.png)
.png)
The taxpayer company was entitled to rely upon a Customs' concession ruled the Administrative Court in R (on the application of Greenwich Property Ltd) v Commissioners of Customs and Excise.
The taxpayer company was entitled to rely upon a Customs' concession ruled the Administrative Court in R (on the application of Greenwich Property Ltd) v Commissioners of Customs and Excise.
A third party was licensed by a university to deal with vacant lettings of student accommodation. The supply was treated as zero rated under a concession agreed between Customs and the universities of the United Kingdom. Customs argued that because a third party was involved, the concession could not apply. The court decided that the requirements of the concession had been satisfied, and that it should apply.
Background
The University of Greenwich needed further student accommodation, so it entered into an arrangement whereby it granted a lease of the site on which such accommodation was to be built, to a wholly-owned subsidiary, Greenwich Property Ltd. Greenwich Property commissioned a development company to build the residences and maintain them for 30 years.
Under Item 1(a)(ii) and note 4 of Group 5 of Schedule 8 to the VAT Act 1994, the first grant of a major interest in the building, by a person constructing a building intended solely for a relevant residential purpose, including student accommodation, is zero rated. Customs would allow by a concession, set out at paragraph 37(a) of a concordat issued by the committee of vice chancellors and principals of the universities of the United Kingdom, student accommodation to be zero rated, even where it was used for non-qualifying purposes during vacations.
The university therefore issued the appropriate certificate to Greenwich Property, which then granted an underlease to the university. The university granted the development company a licence allowing it to use the accommodation during the vacations for non-qualifying purposes.
Greenwich Property, relying on the concession, treated the supply of the underlease to the university as zero rated. Customs, however, decided that the concession did not apply and issued a VAT assessment. Greenwich Property applied for a judicial review of Customs' decision
(Penny Hamilton for the taxpayer company; Hugh McKay for Customs.)
The Queen's Bench Division judgment
After running through the facts and relevant legislation, Mr Justice Collins said that it was necessary to consider the VAT tribunal decision in University of Bath (14235), since this had some relevance to vacation lettings.
The University of Bath had built some buildings between 1965 and 1975 as student accommodation. They were refurbished subsequently, and then made available for vacation letting. The university set up a company, University of Bath One, to which it granted leases of the buildings. The issue here was not the concession, as the concession was only available where a university could give a certificate to a builder or developer for constructing or acquiring a building. The tribunal decided that the supplies could not be zero rated because the buildings were not intended to be used solely for a relevant or relevant charitable purpose within item 1(a)(ii).
The judge said that it was apparent that the University of Bath decision did not decide that the university must make the lettings or hirings of the accommodation during vacations, rather that in the absence of reliance upon the concession, item 1(a)(ii) could not be complied with, and that the zero-rated supply had to be made to, not by, the university. The purpose of the concession was to enable universities to make profitable use of student accommodation during vacations, and still benefit from zero rating.
In the instant case, the university had subcontracted the letting arrangements to a third party. While Customs were unhappy at the idea of a third party benefiting from the zero rating, the judge could see no reason why this should not be permitted, saying that nothing in the concession appeared to forbid it.
The judge accepted that, as Customs were relieving a taxable person of a legal liability, the taxable person had to show that he had acted within the terms of the concession, and that any doubt should be resolved in favour of the tax being payable. However, the language in the concession was unambiguous, and the university had clearly complied with it.
Customs argued that the concession was being used for tax avoidance. The judge disagreed, saying that if Customs had wished the concession not to be used in such a way, then they should have worded the concession accordingly. There was 'no overriding public interest that prevents a person taking advantage of a concession to maximise the benefits he can legitimately expect from its terms'. The approach adopted by the House of Lords in MacNiven v Westmoreland Investments Ltd [2001] STC 237 could apply to VAT cases, as well as direct tax ones.
Greenwich Property was entitled to rely on the concession.
Decision for the taxpayer company
(Reported at [2001] STC 618.)
Commentary by Allison Plager
It is the claim by Customs that the university was using the concession for the purposes of tax avoidance which rings the alarm bells. The judge in this instance said that the university was simply making full use of the benefits offered by the concession to its advantage, and that it was doing nothing that was not permitted by the concession. Here, he was in line with common thinking on direct taxes.
If the Greenwich case is appealed by Customs, it will be interesting to see which way the Court of Appeal jumps.
A third party was licensed by a university to deal with vacant lettings of student accommodation. The supply was treated as zero rated under a concession agreed between Customs and the universities of the United Kingdom. Customs argued that because a third party was involved, the concession could not apply. The court decided that the requirements of the concession had been satisfied, and that it should apply.
Background
The University of Greenwich needed further student accommodation, so it entered into an arrangement whereby it granted a lease of the site on which such accommodation was to be built, to a wholly-owned subsidiary, Greenwich Property Ltd. Greenwich Property commissioned a development company to build the residences and maintain them for 30 years.
Under Item 1(a)(ii) and note 4 of Group 5 of Schedule 8 to the VAT Act 1994, the first grant of a major interest in the building, by a person constructing a building intended solely for a relevant residential purpose, including student accommodation, is zero rated. Customs would allow by a concession, set out at paragraph 37(a) of a concordat issued by the committee of vice chancellors and principals of the universities of the United Kingdom, student accommodation to be zero rated, even where it was used for non-qualifying purposes during vacations.
The university therefore issued the appropriate certificate to Greenwich Property, which then granted an underlease to the university. The university granted the development company a licence allowing it to use the accommodation during the vacations for non-qualifying purposes.
Greenwich Property, relying on the concession, treated the supply of the underlease to the university as zero rated. Customs, however, decided that the concession did not apply and issued a VAT assessment. Greenwich Property applied for a judicial review of Customs' decision
(Penny Hamilton for the taxpayer company; Hugh McKay for Customs.)
The Queen's Bench Division judgment
After running through the facts and relevant legislation, Mr Justice Collins said that it was necessary to consider the VAT tribunal decision in University of Bath (14235), since this had some relevance to vacation lettings.
The University of Bath had built some buildings between 1965 and 1975 as student accommodation. They were refurbished subsequently, and then made available for vacation letting. The university set up a company, University of Bath One, to which it granted leases of the buildings. The issue here was not the concession, as the concession was only available where a university could give a certificate to a builder or developer for constructing or acquiring a building. The tribunal decided that the supplies could not be zero rated because the buildings were not intended to be used solely for a relevant or relevant charitable purpose within item 1(a)(ii).
The judge said that it was apparent that the University of Bath decision did not decide that the university must make the lettings or hirings of the accommodation during vacations, rather that in the absence of reliance upon the concession, item 1(a)(ii) could not be complied with, and that the zero-rated supply had to be made to, not by, the university. The purpose of the concession was to enable universities to make profitable use of student accommodation during vacations, and still benefit from zero rating.
In the instant case, the university had subcontracted the letting arrangements to a third party. While Customs were unhappy at the idea of a third party benefiting from the zero rating, the judge could see no reason why this should not be permitted, saying that nothing in the concession appeared to forbid it.
The judge accepted that, as Customs were relieving a taxable person of a legal liability, the taxable person had to show that he had acted within the terms of the concession, and that any doubt should be resolved in favour of the tax being payable. However, the language in the concession was unambiguous, and the university had clearly complied with it.
Customs argued that the concession was being used for tax avoidance. The judge disagreed, saying that if Customs had wished the concession not to be used in such a way, then they should have worded the concession accordingly. There was 'no overriding public interest that prevents a person taking advantage of a concession to maximise the benefits he can legitimately expect from its terms'. The approach adopted by the House of Lords in MacNiven v Westmoreland Investments Ltd [2001] STC 237 could apply to VAT cases, as well as direct tax ones.
Greenwich Property was entitled to rely on the concession.
Decision for the taxpayer company
(Reported at [2001] STC 618.)
Commentary by Allison Plager
It is the claim by Customs that the university was using the concession for the purposes of tax avoidance which rings the alarm bells. The judge in this instance said that the university was simply making full use of the benefits offered by the concession to its advantage, and that it was doing nothing that was not permitted by the concession. Here, he was in line with common thinking on direct taxes.
If the Greenwich case is appealed by Customs, it will be interesting to see which way the Court of Appeal jumps.
