In Paul Newey (T/A Ocean Finance) v HMRC [2020] TC07844, the First Tier Tribunal (FTT) held that the offshore transfer of a business to avoid incurring irrecoverable VAT was not abusive.
Mr Newey, trading as Ocean Finance, a loan-broking business, was not registered for VAT as outputs were exempt from VAT and therefore the business could not recover input VAT.
Ocean Finance was then restructured to operate from Jersey, Chanel Islands to avoid irrecoverable VAT on its advertising expenses.
HRMC issued VAT assessments and Mr Newey appealed against the disputed VAT assessments on the basis that relocating a business should not be characterised as an abuse of law. The case was heard by the FTT in 2010 and his appeal was allowed.
HMRC appealed to the Upper Tribunal (UT). At the request of both parties, the UT made a reference to the Court of Justice of the European Union (CJEU). In 2013, the CJEU commented that it was for the referring court to ascertain whether the contractual terms do not genuinely reflect economic reality.
The UT heard HMRC’s appeal and found that the offshore transfer of a business to avoid incurring irrecoverable VAT was not abusive and therefore the appeal was dismissed.
In 2015 HMRC appealed to the Court of Appeal. The Court of Appeal remitted the appeal to the FTT after its judgment in 2018 in which it held that both the FTT and UT had erred in law.
The FTT found that the business relationships entered into between Mr Newey and the other parties do reflect economic and commercial reality and do not constitute a wholly artificial arrangement that does not genuinely reflect economic reality. Accordingly, the appeal by Mr Newey was allowed.
Links
Abuse of rights: VAT
Until 2006 HMRC had limited success in trying to unwind or ignore artificial structures that were used solely for VAT abuse. In Halifax plc v HMRC [2006] STC 919, a purposive approach was taken when interpreting VAT law.
External Link
