In HSBC Electronic Data Processing (Guangdong) Ltd and others v HMRC [2022] UKUT 41 (TCC) (15 February 2022) the Upper Tribunal (UT) confirmed that:
the interpretation of the terms ‘established’ or ‘fixed establishment’ in VATA 1994 s 43A should be informed by CJEU case law;
no part of VATA 1994 s 43C (termination of VAT group membership) is ultra vires;
the term ‘necessary for the protection of the revenue’ in VATA 1994 s 43C does not restrict the HMRC power to exclude a person from a VAT group to situations that are considered abusive on the principles of Halifax plc and others v Commrs of Customs & Excise (Case C-255/02); and
in relation to the date of removal from a VAT group, the reasonableness test in VATA 1994 s 84 (4D) focuses exclusively on the reasonableness of the decision reached by HMRC, rather than whether the HMRC decision-making process was reasonable.
The above points relate to preliminary issues the UT was asked to address in relation to appeals to the FTT by HSBC Bank plc and five global service companies (GSCs). The appeals relate to decisions by HMRC to remove the GSCs from the HSBC VAT group. HMRC made the decisions on the basis that (a) the GSCs have not been established or had a fixed establishment in the UK since at least 1 October 2013, and therefore do not meet the ‘established’ or ‘fixed establishment’ condition in VATA 1994 s 43A and (b) the decisions were ‘necessary for the protection of the revenue’ in the context of VATA 1994 s 43C. As noted above, the UT decided that the term ‘necessary for the protection of the revenue’ has a relatively wide application and does not just apply to situations that are considered abusive on the principles of Halifax.
When considering the terms ‘established’ and ‘fixed establishment’, the UT referred to how the CJEU used the terms in the context of VAT cases generally. For example, it referred to Berkholz v Finanzamt Hamburg-Mitte-Altstadt (Case C-168/84), ARO Lease BV v Inspecteur der Belastingdienst Grote Ondernemingen (C-190/95), Titanium Ltd v Finanzamt Osterreich (Case C-931/19) and Planzer Luxembourg Sarl v Bundeszentralamt fur Steuern (Case C-3/06). The first three of these cases concern the place of supply rules and the fourth case concerns the eligibility to be reimbursed VAT in a member state where the claimant was not registered. This indicates that the UT did not regard the terms ‘established’ and ‘fixed establishment’ as having a special meaning in the context of the legislation relating to VAT groups, but that the terms should be interpreted in a way that is consistent with how they have been used in the context of CJEU VAT cases generally.
Why it matters: The UT has provided helpful clarification regarding how terms used in the legislation relating to VAT groups should be interpreted. The UT has also confirmed that the reasonableness test in VATA 1994 s 84 (4D) does not require HMRC to demonstrate that the process of reaching a decision was a reasonable process, just that the decision reached was a reasonable decision.
In HSBC Electronic Data Processing (Guangdong) Ltd and others v HMRC [2022] UKUT 41 (TCC) (15 February 2022) the Upper Tribunal (UT) confirmed that:
the interpretation of the terms ‘established’ or ‘fixed establishment’ in VATA 1994 s 43A should be informed by CJEU case law;
no part of VATA 1994 s 43C (termination of VAT group membership) is ultra vires;
the term ‘necessary for the protection of the revenue’ in VATA 1994 s 43C does not restrict the HMRC power to exclude a person from a VAT group to situations that are considered abusive on the principles of Halifax plc and others v Commrs of Customs & Excise (Case C-255/02); and
in relation to the date of removal from a VAT group, the reasonableness test in VATA 1994 s 84 (4D) focuses exclusively on the reasonableness of the decision reached by HMRC, rather than whether the HMRC decision-making process was reasonable.
The above points relate to preliminary issues the UT was asked to address in relation to appeals to the FTT by HSBC Bank plc and five global service companies (GSCs). The appeals relate to decisions by HMRC to remove the GSCs from the HSBC VAT group. HMRC made the decisions on the basis that (a) the GSCs have not been established or had a fixed establishment in the UK since at least 1 October 2013, and therefore do not meet the ‘established’ or ‘fixed establishment’ condition in VATA 1994 s 43A and (b) the decisions were ‘necessary for the protection of the revenue’ in the context of VATA 1994 s 43C. As noted above, the UT decided that the term ‘necessary for the protection of the revenue’ has a relatively wide application and does not just apply to situations that are considered abusive on the principles of Halifax.
When considering the terms ‘established’ and ‘fixed establishment’, the UT referred to how the CJEU used the terms in the context of VAT cases generally. For example, it referred to Berkholz v Finanzamt Hamburg-Mitte-Altstadt (Case C-168/84), ARO Lease BV v Inspecteur der Belastingdienst Grote Ondernemingen (C-190/95), Titanium Ltd v Finanzamt Osterreich (Case C-931/19) and Planzer Luxembourg Sarl v Bundeszentralamt fur Steuern (Case C-3/06). The first three of these cases concern the place of supply rules and the fourth case concerns the eligibility to be reimbursed VAT in a member state where the claimant was not registered. This indicates that the UT did not regard the terms ‘established’ and ‘fixed establishment’ as having a special meaning in the context of the legislation relating to VAT groups, but that the terms should be interpreted in a way that is consistent with how they have been used in the context of CJEU VAT cases generally.
Why it matters: The UT has provided helpful clarification regarding how terms used in the legislation relating to VAT groups should be interpreted. The UT has also confirmed that the reasonableness test in VATA 1994 s 84 (4D) does not require HMRC to demonstrate that the process of reaching a decision was a reasonable process, just that the decision reached was a reasonable decision.
