Structuring a business to create tax efficiencies is acceptable provided the arrangements reflect commercial reality.
INTRODUCTION
1. These proceedings were a hearing of a remittal of case to the First-tier Tax Tribunal by the Court of Appeal under s 14(2)(b)(i) Tribunals, Courts & Enforcement Act 2007: HMRC v Paul Newey (t/a Ocean Finance) [2018] STC 1054 (“the CA Decision”).
2. The litigation history of the dispute is set out in the CA Decision at [5-9] and may be summarised as follows:
(1) Mr Newey’s appeal against disputed VAT assessments was heard by the First-tier Tribunal at a five day hearing in early 2010, and his appeal was allowed: [2010] UKFTT 183 (TC) (“the FTT Decision”).
(2) HMRC appealed to the Upper Tribunal. At the request of both parties the Upper Tribunal made a reference to the Court of Justice of the European Union. In summer 2013 the CJEU issued its judgment on the reference: Case C-653/11, [2013] STC 2432 (“the CJEU Decision”). The Upper Tribunal heard HMRC’s appeal at a two day hearing in late 2014, and their appeal was dismissed: [2015] STC 2419 (“the UT Decision”).
(3) HMRC appealed to the Court of Appeal. The appeal was heard at a two day hearing in early 2018, and HMRC’s appeal was allowed. The outcome was that the UT Decision was set aside and (as already mentioned) the case was remitted to this Tribunal: CA Decision at [115].
OVERALL CONCLUSIONS AND DECISION
67. On the error of law relating to the failure to apply the correct test as stated by the CJEU in the CJEU Decision: having applied the correct test we concluded that the business relationships actually entered into between Mr Newey, Alabaster, the lenders and Wallace Barnaby do reflect economic and commercial reality, and do not constitute a wholly artificial arrangement which does not genuinely reflect economic reality – see [60] above.
68. On the error of law relating to the exempt loan broking supplies made by Alabaster: having applied the correct law we concluded that this did not change the conclusions reached by this Tribunal in the FTT Decision – see [66] above.
69. Accordingly, the outcome of the remittal is that we ALLOW the appeal.
Source: FTT
