Annotated GST Act – Chapter 2 – Part 2-2 – Division 11

Division 11 – Creditable acquisitions

11.1     What this Division is about

11.5     What is a creditable acquisition?

Cases

Eastwin Trade Pty Ltd and Commissioner of Taxation [2017] AATA 140 – whether the taxpayer was entitled to input tax credits for the purchase of “scrap gold” from suppliers – whether the asserted purchases of gold were real transactions and if so, what was purchased and from who – the Tribunal observing that reality was not sufficiently established by the invoices themselves or by the taxpayer’s accounting records.

Sunraysia Harvesting Contractors Pty Ltd and Commissioner of Taxation [2015] AATA 764 – the applicant failed to discharge the onus of showing that the arrangements between subcontracting companies were genuine and real and were not a sham arrangement – applicant not entitled to input tax credits as could not substantiate creditable acquisitions – no onus on Commissioner to establish a sham arrangement

VGGL and Commissioner of Taxation [2013] AATA 867– the applicant was not entitled to input tax credits for the following expenses incurred purportedly incurred in carrying on a property development business: Amounts incurred in respect of the construction of a townhouse, where the Contract of Sale expressly indicated that the sale was not a taxable supply and was not sold in the course or furtherance of an enterprise carried on by the applicant; Legal fees in respect of proceedings brought by a shareholder of a company of which the applicant was also a shareholder; Other expenses purportedly incurred in the course of the property development enterprise which could not be substantiated  (Case analysis)

Professional Admin Service Centres Pty Ltd v Commissioner of Taxation [2013] FCA 1123 – the applicant was not entitled to input tax credits for the payment of legal fees of third party pursuant to a litigation funding arrangement – at [53]: the UK decision in Redrow cannot be regarded as authority for the general proposition that a person who enters into a reimbursement obligation makes an acquisition of the supply, the cost of which is to be reimbursed

Commissioner of Taxation v Secretary to the Department of Transport (Victoria) [2010] FCAFC 84 – the Department made a creditable acquisition in respect of payments made under a statutory taxi program which provided subsidised fares for disabled passengers

International Cases 

Revenue and Customs v Praesto Consulting UK Limited [2017] UKUT 395 – input tax – legal services provided in connection with civil claims against a director – whether supplied to the taxable person – whether direct and immediate link to taxable activities – appeal allowed

NT Advisors Partnership v Revenue and Customs [2017] UKUT 625 –  tax avoidance scheme promoter – input tax on barristers fees where only future outputs contingent success fees – effect of transfer of business as going concern where no application to keep VAT number – right of transferee to deduct input tax on fees where services provided partly before transfer but invoices issued after – appeal allowed

Lubdrook Manor Partnership v Revenue and Customs [2017] UKUT 326 – input tax — whether supply made — no — input tax credit not available — appeal dismissed.

ING Intermediate Holdings Ltd v Revenue and Customs [2016] UKUT 298 – deductibility of input tax- whether provision of deposit accounts involved a supply by bank – whether supply was for consideration capable of quantification- whether investment by bank of funds received was an economic activity

Praesto Consulting UK Ltd v Revenue and Customs [2016] UKFTT 495 input tax credit – legal services in connection with civil proceedings – whether supplied to the taxable person – whether direct and immediate link to taxable activities – appeal allowed

Airtours Holidays Transport Ltd v Revenue and Customs [2016] UKSC 21 – INPUT TAX – tripartite agreement entered into by the Respondent, a number of financial institutions and PricewaterhouseCoopers whose fee was to be paid for by the Respondent–whether input tax of the Respondent – no – Case Analysis – Court of Appeal decision – AirTours Holidays Transport Ltd v Revenue and Customs [2013] EWCA Civ 1033

Eastern Atlantic Helicopters Ltd v Revenue and Customs [2016] UKFTT 277 – Input tax – Sale of helicopter held in name of US entity on trust for civil aviation regulatory purposes to UK appellant – identity of supplier?– whether supply by UK company which provided invoice or by US legal owner trustee – supplier was the UK company which held beneficial interest – appeal allowed  – whether invoice invalid in any case because it referred to previous company name – HMRC to consider exercise of discretion in relation to “other evidence”

Norseman Gold Plc v Revenue and Customs [206] UKUT 69 – input tax –whether Appellant carrying on economic activity – UK management company providing management services to overseas subsidiaries – no agreement on amount of consideration to be paid by subsidiaries – whether taxable supplies made – no – appeal dismissed

U-Drive Ltd v Revenue & Customs [2015] UKFTT 667 – tripartite situation – car hire company arranging for repair of third parties’ vehicles damaged in collisions with hired cars-whether car hire company entitled to recover VAT on car repair invoices – Baxi, Aimia and WHA applied – whether economic reality inconsistent with contractual position – yes – appeal dismissed

Danesmoor Ltd v Revenue & Customs [2015] UKFTT 294 –  input tax-appellant contracted and paid for services of solicitors and accountants-advice given mainly to others -did appellant obtain anything at all to be used for the purposes of its business-no-appeal dismissed

Finds You Ltd v Revenue & Customs [2015] UKFTT 91input tax – supply of services in relation to the raising of equity finance by the appellant – Airtours Holidays Transport Limited v Commissioner for HM Revenue & Customs considered – whether the appellant established that it was the recipient of the services – no – appeal dismissed

A Partnership v Revenue & Customs [2015] UKFTT 161 – VAT – partnership dispute – continuing partners separately instruct solicitors in dispute with outgoing partner – whether VAT on legal bills recoverable by partnership  – held  – no as supply not ‘to’ the partnership

Her Majesty’s Revenue and Customs v Aimia Coalition Loyalty UK Limited (formerly known as Loyalty Management UK Limited) [2013] UKSC 15 – whether the promoter of a loyalty scheme is entitled to input tax for payments made to retailers of goods who participate in the scheme and provide goods to customers who redeem points – Case analysis

Bodyguard Workwear Ltd v Revenue & Customs [2009] UKVAT V20949 – INPUT TAX – whether or not there was a genuine supply of services – no – whether it was mandatory that the Commissioners should pursue the issuer of the invoices for a debt due to the Crown – no – appeal dismissed

Langran v Revenue & Customs [2009] UKVAT V20969 – INPUT TAX – Appellant incurred legal expenses in respect of a dispute with his former partners – Appellant claimed VAT repayment on those supplies – were the supplies made to him in his capacity as a partner for the purposes of the partnership business – no – supplies made to him in a personal capacity – Appeal dismissed

Baxi Group Ltd v Revenue and Customs [2007] EWCA Civ 1378 – loyalty programs, input tax credits on fees paid to operator, whether goods supplied by operator to manufacturer attributable to supplies made by manufacturer – tribunal decision – [2006] UKVAT V19431

Newcastle United Plc v Revenue and Customs [2007] EWHC 612 – payments made to players’ agents, whether club entitled to input tax credits

Revenue and Customs v Jeancharm Ltd [2005] EWHC 839 – legal costs paid by taxpayer for proceedings against employee, entitlement to input tax credit, whether a supply to company, principles of Redrow

Customs and Excise v Redrow Group plc [1999] UKHL 4; [1999] 1 WLR 408 – tripartite agreement – whether the operator of a sales incentive scheme was entitled to deduct input tax in respect of services by estate agents on the basis that the services were supplied to the customers who purchased the houses but also to the operator for the purposes of its business

11.10   Meaning of acquisition

11.15   Meaning of creditable purpose

Cases

Rio Tinto Services Ltd v Commissioner of Taxation [2015] FCA 94 – the taxpayer was not entitled to input tax credits in respect of acquisitions made in the course of leasing remote housing accommodation to its workforce in the Pilbara mining region of Western Australia because those acquisitions related to the making of supplies that would be input taxed; at [33]: the words “relates to” in s 11-15(2)(a) simply denote that there must be a relationship or connection between an acquisition and the making of input taxed supplies – What must be established to come within the section is a material or sufficient relationship but the existence of such a relationship is not made to depend on a “purpose” test. A finding that the provision of accommodation was an essential and necessary incident of the applicant carrying on its mining operations would not mean that s 11-15(2)(a) was not engaged.

AXA Asia Pacific Holdings Limited v Commissioner of Taxation [2008] FCA 1834 – applicant not entitled to credits for acquisitions (general management expenses) as the acquisitions related to the making of supplies that would be input taxed within the meaning of s 11-15(2)(a) – at [38]: s 11-15(2)(a) is a “blocking provision” and if an an entity acquires a thing in carrying on its enterprise, it does not acquire it for a creditable purpose to the extent that, relevantly, the acquisition relates to making supplies that would be input taxed

HP Mercantile Pty Limited v Commissioner of Taxation [2005] FCAFC 126 – acquisitions relating to purchase of debts were not for a creditable purpose as the acquisitions related to making supplies that would be input taxed – at [35]: s 11-15(2)(a) requires there to be “real” and substantial relationship between the acquisition and the making of supplies, not a trivial relationship – at [46]: the language of s 11-15(2)(a) suggests that it is not intended that there be a tracing between the acquisition and an actual supply – at [52]: there is no requirement that the supplies be made after the acquisition, all that is required is a relationship between the acquisition and the making of supplies that, if any are made, would be input taxed

International Cases 

United Kingdom

Revenue and Customs v Temple Finance Limited [2017] UKUT 315 – whether standard method of recovery of input tax on overheads appropriately reflected use of inputs – whether correct approach affected by principle of fiscal neutrality – whether activities carried on by two separately registered companies amounted to a single business – appeal dismissed

ING Intermediate Holdings Ltd v Revenue & Customs [2016] UKUT 298 – deductibility of input tax- whether provision of deposit accounts involved a supply by bank – whether supply was for consideration capable of quantification- whether investment by bank of funds received was an economic activity

Borton (t/a Contract Build) v Revenue and Customs [2016] UKFTT 473 input tax on supply of motor car by sole trader – car insured solely for business use – CCE v Upton considered – appeal allowed

Revenue and Customs v Frank A Smart & Son Ltd [2016] UKUT 121 – input tax – purchase of Single Farm Payment Entitlement units – whether used or to be used for the purposes of the taxable person’s economic activity – whether direct and immediate link with the taxable person’s business – yes – appeal refused

Volkswagen Financial Services (UK) Limited v Revenue and Customs [2015] EWCA Civ 832 – taxpayer sold motor vehicles under hire purchase arrangements – whether input tax in respect of general overheads are all attributable to the exempt supplies of finance or whether partly attributable to the taxable supply of motor vehicles and partly attributable to the supply of finance – rejected HMRC contention that input tax on overheads can only be deducted where the cost of the overheads is included in and recovered as part of the price charged for the taxable output – whether a special method of apportionment allowing a 50% recovery rate was fair and reasonable –  appeal to Upper Tribunal –  [2012] UKUT 394 – first instance  [2011] UKFTT 556

Bedale Golf Club Ltd v Revenue & Customs [2015] UKFTT 446 – golf club – refurbishment of chairs and replacement curtains in a clubhouse bar and lounge area – maintenance and repair of a lift – whether used or to be used exclusively by the club in making taxable supplies – direct and immediate link to taxable supplies and exempt supplies – appeal dismissed

North of England Zoological Society v Revenue & Customs [2015] UKFTT 287 – input tax – attribution to taxable supplies – partial exemption – standard method override – whether animal related costs of a zoo are attributable to taxable supplies of catering and retail – direct and immediate link – appeal allowed

The Hurlingham Club v Revenue & Customs [2015] UKFTT 76 – VAT – apportionment – partial exemption – special method – refusal of HMRC to approve special method  – appropriateness of method  – appeal dismissed

Revenue & Customs v University of Cambridge [2015] UKUT 305 – input tax – endowment fund for benefit of university – investment activity of university not an economic activity and outside scope of VAT – deductibility of input tax on fund management fees – whether fund management fees are overheads – yes – whether fund management services have direct and immediate link with economic activity of university as a whole – yes – appeal dismissed

Lok’nstore Group Plc v Revenue & Customs [2012[ UKFTT 589 – INPUT TAX – partial exemption – whether standard method and special method produce fair and reasonable attribution of input tax – held yes – whether special method proposed by Appellant produces fairer and more reasonable result than standard method – held yes – appeal allowed

Revenue and Customs v London Clubs Management Ltd [2011] EWCA Civ 1323 – whether a proposed method of apportionment for input taxed on overheads for gambling activities (some taxable and some exempt) was fair and reasonable – whether proposed change from turnover based method to floor space method fair and reasonable

Oxfam v Revenue and Customs [2009] EWHC 3078 – apportionment of input tax credits, attribution methodology, approval of methodology by Commissioner, public law doctrine of legitimate expectation

Vision Express (UK) Ltd v Revenue & Customs [2009] EWHC 3245 – sale of spectacles or contact lenses comprising a mixed supply, methodology for attributing input tax credits

Institute of Biomedical Science v Revenue & Customs [2008] UKVAT V20609 – Recovery of input tax – Determination of amount of taxable supplies – Apportionment of fees of professional association between exempt supplies and taxable supplies relating to publications – ESC 3.35 – Appointment on basis of cost – Determining “cost” when no cash expense

Lincoln Assurance Ltd v Revenue & Customs [2008] UKVAT V20619 – VALUE ADDED TAX – input tax – Appellant made exempt supplies of finance (the sale of securities) outside the member states with a right of recovery of input tax (specified supplies) as well as taxable and exempt supplies – no goods or services supplied to the Appellant were used exclusively in making specified supplies – whether the input tax on goods or services used in part in making specified supplies was to be attributed to specified supplies by reference to the proportion which the value of the specified supplies bore to the value of total supplies – yes – appeal allowed

Camden Motors (Holdings) Ltd v Revenue & Customs [2008] UKVAT V20674 – Value Added Tax – Input tax – Company making both taxable and exempt transactions – Company selling cars and car-related products and finance and financial products – Whether standard method secured fair and reasonable attribution – Whether standard method override applied

McInroy & Wood Ltd v Revenue & Customs [2008] UKVAT V20780 – VALUE ADDED TAX – Company providing investment management and advice – taxable and exempt supplies – deduction of residual input tax – whether Standard Method and/or proposed Special Method “fair and reasonable” – Appeal Refused.

Farnham Physiotherapy and Sports Clinic v Revenue & Customs [2007] UKVAT V20004 – VALUE ADDED TAX – partial exemption – special method – fair and reasonable – not in the circumstances – appeal dismissed

The Royal Bank of Scotland Group PLC v Revenue & Customs [2007] UKVAT V19983 – Input Tax – Hire Purchase contract –Partial Exemption – attribution – proposed revisal of agreed special method –refusal by HMRC – at Tribunal the formerly agreed special method not supported by either party – proposed method on its face fair and reasonable – appeal allowed

Wadham College Oxford v Revenue & Customs [2007] UKVAT V20233 – Partial Exemption – subsequent claim for input tax not claimed under operation of special method based on the “CVCP Guidelines” for universities and colleges – special method allowed or approved, not directed – determination of nature of special method – if the method did not provide recovery in respect of all relevant input tax how to fill gaps – with standard method or method approved for later periods – jurisdiction of tribunal in relation to a special method which had been allowed or approved – could the taxpayer appeal?

Revenue and Customs v Mayflower Theatre Trust Ltd [2006] EWCA Civ 116 – input tax credits, apportionment of costs attributable to taxable and exempt supplies

MBNA Europe Bank Ld v Revenue and Customs [2006] EWHC 2326 – attribution of input tax credits, apportionment methodology, meaning of supply

St Helen’s School Northwood Ltd v Revenue & Customs [2006] EWHC 3306 – construction of school sports’ complex, attribution of input tax credits, reasonableness of apportionment methodology

DCM (Optical Holdings) Ltd v Revenue & Customs [2006] UKVAT V19549 – deduction of input tax – taxpayer providing both taxable and exempt supplies – refusal by Respondents to approve Partial Exemption Special Method – whether refusal reasonable – whether Tribunal has a more extensive right to review – Appeal dismissed

Twycross Zoo East Midland Zoological Society v Revenue & Customs [2006] UKVAT V19548 – input tax – zoo – whether expenditure on keeping animals in zoo attributable not only to exempt admission charges but also to various taxable supplies – held applicable only to admission charges – input tax in question attributable exclusively to exempt supplies – appeal dismissed

Dial-a-phone Ltd v Customs and Excise [2004] EWCA Civ 603 – whether acquisition of marketing and advertising services attributable to taxable and exempt supplies, apportionment

BLP Group plc v Customs and Excise [1995] STSC 424 – whether BLP could deduct input tax which it had incurred on professional services in connection with the sale of shares in a German subsidiary – the share sale was an exempt transaction but the deduction of input tax was claimed on the basis that the purpose of the sale was to raise money to pay off debts that had arisen as a result of various taxable transactions – claim failed because the only direct and immediate link which the inputs had was to the exempt sale of shares

Canada

University of Calgary v The Queen 2015 TCC 321 – whether the taxpayer was entitled to claim input tax credits for indirect costs iunder a methodology put forward by the taxpayer based on land area and purported actual use – whether methodology fair and reasonable

Andrei 95 Holdings Ltd v The Queen 2015 TCC 224 – whether the taxpayer was entitled to input tax credits in respect of legal fees – whether legal fees incurred in the course of any commercial activity carried on by the taxpayer – no – also the legal fees related to the separation of business interests by way of a share buyout (an exempt transaction)

Sun Life Assurance Company of Canada v The Queen 2015 TCC 37 – whether the taxpayer was entitled to claim a higher proportion of input tax credits for rental costs on the basis that its amended apportionment methodology was fair and reasonable – discussion of the meaning of “fair and reasonable”

Mac’s Convenience Stores Inc v The Queen [2012] TCC 393 – whether service charge received for allowing the Automated Banking Machines of third party bank on the appellant’s convenience stores consideration for an exempt supply of financial services or a taxable supply of real property – whether appellant entitled to input tax credits for the purchase of ATMs – whether the ATMs “relate to” the other activities of the convenience stores

Miedzi Copper Corporation v The Queen 2015 TCC 26 – whether holding company entitled to claim input tax credits on the basis that they could reasonably be regarded as having been… acquired… for consumption or use in relation to the shares or indebtedness” of its subsidiary – discussion of meaning of “related to”

Other

Supreme Court of Ireland – Ryanair Ltd v Revenue Commissioners [2017] IESC 19 – whether taxpayer entitled to claim input tax for professional fees incurred in making a bid to acquire the shares in a rival company – decision of High Court below no entitlement to deduction – Ryanair Ltd v. Revenue Commissioners [2013] IEHC 195 – found necessary to refer question of law to the European Court of Justice

Rulings and Determinations

GSTD 2012/5 Goods and Services tax: are acquisitions related to an entity’s retail foreign currency exchange transactions with customers in Australia made solely for a creditable purpose under section 11-5 of the GST Act

GSTR 2008/1 – Austlii – Goods and services tax: when do you acquire anything or import goods solely or partly for a creditable purpose?

GSTR 2006/4 – Austlii – Goods and services tax: determining the extent of creditable purpose for claiming input tax credits and for making adjustments for changes in creditable purpose

GSTR 2006/3 – Austlii – Goods and services tax: determining the extent of creditable purpose for providers of financial supplies

GSTD 2003/3 – Austlii – Goods and services tax: are acquisitions made by a head company, or by a subsidiary member, in obtaining valuations in respect of forming or joining a consolidated group, made in carrying on the entity’s enterprise?

11.20   Who is entitled to input tax credits for creditable acquisitions?

11.25   How much are the input tax credits for creditable acquisitions?

11.30   Acquisitions that are partly creditable

Cases

Commissioner of Taxation v American Express Wholesale Currency Services Pty Limited [2010] FCAFC 122 – whether AMEX entitled to partial input tax credits for acquisitions made based on the agreed formula under s 11-30(3) – use of formula as a proxy to determine extent of creditable purpose – whether, in applying the formula, the fee payments should be considered “revenue derived from input taxed supplies” and therefore be included in the numerator of the fraction – at [105]: typically, where a corporation makes both input taxed and non-input taxed supplies, acquisitions in the nature of general expenses and overhead will be only partly creditable. This is because such acquisitions have a real and substantial, though indirect, relationship to the corporation’s activities

11.99   Special rules relating to acquisitions

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