Abuse of Rights Flashcards
Describe the Halifax case
A bank wanted to construct a call centre and it would incur significant amounts of VAT on the costs, subject to partial exemption
A scheme was devised involving a chain of supplies by third parties to three newly created subsidiaries, including pre payments for supplies in the end of one VAT year and delivery in the next year
UK PE rules at the time guaranteed 100% recovery.
Objective evidence showed that the obtaining of a tax advantage was the sole or main purpose of the transactions which were artificial.
It was contrary to the law to grant such a tax advantage
Describe the case of Newey/Ocean Finance
Newey was a loan broker established in the UK, he made exempt supplies and couldn’t recover VAT on advertising services
He set up a Jersey Co (granting the use of the name of Ocean Finance) to conclude contracts between the lenders.
Advertising services were supplied to the Jersey Co, in which the VAT treatment was B2B o/s of VAT.
Newey issued an invoice to Jersey co for the work, trying to get recovery under B2B s.26(2)c specified supplies as it was B2B o/s
The restructure almost made them fully taxable on no commercial basis. HMRC took the view that regardless of the contractual terms, the actual supply was between Newey and the advertiser, subject to VAT.
HMRC can redefine the arrangement and go back to the original position
What is the key takeaway from Halifax?
Where the purpose of transactions is solely to obtain a tax advantage, this is contrary to the law and an abuse of the VAT system
What is the key takeaway from Ocean Finance?
HMRC can redefine arrangements to reflect the commercial reality regardless of the contracts in place
