Indirect tax news from the past week
BT: common law claim for historical VAT bad debt relief rejected – HC
Deficiencies in the VAT bad debt relief scheme prevented BT from claiming VAT between 1978 and 1989 under the “Old BDR Scheme”. In 2014 the Court of Appeal ruled that BT did not have a legitimate expectation arising from the eventual repeal of the Old BDR Scheme in 1997, and that a claim submitted in 2009 under the scheme was time-barred. The High Court has now ruled that BT was not entitled, as an alternative, to relief for mistake of law either. Unlike claims for overpaid VAT, VATA 1994 does not expressly exclude common law remedies for bad debt relief. However, in the High Court’s judgment, the Old BDR Scheme was intended by Parliament to be an exhaustive and exclusive scheme for VAT relief on bad debts. Otherwise, taxpayers could circumvent the rules made by Parliament relating to the format, the calculation, and the time limits for BDR claims by seeking an equivalent relief at common law. The High Court concluded that Parliament intended the Old BDR Scheme to oust any common law remedy, and dismissed most of BT’s claim (even though it accepted that there was an arguable case about whether HMRC had been unjustly enriched by the deficiencies of the Old BDR Scheme). (Contact: David Walters).
European Parliament consents to EU-UK Trade and Cooperation Agreement
The European Parliament has voted to consent to the conclusion of the EU-UK Trade and Cooperation Agreement. The Parliament’s consent was necessary for the agreement to enter into force permanently, before it lapsed on 30 April 2021. Following the Parliament’s consent, the Council adopted a decision on the conclusion of the TCA, which entered into force on 1 May. This cements the absence of quotas and tariffs for UK-EU trade which has applied provisionally since the end of the Brexit transition period. Further details are available in a press release issued by the European Parliament. (Contact: Andrew Clarke).
M-GmbH: partnerships in German VAT groups – CJEU
One of the potential challenges of compulsory VAT grouping, as operated in Germany and recently considered for the UK, is the need to be precise about what must be included in or kept out of a VAT group. Otherwise, it can create the sort of issue recently considered by the CJEU in M-GmbH. M-GmbH controlled the majority of the voting rights in PD & Co KG, a limited partnership. Three of the other limited partners were individuals, and although M-GmbH might control the partnership in practice (most decisions were taken by a majority vote) the other partners could conceivably block its control. The German tax authorities concluded that the involvement of these individuals meant that the partnership could not be included in M-GmbH’s VAT group, and assessed the partnership rather than the VAT group for under-declared VAT. The CJEU has ruled that the limited partnership had close financial, economic and organisational links to M-GmbH notwithstanding the involvement of the other limited partners. The limited partnership should have been treated as part of M-GmbH’s VAT group and should not have been assessed. (Contact: Judith Lesar).
Royal County Down Golf Club: time limits apply to catch-up claims – FTT
The FTT’s decision in Royal County Down Golf Club is a reminder of the need to review claims regularly if they are based on litigation that may take several years to resolve. The golf club submitted a claim for VAT on green fees in March 2009, covering 1990-96 and 2006-08. The CJEU ruled that green fees were exempt in December 2013, and early in 2015 the club submitted a catch-up claim for 2009-13. HMRC rejected the first two years of this claim on the basis that they were time-barred. The club argued that it was unreasonable for HMRC to rely on the four-year cap (when it was obvious that the club considered that its green fees were exempt) but the FTT has dismissed its appeal. The claim submitted in 2015 was a new claim, not an amendment to the 2009 claim; the question of whether HMRC should exercise their care and management powers (and ignore the cap) did not fall within the FTT’s jurisdiction; and HMRC’s refusal to accept the 2015 claim did not contravene the club’s right to peaceful enjoyment of its possessions under Article 1 of Protocol 1 of the European Convention on Human Rights. HMRC had correctly treated part of the 2015 claim as time-barred. (Contact: Oliver Jarratt).