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	United Kingdom VAT & Duties Tribunals Decisions
You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> Maine Distribution Ltd v Revenue & Customs [2008] UKVAT V20823 (07 October 2008) URL: http://www.bailii.org/uk/cases/UKVAT/2008/V20823.html Cite as: [2008] UKVAT V20823

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20823

VAT – company trading in CPUs – entitlement to input tax credit – supplemental decision dealing with the question whether Spanish purchaser taxable person under article. 4 6th Directive so that Appellant entitled to zero-rate supplies under article. 28(c)A – no – appeal dismissed

MANCHESTER TRIBUNAL CENTRE REF: MAN/06/611

MAINE DISTRIBUTION LTD Appellant

- and -

THE COMMISSIONERS FOR

HER MAJESTY'S REVENUE AND CUSTOMS Respondents

Tribunal: David Demack (Chairman)

Peter Whitehead (Member)

Sitting in public in Manchester on 29 July 2008

Timothy Brown of counsel, instructed by Messrs Michael Brookes & Co., chartered accountants, Manchester, for the Appellant

James Puzey of counsel, instructed by the Solicitor and General Counsel for HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2008
 


DECISION

Introduction

1. This decision is supplemental to that numbered no. 20284 wherein we determined that the appellant company, Maine Distribution Ltd ("Maine") was not entitled to input tax credit in respect of supplies it made to a Spanish company, Indigo Light SL ("Indigo"), as that company was not a taxable person in another Member State of the European Union acting as such within Article 28cA(a) of the Sixth Directive (EEC/77/388). However, as Maine further argued that Indigo was a taxable person under Article 4 of the Sixth VAT Directive so that it, Maine, was entitled to zero-rate supplies to Indigo under Article 28cA of that Directive, and that question was shortly to come before the High Court in an appeal by JP Commodities Ltd (against a decision of the tribunal in favour of the Commissioners), we adjourned our decision on the matter pending the High Court judgment.
2. In the event, the High Court dismissed JP Commodities appeal, holding (1), that the rationale behind the scheme imposed by Articles 28a to c of the Sixth Directive was not sufficient for adopting an interpretation of "taxable person" that included a requirement that such a person was registered for VAT; and (2) condition 1 of paragraph 3.1 of VAT Notice 725 (which notice is tertiary legislation) was clearly intended to ensure the correct and straightforward application of the scheme constituted by Articles 28 a – c as a whole, and it did so by making sure that the exemption or zero-rating in the supplier's Member State occurred only where the customer was not merely liable for acquisition tax as a taxable person, but also, by virtue of being registered, was in a position properly to account to the tax authority of his Member State for that tax, and subsequently to collect and pay VAT on any relevant sale on of the goods in question.
3. The facts of the instant case may be summarised in the following way. On 7, 16 and 24 November 2005, Maine made three supplies of CPUs to Indigo in Spain. As required by Notice 725, Maine's invoices for the supplies contained Indigo's Spanish VAT number. The goods were delivered by Amber Worldwide to Freight Connections of Withoorn, Netherlands. Maine zero-rated the supplies and returned them in period 11/05. The VAT return in question included a repayment claim of £326,010.
4. Prior to making the supplies in question, on 18 October 2005 to be precise, Maine had enquired of the Commissioners whether Indigo had a valid Spanish VAT number. The Commissioners replied that it had. However, on 19 October 2005 the Spanish authorities deregistered Indigo for intra-Community VAT purposes, but allowed it to remain registered for domestic VAT transactions. By letter of 27 March 2006, the Commissioners disallowed Maine's claim as not fully meeting the conditions contained in section 3 of Notice 725.

The relevant legislation

5. At the relevant time, Article 28cA(a) of the Sixth Directive provided for Member States to exempt supplies of goods effected for another taxable person or non-taxable legal person acting as such in a Member State other than that from where the goods departed.
6. Article 4(1) stated that "taxable person" meant any person who independently carried out in any place an economic activity specified in sub-paragraph 2, whatever the purpose or results of that activity.
7. Article 28cA(a) was implemented in UK domestic law by section 30(8) of the Value Added Tax Act 1994, regulation 134 of the VAT Regulations 1995 and section 3 of Notice 725. Section 3 of Notice 725 allows the zero-rating of supplies provided three conditions are met;

the customer's VAT number is shown on the sales invoice;

the goods are transported out of the UK to another Member States; and

satisfactory commercial documentary evidence is held that the goods have been removed from the UK

Submissions for Maine

8. Mr. Brown submitted that Maine had met the requirements of section 3 of Notice 725 as Indigo's Spanish VAT number was shown on the former's sales invoices.
9. He submitted that condition 1 of section 3 required only the customer's VAT number, including the Member State's 2-letter prefix, to be shown on the sales invoice. It was irrelevant whether Indigo was registered on the Spanish ROI (the Registro de Operadores Intercommunicatores), that register-containing details of traders registered to carry out intra-Community transactions. He contended that the fact that Indigo remained on the Spanish domestic VAT register was sufficient for condition 1 to be satisfied. There was no requirement in the EU VAT Directives for a taxable person to be "authorised" to conduct intra-Community trade; Article 28 contained only reference to "persons identified for VAT purposes in another member states".
10. Alternatively, if the requirement of condition 1 was that UK businesses must ensure that their EU customers were authorised to conduct intra-Community trade by the Member State in which they were registered for VAT, Mr. Brown maintained the UK legislation went too far in ensuring the correct application of the Sixth Directive for the purposes of Article 28cA and breached the principle of equivalence as understood in Marks and Spencer plc v. Customs and Excise Commissioners (Case 62/00) [2002] STC 1026. He submitted that that principle of was breached because the rules were less favourable than those governing transactions in reverse i.e. goods acquired by a UK business from another Member State. The UK legislation in respect of acquisitions from another Member State made the UK acquirer liable for the tax on the goods if they were purchased in the course or furtherance of a business and the supplier was taxable in another Member State (section 10 of the 1994 Act). He further maintained that there was no requirement in the UK for a business to be authorised to carry out intra-Community acquisitions: the dispatcher need quote only the UK customer's VAT number to be able to zero-rate a transaction. Consequently, Mr. Brown contended that inclusion of a customer's domestic VAT number was sufficient to comply with condition 1 of section 3 of Notice 725, and thus Maine had correctly zero-rated its sales to Indigo.

Submissions for the Commissioners

11. In Mr. Puzey's submission, the removal of Indigo from the Spanish intra-Community register coupled with the fact that Maine had failed to check on Indigo's VAT registration immediately prior to carrying out the transactions with it in November 2005, meant that it should not be entitled to zero-rate the transactions.
12. He further submitted that Indigo's VAT registration should be considered in the light of the explanatory notes in Notice 725. The prime purpose of the ROI was to prevent fraud and, if a Spanish trader were not on that system, it was outside the intra-Community VAT system. If we were to allow the appeal, it would be to encourage tax evasion and fraud: it would mean that a transaction was taxed in the country of acquisition irrespective of whether it was treated as having been so taxed by the recipient. If Indigo was not registered it fell outside the system, and the transactions would not be taxed as was appropriate. If Maine's submissions were to be accepted, and its appeal allowed, no tax on the transactions would be accounted for. In Teleos plc and Others v. Customs and Excise Commissioners (Case C-409/04) it was held that non-taxation was to be avoided, and if necessary resort for the tax was to be had of the supplier.
13. Mr. Puzey also submitted that the purpose of condition 3.1 of Notice 725 was to encourage suppliers to ensure that they were trading with an entity authorised to carry on EU trade. Had Maine made enquiries of the authorities after 19 October 2005 and before it carried out the transactions in November 2005, as it ought to have done, it would have been told that Indigo was not registered for EU trade.
14. As to Mr. Brown's arguments on the doctrine of equivalence, that the removal of goods to Spain was treated less favourably than trade in the opposite direction, Mr. Puzey maintained that under the Sixth Directive Spain was empowered to prevent tax fraud and evasion. As Maine did not comply with paragraph 3.1 of Notice 725, and Indigo's registration number was invalid, were Maine to have filed an EC sales list containing Indigo's VAT registration number, it would have produced no result. He submitted that the appeal should be dismissed.

Conclusion

15. Having carefully considered the submissions of both parties, we are quite satisfied that those of Mr. Puzey represent the true legal position, so that, in our judgment, Maine is not entitled to recover the input tax it has claimed: it did not comply with paragraph 3.1 of Notice 725 and Indigo's VAT registration number was invalid for intra-Community transactions when the relevant transactions were carried out. It follows that we dismiss the appeal.

DAVID DEMACK

CHAIRMAN
Release Date: 7 October 2008

MAN/2006/611