Barclays Services Corporation (2) Barclays Execution Services Ltd v Revenue & Customs (VALUE ADDED TAX - Case Management - Disclosure) [2020] UKFTT 149 (TC)

FTT-Tax
Barclays Services Corporation (2) Barclays Execution Services Ltd v Revenue & Customs (VALUE ADDED TAX - Case Management - Disclosure)
[2020] UKFTT 149 (TC) · 2019-12-02
[80]"If one were to adopt the "leave no stone unturned" approach to disclosure then one would be more ready to add key words to those originally used by the Defendants. However, it will usually be wrong in principle to adopt that approach and, in my judgment, it would be wrong to adopt that approach in the circumstances of this case. One therefore has to consider the proportionality of adding an additional key word. For that purpose, one has to form some sort of view as to the possible benefit to the Claimants of adding the key word and the possible burden to the Defendants of doing so. The burden to the Defendants will principally consist of the burden of manually reviewing a large number of irrelevant documents. " 26. Practice Direction 31B of the Civil Procedure Rules gives guidance about 'Keyword and other automated searches'. There, Paragraph 26 reminds parties to civil litigation that "the injudicious use of keyword searches and other automated search techniques(1) may result in failure to find important documents which ought to be disclosed and/or(2) may find excessive quantities of irrelevant documents, which if disclosed would place an excessive burden in time and cost on the party to whom disclosure is given" 27. I see no good reason why that guidance should not apply to proceedings in this Tribunal. 28. Having ventured those remarks, it seems to me to be better, as matters stand, to let the agreed process unfold as it will, and for the Tribunal to deal with any disputes about particular keywords if and when they arise. 29. Standing back, and as with any disclosure order, if any issues arise (say) as to whether a particular document does or does not fall inside the agreed terms of the Schedule, then that is a matter which, if necessary and in the absence of agreement, can be determined by the Tribunal in an appropriate way (for example, by way of submissions and a paper hearing). Similarly, neither party is debarred from advancing any application should it consider the disclosure inadequate. 30. Taking all of the above into account, I approve the order as placed before me by the parties, without amendment, except for the dates. As for the dates, the date laid down in Clause 1.3 should be extended by five weeks from the date of release of this Decision, and all other dates extended accordingly. 31. Lest my conclusion on the above matter should fall to be reconsidered, I can also express my views, albeit more briefly, on the issue whether, taking the matter de novo, I would have made such an order. 32. I consider that I would have done. 33. The nature of the Tribunal's jurisdiction in the appeal must necessarily have a bearing on the ambit of disclosure. I agree with the Appellants that the nature of the Tribunal's jurisdiction in relation to the Protection Issue is in essence 'an appellate jurisdiction exercised on supervisory principles': see VAT Act 1994 section 84(4A)(a) (" the Tribunal shall not allow the appeal unless it considers that HMRC could not reasonably have been satisfied that there were grounds for refusing the application ") and Prudential Assurance Company Ltd v HMRC (2006) at Para [5] per Dr John Avery Jones CBE 34. It is also relevant to examine how the parties have framed the Protection issue. 35. HMRC's decision letter of 2 March 2018 discusses the Protection Issue in this way:
"PVD Article 11 limits VAT grouping to the territory of the Member State. Whilst the UK applies VAT grouping to include overseas branches and offices of the VAT group members it does not follow that HMRC will necessarily allow a company to VAT group simply because it has created a UK establishment. Where, in HMRC's view, the UK branch is set up in order to remove substantial supplies provided from outside the U from a charge to UK VAT, whether or not such a branch meets the test for a fixed establishment, HMRC will consider applying its protection of the revenue powers. Objectively, on the information provided to us, we consider that the UK branch of BSC was set up in order to remove substantial supplies provided from outside the UK from a charge to UK VAT. In our view, this amounts to a revenue loss beyond the normal operation of UK grouping. Despite the claims made by you regarding the commercial reasons behind the UK branch structure, the evidence that has been produced to HMRC does not point to a real commercial function for BSC UK, and that the benefits of any such function are insignificant compared with the VAT benefits of sheltering supplies from the main overseas establishment" 36. It seemed to me at the hearing, and still on reflection seems to me, that this passage (which I have set out in full) appears to be the expression of some underlying (but unarticulated) policy. 37. In terms of policy, HMRC's Internal Manual for VAT Groups, published on 10 April 2016, been placed before me. What is says about Collection of Revenue is brief and does not shed much light on what the policy is. It simply says, "
You may invoke our revenue protection powers where grouping would lead to, or has led to, an enhanced tax risk, or where it would render it less likely that the tax due would be safely collectable." A small number of examples are given, none of which are obviously relevant here. 38. I do note that the April 2016 guidance was updated (and, in my view, clarified) in November 2019 (i.e., shortly before the hearing before me). That sets out the steps which HMRC considers must be taken - identification of the revenue at risk (with 'a vague assertion that there is revenue at risk in theory almost certainly rendering the decision unsustainable'); the collection of evidence to support the conclusion that the revenue protection powers were needed; and the maintenance of written records of all factors taken into consideration when making the decision and the reasons (with 'failure to be able to produce an audit trail for the decision' potentially leading to the decision being unsustainable). 39. Paragraph 13.11 of the Grounds of Appeal (1 October 2018) argues that HMRC's analysis "draws on an erroneous comparator" by comparing BSC's circumstances to the situation where a UK business imports services from an unconnected foreign service provider or non-established group company, in which case the recipient of those services would be liable to account for UK VAT under the reverse charge mechanism. 40. HMRC's formal response is in Paragraphs 32 and following of its Statement of Case (21 December 2018). Paragraph 35 limits itself to observing, but without any great particularity, that HMRC considered (i) the public interest in collecting the VAT which the arrangements would avoid; and (ii) the burden which would be imposed on the Appellants if BSC is not admitted to the VAT Group. That is suggestive of an evaluative, balancing, exercise. 41. Paragraph 36 acknowledges the nature and extent of the Tribunal's jurisdiction, but contends that "even if the FTT might itself have come to a different view in relation to the 'protection of the Revenue' point, the decision reached by HMRC cannot sensibly be regarded as having been unreasonable. As far as it goes, that is correct, and I agree. 42. It seems to me that Paragraph 36 of HMRC's Statement of Case states a fairly bald conclusion (which the Tribunal at the substantive hearing of the appeal may or may not end up agreeing with) but without vouchsafing the materials which the Tribunal would have to consider as part of that exercise. The conventional public law starting point in assessing whether the decision-maker (for example) took something irrelevant into account, or excluded something relevant from account, or that their decision was otherwise affected by some justiciable want of rationality. That could involve (as, in my view, it does in this case) examination of the materials considered, and applied, by HMRC in reaching its conclusion as to the 'protection of the Revenue' test. 43. I do not consider that I need to make any findings, at this stage, as to what was said by Advocate-General J ääs kinen to be the purpose of VAT grouping provisions in EU v Ireland [2013] STC 2336 at Para [44] et seq, and how (if at all) that was taken into account by the decision-maker here. 44. Finally, it also seems to me that my conclusion on this issue is consistent with the approach of the Court of Appeal in HMRC v Smart Price Midlands Ltd and another [2019] 1 WLR 5070. It seems to me that the context, although different, is nonetheless analogous. The Court of Appeal endorsed the remarks of Judge Sinfield (set out at Paragraph 32 of the decision) and in particular "An unsuccessful applicant can only form a view as to whether to challenge the decision on grounds of unreasonableness if the applicant knows what matters were considered by the decision-maker." In my view, the present appeal is such an appeal. The Tribunal will have to know what Judge Sinfield referred to as 'the full picture' in order to determine the issue fairly and justly, albeit subject to the cautionary remarks (above) as to the scope of the keywords and the cautionary remarks of the Court of Appeal in Smart Price at [57]. Conclusion 45. I approve the Draft Order as it stands, including the Schedule, but I vary the dates in the way set out above. Right to apply for permission to appeal 46. 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. Dr Christopher McNall TRIBUNAL JUDGE RELEASE DATE: 19 MARCH 2020

Cited in 1 later judgment