Perenco Holdings v Revenue & Customs [2015] UKFTT 65 (TC)

FTT-Tax
Perenco Holdings v Revenue & Customs
[2015] UKFTT 65 (TC) · 2015-02-04
[53]It is well-established that in an appeal against the exercise of the Commissioners' discretion under the proviso to regulation 29 this Tribunal has only a supervisory and not a full appellate jurisdiction: see the decision of Schiemann J in Kohanzad v Customs and Excise Commissioners [1994] STC 967 in relation to substantially similar earlier provisions to those contained in regulation 29 (2).54. Although the point was not referred to specifically, in their skeleton arguments and in their arguments before the Tribunal at the hearing both parties appear to proceed on the basis that the Tribunal's jurisdiction in relation to the Prior Recovery Issue was a full appellate jurisdiction rather than merely a supervisory jurisdiction. It is, however, necessary for the Tribunal to satisfy itself as to the limits of its jurisdiction regardless of any agreement between the parties (actual or implied).55. The point is, obviously, of some importance in this case. If our jurisdiction was a supervisory one we would be confined to looking at whether HMRC's decision on the Prior Recovery Issue was reasonable in an administrative law sense. Moreover, that question would be determined solely by looking at the evidence and material before the decision-maker at the time the decision was taken.56. We have concluded that the parties' assumption that the Tribunal had full appellate jurisdiction was correct. We have been greatly assisted in reaching this decision by the careful analysis of this Tribunal in Market & Opinion Research International Ltd v Revenue & Customs [2013] UKFTT 779 (TC) ( Judge Raghavan and Mrs Debell) (" MORI "). In that case HMRC argued that in determining the issue of the Tribunal's jurisdiction on the question of prior recovery, the Tribunal's jurisdiction was supervisory. The Tribunal rejected this argument. It held that the question whether input tax had previously been reclaimed was an objective factual question which was a precondition to the exercise by the Commissioners of their discretion under regulation 29 (2). The Tribunal noted that regulation 29 (2) dealt with the possibility of the Commissioners accepting evidence other than a VAT invoice and said at [42]:[42]" It [the proviso to regulation 29 (2)] does not subsume the logically prior question of whether there is no entitlement to input tax in the first place because the entitlement has already been satisfied through the input tax having been recovered previously ."57. We respectfully agree with the Tribunal's analysis on this point. Accordingly, we conclude that the jurisdiction of this Tribunal in relation to the Prior Recovery Issue is a full appellate jurisdiction rather than a supervisory jurisdiction. This has the consequence that we can take account of evidence which was presented to us but which was not before the decision-maker.58. We shall deal with the Tribunal's jurisdiction in relation to the Quantum Issue later in this decision. The relevant statutory provisions59. Perenco's right to recover input tax is governed by sections 25 and 26 VATA 1994.60. So far as material, section 25 (2) VATA 1994 provides that the end of each VAT period a taxable person is entitled to:
"credit for so much of his input tax as is allowable under section 26, and then to deduct that amount from any output tax that is due from him." 61. Section 25 (3) VATA 1994 provides: "if either no output tax is due at the end of the period, or the amount of the credit exceeds that of the output tax then… the amount of the credit or, as the case may be, the amount of the access shall be paid to the taxable person by the Commissioners…." 62. Section 26 (1) and (2) VATA 1994 provide, in summary, that the amount of input tax for which a person is entitled to credit at the end of any VAT period shall be the amount attributable to taxable supplies made or to be made by the taxable person in the course or furtherance of his business. 63. Regulation 29 VAT Regulations provide for late claims in respect of input tax and for claims for input tax in the absence of a VAT invoice. Regulation 29 provides as follows: 1) Subject to paragraphs (1A) and (2 below, and save as the Commissioners may otherwise allow or direct either generally or specially, a person claiming deduction for input tax under section 25 (2) of [VATA 1994] shall do so on a return made by him for the prescribed accounting period in which the VAT became chargeable…. 2) At the time of claiming deduction of input tax in accordance with paragraph (1) above, a person shall, if the claim is in respect of— (a) a supply from another taxable person, hold the document which is required to be provided under regulation 13 [i.e. a VAT invoice] provided that where the Commissioners so direct, either generally or in relation to particular cases or classes of cases, a claimant shall hold or provide such other . . . evidence of the charge to VAT as the Commissioners may direct. (3) Where the Commissioners are satisfied that a person is not able to claim the exact amount of input tax to be deducted by him in any period, he may estimate a part of his input tax for that period, provided that any such estimated amount shall be adjusted and exactly accounted for as VAT deductible in the next prescribed accounting period or, if the exact amount is still not known and the Commissioners are satisfied that it could not with due diligence be ascertained, in the next but one prescribed accounting period. (4) Nothing in this regulation shall entitle a taxable person to deduct more than once input tax incurred on goods imported or acquired by him or on goods or services supplied to him.* [*Regulation 29 (4) applies with effect from 1 April 2009 and, therefore, does not apply to the claims which form the subject matter of this appeal.] 64. Section 121 (2) Finance Act 2008 provides that a trader may make a claim before 1 April 2009 for VAT periods ending before 1 May 1997 if the claimant held the required evidence in a prescribed accounting period ending before 1 May 1997. 65. Neither party was, rather oddly, able to produce the relevant VAT legislation in respect of exemption and zero-rating as it applied to the relevant to share issues in 1987 to 1989. However, with a little rummaging through the old books, we were able to ascertain the applicable legislation, as follows. 66.

(a) "

Finance" Schedule 6 VATA 1983 provided exempt treatment for:
"The issue, transfer or receipt of, or any dealing with, any security or secondary security being: (a) shares, stock, bonds,…" 67.

(a) "

International Services" Schedule 5 VATA 1983 zero-rated supplies to a person who belongs in a country, other than the Isle of Man, which is not a member State of the Economic Community of any service comprised in paragraphs 1 – 7 of Schedule 3 to VATA 1983 (other than some services which are not relevant to the present appeal). Schedule 3 paragraph 5 VATA 1983 included banking, financial and insurance services. 68. The issue of shares was, before the decision in Kretztechnik , regarded as a supply of a financial service. 69. So far as material to the current appeal, Note (5) to Group 9 provided that Item 6 did not include services comprised in any Group other than those comprised in Group 5 of Schedule 6 to this Act (relevant). 70. Thus, by reading all these provisions together one arrives at the conclusion, which was common ground between the parties, that issues of shares to persons who belonged outside the EC (as it then was) were regarded, in the periods under appeal, as zero-rated services. The issue of shares to persons who belonged in the EC (including, of course, the UK) were regarded as exempt supplies. 71. Section 8 VATA 1983 provided rules determining where a person belonged. Section 8 (3) provided that if the supply of services was made to an individual and received by him otherwise than in a business capacity, the individual was treated as belonging in whatever country he had his usual place of residence. Section 8 (4) provided that where section 8 (3) did not apply, the recipient of the service would be treated as belonging in a country if (a) he had a business establishment or some other fixed establishment in that country; or (b) if he has no such establishment, the place where he had his usual place of residence; or (c) if he has establishments in more than one country, the country of the establishment which was most correctly concerned with the supply. 72. Regulation 30 VAT General Regulations 1985 dealt with the attribution of input tax to taxable and exempt supplies. In short, where input tax related to the making of both exempt and taxable supplies, regulation 30 (1) (d) provided that it was necessary to establish the extent to which the supplies giving rise to the input tax were used in making taxable supplies. The extent to which the supplies are used in making taxable supplies is ascertained and expressed as a proportion of whole use made of such supplies. The input tax deductible is the proportion of the "remaining" input tax (ie input tax which is not either wholly used for taxable or for exempt supplies) as corresponds to the above proportion. 73. In other words, if a company issuing shares incurred input tax in relation to legal and accounting expenses which related to the share issue and the company issued 60% of its shares to non-EU shareholders and 40% of its shares to UK/EU shareholders, 60% of its input tax on those expenses would be deductible. 74. Regulation 30 (2) permits HMRC to allow a trader to deduct "remaining" input tax in the proportion that the value of taxable supplies by the trader bears to the value of all supplies made by it. This part of the method requires that value of share transactions that are incidental to the trader’s business activities are ignored for the purposes of the calculation. There is, however, no evidence in this case that HMRC permitted this method of input recovery. The Prior Recovery Issue The Appellant's Arguments 75. In short, Ms McCarthy accepted that the Appellant bore the burden of proof to show that Perenco had incurred input tax in relation to the relevant share issue expenses and had a prima facie entitlement to deduct that input tax. As regards HMRC's argument that Perenco was more likely than not to have already recovered that input tax, Ms McCarthy argued that the burden of proof lay upon HMRC. She argued that it was for HMRC to show that the input tax which was the subject of Perenco's repayment claim had already been repaid and it was not for Perenco to prove a negative i.e. that it had not already recovered that input tax. 76. Ms McCarthy submitted that HMRC had failed to produce evidence to show that Perenco had already been repaid the claimed input tax. This was so notwithstanding HMRC should have retained the necessary VAT records relevant to the claim for VAT periods ending after February 15, 1986, but had failed to do so. 77. In the alternative, if Perenco was wrong on the question of the legal burden of proof and that it was for Perenco to establish on the balance of probabilities that it had not already recovered the input tax claimant, then Perenco had adduced sufficient evidence to establish a prima facie case that the input tax has not already been recovered. At this point, the evidential burden of proof de facto shifted to HMRC who had failed to discharge it (see Wood v Holden [2006] STC 443 at [30] to [33] and RB Kensington & Chelsea v HMRC [2014] UKFTT 729 (TC) ("the RBKC " case)). HMRC's arguments 78. Mr Rowe argued that the legal burden of proof remained with Perenco to establish that it had a valid claim ( Dickinson v Minister of Pensions [1952] 2 All ER 1031 and WMG Acquisition Co UK Ltd v Revenue & Customs [2013] UKFTT 215 (TC) (Judge Demack). 79. Mr Rowe accepted that Perenco had an entitlement to credit in respect of the supplies of services in question. The issue was whether on the balance of probabilities Perenco had put forward a valid claim which should be paid by HMRC. In Mr Rowe's submission it was not a valid claim because HMRC's view was that it was more likely than not that the relevant input tax would have been recovered in the periods in which it was incurred. 80. As regards the retention of records, VAT was effectively a self-assessed tax. HMRC would have had no evidence of the input tax claimed in the relevant periods – that evidence would have been in the hands of the trader submitting its returns. All HMRC would have seen when the trader submitted its returns were the figures for input and output tax and not how they were made up. 81. Mr Rowe submitted that Mr Savage's evidence did not establish that Perenco has suffered irrecoverable input tax. 82. In relation to the share issue on 25 June 1987 of 136,111 ordinary shares, it was not clear to whom the shares were issued. As regards the larger share issue of 30,044,281 ordinary shares also on 25 June 1987, the shares were issued to Scarletsdale Corporation NV, a Netherlands Antilles company owned by Mr Perrodo. That share issue would, therefore, be zero-rated so that any input tax would have been recoverable in the VAT period of the issue. In relation to the share issue on 20 November 1987, there was no evidence as to where the subscribing shareholders were located. Accordingly, it was not clear whether there had been a restriction on input tax recovery. It was known by virtue of the accounts for the year ended 31 December 1987 that Mr Perrodo and Dr Marwan were substantial shareholders, but Mr Savage's evidence was that they both held their shareholdings through offshore companies. Therefore, HMRC believed that there was no restriction on the recovery of input tax in relation to this share issue. 83. As regards the share issue on 29 January 1988, it was not clear whether the overseas institutional investor belonged in the EU or outside the EU. In relation to the share issue on 29 April 1988, Mr Rowe accepted that there may have been some restriction on the recovery of input tax but Mr Savage did not know how much was subscribed by EU and non-EU shareholders. 84. In relation to the share issue on 3 June 1988, the evidence was that Mr Perrodo held his shares in Perenco through a Netherlands Antilles holding company, no doubt to avoid inheritance tax implications in relation to UK situs assets. 85. As regards the issue on 18 January 1989 it was not clear to whom the shares were issued. 86. In summary, therefore, Mr Rowe accepted that it was likely that there had been some input tax restriction, but that it was unquantifiable since there was no record of the identity of the shareholders to whom the shares, in the various share issues, had been issued. Moreover, on the balance of probabilities it was likely that a considerable proportion of the input tax had already been recovered. Discussion of the Prior Recovery Issue Legal burden of proof 87. In this case, it is not in dispute that Perenco incurred input tax in 1987, 1988 and 1989, as described above, in respect of solicitors’ and accountants’ fees relating to Perenco's various share issues and that it was entitled to a credit in respect of that input tax. What is in dispute, however, is whether Perenco has already received the benefit of a deduction for input tax in the VAT periods in which it was incurred and who bears the burden of proof of showing either no deduction was obtained or that a deduction was obtained. 88. There is, perhaps surprisingly, very little authority on this point. We were, however, referred to two decisions of this Tribunal. 89. In RB Kensington & Chelsea v HMRC [2014] UKFTT 729 (TC) (Judge Perez and Mr Midgley) the appellant local authority charged VAT on its building control fees, in accordance with HMRC guidance. The guidance later changed to say, in effect, that VAT should not have been charged on certain of these fees. HMRC agreed with the local authority that those persons ("the third parties") who had been incorrectly charged VAT by the local authority could apply directly to HMRC who would process and pay claims for refunds of incorrectly charged VAT on behalf of the local authority. One of the questions before the Tribunal, on a claim by the local authority for repayment of overpaid VAT, was whether the burden of proof was on the local authority to prove what claims had not been made directly to HMRC by the third parties (as HMRC contended) or on HMRC to prove that claims had been made (as the local authority contended). 90. The Tribunal found that the local authority never had evidence or knowledge of claims made by third parties to HMRC. Instead, HMRC were the only ones (as between the parties) who would have held that evidence and had such knowledge. It was accepted that the relevant evidence had since been destroyed. Consequently, the Tribunal considered that HMRC should have retained the relevant evidence beyond the normal six-year period if it did not wish to accede to claims such as that brought by the local authority. The tribunal, therefore, found that the evidential burden was on HMRC to prove what claims had been made rather than on the local authority to prove that claims had not been made. Because HMRC had destroyed the records of claims made under the agreement (there was no suggestion that this was done in bad faith) HMRC were unable to discharge the evidential burden of proof and, accordingly, the Tribunal allowed the local authority's appeal. 91. It is, of course, possible to distinguish the RBKC case from the facts of the present appeal. In the RBKC case, the taxpayer never had the information (viz the information on what claims had been made directly to HMRC) which was critical to the determination of the appeal. It was HMRC and HMRC alone that had possessed that information. In this case, however, Perenco did at one stage have the information but had destroyed it in accordance with document retention policy. HMRC had a microfilm of the VAT returns, but the necessary reference numbers had been destroyed and therefore the microfilm could not be retrieved. Therefore, for different reasons, neither party had access to the necessary records from 1987 to 1989. 92. In fact, Mr Rowe explained that the relevant microfilms were still in existence but the cross referencing which would enable the microfilm to be retrieved had been destroyed when Perenco's old VAT registration became redundant and disappeared in 1995/1996. If Perenco's VAT number had not changed then the microfilm could have been found. Only a few of the earlier paper records (including the November 1989 visit report) were put onto HMRC's new electronic folder system. Effectively, therefore, the relevant records were lost in HMRC's systems prior to the decision of the CJEU in Kretztechnik (26 May 2005) and before the Court of Appeal's decision in Fleming (15 February 2006), which was subsequently upheld by the House of Lords on 23 January 2008. 93. The second relevant decision of this Tribunal came in WMT Acquisition Co UK Ltd v HMRC [2013] UKFTT (Judge Demack) where the Tribunal considered another Fleming claim. The appellant had sought to recover input tax allegedly incurred by its employees on travel and subsistence expenses. In this case, the Tribunal held that the burden of proving that the appellant had not previously recovered the input tax on the travel and subsistence expenses fell upon the appellant. The point, however, did not appear to have been the subject of detailed (or any) argument. 94. Similarly, in a decision of this Tribunal (which was not cited to us) in KDM International Ltd v Revenue & Customs [2013] UKFTT 315 (TC) (Judge Sadler and Mrs Gill Hunter), which concerned a Fleming claim in respect of input tax in respect of share issue, it was common ground that the burden of proof on the question whether the appellant had already recovered its input tax lay upon the appellant. The Tribunal said:[57]“ 57. … It is common ground that if, and to the extent that, the Appellant can establish that it did not recover the VAT charged to it on the supplies made in relation to the sequence of share capital issues it undertook in the years 1987 to 1990 and again in 1996, then it is entitled to recover those amounts of VAT now, together with simple interest from when it could have recovered those amounts by way of credit in the relevant VAT returns it made.[58]The only question we have to decide is whether the Appellant has shown from the evidence that, on the balance of probabilities, it did not recover the VAT which it now claims was charged on those expenses of issuing share capital.” 95. It is clear that no trader has a right to double recovery of input tax, as this Tribunal recognised in MORI at [45]. We also agree with the Tribunal's comments in relation to regulation 29 (4) of the VAT Regulations 1995 which provides:[43]“(4) Nothing in this regulation shall entitle a taxable person to deduct more than once input tax incurred on goods imported or acquired by him or on goods or services supplied to him.” 96. Regulation 29 (4) has effect from 1 April 2009 and, therefore, does not apply to this appeal. Nonetheless, as the Tribunal in MORI held, regulation 29 (4) was, in effect, a provision which declared the existing law and confirmed that once a deduction for input tax had been given no further entitlement to the same input tax could arise. 97. The question whether Perenco has previously recovered the input tax the subject of this appeal is one which goes to the heart of the validity of its claim that it is entitled to a repayment of VAT. If it has already been given a deduction in respect of this input tax in the periods in which it originally arose then there is no further entitlement to credit or repayment of that same input tax. In our view, it falls to Perenco to make good its case that it has a valid claim. A claim for previously recovered input tax is simply not a valid claim. HMRC are under a duty to conduct a reasonable and proportionate investigation into the validity of claims for a refund and repayment and a duty to act proportionately in dealing with the taxable person's claims generally : see per Lightman J in R (on the application of UK Tradecorp Ltd) v Customs and Excise Commissioners [2005] STC 138 at [18]. It is for HMRC to satisfy itself that the claim is valid on the basis of the evidence produced by the taxpayer and any other information available to it. But it does not fall to HMRC to prove whether the taxpayer has already received full value for the claim which it is now making. As we have said, this goes to the heart of the claim's validity and it must fall to the taxpayer to establish the validity of its claim. For good measure, we do not think it can possibly be argued that HMRC’s requirement that Perenco satisfy it that the same input tax had not already been deducted was disproportionate – it is simply the performance by HMRC of its statutory management function. 98. We therefore hold that the legal burden of proof to establish that Perenco has not already received a deduction in respect of the relevant input tax in the periods in which it was incurred lies upon Perenco. 99. For completeness, we do not think that placing the legal burden of proof on Perenco contravenes the principle of effectiveness. EU principle of effectiveness requiring that national authorities must secure effective remedies to protect EU rights: it must not be ‘excessively difficult or impossible for an individual to exercise his right to obtain a remedy’ ( Rewe [1976] paragraph 19). We do not, however, consider placing the burden of proof on Perenco to offend against this principle. We consider that Perenco must establish that it has a right to a refund of wrongly paid VAT – in this case the right can only arise if Perenco has not already obtained a deduction for the relevant input tax. Once the right is established, the UK cannot make the exercise of the right impossible or excessively difficult. Shifting of the evidential burden of proof 100. Ms McCarthy, however, argued that even if the legal burden of proof lay upon Perenco, so that it is for Perenco to establish on the balance of probabilities that it had not already recovered the input tax in question, then Perenco had adduced sufficient evidence to establish a prima facie case that the input tax has not already been recovered. At this point, in Ms McCarthy's submission, the evidential burden shifted to HMRC who had failed to discharge it. 101. Ms McCarthy cited the decision in Wood v Holden [2006] STC 443 . In that case the taxpayers had entered into a scheme to mitigate the charge to capital gains tax on the disposal by the taxpayers of their company. The case turned on the residence of a company, Eulalia, incorporated in the Netherlands. HMRC had charged capital gains tax, on the basis that Eulalia was resident in the UK for tax purposes. The Special Commissioners had dismissed the taxpayers’ appeal, holding that the taxpayers had not established that Eulalia was not resident in the UK for tax purposes. They had held that Eulalia’s central management and control was situated in the UK, and that Eulalia was therefore resident in the UK and not in the Netherlands. The taxpayers appealed to the High Court (Park J). Park J reversed that finding, upholding the taxpayers’ appeal. HMRC appealed to the Court of Appeal. The Court of Appeal dismissed HMRC's appeal, stating: “ [30] …The judge [Park J] accepted that the Special Commissioners had been correct, in principle, to approach the matter on the basis that it was for Mr and Mrs Wood to show that the amendments made to their self-assessments in October 2001 had been wrongly made [in view of section 50(6) of the Taxes Management Act 1970]…But he went on: ‘However, there plainly comes a point where the taxpayer has produced evidence which, as matters stand then, appears to show that the assessment is wrong. At that point the evidential basis must pass to the Revenue.’ The judge’s conclusions at para [63] must be read with those observations in mind. [31] At para [63] of his judgment the judge said this: ‘[63] … in so far as the Commissioners decided this appeal against Mr and Mrs Wood on grounds relating to the burden of proof (and the opening part of para SC145 suggests that those were the critical grounds for the decision), I consider that they were in error.’ He could not have been intending to suggest, in that paragraph, that the Special Commissioners had been wrong in principle to approach the matter on the basis that it was for Mr and Mrs Wood to show that the adjustments to their self-assessments had been wrongly made. Rather, I think, he was stating his conclusion that the Special Commissioners had been wrong in failing to appreciate that the evidential burden had passed to the Revenue in the present case. He had set out his view of the position at para [60]… [32] As the judge pointed out, the Revenue had produced no positive material to show where the central control and management of Eulalia was. It was not enough (as the judge thought) for the Revenue to criticise the lack of evidence from some of those at Price Waterhouse and ABN AMRO who had been involved in the transaction in 1996… [33] In Rhesa Shipping Co SA v Edmunds, The Popi M [1985] 1 WLR 948 at 955-956 Lord Brandon of Oakbrook pointed out that a judge is not bound, always, to make a finding one way or the other with regard to facts averred by the parties: ‘He has open to him the third alternative of saying that the party on whom the burden of proof lies in relation to any averment made by him has failed to discharge that burden’. But that is not a course which should be adopted unless ‘owing to the unsatisfactory state of the evidence or otherwise, deciding on the burden of proof is the only just course for him to take’. It is a feature of tax litigation—not least where the litigation arises from a tax avoidance scheme—that, in the first instance, the facts are likely to be known only to the taxpayer and his advisers. The Revenue will not have been party to the transaction; and will know only those facts which have been disclosed by the taxpayer or others; following, perhaps, the exercise of the Revenue’s investigatory powers. I have no doubt that there are cases in which the evidence before the Special Commissioners is so unsatisfactory that the only just course for them to take is to hold that the taxpayer has not discharged the burden of proof which s 50(6) TMA 1970 has placed upon him. But, equally, I have no doubt that the judge was correct, for the reasons which he gave, to hold that the present case was not one of those cases. There was no reason to think that the material facts had not been disclosed; and the commissioners did not hold that it was for that reason that they were unable to decide the question of residence. I agree with the judge that, in the present case, the ‘third alternative’ to which Lord Brandon referred in Rhesa Shipping was not one which was properly open to the Special Commissioners.” 102. We accept Ms McCarthy’s submission that, where the legal burden of proof lies upon the taxpayer, if the taxpayer adduces sufficient evidence to establish a prima facie case in favour of the validity of its claim the evidential burden then passes to HMRC so that, if HMRC produces no evidence of its own, the taxpayer must win. 103. We also accept Ms McCarthy’s submission that the principle of effectiveness does not require perfect accuracy in relation to the underlying facts: see The Prudential Assurance Company Ltd & Anor v Revenue and Customs [2013] EWHC 3249 (Ch) per Henderson J at [111]. 104. Ms McCarthy's case that the evidential burden had now shifted to HMRC rested on the following propositions. 105. First, if Perenco had sought to recover input tax in respect of its significant share issue expenses from 1984 onwards, there would have been a VAT visit by HMRC before November 1989. The absence of records of VAT visits prior to November 1989 supported Perenco's case that there had been no previous significant repayment claims until the 09/89 VAT period (which triggered the visit by an HMRC officer). 106. Secondly, the officer's notes in respect of the November 1989 visit referred to input tax having been recovered in respect of "acquiring and disposing of companies" and not in respect of share issues. 107. Thirdly, because Perenco was generally in a small repayment position in VAT periods to which the appeal related, it would have been apparent from the VAT returns whether Perenco had recovered the significant amounts of input tax incurred on the share issue expenses. It would be unreasonable and unjust and would deny Perenco an effective remedy if Perenco was required to prove that it had not already recovered input tax relevant to its claim because that information was in HMRC's hands but HMRC had destroyed the references necessary to retrieve the information. 108. Finally, as regards the location of shareholders to whom the shares were allotted, HMRC had no evidence to show whether the allottees of the shares in question were within the EU or outside the EU. In any event, the share issues took place on the London Stock Exchange. Mr Savage's unchallenged evidence had been that the shares would therefore be treated as having been issued in the UK. 109. We accept that if an appellant produces sufficient prima facie evidence to justify a claim or to show that an assessment is incorrect, the evidential burden then shifts to HMRC to show why the claim should be denied or the assessment is correct. In this case, the question is whether Perenco has adduced sufficient evidence to shift the evidential burden to HMRC. If it has, then Perenco's appeal must succeed because HMRC has put forward no evidence of its own. In considering this question, however, we must take account of the totality of the evidence before us, including both the Statement of Agreed Facts and Mr Savage's evidence. 110. Taking the points put forward by Ms McCarthy in turn, we make the following comments and observations. 111. First, as regards the VAT visit in November 1989, it seemed to us more probable that the absence of records of earlier visits simply indicated an absence of records rather than the fact that there were no visits. Following the reverse takeover and acquisition of the Kelt Energy group in July 1989, Perenco joined the Kelt VAT could (now the Perenco VAT group) under a new registration number. Perenco's previous VAT registration would have been cancelled and, as Mr Rowe explained, the records relating to it were then destroyed. This happened before the decision of the CJEU in Kretztechnik (26 May 2005) and before the Court of Appeal's decision in Fleming (15 February 2006) i.e. before the relevance of the records in relation to a potential claim for input tax would have been appreciated. 112. Secondly, we find that the notes of the November 1989 VAT visit are of no assistance to either party. They cover a VAT period outside that in which the last share issue in March 1989 occurred. Furthermore, the reference to input tax being incurred in respect of "acquiring and disposing of companies" does not seem to us, contrary to the suggestion put forward by Mr Rowe, to relate to input tax in respect of share issues. 113. Thirdly, because Perenco was a small (fully taxable) repayment trader we accept that it would almost certainly have been apparent from the VAT returns whether the company had claimed for the share issue expenses in the VAT periods in which they were incurred. The problem is, however, that neither party has retained the VAT returns. Perenco probably destroyed its records in 2003 and HMRC probably destroyed the reference numbers which would have enabled it to access the microfilm records of the VAT returns at some time in 1995/1996. In both cases, the actions which resulted in the VAT returns becoming unavailable were taken at a time before the potential significance of the need to retain those records would become apparent. 114. The final point made by Ms McCarthy raises a more difficult issue. The evidence of Mr Savage in relation to the possible location of shareholders to whom the shares were issued seemed to us seemed to indicate three outcomes: that the location of the shareholders in respect of some issues was unknown, in respect of some share issues a substantial proportion of shares were issued to non-EU-based shareholders (in particular, Scarletsdale Corporation NV) and, in relation to some share issues, shares were issued to UK/EU shareholders. 115. As regards the issue on 25 June 1987 of 136,111 new ordinary shares of Perenco, it is unclear to whom the shares were issued and in which country the share allottee belonged. Accordingly, we are not satisfied that Perenco has shifted the evidential burden to HMRC in respect of this share issue. If the allottee was based outside the EU, then there would have been no restriction on the recovery of input tax insofar as expenses attributable to this issue were concerned. In other words, Perenco have not persuaded us that the allottee was based in the UK/EU. 116. As regards the larger issue on 25 June 1987 of 30,044,281 new ordinary shares, the evidence is that the shares were issued to Scarletsdale Corporation NV, a Netherlands Antilles company beneficially owned by Mr Perrodo. This was, therefore, an issue of shares to a person who on the balance of probabilities belonged outside the EU. There was, therefore, no restriction on the recovery of input tax incurred on expenses attributable to this issue. Again, we are not satisfied that Perenco has shifted the evidential burden of proof in relation to this issue. Indeed, we consider it more likely than not that Perenco issued shares on this occasion to a person who belonged outside the EU and that there was no restriction on the recovery of input tax. Since Perenco can be assumed to have been a compliant taxpayer, we consider it more likely than not that Perenco recovered input VAT in respect of this share issue in accordance with its legal entitlement at the time (as it was then understood). 117. In relation to the issue by Perenco on 20 November 1987 of 16,831,530 new ordinary shares it is unclear to whom these shares were allotted and where the allottees belonged for VAT purposes. All we know is that Mr Savage believed that the issue on 20 November 1987 would have included UK institutional investors as well as some overseas institutional investors. It is not clear on what basis Mr Savage held this belief. There is, therefore, nothing to tell us whether Perenco recovered input tax in relation to this issue. Accordingly, we consider that Perenco has not shifted the evidential burden to HMRC in relation to this issue. 118. In relation to the issue on 29 January 1988 of 1,500,000 new ordinary shares, it is not clear whether the overseas institutional investor belonged in the EU or outside the EU. Again, therefore, we consider that Perenco has failed to shift the evidential burden of proof. 119. The issue of 30 million convertible cumulative preference shares on 29 April 1988 was, according to Mr Savage, mainly taken up by institutional investors in the UK and from overseas. We know that Popeshead Nominees Ltd and Royal Bank of Scotland Edinburgh Nominees Ltd held respective interests of 6% and 6.5%. We, therefore, assume that these two UK institutions were allotted shares in this issue. Beyond that, however, we have no information as to the identity or location of the shareholders who were allotted shares in this issue. We consider that in relation to the two UK institutions referred to above, Perenco has shifted the burden of proof to HMRC and that HMRC has not produced any evidence to rebut the company's evidence. Accordingly to the extent that shares were issued to these two UK institutions, we consider that Perenco has established that it has suffered a restriction on its right to claim input tax on part of its expenses in relation to the issue. As regards shares issued to other shareholders, we consider that Perenco has failed to shift the evidential burden to HMRC. 120. As regards the issue of 215,838,115 Ordinary shares on 3 June 1988, the shares were issued as consideration for the whole of the issued share capital of Kelt Holdings. Mr Savage's evidence (paragraph 47 above) was that these shares had probably been issued to Scarletsdale Corporation NV (in the same way as shares were issued in the larger share issue on 25 June 1987), a Netherlands Antilles company i.e. a company outside the UK and EU. Accordingly, it was more likely than not that issue expenses attributable to the share issue were fully recoverable (and was therefore recovered) at the time. 121. In relation to the issue of 2,443,938 preference shares on 18 January 1989, these were issued to Carless shareholders who opted for the share alternative. We accept Mr Savage's evidence that that it is more likely than not that these shareholders would have been attracted by the share exchange in order to obtain rollover relief in respect of their capital gains and that these shareholders were, therefore, more likely to have been based in the UK. We consider that the use of a share alternative in a UK takeover is sufficiently well-known practice that we can take notice of it. Accordingly, we consider that Perenco has shifted the evidential burden to HMRC and that it has made good its claim that it has suffered a restriction as regards input tax on the share issue expenses in relation to the issue of these shares. 122. As regards the share issue on 7 March 1989, 365,000 new ordinary shares were issued to Cluff Oil PLC, a UK company. These shares were issued to a UK company and therefore it was more likely than not that there was a restriction on the recovery of input tax on associated expenses. We therefore consider that Perenco has shifted the evidential burden to HMRC and has established that it has suffered a restriction in its right to claim input tax in relation to the expenses of this share issue. 123. We have considered what weight, if any, to give Mr Savage’s unchallenged evidence that he believed because all the relevant share issues by Perenco were listed on the London Stock Exchange Perenco would have treated the shares as being issued in the UK regardless of the fact that some of the shares may have been issued to overseas shareholders. It was clear from Mr Savage’s responses to questions asked by Ms McCarthy that Mr Savage’s belief was based on advice received from Deloittes concerning common practice in the periods under appeal rather than from facts within his own knowledgeand was therefore hearsay evidence. The question for the Tribunal in respect of hearsay evidence is essentially one of weight. Moreover, his evidence on this point seemed to be non-independent expert opinion evidence rather than evidence of fact within his own knowledge. Evidence of common practice in a specialist area would usually be given by an expert witness. For these two reasons we attach no weight to Mr Savage’s evidence on this point. If Perenco wished to rely upon evidence of common practice in this specialised field it should have called an independent expert to give evidence, but it chose not to do so. Quantum Issue 124. There was some confusion at the hearing on this topic. In Ms McCarthy's skeleton argument it was stated that it was not clear whether the Quantum Issue was in dispute. At the hearing Mr Rowe asked for the Quantum Issue to be adjourned because a colleague within HMRC who was considering this matter had been unable to supply his response to Mr Rowe because of ill-health. 125. At the hearing, we provisionally indicated that we would hear submissions on the Quantum Issue. On reflection, however, in order to deal with the matter fairly and justly, bearing in mind that Mr Rowe was unprepared on this point and the issue we shall raise about jurisdiction, we think it is more sensible and fairer to adjourn the appeal on this point. Hopefully, the parties may be able to reach agreement, failing which they may apply for a hearing on this point to be relisted. 126. The jurisdiction point is as follows. Earlier in this decision we concluded that this Tribunal had full appellate jurisdiction in relation to the Prior Recovery Issue, for the reasons given above. We are not clear whether the same reasoning would apply to the Quantum Issue. In other words, we would wish to have further submissions on whether the Tribunal's jurisdiction on the Quantum Issue was a supervisory or a full appellate jurisdiction in relation to regulation 29 (2) VAT Regulations 1995. At any resumed hearing we would expect the parties to address us on this issue. Conclusion 127. As regards legal and accountancy expenses incurred in connection with:(1) the issue on 25 June 1987 of 136,111 new ordinary shares, the appeal is dismissed;(2) the issue on 25 June 1987 of 30,044,281 new ordinary shares, the appeal is dismissed;(3) the issue on 20 November 1987 of 16,831,530 new ordinary shares, the appeal is dismissed;(4) the issue on 29 January 1988 of 1,500,000 new ordinary shares, the appeal is dismissed;(5) the issue of 30 million convertible cumulative preference shares on 29 April 1988, we allow the appeal in principle, subject to the Quantum Issue, in respect of shares issued to Popeshead Nominees Ltd and Royal Bank of Scotland Edinburgh Nominees Ltd but dismiss the appeal in respect of other shares issued;(6) the issue of 215,838,115 Ordinary shares on 3 June 1988, the appeal is dismissed;(7) the issue of 2,443,938 preference shares on 18 January 1989, the appeal is allowed in principle, subject to the Quantum Issue; and(8) the share issue on 7 March 1989, 365,000 new ordinary shares the appeal is allowed in principle, subject to the Quantum Issue. 128. We now adjourn the appeal until a suitable date can be arranged for a hearing on the Quantum Issue (including the question of jurisdiction), unless the parties reach agreement on this issue in the meantime. 129. This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice. GUY BRANNAN TRIBUNAL JUDGE RELEASE DATE: 4 February 2015 [1] http://www.perenco.com/about-us/group-history.html [2] A taxable person becomes “redundant” following deregistration. At that point the records are retained for a further 6 years.

Cited in 9 later judgments