Category Archives: Appeals

International cases update – August 2012; NZ decision on enterprise; decision of South Africa’s highest court

Posted on by

In August 2012, the following decisions relating to GST and VAT were handed down in New Zealand, the UK and Canada.

A decision of note is XXX and the Commissioner of Inland Revenue [2012] NZTRA 07 where the NZ Tribunal found that the taxpayer was entitled to be registered for GST as a property developer and to claim an input tax credit for the cost of acquiring land and associated costs with respect to a property development which did not proceed.  The decision provides a helpful insight into the approach of the NZ Courts on the difficult question of when an entity will be conducting a “taxable activity” in the context of the subdivision and sale of land. My analysis of the case can be accessed here.

Also, at the end of this post I briefly discuss a decision of the Supreme Court of Appeal of South Africa in Commissioner for South African Revenue Services v De Beers Consolidated Mines Ltd [2012] ZASCA 103 which touched on the difficult issue of the “attribution” of input tax credits in the context of acquisitions directly used for non-taxable purposes but used indirectly for making taxable supplies.  The approach of the Court may have some relevance to the construction of s 11-15 of the GST Act and the meaning of “creditable purpose”.

New Zealand

Taxation Review Authority

United Kingdom

Upper Tax Tribunal

  • HMRC v GMAC UK Plc [2012] UKUT 279 – VAT Bad debt relief – Insolvency Condition, Property Condition – whether valid under EU law – No; whether repayment claim resulted in a windfall contrary to EU law – need for reference – Yes; Time limit for making claims – whether time-barred as a result of overriding provisions of EU law

Tax Tribunal

  • Hope in the Community v Revenue & Customs [2012] UKFTT 499 – VAT – supply – whether funds received by the Appellant were grant monies outside the scope of VAT or consideration for a taxable supply of goods and services within sections 4 and 5 VATA 1994 – held taxable supplies – appeal disallowed
  • Skinner Ltd v Revenue & Customs [2012] UKFTT 525 – VAT – whether appellant’s dog food was pet food – meaning of “meal” in expression “biscuits and meal” in zero rating schedule – appeal allowed in part
  • Ward v Revenue & Customs [2012] UKFTT 499 – VAT  – exemptions – accommodation- whether the appellants supply of studio flats to the local authority was excluded from the exemptions within Group 1 of Schedule 9 of the Value Added Tax Act 1994 because they were operating a hotel or similar establishment – appeal dismissed

Canada

South Africa

In June 2012 the South African Supreme Court of Appeal handed down its decision in Commissioner for South African Revenue Services v De Beers Consolidated Mines Ltd [2012] ZASCA 103.  The question in this case was whether the acquisition of foreign advisory services (in respect of a proposed corporate restructure) were consumed by De Beers “for the purpose of making taxable supplies” so that input tax could be claimed.  The Tax Court sitting below found in favour of De Beers on the basis that the services were utilised and consumed by it for the purpose of making taxable supplies (i.e. in the course or furtherance of its enterprise of mining and selling diamonds).

The Supreme Court allowed the appeal by the Revenue.  In doing so, the Court considered the primary question to be whether the services were acquired “for the purpose of making taxable supplies”.

De Beers put its argument in the following way:

It was contended on behalf of DBCM that the provision of the services by NMR were necessarily attached to and according a concomitant of appellant’s mining or commercial enterprise as a public company.  As the appellant had chosen to conduct its business as a public company which, while conducting its operations, had certain statutory obligations, it was submitted that these services were directly linked to its making of ongoing supplies.  Thus, so it was argued, since these supplies can rightly be said to have been wholly utilised or consumed in the making of supplies, in the course or furtherance of appellant’s mining or commercial enterprise, they did not fall within the definition of imported services.  It was submitted that the Commissioner’s attitude embodied a restrictive approach in construing DBCM’s enterprise, limiting it to the nuts and bolds of the operational diamond business and excluding statutory duties imposed on the company in the interest of shareholders.  Put simply it was contended that NMR’s services were acquired in the furtherance of DBCM’s mining and diamond business.

The Revenue argued the following:

On behalf of the Commissioner it was submitted that the purpose in question is the purpose of the acquirer of the service and that, by its nature, the test is subjective.  DBCM’s reason for engaging NMR, so it was contended, was to acquire advice in relation to a take-over by parties to which it was related.  Accordingly, its board had a duty to report to the independent unit holders a to whether the offer was fair and reasonable and to obtain independent legal advice in that regard…The fact that this was the reason for DBCM’s engagement of NMR, rules out, as a relevant purpose, any of the incidental benefits which DBCM thought it might derive from the transaction.  

The Court agreed with the Revenue.  Also, the Court distinguished two tax cases (including the Australian decision in FCT v The Swan Brewery Co Ltd (1991) 22 ATR 295) where it was held that certain expenditure on services relating to corporate restructures was deductible for income tax purposes.

Tribunal decision on undeclared GST; Commissioner issues Addendum to GSTR 2000/24

Posted on by

Yesterday the Tribunal handed down its decision in Vita Hot Bread Pty Ltd and Commissioner of Taxation [2012] AATA 570 where the Tribunal found that the applicant had understated his income and GST in respect of a bakery and bread shop.  The Tribunal did partially allow the GST objection to take into account errors made by the Commissioner.  The decision is another example of the onus imposed on taxpayers to establish that GST assessments are excessive.  One additional point of  interest in the case flows from the following arguments raised by the taxpayer:

  • During the hearing counsel for the Commissioner cross-examined the applicant about certain loan applications and the income levels stated therein.  Counsel for the applicant submitted that the Tribunal should infer from the failure of the Commissioner to call the broker who acted for the Applicant that the evidence would not have assisted (relying on the principles in Jones v Dunkel (1959) 101 CLR 298.  The Tribunal noted the argument, but made no decision the issue.  This appears to be because the applicant accepted that he lied to the bank about his income when applying for a loan.

Also, earlier this week the Commissioner issued Addendum GSTR 2000/24A2 ‘Goods and Services Tax; Division 129 – making adjustments for changes in extent of creditable purpose’.  The Addendum amends GSTR 2000/24 to reflect the inclusion of Divisions 133 and 134 into the GST Act.  Division 133 provides for a special decreasing adjustment for an acquisition where you provide additional consideration at a time when you can no longer claim an input tax credit.  Division 134 relates to the GST treatment of certain third party payments (sometimes described as manufacturers rebates) made on or after 1 July 2010.

A big day in GST – Division 36 and GST refunds; Full Federal Court decision on Division 165

Posted on by

Last Friday was a big day for GST. The Assistant Treasurer released an Exposure Draft of legislation which will dramatically change the landscape for GST refunds – my analysis of these provisions can be accessed here.

Also, the Full Federal Court handed down its long-awaited decision in Unit Trend Pty Ltd v Commissioner of Taxation [2012] FCAFC 112 dealing with the application of Division 165 of the GST Act. In a 2:1 decision, the Court allowed the taxpayer’s appeal.  I would not be surprised if the matter goes further and a special leave application is filed.

The judgment is very detailed, running to some 247 paragraphs and the decision will take some time to fully digest.  In the interim, my thoughts are set out below.

The Facts

Unit Trend is the representative member of a GST group, including Simnat (Pty Ltd), Belsford (Pty Ltd), Mooreville Investments (Pty Ltd) and Repcivic Contractors (Pty Ltd).

On 14 December 1998 Simnat entered into a contact to purchase land for $30m and the contract settled on 20 April 1999.  Simnat obtained development approval for the construction of three high-rise towers.  On 31 July 2001 Simnat appointed Rapcivic to construct Tower 1 on the site, which was completed by December 2002 and the units were sold to the public.  The margin scheme was used to calculate the GST payable.

Tower II

By contract dated 1 July 2002 Simnat engaged Rapcivic to construct Tower II.  By contract dated 14 April 2004 Tower II was sold to Blesford and the purchase price was to be determined by an independent valuer.  The sale was agreed to be the sale of a going concern and the price was determined by a valuation of $149,800,000. Under the contract of sale, Simnat assigned to Blesford all of its rights under the sale contracts it had entered into with purchasers of the units prior to the sale of the Tower.

The contract settled on 7 May 2004 and Blesford (as the new owner) continued marketing units in the tower and made off the plan sales to the public.

When the construction was completed, Blesford settled the sales contracts (including those assigned from Simnat). Blesford applied the margin scheme for the GST on the sales to the public.  In determining the margin, Blesford adopted the price it paid to Simnat for Tower II and determined the margin between that price and the value of the end sales (applying an apportionment of the acquisition price to each unit).

Tower III

This operated in a similar way to Tower II.  By contract dated 29 January 2003, Simnat engaged Rapcivic to construct Tower III.  By contract dated 15 April 2004, Simnat sold Tower III to Mooreville, with the price to be determined by an independent valuer.  The value was $10,500,000.  The sale was agreed to be a going concern and Simnat assigned the rights to existing sales contracts to Mooreville.  On completion, Mooreville settled contracts (including sales made on its own behalf and sales assigned from Simnat).  Mooreville applied the margin scheme and used the price it paid to Simnat as the consideration for the acquisition of the units.

Grounds of appeal
The taxpayer appealed against the Division 165 finding and also on the grounds that there was no valid valuation for the purposes of Division 75 because Blesford and Mooreville did not hold the land at 1 July 2000.  The Commissioner cross-appealed against a number of findings of the Tribunal about Division 75.  My discussion below if limited to the Division 165 point.
The majority (Bennett and Greenwood JJ) allowed the appeal with regard to Divion 165 by finding that the GST benefit to the taxpayer (i.e., the uplift in value for the margin scheme) was “attributable” to a choice provided for in the GST Act.  The view of the majority can be found in the following extract (at [200]-[202]):
200 The Commissioner correctly observes that the taxpayer’s election or choice to enter into agreements to Transfer Towers II and III from Simnat to Blesford and Mooreville was not itself an election or choice expressly provided for by the GST law.  It was a commercial election or choice that brought about, in effect, an uplift in the intermediate cost base in the hands of Blesford and Mooreville which would diminish the margin on end sales.  However, entry into those intra-group transactions on terms consistent with a sale of a “going concern” in a manner which conformed with s 38-325(1)(c) of the GST Act (as the Commissioner accepts), did involve an election or choice to transfer on terms expressly in conformity with s 38-325 which had the effect that GST would not become payable on settlement of the transfers from Simnat to those entities.
201 If what lies at the heart of the GST benefit obtained from the scheme is the intermediate transaction resulting in an uplift in the transactional cost base (coupled with the application of the margin scheme to end sales) the intermediate transaction within the scheme involved the taxpayer in making a choice or election to enter into a going concern transaction in conformity with s 38-325(1)(c).  But for the making of the choice or election to transfer Towers II and III as a going concern in conformity with s 38-325(1)(c), a GST liability would have arisen by reason of the settlement of each transfer.
202 However, the choice or election to engage in a going concern transaction in conformity with s 38-325(1)(c) was not the only choice.  Put simply, Unit Trend entered into a scheme comprising a number of sequential steps that ultimately gave rise to a GST benefit attributable to (or owing to or produced by) a number of choices, elections or agreements made as expressly provided for by the GST law (as it then stood) given expression in the arrangements comprising the scheme giving rise to that benefit with the result that Division 165 does not apply as s 165-5(1)(b) of Subdivision 165-A is not satisfied.  The fact that it could be said that the benefit is attributable to a “scheme” resulting from a series of such choices etc does not prevent the GST benefit also being attributable to the making of those choices.  This rises from the express use of “attributable to” rather than a narrower or more restrictive test.

And finally, at 205:

If the statutory purpose of s 165-5(1)(b) is to be served of preserving for the taxpayer the choices, elections etc expressly conferred by the GST law, the GST benefit must be answerable to, explained by or belong by those choices.

In dissent, Dowsett J took different view on the meaning of “attributable” (and appeared to adopt the approach of the Tribunal), as can be seen by the following extracts (at [46]-[48]):

46 In any event, Unit Trend’s submission seems to be that the GST benefit should be seen as the product of a number of choices expressly provided for by the GST law, and that the benefit is therefore attributable to them collectively.  I doubt whether s 165-5(1)(b) should be read as authorising such an approach.  The section rather seems to contemplate a direct link between the benefit and the relevant choice…

47 If I am correct in inferring that the inquiry posed by s 165-5(1)(b) is as to whether a GST benefit is attributable to a relevant scheme or to a relevant choice, it is most unlikely that Parliament intended that an outcome attributable to numerous choices would be excluded from the general operation of Div 165.  After all, schemes will frequently involve multiple choices.  Where one benefit is attributable to the interaction of numerous choices, it would be more accurate to attribute such benefit to that interaction, rather than to individual choices, taken discretely.  The position may be otherwise where the scheme yields discrete benefits, each of which is attributable to a different, discrete choice.

48 In any event, in the present case, the scheme which produced the benefit included the intermediate sales by Simnat to Blesford and Mooreville.  Such sales lay at the heart of the scheme, even if the various choices were also necessary integers of it.  In my view, the GST benefit was attributable to the events of which such sales were necessary party, in other words, the scheme.  In those circumstances, the benefit was attributable to the scheme, and not to any particular choice expressly provided for by the GST law.

Closing thoughts

Given the approach of the majority of the Federal Court to the concept of “attribution”, I would expect that the Commissioner will consider lodging an application for special leave to appeal to the High Court and asking that Court to adopt the approach of Dowsett J in dissent. This is an important issue for the ongoing application of Division 165, because the GST Act contains numerous choices and elections which may impact on the very things Division 165 is trying to deal with (e.g., timing differences – electing to be a cash or accruals taxpayer; whether taxable or GST free – agree to sell as a going concern; the amount of GST – agree to use the margin scheme; whether GST at all – electing to form a GST group or a GST joint venture).  Taken to the extreme, many GST benefits will likely have some element of “attribution” to a choice or election available under the GST Act.

 

Full Federal Court to hand down decision on the anti-avoidance provisions in Division 165 tomorrow

Posted on by

Tomorrow morning Greenwood J is listed to hand down the decision of the Full Federal Court in Unit Trend Services Pty Ltd v Commissioner of Taxation.  This decision provides the first opportunity for the Full Federal Court to consider the anti-avoidance provisions in Division 165 of the GST Act. The matter is an appeal from a decision of the Tribunal, which I believe was reported as The Taxpayer and Commissioner of Taxation [2010] AATA 497 and it involves the application of the margin scheme, grouping and Division 165.

The decision of the Tribunal was discussed in a paper I presented earlier this year dealing with Division 165, which can be accessed here.

International Cases update – July 2012

Posted on by

In July 2012 the following cases dealing with GST/VAT were handed down in New Zealand, Canada, the UK and the ECJ.  The most interesting decision is that of New Zealand’s highest court in granting the taxpayer special leave to appeal in a case involving the important issue of liability of receivers to pay GST.

New Zealand 

Supreme Court

United Kingdom

First Tier Tax Tribunal

  • A Soldier v Revenue & Customs [2012] UKFTT 388 – VAT – new means of transport – private motor car supplied for removal to Germany – bought by member of UK armed forces based in Germany and taken there for two days – returned to UK because Appellant on temporary training here before six month operational deployment in Africa – car left in the UK during deployment – during deployment, Appellant notified that his German stationing was being terminated and he was being re-based in the UK – whether Appellant had sufficient intention to remove the vehicle from the UK when initially supplied to him to qualify for UK zero rating on that supply to him – X v Skatteverket (ECJ) considered – held yes – appeal allowed
  • Darragh House Ltd v Revenue & Customs [2012] UKFTT 423 – VAT – disallowance of  input tax claim – question of fact whether expenditure used or to be used for purpose of business – appeal allowed in part
  • Drumtochty Castle Ltd v Revenue & Customs [2012] UKFTT 429 – VAT; use of castle for function such as wedding; additional supplies of  overnight accommodation, afternoon tea and breakfast; single or multiple supplies; whether supplies including use of castle exempt under VATA 1994, Schedule 9 Group 1; whether exemption excluded by item 1(d)

European Court of Justice

  • Deutsche Bank [2012] EUECJ C-33/11 – Sixth Directive – Exemptions – Article 15(6) – Exemption for the supply of aircraft used by airlines operating for reward chiefly on international routes – Supply of aircraft to an operator who makes them available to such an undertaking – Concept of ‘operating for reward on international routes’ – Charter flights
  • J J Komen en Zonen Beheer Heehugowaard [2012] EUECJ-326/11 – Sixth VAT Directive – Article 13B(g), read in conjunction with Article 4(3)(a) – Supply of buildings and land upon which they stand – Supply of a building undergoing work with the view to the creation of a new building by transformation – Continuation and completion of the work by the purchaser after the supply – Exemption from VAT
  • International Bingo Technology [2012] EUEC C-377/11 – Sixth VAT Directive – Articles 11A(1)(a), 17(5) and 19(1) – Organisation of games of bingo – Legal obligation to use part of the card price to pay winnings to players – Calculation of the basis of assessment
  • Littlewoods Retail Ltd and others [2012] EUECJ C-591/10 – Second and Sixth VAT Directives – Input tax – Refund of excess – Payment of interest – Procedures
  • Redlihs [2012] EUECJ C-263/11 – Sixth VAT Directive – Directive 2006/112/EC – Concept of ‘economic activity’ – Deliveries of timber in order to alleviate the damage caused by a storm – Reverse charge procedure – Failure to register in the register of taxable persons – Fine – Principle of proportionality

Canada

Tax Court

  • Daruwala v The Queen 2012 TCC 257 – whether purchase of newly constructed home exempt from GST on the basis that the property had previously been used as a residence by the builder – whether property used by builder as residence
  • Scott v The Queen 2012 TCC 274 – Entitlement to rebate of portion of GST paid on the purchase of motor vehicle subsequently sold back to dealership because of persistent problems – whether two separate transactions or the rescission/cancellation of the first transaction
  • Tele-Mobile Company Partnership v The Queen 2012 TCC 256 – Entitlement to input tax credits as a result of Billing Credits and mail-in rebates provided to customers- whether credits and rebates a “coupon” or voucher or simply a discount on the contract
  • Vincent v The Queen 2012 TCC 269 – Entitlement to input tax credits in respect of real estate business – substantiation of claims

Taxpayer appeals to Full Federal Court re decision that liable to pay entire GST as a partnership

Posted on by

The taxpayer has filed an appeal to the Full Federal Court from the decision of the Federal Court in Yacoub v Commissioner of Taxation [2012] FCA 678.  The Federal Court found that the taxpayer was liable for pay the whole GST liability for a property development on the basis that the entity was a partnership rather than a member of a joint venture.  My post on that decision can be found here.

The decision provides an opportunity for the Full Federal Court to consider the often difficult distinction between a joint venture and a partnership.  This has significant implications for taxpayers in a GST context because a partnership may (as the Federal Court found here) leave the taxpayer “holding the bag” for the whole GST where the other entity has gone into liquidation.

The Federal Court Portal shows that the Callover for the appeal will be held on 24 October 2012 in Sydney.

Federal Court finds student accommodation is the supply of “commercial residential premises”

Posted on by

In ECC Southbank Pty Ltd as trustee for Nest Southbank Unit Trust v Commissioner of Taxation [2012] FCA 795 the Federal Court accepted the taxpayer’s contention that the supply of shared and studio style apartments was the supply of “commercial residential premises” and therefore taxable, rather than the input taxed supply of residential premises (as contended by the Commissioner).

The central question was whether the complex, as a whole, fell within paragraph (a) of the definition of “commercial residential premises”, being “a hotel, motel, inn, hostel or boarding house” or paragraph (f) as “anything similar to residential premises described in paragraph (a)”.

The Commissioner contended that none of the words “hotel”, “motel”, “inn”, “hostel” or “boarding house” described accommodation “similar to that which would be expected for those who own or rent a house or apartment”.  The Commissioner contended that a resident of the premises in question rented his or her accommodation in much the same way as a person would rent any apartment for the purpose of exclusive or shared residence.  The policy of the GST legislation was that “those renting a house or apartment are to be on the same footing as person who own their own homes – neither is to pay GST in connection with such occupation”.

The Court considered whether the premises in question were similar to each of the types of establishment referred to in the definition of commercial residential premises.  The Court found as follows:

  • there were a number of features which distinguished the premises from a hotel or motel
  • the premises bear a much closer resemblance to a hostel than a hotel.  While meals were not provided to residents as they might be in the case of a more traditional hostel, the Court found that this did not mean that the premises could still be fairly described as a hostel, or at least similar to a hostel.
  • the premises were not similar to an inn or boarding house.

The Court also placed weight on the attributes specified at para 15.12 of the Explanatory Memorandum to the 2006 amendments to the definition as normally found in commercial residential premises (the Court also noted that Greenwood J referred to these attributed in Meridien Marinas Horizon Shores Pty Limited v Commissioner of Taxation [2009] FCA 1594 at [74]):

  • are run by a controller for a commercial purpose;
  • have multiple occupancy;
  • are held out to the public as such;
  • have a central management;
  • provides services in addition too commercial accommodation;
  • are used for the main purpose of accommodation.

The Court found that the premises met all of these requirements.  In doing so, the Court noted as follows:

It is true that in comparison with some other types of establishment referred to in the relevant definition, the level of services provided in addition to accommodation may seem slight.  But the services provided by staff to residents through the reception desk are by no means insignificant and, considered along with all other relevant matters, confirm my view that the Urbanest premises are properly regarded as commercial residential premises for the purposes of the GST Act.

The Court also noted that the fact that accommodation is the principal place of residence of the individual concerns does not mean that the supply is not taxable as commercial residential premises.  In such circumstances, the Court noted that the value of the supply may be substantially reduced for GST purposes by Division 87.

It will be interesting to see whether the Commissioner appeals the decision to the Full Federal Court.

Tribunal finds applicant unable to substantiate input tax credits for horse racing enterprise

Posted on by

Yesterday the Tribunal handed down its decision in Trnka and Commissioner of Taxation [2012] AATA 492.  The Tribunal dismissed the application and found that the applicant could not substantiate input tax credits claimed in respect of a horse racing and breeding enterprise the applicant had claimed was carried on.  At the hearing the Commissioner accepted that the penalties should be reduced from 75% (intentional disregard) to 50% (reckless) and that an additional penalty of 20% for obstruction should not be imposed.

This case is yet another example of the hurdles faced by taxpayers in challenging assessments.  The Tribunal found that the following principles applied in the income tax context apply equally to a GST assessment:

  • The taxpayer bears the onus of establishing that the assessments were excessive: McCormack v Federal Commissioner of Taxation (1978) 143 CLR 248;
  • The Commissioner does not need to show that the assessments issued can be sustained or supported by evidence: Gauci v FCT (1975) 135 CLR 81
  • The Commissioner is entitled to rely on any deficiency in proof of the excessiveness of the amount assessed to uphold the assessment: FC of T v Dalco (1990) 168 CLR 614 at 624.

The applicant was unable to produce documentary evidence to substantiate the claims for input tax credits, in particular tax invoices.  In this context the Tribunal referred to the following statement of the Tribunal in Huynh & Nguyen and Commissioner of Taxation [2008] AATA 305 at [32]:

“The tax invoice is the cornerstone of the GST regime.  A tax invoice is a document that substantiates a creditable acquisition”

Given its finding on the input tax credits, the Tribunal did not consider it necessary to deter me whether the applicant was carrying on an enterprise.  However, the Tribunal adopted the following factors listed in Sackville J in Woods v Deputy Commissioners of Taxation [1999] FCA 1589 as those to be considered when assessing whether an entity is carrying on an enterprise:

  • whether the activities were carried on as a commercial enterprise with the purpose of making a profit;
  • whether the activities were engaged in on a continuous and repetitive basis;
  • whether the activities were carried on in a businesslike manner;
  • whether ordinary commercial principles were applied to the conduct of the undertaking
  • whether the scale and volume of the undertaking was substantial, especially where the question is whether the taxpayer was conducting a business or was engaged in a hobby or recreational activity

In the context of penalties, the Tribunal found that the taxpayer was reckless.  The Tribunal accepted the Commissioner’s contention that the claiming of input tax credits without having tax invoices or records to substantiate the claims “demonstrates a degree of indifference or risk-taking that no reasonable person would assume”, consistent with the principle established in Hart v Commissioner of Taxation [2003] FCAFC 105.

NZ Supreme Court grants leave to appeal from decision that receiver liable to pay GST; AAT decision on enterprise

Posted on by

In Richard Grant Simpson and Timothy Wilson Downes as Receivers v Commissioner of Inland Revenue [2012] NZSC 62 the New Zealand Supreme Court yesterday granted leave to appeal from the decision of the Court of Appeal in Simpson v Commissioner of Inland Revenue [2012] NZCA 126.  The Court of Appeal allowed an appeal against the decision of the High Court ([2011] NZHC 490) that receivers of a mortgagee who sold the mortgagor’s real property were “personally liable” for the GST.  However, the Court nevertheless ordered that the receivers pay the GST to the Commissioner (in preference to the secured creditor of the mortgagee) as the GST properly represented a cost of the sale of the property.

My discussion of the decision of the Court of Appeal can be accessed here.

In other news, in Campbell and Commissioner of Taxation [2012] AATA 473 the Tribunal found that the applicant was not entitled to claim input tax credits in relation to an enterprise claimed to be carried on.  The Tribunal also upheld the administrative penalty of 50% on the basis that the applicant was reckless.

The essence of the dispute was whether the applicant was carrying on an enterprise.  The case is a classic example of the applicant being unable to substantiate the claim that an enterprise was being carried on, whether by documentary or oral evidence.  The applicant contended that she and a friend carried on a business of software development, or at least were in a start-up phase for that business.  The problem for the applicant was that the evidence was that her house was burgled and all the business records and computer records were stolen.  This meant that she was unable to substantiate her claims by producing documentary evidence.  Also, the applicant did not call her business partner (or a business mentor who was said to be assisting the start-up phase).  Also, during evidence, the applicant was unable to clearly outline the types of activities that were carried on during the start-up phase.  In light of these matters, the Tribunal found that there were insuperable obstacles to a finding that the applicant was carrying on an enterprise.  The Tribunal also accepted that the actions of the applicant in claiming input tax credits were reckless.

International Cases update – June 2012 – plus case analysis of UK decision in People’s Dispensary for Sick Animals

Posted on by

In June 2012 the following decisions dealing with GST/VAT were handed down in the UK, Canada and the ECJ.

An interesting decision is The People’s Dispensary for Sick Animals (PDSA) v Revenue & Customs [2012] UKFTT 362 where the Tribunal looked at whether the taxpayer was entitled to input tax credits for veterinary services acquired in the course of operating a Pet Aid scheme whereby veterinary services were provided at no cost to qualifying members.  While the Tribunal found in favour of the Revenue, in my view there are good arguments that the matter would be decided differently in Australia and the case provides a useful example of the differences between the VAT legislation in the UK and the GST in Australia. My analysis of the decision can be accessed here.

Another interesting decision is Global Cash Access (Canada) Inc v The Queen 2012 TCC 173 where the Tax Court of Canada considered the question of characterising a bundle of supplies in the context where at least one of those supplies was an input taxed financial supply.  My previous post on this decision can be accessed here.

United Kingdom

First Tier Tribunal

  • Atchem Ltd v Revenue & Customs [2012] UKFTT 380 – VAT – property – supply of going concern – belated notification – whether appellant decided to opt to tax on or before completion – held no – appeal dismissed
  • Beds Beds Beds London v Revenue & Customs [2012[ UKFTT 353 – VAT – claim for repayment of overpaid VAT – claim made more than four years after end of accounting period in which assessment made – whether claim valid – no – section 80(1A) and (4) VAT Act 1994 – appeal dismissed
  • Bloomsbury Wealth Management LLP v Revenue & Customs [2012] UKFTT 379 – VAT – EXEMPT SUPPLIES – finance – whether appellant supplied intermediary services or services of management and advice – held, advice ancillary and predominant supply of intermediary services – whether intermediary services in relation to item 6 (exempt) or item 9 (standard rated) – held, in relation to item 6 appeal allowed
  • Cordery Build Ltd v Revenue & Customs [2012] UKFTT 384 – VALUE ADDED TAX – Reduced rate – Schedule 7A Value Added Tax Act 1994 – Group 6 Notes 2, 3,4 and 6 – qualifying conversion –  whether conversion of 36 bedsits in sheltered accommodation for the elderly into 36 self-contained flats amounted to “changed number of dwellings conversion” – No – Whether use prior to conversion was a home or other institution providing residential accommodation with personal care or an institution which is the sole or main residence of at least 90 per cent of its residents – No – Appeal dismissed
  • Finance & Business Training Ltd v Revenue & Customs [2012] UKFTT 382 – Education – Exemptions – Value Added Tax Act 1994, Sch 9, Group 6, Item 1, Note 1(b )- Exemptions – Whether the Appellant is a college of a university – Whether the Appellant is an eligible body
  • Robinson Family Ltd v Revenue & Customs [2012] UKFTT 360 – S.49 VATA and Art 5 VAT (Special Provisions) Order 1995 – creation of a sub-lease – whether there was the transfer of a business or the disposal of a new asset – Appeal Allowed
  • The People’s Dispensary for Sick Animals (PDSA) v Revenue & Customs [2012] UKFTT 362 – VAT – Input Tax – The Appellant a “not for profit” incorporated Society providing welfare and charitable services for sick and injured animals – Was the Appellant  entitled to recover VAT on veterinary fees – No – The Pet Aid scheme was a non-economic activity – the veterinary supplies made to the pet owners not to the Appellant – Appeal dismissed
  • WM Morrison Supermarkets Ltd v Revenue & Customs [2012] UKFTT 366 – VAT – supply of disposable barbecues – whether VAT chargeable at a reduced rate on the charcoal element of the supply – reduced rate of VAT on solid fuel pursuant to Schedule 7A Group 1 Item 1(a) VATA 1994 – Commission v France Case C-94/09 considered – interaction with Card Protection Plan v C & E Case C-349/96 considered – significance of charcoal being a concrete and specific aspect of the supply – appeal dismissed

European Court of Justice

  • Elsacom (Eighth VAT Directive) [2012] EUECJ C-294/11 – Eighth VAT Directive – Arrangements for the refund of VAT to taxable persons not established in the territory of the country – Time-limit within which refund applications are to be submitted – Time bar
  • Mahageben v Nemzeti (Taxation) [2012] EUECJ C-80/11 – Taxation – VAT – Sixth Directive – Directive 2006/112/EC – Right to deduct – Conditions governing the exercise of that right – Article 273 – National measures to combat fraud – Practice of the national tax authorities – Refusal of the right to deduct in the event of improper conduct on the part of the issuer of the invoice relating to the goods or services in respect of which the exercise of that right is sought – Burden of proof – Obligation of the taxable person to satisfy himself as to the propriety of the conduct of the issuer of that invoice and to provide proof thereof
Canada