In HMRC v P Newey (t/a Ocean Finance) [2018] EWCA Civ 791 (17 April 2018), the Court of Appeal decided to remit the case to the FTT, suggesting that the CJEU, on referral of the case after the FTT’s decision, had adopted a new approach to the application of the Halifax doctrine (Case C-255/02).
Ocean Finance made exempt supplies of financial services in the UK and was therefore unable to recover VAT incurred, in particular, on advertising services. On the advice of its accountants, the business had restructured so that it was carried out by a Jersey incorporated company, Alabaster, to which the advertising services were supplied. These services were outside the scope of VAT as they were supplied outside the UK. In all other respects, the business carried on as before. The loan broking services were still provided to third party lenders in the UK, in respect of loans made to UK resident customers recruited through advertising which was placed only in the UK.
The issue was whether the restructuring constituted an abuse of law under the Halifax doctrine. Both the FTT and the UT had found in favour of Ocean Finance. The Court of Appeal pointed to the CJEU’s comment in the present case that it was ‘conceivable that the effective use and enjoyment of the services at issue in the main proceedings took place in the United Kingdom and that Mr Newey profited therefrom’. The CJEU had concluded: ‘It is for the referring court, by means of an analysis of all the circumstances of the dispute in the main proceedings, to ascertain whether the contractual terms do not genuinely reflect economic reality.’
The court observed that Alabaster had been established with the sole object of providing supplies of loan broking services to UK customers but that the freedom of a trader to structure his business in a tax-effective manner had been ‘repeatedly recognised’ by the courts. The question was therefore whether it made any difference that Alabaster had been incorporated ‘as part of a tax avoidance scheme’.
The court considered that the CJEU’s decision required an assessment of the ‘question of artificiality’ by reference to the business relationships actually entered into by Mr Newey, Alabaster, lenders and the advertising company, and in particular, to the role of Mr Newey. This fact finding analysis would be best conducted by the FTT.
Why it matters: The Court of Appeal concluded: ‘There is no exact precedent of which I am aware in the earlier European case law, let alone as it stood before the FTT hearing in February 2010, for treating together the issues of characterisation of the supplies and the doctrine of abuse of law as the CJEU has done in the present case.’ In the view of the Court of Appeal, the CJEU’s decision changed the way the Halifax principle should be applied. It will be interesting to see how the FTT will apply this new approach, which seems to bring the Halifax doctrine close to the Ramsay doctrine applicable to direct tax cases.
In HMRC v P Newey (t/a Ocean Finance) [2018] EWCA Civ 791 (17 April 2018), the Court of Appeal decided to remit the case to the FTT, suggesting that the CJEU, on referral of the case after the FTT’s decision, had adopted a new approach to the application of the Halifax doctrine (Case C-255/02).
Ocean Finance made exempt supplies of financial services in the UK and was therefore unable to recover VAT incurred, in particular, on advertising services. On the advice of its accountants, the business had restructured so that it was carried out by a Jersey incorporated company, Alabaster, to which the advertising services were supplied. These services were outside the scope of VAT as they were supplied outside the UK. In all other respects, the business carried on as before. The loan broking services were still provided to third party lenders in the UK, in respect of loans made to UK resident customers recruited through advertising which was placed only in the UK.
The issue was whether the restructuring constituted an abuse of law under the Halifax doctrine. Both the FTT and the UT had found in favour of Ocean Finance. The Court of Appeal pointed to the CJEU’s comment in the present case that it was ‘conceivable that the effective use and enjoyment of the services at issue in the main proceedings took place in the United Kingdom and that Mr Newey profited therefrom’. The CJEU had concluded: ‘It is for the referring court, by means of an analysis of all the circumstances of the dispute in the main proceedings, to ascertain whether the contractual terms do not genuinely reflect economic reality.’
The court observed that Alabaster had been established with the sole object of providing supplies of loan broking services to UK customers but that the freedom of a trader to structure his business in a tax-effective manner had been ‘repeatedly recognised’ by the courts. The question was therefore whether it made any difference that Alabaster had been incorporated ‘as part of a tax avoidance scheme’.
The court considered that the CJEU’s decision required an assessment of the ‘question of artificiality’ by reference to the business relationships actually entered into by Mr Newey, Alabaster, lenders and the advertising company, and in particular, to the role of Mr Newey. This fact finding analysis would be best conducted by the FTT.
Why it matters: The Court of Appeal concluded: ‘There is no exact precedent of which I am aware in the earlier European case law, let alone as it stood before the FTT hearing in February 2010, for treating together the issues of characterisation of the supplies and the doctrine of abuse of law as the CJEU has done in the present case.’ In the view of the Court of Appeal, the CJEU’s decision changed the way the Halifax principle should be applied. It will be interesting to see how the FTT will apply this new approach, which seems to bring the Halifax doctrine close to the Ramsay doctrine applicable to direct tax cases.
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