The UK Supreme Court issued two VAT judgments in two weeks. In the Rank case, the Supreme Court ruled that Rank's slot machines were 'gaming machines' subject to VAT, agreeing with the lower courts. The Court of Justice of the EU examined the principle of legal certainty in two cases, ruling that retroactive VAT assessments did not violate the principle. The Upper Tribunal ruled that the transfer of a business to a company within a VAT group can qualify as a transfer of a going concern for VAT purposes.

1. © 2015 Grant Thornton UK LLP. All rights reserved.
ITU
Summary
Like London buses, one has to
wait for ages for a Supreme
Court Judgment, then two come
along at once.
A couple of weeks ago we saw
the Supreme Court strike down
Pendragon's appeal. This week,
the Supreme Court has decided
to side with HMRC in its long-
running dispute with Rank Plc in
connection with the status of
Rank's 'gaming' machines.
The Court of Justice has also
been busy issuing a couple of
judgments which examine the
EU principle of legal certainty.
Finally, the Upper Tribunal has
issued a judgment in connection
with whether the transfer of a
business to a VAT group was a
Transfer of a Going Concern.
(TOGC) where the company
only traded within the VAT
group.
14 July 2015
Supreme Court dismisses Rank's appeal
The UK's Supreme Court has issued a second 'big' VAT judgment in two weeks. This
time it was the turn of Rank Plc in the long-running case relating to gaming machines
and whether VAT was due on income. Agreeing with the judgment of the Court of
Appeal, in a unanimous judgment, the Supreme Court has ruled that the machines at
the centre of the dispute were 'gaming' machines for VAT purposes in that the element
of chance was provided by means of the machine itself. As such, the income from
such machines was liable to VAT.
Rank operated slot machines, but argued that they were not 'gaming' machines as the
element of chance was provided by a random number generator (RNG) which was not
physically located in the machine itself but was located elsewhere. HMRC contended
that the Court of Appeal's conclusion – that the word 'machine' should be construed as
meaning a configuration of separate, but connected, items that together enable the
playing of a game of chance – should be preferred.
In a unanimous judgment, the Supreme Court has agreed with the Court of Appeal
(but for different reasons). In his short judgment, Lord Carnworth held that the
'element of chance' is not determined by the RNG (wherever it may be located), but by
the actions of the person playing the machine. The RNG simply provides a random
number, but it is the action of pressing the 'play' button (or pulling the lever on a
traditional one-armed bandit), which signals the RNG to generate the particular
random number which, in turn, determines whether the player has 'won' or 'lost'. As
the button or lever is physically located on the machine being played, the Supreme
Court is effectively saying that the element of chance is provided by the machine itself.
Comment – this is the end of the line of this particular strand of litigation for Rank Plc.
The Supreme Court's judgment is based on its own reasoning as the point about the
location of the 'play' button or the lever was not argued by either of the parties to the
appeal. Rank has further litigation pending on other aspects relating to gaming
machines and whether they are the same as or equivalent to Fixed Odds Betting
Terminals (FOBT's) from a fiscal neutrality standpoint. Other taxpayers with claims
stood behind these appeals should continue to do so.
Issue21/2015
A 'rank' decision for Rank Plc!
Indirect Tax Update

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Court of Justice (CJEU)
Legal certainty and legitimate expectation
The EU principle of legal certainty dictates that EU legislation must be certain and its application
foreseeable by those subject to it. That requirement of legal certainty must be observed all the more
strictly in the case of rules liable to entail financial consequences, in order that those concerned may
know precisely the extent of the obligations which the rules impose on them. In two recent cases, the
CJEU has considered this principle.
In Cabinet Medical Veterinar Dr. Tomoiagă Andrei (Case C-144/14), the taxpayer argued that the
Romanian tax authority should not be entitled to tax supplies of veterinary services restrospectively
where it had failed to register the practice for VAT. The CJEU ruled that the practice should have,
and was obliged to register for VAT itself and could not rely on the principle to avoid a VAT liability.
In Radu Florin Salomie & Nicolae Vasile Oltean (Case C-183/14), the Romania authority decided
during a VAT audit that certain land transactions were liable to VAT. The taxpayers argued that the
principle of legal certainty precluded the Member State from applying the rule since, at the time of
the transactions in question, the 6th VAT Directive was not published in the Romanian language.
However, the Court established that the Romanian tax code was sufficiently clear and precise and, as
a result, the principle of legal certainty was not offended.
Comment
Like the common law
in the UK, there are
unwritten principles
enshrined within EU
law. Principles such as
proportionality, legal
certainty, legitimate
expectation, fiscal
neutrality and abuse of
rights are common
themes in the
jurisprudence of the
Court of Justice.
Where such principles
have been breached,
national legislation can
often be overturned in
favour of EU law.Upper Tribunal
Comment
Whether or not a
transfer constitutes a
TOGC is a complex
issue. There is a
plethora of cases on the
point but this is the
first case where HMRC
has argued that the
transfer to a VAT
group cannot be a
TOGC. Fortunately,
the Tribunal has seen
sense and has ruled that
the transfer of a totality
of a business to a
company within a VAT
group can still qualify
as a TOGC.
Intelligent Managed Services Ltd
The Upper Tribunal has issued an interesting judgment this week too. The above case relates to the
transfer of the trade and assets of a business from one company to another. Ordinarily, provided that
certain conditions are met, the transfer of a trade with assets is treated for VAT purposes as a
Transfer of a Going Concern (TOGC). In such cases, the supply of the assets is, in effect, ignored.
VAT law deems there to be no supply.
One of the conditions for a TOGC is that the purchaser must use the transferred assets in 'the same
kind of business'. In this case, the transferor used the assets in a banking processing service which it
supplied to third party banks. The purchaser was a member of a UK VAT group and, whilst it carried
on that business, it did so only within the VAT group. HMRC took the view that as the VAT group
is a single taxable person, the correct test was whether the VAT group carried on the business of the
transferor. According to HMRC, as the purchaser company only traded intra VAT group, it could
not be said that the group was 'carrying on the same kind of business'.
The Tribunal considers that view to be incorrect. In its judgment, there is nothing in the UK's VAT
group rules to prevent the transfer of the trade and assets from being a TOGC. The taxpayer's appeal
was allowed.
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
Andrea Sofield London & South East andrea.sofield@uk.gt.com (0)20 7728 3311