International cases update – November 2011

November saw a number of cases handed down in the UK relating to VAT – the Court of Appeal, the Upper Tribunal and the First Tier Tribunal.  The cases are listed below and they can also be accessed from the drop-down menu on the site.  My research disclosed no GST decisions in New Zealand or Canada during November.

Court of Appeal

18/11/11 – HM Revenue & Customs v London Clubs Management Ltd [2011] EWCA Civ 1323

  • creditable acquisitions, apportionment methodology for rent paid by casino where some services taxable and some exempt, whether appropriate to use turnover method or floor space method
  • Summary  – the taxpayer sought to change its attribution methodology from a turnover-based approach to a floor-space approach, the Tribunal accepted that the floor space approach was fair and reasonable (although it did find that this may not be so in all cases) as the costs incurred in relation to the taxable parts were incurred for the business as a whole – on appeal the Court noted that it would be very doubtful that the finding could be upheld in the absence of a finding by the Tribunal that the taxpayer’s catering activities had the potential to be a source of profit if the relevant overheads were apportioned as proposed, further, while the Court clearly had doubts as to this finding it was not open to the appellate court to disturb this finding
  • Comment – the Court identified three points of principle which may be relevance for this issue in Australia; first, close attention needs to be paid to the facts to understand the economic or commercial reality underlying the use of the relevant inputs, second, identification of the source or potential source of profit in a business may be an important feature of a business throwing light on whether or not the standard method or another method is a more fair, reasonable and accurate method of attribution; third, depending on the precise factual situation under consideration, it may be appropriate to exclude from the equation taxable supplies which are not, in themselves a source of profit.

Upper Tribunal

24/10/11 – Glaxosmithkline Services Unlimited v HMRC [2011] UKUT 432

  • Zero-rating – Whether “Lucozade Sport” zero-rated as food or standard-rated as beverage
  • Summary – this was an appeal from the finding of the First Tier Tribunal (such appeals are limited to errors of law) that Lucozade Sport was taxable as a beverage or a powder for the preparation of a beverage falling within the list of excepted items – the taxpayer relied on an earlier decision of the VAT Tribunal in SiS (Science in Sport) Ltd v Revenue and Customs Commissioners [2000] V & DR 195 which found that the product in question was zero rated because it was only consumed “by the athletes, sportspeople and others who characteristically take them for nutritional purposes” – it was found, on the evidence, that this was not the position for Lucozade Sport as it was drunk for the purposes of hydration, refreshment and pleasure.
  • Comment – this decision is a good example of the difficulties faced when trying to appeal a decision of fact made by a Tribunal (the same hurdles apply in appealing decisions of the AAT) – the scope for such an appeal was said to be found where the finding had been made “without any evidence or upon a view of the facts which could not reasonably be entertained”. The decision also shows (see [26]) the dangers of relying on previous decisions which are applicable to their own particular facts rather than laying down any principle.

First Tier Tribunal

15/11/11 – The British Disabled Flying Association v Revenue & Customs [2011] UKFTT 743

  • whether aircraft for use of disabled persons zero rated

10/11/11 – Harrier LLC v Revenue & Customs [2011] UKFFT 725

  • whether the supply of “photo books” a zero rated supply of goods or taxable supply of photographic services, whether single supply of goods or composite supply of goods and services
  • consideration – whether donations to good causes by company making catalogue sales were part of consideration for its supplies
  • whether iced tea concentrate zero rated as a “tea, mate, herbal teas and similar products and preparations and extracts thereof” or standard rated

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