Tax Cases

Vital expertise

The Expert Witness Institute was incorporated under the Companies Acts 1985 to 1989 as a company limited by guarantee and not having share capital.

Customs said that the supplies of goods and services that the institute made were not exempt. The institute appealed on the ground that it was a non-profit making organisation with the aims of a civic nature and was within Article 13A(1)(l) of the Sixth Directive.

The Court of Appeal agreed that the objectives of the institute were of a civic nature within Article 13A(1)(l) and item 1(e) of Group 9 in Schedule 9 to the VAT Act 1994. It was a central element of the social contract between the state and its citizens that justice be administered properly, and fair and unbiased expert evidence supported was part of this. The goods and services supplied were therefore exempt.

Customs appeal was dismissed.

(The Expert Witness Institute v Commissioners of Customs and Excise, Court of Appeal, 12 December 2001.)

Involuntary compensation

The taxpayers were retailers of guns and were VAT registered. Following the Firearms (Amendment) Act 1997, they surrendered the handguns that they held, and received the appropriate compensation. They told Customs about the compensation, but said that they did not have to account for it for VAT purposes. Customs disagreed and issued an assessment on the amount.

The taxpayers appealed to the tribunal, but this was automatically decided against them, in the light of a previously decided appeal for Customs on identical facts in Parker Hale Ltd v Commissioners of Customs and Excise [2000] STC 388. The tribunal therefore decided to send the case direct to the Court of Appeal.

The issue was whether the surrender of the handguns constituted a taxable 'supply of goods within the meaning of the VAT Act 1994 and the Sixth Directive'. The taxpayers argued that it was not, since no consideration had been received for the goods, the compensation was instead a voluntary payment by the Government.

In the Court of Appeal, it was ruled that the surrender of handguns under the scheme was a transfer of the whole property of goods, and was therefore a supply of goods.

The argument that the payments were only compensatory was an appeal based on the motive of the recipient. Once the scheme had been promulgated, the taxpayers could insist that it was followed. The compensation was not paid voluntarily by the Government. The appeal was dismissed.

(Stewart and another (trading as GT Shooting v Commissioners of Customs and Excise, Court of Appeal, 12 December 2001.)

Untaxable interest

Colonial Mutual Life Assurance Society was a mutual life insurance company whose policy terms allowed it to charge its policyholders interest on overdue insurance premiums. In 1998, the New Zealand tax authority issued amended income tax notices of assessment, treating the interest on overdue insurance premiums as assessable income. The assessment was upheld on appeal, but the New Zealand Court of Appeal later allowed the taxpayer company's appeal. The tax authority therefore appealed to the Privy Council.

The Privy Council said that section 204, New Zealand Income Tax Act 1976 took the approach of considering life offices as a conduit through which income passed to policyholders, so that tax was levied on the life office, rather than the policyholder. Section 204 divided a life office's income into two streams: one source comprised revenue arising from investments made by the company and was taxable, the other was premium income, and was not taxable. Thus there was no good reason why interest on overdue premiums should be treated differently from the overdue premiums themselves.

The appeal was dismissed.

(Commissioner of Inland Revenue v Colonial Mutual Life Assurance Society Ltd, Privy Council, 4 December 2001.)

What is negotiation?

CSC Financial Services Ltd provided a call centre service to financial institutions. It provided potential investors in one particular equity plan with all the information required and the necessary application forms. These forms were also processed by CSC.

Customs decided that the services provided by CSC were not exempt from VAT under Article 13B(d)(5) of the Sixth Directive. CSC appealed to the VAT tribunal which found for the company, so Customs appealed to the High Court.

The High Court referred the following questions to the European Court of Justice:

* did the term transactions in securities in Article 13B(d)(5) apply only to transactions in which the parties' legal rights and obligations in respect of the security were altered;

* did the term transactions, including negotiations in securities apply to a service of providing information to potential investors and receiving and processing applications from investors for the issue of a security (but not including preparing and despatching the document of title to the security) where that service was provided to a person who had legal rights and obligations under the security by a person who did not have any legal right or obligation under the security.

The European Court of Justice ruled that the phrase transactions in securities referred to transactions that were liable to create, alter or extinguish parties' rights and obligations in respect of securities. The phrase negotiation in securities did not include simply providing information and processing application forms. Negotiation was a service given to a contractual party, for that party to undertake everything necessary for two parties to enter into a contract, without the mediator having his own interest in the contract. It was not negotiation when certain clerical duties were given to a subcontractor, because in these circumstances the subcontractor was in the same position as the party selling the product. The subcontractor could not therefore be an intermediary within the definition in Article 13B(d)(5).

(Commissioners of Customs and Excise v CSC Financial Services Ltd (Case C-235/00), European Court of Justice, 13 December 2001.)

Issue: 3838 / Categories: