In The Commissioners for Her Majesty’s Revenue & Customs v Weald Leasing Ltd [2008] EWHC 30 (Ch), the High Court dismissed an appeal by the Commissioners against a ruling by a VAT and duties tribunal that a scheme deferring irrecoverable VAT using artificial leases was not contrary to the purpose of the Value Added Tax Act 1994 (or Directive 77/388 which the Act implemented) and therefore not abusive. Weald Leasing Ltd was a member of the Churchill group of companies carrying on insurance business but was not a member of their VAT group.
The Court considered the decision of the European Court of Justice in Halifax plc and Others v Customs and Excise Commissioners [2006] STC 919, Case C-255/02, and concluded that where one was looking at a series of transactions, the essential aim of which was to confer a tax advantage by way of the deductibility of input tax, in order to brand the series as abusive it did not suffice simply to prove that the series was not in the “context of their normal commercial operations”. The Court added that this was so even when the essential aim was admitted, where the arrangements made were artificial, not at arm’s length commercially and devoid of commercial motive other than as to the attainment of the essential aim, unless in the circumstances, viewed as a whole, the grant of the tax advantage concerned would be contrary to the purposes of the Directive and the national legislation transposing it. The court failed to see that the accrual of the tax advantages in this case would be contrary to the purpose of the relevant provisions of the Directive and of the 1994 Act.
This decision is of interest because it is an appeal from the first significant case to consider the doctrine of ‘abuse’ espoused in the Halifax decision. The presiding judge, Mr Justice Lindsay, refused leave to appeal but it remains to be seen whether or not the Commissioners will be given leave to argue against his decision in the Court of Appeal.
