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Weekly VAT News - 15/05/2017

Posnania: CJEU decides that Polish forced sales are outside the scope of VAT
The CJEU has ruled that the transfer of property by Posnania Investment SA to the Polish tax authorities in partial settlement of tax arrears was not subject to VAT. It recognised that the transfer had most of the characteristics of a taxable transaction – for example, there was a legal relationship between Posnania (as transferor) and the tax authority (as recipient). However, the relationship arose from the authority imposing tax by statute, and did not therefore entail reciprocal performance. The CJEU has therefore endorsed AG Kokott’s Opinion, although the distinction between the transfer of the property (potentially a supply by Posnania) and the collection of tax by the authority (which is clearly not consideration for a supply by the tax authority) has been blurred. The judgment possibly calls into question the UK’s approach to forced sales, although it is possible that the UK will treat the decision as confined to its facts. To discuss the case, or its implications, please contact Ben Tennant on 0121 695 5828.

Anglian Water: FTT rejects Fleming claim on unjust enrichment grounds
Following privatisation in 1990, water companies accounted for VAT on "infrastructure charges" when new houses were first connected to the mains water supply. It was later agreed that these charges should have been outside the scope of VAT, and Anglian Water submitted a Fleming claim for 12m. The FTT has upheld HMRC’s decision to reject the claim on the basis of unjust enrichment. As is frequently the case in unjust enrichment appeals, expert evidence was provided by economists on both sides, but this failed to provide conclusive proof of what was in the mind of the regulator in setting a cap on the infrastructure charges. On balance, however, the FTT preferred HMRC’s approach (noting that most customers would have been developers who would have recovered the VAT). Anglian’s appeal was therefore dismissed on grounds of unjust enrichment. To discuss the case, please contact Oliver Jarratt on 0121 695 5722.

Glenwood: UT decides that car exporter could not recover input tax
Car dealer franchise agreements frequently restrict dealers to local markets. Mr Boyce therefore established a business (Glenwood) to help UK dealers of prestige marques such as Porsche and Mercedes export cars to Singapore. By interposing "Named Purchasers" between the dealership and Glenwood, dealerships could show that they were not in breach of their franchise agreements. Unfortunately, this meant that the dealerships issued invoices to the Named Purchasers, and not to Glenwood. HMRC refused input tax recovery of 100,663, on the basis that the invoices were not addressed to Glenwood. The Upper Tribunal has now upheld that decision. According to the UT, the reason that Glenwood was unable to obtain the invoices in the correct name was not down to any defect in the UK's rules – it was simply a consequence of how Glenwood chose to structure its business. Therefore, even though it was accepted that the supply was to Glenwood, and the Named Purchasers were simply nominees, HMRC were entitled to deny input tax recovery. To discuss the case, please contact Aaron Bissett on 0113 292 1709.

Elbrook: UT dismissed HMRC’s appeal in relation to hardship application
A feature of VAT appeals is that disputed tax has to be paid before the appeal can be heard, unless payment would cause the taxpayer “hardship” - which is sometimes hard to define. In Elbrook, HMRC took the view that the taxpayer should have borrowed 771,430 to pay the disputed tax, either by maximising its existing loan facilities, or seeking additional finance against investment assets. The Upper Tribunal has rejected HMRC’s appeal, holding that seeking additional finance in this way would cause hardship. Additional complaints by HMRC about the quality of evidence provided by Elbrook, and delays which may have contributed to hardship, suggest a deteriorating relationship between taxpayer and HMRC, but were also rejected by the Upper Tribunal. The decision is a reminder that, although hardship is rightly regarded as a difficult test to satisfy, it may nevertheless be appropriate to consider it when pursuing an appeal to the FTT. To discuss the case, please contact Anbreen Khan on 020 7007 0688.

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