevant facts are set out in the FTT decision. The description that follows
is a summary of the salient points.
The banking trade 30
9. The ING Direct business was a retail banking trade which was established in
about May 2003. The trade comprised taking cash deposits from private individuals
and using the funds to acquire bonds and securities as described further below.
Deposits were on terms that they could be withdrawn without notice.
10. The FTT found that the retail banking operations involved a “normal retail 35 banking service” but with two distinctions. These were that IDUK only offered
deposit accounts and that it had no walk-in branches. Instead it offered a 24 hour
telephone and internet banking service. It also attracted customers by offering a
higher interest rates than most or all of its competitors and by its marketing
To continue reading
Request your trial