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GRT100456
Summary Over the decades since the
introduction of VAT, a number of
principles of EU law have emerged.
These include the principles of fiscal
neutrality, legal certainty,
proportionality, legitimate
expectation and abuse of law.
None of these principles are written
down but they have developed over
many years of the Court of Justice
jurisprudence.
It is in relation to the latter principle
that the University of Huddersfield
found itself in a 20 year battle with
HMRC. The Court of Appeal has
now issued a judgment confirming
that the principle of abuse of law
applied to a VAT planning
arrangement implemented by the
University which gave it a VAT
advantage contrary to the purpose
of the VAT Directive.
17 May 2016
Court of Appeal
The Court of Appeal has released its judgment in the University of Huddersfield VAT case. The question to be resolved in this long-running case was whether a VAT planning scheme implemented by the university fell foul of the EU law principle of abuse of law. The university had purchased an old mill in Huddersfield which needed to be substantially refurbished. Without anything further, the VAT payable on the refurbishment works would not have been claimable in full as the university intended to use the refurbished building for the purpose of an exempt activity (the provision of university education). Having sought advice, the university implemented a VAT saving scheme.
The scheme involved the establishment of a trust and an in-house construction company. It was found by the First-tier Tax Tribunal that the sole purpose of establishing the trust was to facilitate the VAT planning scheme and the issue for the Court of Appeal was whether the scheme provided a VAT advantage to the university which was contrary to the purpose of the VAT Directive. Although the First-tier Tax Tribunal considered that the arrangements were not abusive, the Upper Tribunal (on appeal) and now the Court of Appeal have found that the First-tier's conclusions were wrong. The Court of Appeal concluded that the purpose of the Directive was to ensure that taxpayers that make exempt supplies do not recover VAT which they are not entitled to reclaim. Clearly, the VAT planning arrangement implemented by the university put it in a position where, even though the building was to be used for the provision of exempt education, it had recovered all of the VAT incurred on the refurbishment works. The Court of Appeal decided that this was contrary to the purpose of the Directive and, accordingly the scheme constituted an abuse of law.
Comment – at the time that this scheme was implemented (1996), this kind of VAT planning was fairly commonplace. It is only with the emergence of the EU law principles, including the principle of abuse of law, that HMRC began to challenge such arrangements. However, in light of these now established principles, arrangements regarded by HMRC as artificial which provide a tax advantage contrary to the Directive's purpose are likely to be challenged by HMRC and dismissed by the courts.
University of Huddersfield
Case Alert
Contact Stuart Brodie Scotland [email protected] (0)14 1223 0683
Karen Robb London & South East [email protected] (0)20 772 82556
