The First Tier Tribunal in HMRC v Newey [2020] UKFTT has recently delivered its decision on the application of the principles of the EU notion of “abuse of right”, after the matter had been remitted from the Court of Appeal ([2018] EWCA Civ 791). The case has emerged as an important and high profile authority on this principle, being regularly cited in the Supreme Court and the CJEU, establishing that transactions may be re-cast for VAT purposes in the face of contractual arrangements if the contracts did not reflect commercial reality. The case is not only important in principle (in a series of cases establishing the precise meaning of “abuse” in EU law) but also demonstrates the critical need for Tribunals to have adequate evidence to make findings of fact when applying principles of fundamental importance. The case concerned the establishment of a company in Jersey, Alabaster (to which HMRC objected, as this avoided UK VAT) and the factual evidence concerned whether the contracts undertaken by this Jersey company reflected commercial reality, as to the risks and rewards assumed under the contracts and the location of the centre of control of the Jersey company.
The FTT has held (twice, once in 2010 and again in 2020) that the answer was “yes.” The case was originally heard in 2010 by the First Tier Tribunal ([2010] UKFTT 183), which decided that the evidence of the parties to the relevant contracts, both at director and at shareholder level, together with an assessment of the risks and rewards assumed by Alabaster under the contracts, demonstrated that the contracts did indeed reflect commercial reality.
The matter was referred to the CJEU (Case C-653/11), which confirmed that the application of the principle of abuse to particular facts was a matter for national courts to decide, upon the evidence (but establishing the important principle that abuse was always a matter of assessing commercial reality and not simply an intention to avoid VAT, or other taxes). The Upper Tribunal ([2015] UKUT 0300 (TCC), in the light of the CJEU judgment, dismissed HMRCs’ appeal but the Court of Appeal considered that the FTT, in 2010 and the UT, in 2015, had both (potentially) misapplied the principle of abuse and therefore remitted the case to the FTT to re-apply the principle of abuse, in the light of the CJEU’s judgment, as considered and explained by the Court of Appeal.
The FTT has now re-considered the factual evidence, including the risks and rewards assumed under the contracts by the Jersey company, in the light of the CJEU judgment and the Court of Appeal’s analysis of this and re-affirmed that the relevant contracts were at one with commercial reality.
Julian Ghosh QC and Jonathan Bremner QC appeared for Mr Newey and a copy of the full judgment can be found here.