1. Indirect Tax Update for week ending 11 April 2014
An interesting decision from the First-tier Tribunal this week which looks at the UK's VAT
grouping provisions in relation to which corporate body is entitled to a VAT refund.
Generally, according to the Tribunal, only the representative member of a VAT group is
entitled to a refund arising as a result of VAT overpaid during the currency of a VAT group.
It is interesting to observe an argument between former VAT group members when the
small matter of a large VAT refund is at stake. The First-tier Tribunal has issued a
decision in the case of Standard Chartered Bank / Lloyds Banking Group which
examines which of the former VAT group members is entitled to the benefit of a VAT
repayment. Is it the company that actually made the supplies in question which gave
rise to the overpayment of VAT or is it the representative member of the VAT Group?
In a long and detailed decision, the Tribunal summarised the legal position on VAT
Groups. In simple terms, the law creates a legal fiction of a single taxable person.
However, whilst it is a fiction, it is one that has real consequences in terms of the effect
on intra-group supplies and the treatment of the single taxable person for VAT
purposes. In particular, rights and obligations arising in respect of activities taking
place which would ordinarily be treated as those of the constituent members of the
group are not rights and obligations of those companies, but are rights and obligations
of the single taxable person.
The Tribunal declined to follow the reasoning set out in a similar earlier case (Taylor
Clark) stating that the right to repayment of VAT overpaid in the period when a
company was a member of a VAT group accrues to the 'single taxable person'
represented and embodied by the representative member.
Comment – As far as VAT Groups are concerned, the Tribunal confirmed what we
already know – namely that both the European VAT Directive and, in certain respects,
UK VAT law are short on detail. As a consequence, the Tribunal found itself in fairly
new territory. The decision of the Tribunal seems to be quite clear and logical – the
legal fiction that is created by VAT statute means that, despite the fact that there could
be any number of constituent members, in effect, a VAT Group is to be regarded as a
single entity which is embodied in the representative member. As such, it is only the
representative member in situ at the time that relevant supplies are made that is
entitled to make any claim for a refund. – The Tribunal recognises however that, in
certain cases, if this is not possible or is excessively difficult, a different entity may,
exceptionally be entitled to make a claim. This exception preserves the fundamental
EU law principle of effectiveness. This is fairly 'new ground' and the law is developing.
Any VAT groups with outstanding claims should consider their relative positions in
light of this decision. An appeal to the Upper Tribunal cannot be ruled out.
For further information in
relation to any of the
issues highlighted in this
Indirect Tax Update
please contact:
London/South East
Karen Robb
karen.robb@uk.gt.com
The Regions
Stuart Brodie
stuart.brodie@uk.gt.com
The Midlands
Mike Sheppard
mike.sheppard@uk.gt.com
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Indirect Tax Update 15/2014