Input tax - right to recover Flashcards
Describe the Redrow Plc [1999] case
Designed and operated a sales incentive scheme whereby it would pay estate agency fees incurred by persons selling their homes and purchasing Redrow homes
Redrow submitted a claim to recover the agents’ fees. HMRC argued that the agents’ fees were not supplied to Redrow but rather were supplied to the purchaser of the house.
The House of Lords felts that the question in case was whether there was input tax in the hands of Redrow, which depended on whether Redrow received taxable supplies for the purposes of its business.
The HOL stated that Redrow did not merely derive benefit from the services rendered to the purchaser of the house, but they had actually selected and instructed the agents
The court therefore concluded that Redrow received supplies of services from estate agents in return for the consideration paid.
What is the significance of the Redrow PLC case?
Payment of services does not automatically give a right to recover input tax. It can be third party consideration per Telent Plc and Birmgingham City Football club.
Redrow was allowed to recover on the basis that it derived a benefit, instructed the services and was in tripartite agreements.
Describe the Airtours Holiday Transport case
Airtours was in financial difficulty and appointed an accountancy firm to liaise with its banks, bondholders and other creditors
It paid the fees and reclaimed the input tax on them. HMRC assessed to disallow the input tax, arguing that the firm’s supplies were made to creditors and not to the company.
The FTT examined the engagement letters which appeared to support HMRC’s position, they were addressed solely to the engaging institutions and the report was solely for the engaging institutions. Although, Airtours was party to tripartite agreements.
The FTT followed Redrow holding that Airtours received the supply as well as the lenders. The UT reversed this decision.
It was clear that PWC were providing the service to and for financial institutions, to be paid for by Airtours. The fact that the claimant needed or wanted the supplies did not mean it received them. Airtours was not entitled to recovery.
What is the significance of the BLP case?
Input tax on professional fees incurred with the disposal of shares in a subsidiary to pay a debt was held not to be recoverable as relating to the exempt sale of shares (rather than recoverable of debts relating to payments derived from taxable transactions of the company).
Describe the Hotel La Tour case?
The group ran a hotel in Birmingham and was selling a subsidiary via share sale to raise funds to build a new hotel.
The tribunal held that this could be regarded as a fund raising exercise as there was a direct and immediate link between the raising of funds and the group’s building and running of a new hotel.
The VAT on the fees associated with the share sale was a general overhead of the business and could be recovered as input tax. HMRC appealed to the UT and it was dismissed.
Post exam cut off position - Hotel La Tour was prevented from recovery. Appeal made to Supreme Court.
What is the significance of the Hotel La Tour case?
It contradicts the decision in BLP and demonstrates that where share sales are directly for generating funds for taxable activity, and there is a direct and immediate link, associated input tax is recoverable as residual input tax.
Describe the BAA case
There are two conditions for input VAT recovery:
1. Incurred in the course of economic activity
2. Direct and immediate link to taxable activity
Adil acquired BAA VAT group and incurred professional fees. Adil then joined the BAA VAT group and BAA recovered VAT on fees incurred by Adil.
Held that Adil was not carrying on economic activity at the time the VAT was incurred. It was merely taking over BAA by acquiring shares on it and did not intend to make supplies at the time the input tax was incurred.
What is the significance of the Frank Smart case?
It widened the scope of the direct and immediate link.
The company carried out a fully taxable business and received outside the scope grant income and purchased single payment units to fund its business.
HMRC denied the input tax because there was no direct and immediate link between the purchase and the receipt of the subsidy. The subsidy was outside the scope of there was no link to a taxable transaction.
The court hels that the input tax was recoverable as it was incurred to fund economic activity and to use the funds to develop the business in providing taxable supplies.
What is the significance of the AB SKF case?
Sometimes a share sale can be treated as a TOGC.
Swedish courts decided that a holding company should be entitled to recover VAT on expenses associated with disposing shareholding because the acquisition of a subsidiary was treated as relating to an economic activity and justifying credit
The AG disagreed, the sale of shares was exempt so no right to recover even if underlying purpose was taxable
The CJEU’s decision was that the sale was an economic activity and was in the scope of VAT but exempt. The judges argued that it could be a sale totally of assets and neither be a supply of goods or services.
What is the case of PPG Holdings BV?
VAT recovery in relation to an employer funded pension scheme was considered.
The case found that provided a service had been supplied to the employer and there was a direct and immediate link to the employer’s business, the VAT charged was recoverable.
Criteria for recovery:
- The employer has contracted for, commissioned and used the services
- The invoices are addressed to the employer
- The employer has paid for the services
Where regulations do not allow for tripartite agreements, 30% of the invoice can be treated as the employer’s input tax for an obligation to the pension scheme if the employer is named on the invoice as well as the trustees.
Residual input tax.
Describe the case of CIBO
The management of subsidiaries qualifies as economic activity
CIBO was a holding activity that acquired shares in three companies. It incurred professional fees and sought to recover input tax.
CIBO derived income from those companies as dividends and made charges in respect of taxable management services. CJEU held that involvement in the management of subsidiaries constitutes an economic activity where it entails carrying out transactions which are subject to VAT.
The costs incurred in the acquisition of shares may form part of the holding company’s general costs and may have a link between the holding company’s business as a whole and may form part of the holding company’s general overheads.
What is the significance of Mono Global?
Two shareholders acquired a company with an intention of using it to make supplies in the telecommunications sector (shell company with no name). They sought outside investors and paid for reports indicating the profitability of the company.
The company reclaimed the VAT on these reports, HMRC refused it arguing the supplies had really been made to outside investors.
The tribunal allowed the appeal in line with Redrow as there was some benefit to outside investors, but undoubtedly the main benefit was to Monoglobal.
The exact contractual arrangements do not necessarily conclude to whom the supply is made. The main benefit was to the shell company even if it did not have a name.
Describe the case of Poladon?
A building company obtained a bank loan in order to convert a property into residential units.
The bank instructed a firm of surveyors to monitor the progress of the work.
The bank paid the surveyors fees and charged these, plus solicitors fees to Poladon. Poladon recovered the input tax.
The tribunal held the services had been supplied to the bank rather than Poladon.
Describe the case of Eagle Trust Plc
A company requested a substantial increase in its overdraft facility from its bank. The bank requested a detailed report from the company’s accountants.
The accountants submitted their report to the bank but sent invoices to the company rather than the bank. The company reclaimed he input tax and HMRC rejected the claim.
The tribunal dismissed the appeal holding that the services had been supplied to the bank rather than the company.
