Indirect Tax Update for week ending 25 January 2017

1. © 2017 Grant Thornton UK LLP. All rights reserved.
ITU
Summary
The main case this week is the
CJEU’s judgment in the Irish
National Roads Authority (NRA)
case. The issue in question was
whether the NRA’s activity of
operating certain toll roads was
to be treated for VAT purposes
as being in competition with
private operators and, thus,
creating a distortion of
competition within the toll road
market place. The CJEU
considered that, in the
circumstances, the NRA was not
in competition with private
operators and that, as a result,
the NRA was not a taxable
person for VAT purposes.
The Upper Tribunal has also
issued a decision in connection
with whether mobile homes
should be regarded as caravans.
Finally, the First-tier Tribunal has
issued two decisions in
connection with Excise duty
authorisations.
27 January 2017
Court of Justice of the European Union
This case was a referral to the CJEU by the Irish courts. The National Roads Authority
(NRA) is a public body established in the Republic of Ireland charged with the
responsibility for managing the Irish road network. In carrying out its responsibilities,
it does so as a public authority.
One of the NRA's functions is to grant licenses to private operators of public toll
roads. However, it also operates two toll roads itself and it was in connection with this
activity that the Irish courts required the assistance of the CJEU.
EU VAT law stipulates that 'bodies governed by public law' (such as the NRA) are not
to be treated for VAT purposes as taxable persons when they carry out their public
body functions even if they make charges to their customers. There is, however, an
exception to that rule. If treating the public body as a non-taxable person would lead to
significant distortion of competition, they are to be treated as taxable persons and VAT
is due on their supplies of goods and services in the normal way. In this case, the Irish
Revenue considered that treating the NRA as a non-taxable person would lead to
significant distortion of competition between the NRA and private operators of toll
roads. Accordingly, the Revenue sought to treat the NRA as a 'normal' taxable
business. The NRA appealed and the Irish Court decided to refer the issue to the
CJEU.
In its judgment, the CJEU confirmed that the NRA was not to be regarded as being in
competition with the private operators. This was on the basis that firstly, in reality,
there was very little likelihood that a private operator would enter the toll road market
and secondly, road users can only use one road at any one time. As such, the roads
operated by private operators could not be said to be in competition with the roads
operated by the NRA. The NRA was, thus, a non-taxable person, and, in accordance
with Article 13 of the VAT Directive, there was no distortion of competition. The
activities were, therefore, outside the scope of VAT.
The CJEU judgment is contrary to the opinion of the Advocate General (AG).
Following the earlier judgment of the CJEU in the Isle of Wight case, the AG
was of the view that when considering distortion, one had to take account of
both actual and potential distortion. It seems that here, the CJEU was of the
view that there was no competition between private and public law operators of
toll roads.
Issue02/2017
CJEU ruling issued in National Roads
Authority case
Indirect Tax Update

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GRT100456
Oak Tree Motor Homes Ltd
Upper Tribunal
The issue in this case was whether a motor home – a vehicle with its own propulsion system –
should be regarded for VAT purposes as a caravan and, thus, attract VAT at the zero-rate. Oak Tree
Motor Homes Ltd sold motor homes, but claimed a refund of VAT in excess of £1 million that it
had accounted for. It claimed that these motor homes ought to be regarded for UK VAT purposes
as caravans which, in certain circumstances, attract VAT at the zero-rate. The case was a test case
before the First-tier Tribunal which confirmed that there were a further 27 cases stayed behind it.
The First-tier Tribunal (FTT) had dismissed the company’s appeal last year on the basis that a motor
home did not meet the ordinary definition of a caravan. The Tribunal found that, in order to be
regarded as a caravan, a vehicle should not have its own propulsion system. A caravan is a vehicle
that can only be moved by being towed or carried by another vehicle. A motor home of the type sold
by the taxpayer did not meet that definition. The company appealed to the Upper Tribunal as it
considered that the FTT had erred in law by relying on that definition. The company claimed that
there was no statutory definition of a caravan in VAT law and nothing to suggest that a caravan could
not move under its own power. The Upper Tribunal dismissed the company’s appeal. The FTT’s
reliance on the ordinary definition of caravan meant that there was no error of law. The FTT’s
decision was wholly reasonable.
Comment
In certain
circumstances, the
supply of a caravan can
be zero-rated for UK
VAT purposes.
Unfortunately for the
taxpayer in this case,
the appellant failed at
the first hurdle. Both
the First-tier and Upper
Tribunal considered
that the motor homes
supplied by the
taxpayer were not
caravans and could not,
therefore, be zero-
rated.
Beware the Excise man!
Comment
Excise duty fraud costs
the UK Treasury
millions of pounds in
lost revenue each year.
HMRC are given
powers to safeguard the
revenue but when
making decisions, these
cases demonstrate that
they are required to do
so in a reasonable
manner. As these two
cases demonstrate, a
decision to revoke a
WOWGR
authorisation is
appealable but the
Tribunal’s jurisdiction
is limited to judging the
reasonableness of
HMRC’s decision
First-tier Tribunal
In a week which celebrates Burns night, a timely reminder of the power of the Excise man.
The First-tier Tribunal reports two decisions this week both of them in connection with the
authorisation of businesses under the Warehousekeepers & Owners of Warehoused Goods
Regulations (WOWGR). Under these regulations, HMRC authorises businesses to store and hold
Excise goods (alcohol and tobacco etc) subject to compliance with various conditions.
In the first case reported this week (United Wholesale (Scotland) Ltd), the FTT considered that
HMRC’s seizure of goods - because of a minor breach by the taxpayer of the WOWGR conditions -
and the subsequent refusal to restore the goods was unreasonable. The Tribunal ordered HMRC to
reconsider the decision.
In the second case (Safe Cellars Ltd), the Tribunal considered that HMRC’s decision was reasonable.
In this case, the taxpayer’s due diligence enquiries were deemed to be cursory and insufficient to
safeguard the revenue. It was one of the conditions of the WOWGR authorisation that its due
diligence procedures were sufficiently robust. By failing to implement such robust procedures, the
trader had breached its WOWGR condition.
Contact
Stuart Brodie Scotland stuart.brodie@uk.gt.com (0)14 1223 0683
Karen Robb London & South East karen.robb@uk.gt.com (0)20 772 82556
Vinny
McCullagh
London & South East vinny.mccullagh@uk.gt.com (0)20 7383 5100