“where services … are supplied for a period for a consideration the whole or part of which is determined or payable periodically or from time to time, they shall be treated as separately and successively supplied at the earlier of the following times— (a) each time that a payment in respect of the supplies is received by the supplier, or (b) each time that the supplier issues a VAT invoice relating to the supplies.”
“After consulting the advisory committee on value added tax (hereafter, the ‘VAT Committee’), each Member State may regard as a single taxable person any persons established in the territory of that Member State who, while legally independent, are closely bound to one another by financial, economic and organisational links. A Member State exercising the option provided for in the first paragraph, may adopt any measures needed to prevent tax evasion or avoidance through the use of this provision.”
“it is apparent from the explanatory memorandum to the proposal which resulted in the adoption of the Sixth Directive (COM(73) 950) that, by adopting the second subparagraph of art 4(4) of the Sixth Directive, which was replaced by art 11 of the [PVD], the European Union legislature intended, either in the interests of simplifying administration or with a view to combating abuses such as, for example, the splitting-up of one undertaking among several taxable persons so that each might benefit from a special scheme, to ensure that member states would not be obliged to treat as taxable persons those whose ‘independence’ is purely a legal technicality.”
“45. VAT grouping does not create economic benefits when a purchase is made for activities subject to VAT, since the purchaser is entitled to deduct input VAT. In such a situation it is in principle irrelevant whether the purchase is made within the VAT group without input VAT or with input VAT from outside of the VAT group. However, as a VAT group’s internal transactions are disregarded for VAT purposes, VAT grouping may entail cash flow advantages for economic operators with respect to activities that are subject to VAT. 46. In certain situations members of a VAT group may gain economic benefits from belonging to the group. This, in my opinion, is simply an inevitable consequence flowing from the basic fiscal policy choice of a member state to permit VAT grouping. 47. Membership of a VAT group can be beneficial, for example, in a situation in which the member making a purchase subject to VAT had, because of the VAT exempt nature of its activities, no right to deduct VAT at all, or no full VAT deduction right. If such a member purchases from a supplier outside the VAT group, VAT would be incurred. If, however, it makes the purchase from another member of the group, no VAT is incurred. 48. Where an economic operator is not entitled to deduct input VAT incurred in a purchase, it might be economically advantageous for it to produce the goods or services itself. For example, a bank that is not entitled to deduct VAT might benefit economically if it produces IT services needed for its banking activities internally rather than buying them from a third party. However, if the VAT grouping option is available, it may outsource its IT service provision to a subsidiary belonging to the group and still gain the same advantage. 49. Hence, VAT liability can and does have an impact on the structure and functioning of business activities. But VAT grouping allows the member states to diminish the influence of VAT on the way economic operators organise themselves. It can do this by reducing the difference in costs between producing a service in-house and buying it from a dependent supplier with separate legal personality. Thus, VAT grouping supports fiscal neutrality by enabling appropriate business structures without negative consequences in terms of VAT liability. Moreover, the possibility of including non-taxable persons as members of a VAT group places corporate structures that include such persons in the same position as other corporate structures. An example is found in such company groups where a holding company possesses majority holdings in all other companies of the group.”
“The concept of VAT group was only introduced in Community legislation by Article 4(4) of the Sixth VAT Directive. According to the Explanatory Memorandum, the aim of the provision on VAT grouping is to allow Member States, for the purposes of administrative simplification or combating abusive practices (e.g. when a business is split into several taxable persons so that each may benefit from a special scheme), to not regard as separate taxable persons those whose ‘independence’ is purely a legal technicality.”
“[e]ither Mr Rice will be unable to recover the tax from his customer, and will have to pay it out of his own pocket; or else Mr Partridge, the customer, will have to pay tax although it was not chargeable at the time when he both contracted for and received the services of Mr Rice”
“in all other respects the existence of a chargeable transaction has to be determined at a time when the supply is actually made. Common sense and justice point to that result; ss 4 and 5 remain to determine the amount to be charged and the time when the charge takes effect. To impose a tax on Mr Rice in respect of a supply which was not taxable at the time when it was made seems to me perilously close to retrospective taxation ….”
“It follows from our analysis so far that the wording of section 4 and 5 do not create any charge to VAT: their role is to identify the time of the supply, given that there has been one which is in charge under section 2(1). This conclusion is in line with the opening words of section 4(1), which define the role of sections 4 and 5 as applying ‘for determining the time when a supply of goods or services is to be treated as taking place for the purposes of the charge to tax’.”
“… I do not accept that reg 23 arises at all. It comes in by virtue of s 5(9) [i.e. the predecessor of section 6(14) of VATA 1994]. I accept that, because s 4(3) is expressly made subject to the provisions of s 5, treating the supply of services as taking place at the time when the services are performed is qualified by s 5(9). But the whole of the provisions of s 4 and s 5 are of application only ‘for determining the time when a supply of ... services is to be treated as taking place for the purposes of the charge to tax’ (see s 4(1)). ‘The charge to tax’ throws us back to s 1 which provided that the tax was to be charged in accordance with the provisions of the Act. Section 2(1) provided that the tax was charged where the supply was made by a taxable person and s 2(3) [i.e. the predecessor of section 1(2) of VATA 1994] made it plain that it was the time for payment not the imposition of liability which was ‘subject to provisions about accounting and payment’. Among such provisions are those provisions contained in ss 4 and 5. They are obvious bookkeeping sections. For bookkeeping purposes the time of performance of the service can be supplanted by the time of payment or the time of issuing a tax invoice if that happens before performance (see s 5(1) [i.e. the predecessor of section 6(4) of VATA 1994]) or the date of the tax invoice if it is issued 14 days after performance (see s 5(2) [i.e. the predecessor of section 6(5) of VATA 1994]) or within such other period (see s 5(3) [i.e. the predecessor section 6(6) of VATA 1994]) or event (see s 5(5) [i.e. the predecessor of section 6(10) of VATA 1994]) as the commissioners may direct. For continuous supplies of services under s 5(9) and reg 23, it is by definition necessary to have an accounting device to fix a point in time in the continuum. In my judgment, ss 1 and 2 determine whether a liability for tax arises and ss 4 and 5, presupposing that there is a liability, determine when, but not whether, the tax is to be charged. The fictions for determining the time of supply for accounting purposes do not in my judgment govern the ordinary meaning of the language in ss 1 and 2 which make supply by a taxable person a prerequisite of liability.”
“When Materials and Resources left the Thorn E.M.I. Plc. group they emerged into the value added tax world as separate taxable persons, each carrying on its own business for VAT purposes. The delivery of the goods by them to Home undoubtedly constituted a transfer of the whole property in the goods in the course of business. It constituted a supply of the goods within the meaning of paragraph 1(1) of Schedule 2, taxable under section 10(2) upon the amount of the consideration whether already paid or still payable. The appellants’ objection that this approach disregards the fact that, to the extent of 90 per cent., the supply was to be treated as having taken place when the advance payment was made must fail because this disregard is precisely what section 29(1) requires. It follows that, in my judgment, the whole value of the supplies in question falls fairly and squarely within the charging provisions of the Act according to the normal principles of construction which should be applied to a taxing statute.”
“… I … accept [counsel for Materials and Resources’] further submissions that the time of supply rules, including section 5(1), must be applied to determine whether and if so when a supply between members of the same group took place. It is essential to apply the time of supply rules in order to determine whether the supply took place while the group relationship still existed. Unless a supply during the period of the relationship is identified as having taken place there is nothing upon which section 29(1) can bite. One can hardly disregard something which did not happen.”
“Take the case of a company which agrees to sell goods, receives the whole price in advance, but before the goods are delivered or the property has passed, joins the same group as the buyer. Under the time of supply rules, the whole supply is deemed to have taken place when the price was received and the seller is liable for tax. But the completion of the transaction takes place within the box. If it cannot be seen, there was no supply within the definition of a supply in Schedule 2. Is the seller entitled to repayment of the tax? [Counsel for HMRC] seemed cheerfully willing to accept that he was. But this, too, seems an extraordinary anomaly. On the other hand, a straightforward application of the time of supply rules leads to the conclusion that the entire supply took place before the seller joined the group and that nothing therefore happened within the group which requires to be disregarded. If the seller had received 90 per cent. of the price in advance, a supply as to only 10 per cent. would have to be disregarded.”
“Paragraph (a) [of section 29(1) of the 1983 Act] requires one to identify a supply which has occurred while the parties were members of the same group. There is in my view no way in which one can identify such a supply except by application of the time of supply rules in sections 4 and 5. There is in the judgment of Beldam L.J. a suggestion that the time of supply rules presuppose that the supply is taxable and therefore cannot apply to a supply which must be disregarded. This in my view is logically impossible and the commissioners did not support it. As I explained earlier, the question of whether a supply is taxable often depends upon the time at which it is treated as having taken place. Thus the question of taxability must be determined by applying the time of supply rules. The only alternative is to use some kind of meta-rules, derived from fairness, common sense and other such concepts lodged in the judicial bosom. This seems to have been the technique used by a majority of the Court of Appeal in B.J. Rice & Associates v. Customs and Excise Commissioners [1996] S.T.C. 581. In that case the meta-rules led to the transaction being treated as having occurred at a time when it was not taxable. On the other hand, if the court had concluded that it happened at a time when it was taxable, they would presumably then have applied the time of supply rules, which may have treated it as having occurred at some other time. This cannot be right. The time of supply rules are in my view the only criteria for deciding whether the transaction is to be treated as having occurred at a time when it was taxable.”
“[Counsel for Svenska] submitted that article 10 drew a distinction between the ‘chargeable event’ and the tax becoming ‘chargeable,’ and that regulation 23(1) related to the time when the tax became ‘chargeable’ and not to the ‘chargeable event,’ so that the regulation did not prevent the services in fact supplied by Svenska to the London branch prior to1 August 1991 being taxable supplies. [Counsel] also referred to the decision of this House in Customs and Excise Commissioners v. Thorn Materials Supplies Ltd. [1998] 1 W.L.R. 1106 and submitted that it established that when the time of ‘supply’ provisions fixed a supply to take place at a time when the two parties were in a group, that ‘supply’ should be ignored, but that it did not follow that the delivery of goods or the supply of services which took place between the parties was not a ‘taxable supply’ chargeable to tax.”
“In my opinion section 5(9) of the Act of 1983 and regulation 23(1) make it clear that where there is a continuous supply of services, no supply shall be treated as having been made until there has been a payment or a tax invoice has been issued.”
“In my opinion Svenska cannot derive assistance from that decision. In the Thorn case section 29(1) [of the 1983 Act] required the supply which was to be treated as taking place at the time of the payment of 90 per cent. of the price to be disregarded. Therefore there was a supply which took place in the normal way at the time of delivery of the motor cars pursuant to section 4(2)(b). But in the present case Svenska cannot argue that as after1 August 1991 the supplies provided by it to the London branch are to be disregarded pursuant to section 29(1) because they were members of the same group, the consequence must be that the ‘actual supplies’ provided by Svenska to the London branch prior to1 August 1991 can be regarded as supplies for VAT purposes. The reason why Svenska cannot advance this as a valid argument is because the effect of regulation 23(1) is that those ‘actual supplies’ cannot be treated as supplies for VAT purposes. In short, the distinction between the present case and the Thorn case is that in the latter the Act and the Regulations of 1985 permitted the delivery of the motor cars to be treated as a supply, whereas in the present case regulation 23(1) prohibits the ‘actual supplies’ provided by Svenska to the London branch between 1987 and1 August 1991 being treated as supplies because prior to the latter date no payment had been received and no tax invoice had been issued. Accordingly the present case has to be approached on the basis that, no matter that in fact Svenska supplied services to the London branch prior to1 August 1991 , as a matter of the law governing VAT no supplies were made during the period 1987 to1 August 1991 .”
“goods shall be treated as separately and successively supplied at the earlier of the following times— (a) each time that a part of the consideration is received by the supplier, or (b) each time that the supplier issues a VAT invoice relating to the grant”
“So the section which created the power to make regs 85 and 90 is only dealing with the time of a supply. It is not concerned with the nature of a supply: other sections are, in particular s 5. The regulations should be construed so as to accord with, and remain within the ambit of, the power under which they were made. (For authority in support of this see B J Rice & Associates v Customs and Excise Comrs[1996] STC 581 , especially the judgment of Ward LJ.) In my view this confirms my conclusion that regs 85 and 90 cannot be used by the commissioners to convert the inputs to RSA into a series of successive inputs, each lasting for only three months and each (if it arose in a vacant unelected period) having expired before it could be used in making future supplies by way of taxable sublettings.”
“In my judgment the deeming of the time of supply must affect the nature of the supply and thus no valid distinction can be made between (on the one hand) the staggering of the time of supply for the purpose of determining when outputs must be accounted for and when credit can be taken for input tax and (on the other hand) determining what goods and services have been supplied for the purposes of reg 109. For both purposes it is necessary to know whether an input should be treated as related to a specific period. The tailpiece to s 6(14) of the 1994 Act in my judgment would have been unnecessary if power was being taken merely to make rules as to the time of supply without any further substantive effect. That tailpiece is expressly replicated in regs 85 and 90.”
“it seems to me in principle that in determining whether tax on a supply is available for deduction against tax for which the trader must account one must, in the context of periodic payments, continue to apply the time of supply rules. There is nothing in the regulations or in the Sixth Directive to which our attention has been drawn which indicates that there is a distinction to be drawn here. Nor does the case of B J Rice & Associates v Customs and Excise Comrs[1996] STC 581 , a decision of this court, on which the judge relied (see[2000] STC 933 at 947, para 50) require this distinction to be made: in that case very different considerations arose because the issue was whether the time of supply rules could result in the imposition of a liability to account for VAT on a person who was not a taxable person at the time he supplied and raised an invoice for the services in question (and in so far as the case is thought to establish any wider restriction on the time of supply rules, see per Lord Hoffmann, dissenting, in Customs and Excise Comrs v Thorn Material Supply Ltd[1998] STC 725 at 738,[1998] 1 WLR 1106 at 1119).”
“Before the tribunal, it appears to have been regarded as uncontroversial that a lease involves separate and successive supplies of goods or services, so that the goods and services supplied during the vacant unelected period are not the same as those supplied afterwards. There was no reference to regulations 85 and 90 but the submission of counsel for the commissioners to this effect is recorded [1999] V & DR, 336, 354, without further comment. But Park J disagreed. He said[2000] STC 933 , 947 that the regulation dealt with ‘the time of a supply’ but not ‘the nature of a supply’. So the supply may take place separately and successively, but the goods or services supplied are nevertheless the same. The majority of the Court of Appeal agreed, although Sedley LJ’s acceptance of the proposition may have been influenced by his view that VAT was a world ‘in which factual and legal realties are suspended or inverted’:[2001] STC 1476 , 1490. But I find the notion of the same goods or services being supplied over and over again too hard to grasp. In my opinion the plain effect of the regulations is to treat each successive supply as different from the one before. On this point I agree with the tribunal and Arden LJ.”
“In my opinion Arden LJ was correct in her analysis and conclusion as to the scope of section 6(14) and regulation 85. That does not necessarily involve saying that B J Rice & Associates v Customs and Excise Comrs was wrongly decided, as it was concerned with a different factual situation (an invoice sent to a client before the consultant was registered for VAT). On this point I cannot usefully add more to the observations of my noble and learned friend, Lord Hoffmann, whose opinion I have had the advantage of reading in draft.”
“the effect of implementing the scheme established in the second sub-paragraph of art 4(4) of the Sixth Directive [i.e. the predecessor of article 11 of the PVD] is that national legislation adopted on the basis of that provision allows persons, in particular companies, which are bound to one another by financial, economic and organisational links no longer to be treated as separate taxable persons for the purposes of VAT but to be treated as a single taxable person. Thus, where that provision is implemented by a member state, the closely linked person or persons within the meaning of that provision cannot be treated as a taxable person or persons within the meaning of art 4(1) of the Sixth Directive (see, to that effect, van der Steen v Inspecteur van de Belastingdienst (Case C-355/06 )[2008] STC 2379 ,[2007] ECR I-8863 , para 20). It follows that treatment as a single taxable person precludes persons who are thus closely linked from continuing to submit VAT declarations separately and from continuing to be identified, within and outside their group, as individual taxable persons, since the single taxable person alone is authorised to submit such declarations.”
“VAT grouping allows the member states to diminish the influence of VAT on the way economic operators organise themselves. It can do this by reducing the difference in costs between producing a service in-house and buying it from a dependent supplier with separate legal personality. Thus, VAT grouping supports fiscal neutrality by enabling appropriate business structures without negative consequences in terms of VAT liability.”
“The purpose of the assumption is simply to enable any supplies made or deemed to be made by the representative member to be treated as made ‘in the course or furtherance of any business carried on by him’ and therefore chargeable to tax under section 1. It is quite unnecessary to deduce from the assumption any consequences beyond those which it necessarily entails.”
“The assumption in the opening words of section 43(1) that any business carried on by any group member is carried on by the representative member applies only ‘where … any bodies corporate are treated as members of a group’, in relation to supplies taking place while they are members of the same VAT group. It does not have the effect that in respect of supplies taking place at any time after the supplier has left the group, without time limit, no VAT can arise because during the period of group membership the business was treated as carried on by the representative member.”