UK and International Tax news

FTT Rejects Appeal In VAT Grouping Case

Sunday 20th October 2024

The FTT has recently given its decision in a case involving HMRC refusing to accept an application for an overseas company to join a VAT grouping consisting of certain UK entities through its UK branch.

In Barclays Service Corporation & another v HMRC [[2024] 785 (TC), the FTT held that the overseas service company was not entitled to join a UK VAT group because it did not have a UK fixed establishment at the time group membership was applied for.

BSC’s UK branch was registered with Companies House as a UK establishment of BSC on 26 July 2017.  On 1 December 2017, the appellants submitted the application to HMRC for BSC to be treated as a member of the VAT group in accordance with s. 43.B(2) VATA 1994.

On March 2018, HMRC issued a notice to the appellants stating that the application was refused on the grounds that BSC was not eligible to be treated as a member of the VAT Group because it was neither established nor had a fixed establishment in the UK, and alternatively, that if BSC did have a fixed establishment in the UK, it was nevertheless necessary to refuse the application for the ‘protection of the revenue’.

On appeal the FTT had to consider:

  • did the UK Branch constitute a fixed establishment under s.43A VATA 1994 (the ‘fixed establishment issue’)?
  • did the wording of VATA 1994 contain a territorial limitation such that a UK VAT group does not include establishments outside the UK (the ‘Danske Bank‘ issue)?
  • alternatively, was it the case that HMRC could not reasonably have been satisfied that it was necessary for the protection of the revenue to refuse the appellants’ application (the ‘protection of the revenue’ issue)?

On the fixed establishment issue, the FTT commented that HMRC’s position in the present case was identical to that advanced in HSBC. In particular, for a UK branch of an overseas company to be regarded as a ‘fixed establishment’ it must have a real trading presence in the UK, it must supply goods or services in its own right, those goods or services being neither preparatory or auxiliary, but material to the business of the person in question. It must have sufficient permanent resources to be able to supply those goods or services, and have sufficient permanent resources to receive the supplies required to enable it to provide those goods or services.

It was pointed out by the UT that it had rejected HSBC’s arguments in relation to a fixed establishment having to make or receive supplies as being contrary to the decision of the CJEU in European Commission v Ireland.  It had also rejected HSBC’s argument that registration of a branch at Companies House was sufficient to satisfy the ‘established in’ and ‘fixed establishment’ requirement in s.43A VATA.

The FTT went on to comment that for the UK Branch to be a fixed establishment it must therefore have had on 1 December 2017, the date of the application which the parties agreed was the relevant date that the eligibility requirements for grouping fell to be assessed, sufficient human and technical resources in the UK to make a meaningful commercial contribution to the non-UK company, being BSC.

It was therefore necessary to consider what human and technical resources were available to the UK Branch as at 1 December 2017 and come to a conclusion on the facts, by reference to substance rather than legal form.

On the basis of the facts, the FTT concluded that there was a lack of human and technical resources available to the branch on 1 December 2017, and the branch could not have been a fixed establishment of BSC on that date.

Whilst the FTT considered that it was not strictly necessary to address the other two issues under appeal, it did find that it would not have been possible for HMRC to reasonably have been satisfied that there were grounds for refusing the application for the protection of the revenue, given the VAT savings arising on the branch’s admission to the VAT Group would be those that fell within the normal consequences of VAT grouping.

If you would like more information on this case, please contact Keith Rushen on 0207 486 2378.

 

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