“[97] … I am satisfied that even on the narrower view there was clearly a material error of law in the FTT Decision. Furthermore, in respectful disagreement with the Upper Tribunal, I am unable to accept its benevolent reading of the FTT's repeated statements that the arrangements in Jersey did not involve the making of any exempt supplies in the UK. I cannot escape the impression that, at this critical point in their analysis of the abuse issue, the FTT momentarily lost sight of the agreed fact that Alabaster did make supplies of exempt services in the UK. If the FTT had in mind that there were indeed exempt supplies made by Alabaster, but the fact that they were made by a person who did not belong in the UK made all the difference, they would surely have said so. Furthermore, it would then have been necessary for the FTT to explain why, on that basis, the mischief which they had correctly identified (of artificial attempts to avoid or neutralise the burden of input tax attributable to exempt supplies) was no longer applicable, and why the Jersey arrangements were nevertheless not contrary to the purpose of the VAT legislation. [98] For my part, I think the FTT must also be taken to have materially erred in law in not adopting the approach laid down in this very case by the CJEU. To say this is not to criticise them, because they could hardly have foreseen the way in which the CJEU would deal with the questions subsequently referred to it, and in particular its synoptic approach to the two main issues of characterisation of the supplies and abuse of law. But it would in my view be paradoxical to hold that there was no error of law in the FTT's overall approach, when the CJEU had the FTT Decision before it and nevertheless concluded that it was conceivable that the relevant transactions were abusive. It is thus not sufficient, in my judgment, to point to individual passages in the FTT Decision which touch on specific questions identified by the CJEU, including in particular those in the third question referred, and argue that the overall evaluation required by the CJEU has in substance already been carried out by the FTT. Mr Ghosh advanced this argument persuasively, but I cannot accept it. An error of law may lie in a failure to adopt an overall approach to the evaluation of the facts, as well as in an erroneous approach to any of the component considerations which have to be taken into account. It is this sort of high level error of approach, it seems to me, that Lord Sumption described in [ Pendragon plc v Revenue and Customs Comrs[2015] UKSC 37 ,[2015] STC 1825 ] at [39], where he criticised the FTT in that case for having approached their task 'at too high a level of generality'.”
“[100] … I am satisfied that the UT Decision cannot stand, and this court must either re-make the decision itself or remit the case, either to the Upper Tribunal or to the FTT, with directions for its reconsideration: see s 14 of TCEA 2007. … [102] Given the length of time which has elapsed since the FTT hearing in 2010, it would for obvious reasons be preferable if we were able to re-make the decision ourselves rather than remit it for yet further consideration. For the reasons which follow, however, I consider that we are not in a position to do so, and that the correct solution is to remit the case to the FTT.”
“[110] … The fundamental difficulty may be simply stated. The decisions of both Tribunals are (as I have held) vitiated by material errors of law, with the consequence that the evaluation of the facts required by the CJEU has not yet been performed by a fact-finding body which has directed itself correctly in law. In those circumstances, I see no escape from the conclusion that the case must be remitted so that this task can for the first time be properly performed in all respects. [111] The alternative would be for this court to embark on the task itself, but for a number of reasons that would be unsatisfactory. The principal role of this court is appellate and supervisory. Save in exceptional circumstances, it does not find facts itself, and we have not heard evidence from the witnesses. Nor have we been supplied with a transcript of the hearing before the FTT. I therefore consider that our power under s 14 of TCEA 2007 to re-make the decision, and for that purpose to make such findings of fact as we consider appropriate, is one which we should exercise sparingly, if at all. We should not do so if we feel any real doubt about how the FTT, as the primary fact-finding body, would have decided the case if it had the benefit of (a) the guidance given by the CJEU, (b) the relevant case law (both European and domestic) since April 2010 (including, in particular, the decision of the Supreme Court in Pendragon and the judgment of this court in [ University of Huddersfield Higher Education Corp v Revenue and Customs Comrs[2016] EWCA Civ 440 ,[2016] STC 1741 ]), (c) the UT Decision, and (d) our judgment on this appeal. [112] For my part, I do not feel confident enough about the conclusion to which the FTT would have come in those circumstances to dispense with the need for a remitter. If the submissions for Mr Newey are correct, it will not take the FTT long to confirm their original decision. But the contrary possibility envisaged by the CJEU seems to me a real one, when the facts come to be reviewed with a closer focus than before on the specific issues raised by the third question for reference in the manner explained by the CJEU. It cannot be a sufficient answer, in my judgment, to say that no new principles of law were laid down by the CJEU in its judgment. That is so, but there is no exact precedent of which I am aware in the earlier European case law, let alone as it stood before the FTT hearing in February 2010, for treating together the issues of characterisation of the supplies and the doctrine of abuse of law as the CJEU has done in the present case. Furthermore, there can realistically be no substitute for performing the task with the benefit of the guidance given by the CJEU in this very case, after and in the light of the original FTT Decision. [113] It will be apparent from what I have already said that if, as I think, the case must be remitted, it is clearly preferable that it should be remitted to the FTT rather than the Upper Tribunal. One incidental reason for this is the fact that Warren J has now retired, but more importantly it is in my view far preferable that the task of re-examining and evaluating the evidence should be carried out by the body which conducted the oral hearing, and which heard and saw the witnesses give their evidence. Those advantages of a trial court or tribunal cannot normally be replicated by an appellate body, even with the benefit of a full transcript. A further advantage of remitting the case to the FTT is that it would be open to them, if they considered it necessary or helpful to do so having received submissions from the parties, to admit further written or oral evidence at a resumed hearing. [114] As to the terms on which the case is remitted, I would not wish to be prescriptive and would leave it to the FTT to decide on the procedure which they adopt, the extent of any further written or oral submissions from the parties, and whether there should be an opportunity to adduce further evidence. In general, I envisage that there would be no need for the FTT to revisit their findings of primary fact, although they may wish in some respects to supplement them. They will, however, clearly need to reconsider their evaluative findings and conclusions in the light of the further guidance now available to them. [115] For these reasons, therefore, if the other members of the court agree, I would allow HMRC's appeal, set aside the decision of the Upper Tribunal, and remit the case to the FTT for further consideration in the light of the guidance given by the CJEU and the judgment of this court.”
“In general, I envisage that there would be no need for the FTT to revisit their findings of primary fact, although they may wish in some respects to supplement them. They will, however, clearly need to reconsider their evaluative findings and conclusions in the light of the further guidance now available to them. … [We] remit the case to the FTT for further consideration in the light of the guidance given by the CJEU and the judgment of this court.”
“First, they argued that the position as a matter of VAT law was that Mr Newey , not Alabaster, was the supplier of the loan-broking services, with the consequence that the advertising services had to be treated as supplied to him. On that footing, a reverse charge would arise on Mr Newey unders 8(1) of the Value Added Tax Act 1994 . This charge would be attributable to exempt supplies of loan-broking services made by him in the UK, and thus not recoverable as input tax. Alternatively, if the supplies of advertising services were made to Alabaster and not to Mr Newey , the scheme viewed as a whole constituted an abuse of law under EU law, which should be countered by treating Mr Newey as receiving supplies of advertising services and using them to make exempt supplies of loan-broking services in the UK.”
“… that on a proper consideration of all the facts it was Alabaster, not Mr Newey , which made the loan-broking supplies and was the recipient of the supplies of advertising services; and that the doctrine of abuse of law had no application, because although the essential aim of the scheme had been to obtain a tax advantage, the establishment of Alabaster in Jersey was not itself abusive unless its functions or activities were such as to be contrary to the purposes of the VAT legislation, and on the facts that test was not satisfied. In reaching this conclusion, the FTT applied the law on abuse of law in accordance with its understanding of the principles laid down by the the CJEU in Halifax plc v Customs and Excise Comrs (Case C-255/02 ),[2006] STC 919 ) and by the Court of Appeal in WHA Ltd v Revenue and Customs Comrs[2007] EWCA Civ 728 ,[2007] STC 1695 .”
“In all essential respects, it seems to me that the FTT directed themselves correctly on the relevant legal principles, including the need to examine the factual circumstances as a whole, the fact that the contractual position is not necessarily conclusive, although it must be the starting point, and the need to have regard to the economic purpose of the contracts. They observed correctly, at [71], that 'when all the facts and circumstances have been taken into account, it remains the case that the proper analysis of the supply might well be consistent with the contractual position'.”
“[74] It is important to note that in [90] the FTT appear to have proceeded on the express footing that the Alabaster arrangements did not involve the making of any exempt supplies in the UK, and that it was the absence of any such exempt supplies which made HMRC's arguments unsustainable. Had such exempt supplies existed, the FTT clearly considered it arguable that a scheme designed to prevent otherwise irrecoverable input VAT from being incurred might be contrary to the purposes of the VAT legislation. Unfortunately, however, it is common ground that the FTT were mistaken in their assumption, at any rate if it is read literally. It has always been an agreed fact that, under the new arrangements involving Lichfield and then Alabaster, exempt supplies of financial services continued to be made in the UK by the Jersey company. This apparent error of law was accordingly one of the grounds upon which HMRC appealed to the Upper Tribunal, and it is also the subject of the third ground of appeal to this court. Furthermore, the perceived absence of an exempt supply to which irrecoverable VAT might be attributable is a theme which runs through the FTT's remaining discussion of this issue: see [92] and [95].”
“To say this is not to criticise them, because they could hardly have foreseen the way in which the CJEU would deal with the questions subsequently referred to it, and in particular its synoptic approach to the two main issues of characterisation of the supplies and abuse of law. But it would in my view be paradoxical to hold that there was no error of law in the FTT's overall approach, when the CJEU had the FTT Decision before it and nevertheless concluded that it was conceivable that the relevant transactions were abusive.”
“[5] Abuse of law is a concept derived from civil law jurisprudence, which is unknown to English common law but has been adopted by the law of the European Union. In its simplest form, it confines the exercise of legal rights to the purpose for which they exist, and precludes their use for a collateral purpose. For present purposes, the expression détournement de droit adopted by some French writers is probably a better description of its content. The application of the principle to tax avoidance schemes calls for a difficult balance to be drawn. It is traditional, at any rate in this jurisdiction, to distinguish between avoidance, which involves the lawful arrangement of a taxpayer's affairs so as to minimise his tax bill, and evasion, which is an unlawful failure to account for tax due, generally by suppressing or falsifying information. Sophisticated avoidance schemes do not so much undermine this distinction as challenge its usefulness. By artificially reclassifying transactions so as to produce a more favourable tax outcome than commercially comparable 'normal' transactions, they frustrate the objective of the taxing provision without necessarily falling foul of its language. The result is arbitrarily to depress tax receipts, producing inequity between taxpayers and potentially distorting competition between firms who are otherwise similarly placed. This gives rise to social costs which are significant and increasingly controversial. On the other hand, legal certainty is an important principle of both English and EU law, particularly when it comes to justifying the financial demands of the state. Artificiality, if it is to be deployed as a workable legal concept, has to be tested against some standard of transactional normality, and the search for such a standard is far from straightforward. Taxpayers faced with a choice between alternative ways of achieving some commercial objective are in principle entitled to select the one with the more tax-efficient statutory outcome. In particular, they are entitled to choose between exempt and taxable transactions in their own financial interest. Like any other tax, VAT is due only in so far as its imposition is authorised by statute. It follows that although the courts may examine the commercial reality of transactions without being unduly hidebound by labels, they do not as a general rule enlarge the scope of a taxing provision by reference to considerations which affect neither the construction of its language nor the characterisation of transactions to which it is said to apply. These dilemmas are particularly acute in the United Kingdom, where the drafting of tax legislation has traditionally depended not on the formulation of general principles but on the definition of taxable occasions with a high degree of specificity. [6] The main task of any court seeking to apply a principle of abuse of law is to reconcile these competing considerations. …”
“[10] Two main difficulties arise where the principle of abuse of law is applied to tax avoidance schemes. [11] The first arises from the assumption made by the Court of Justice in Halifax that the principle will not apply to what it called 'normal commercial operations' (para 69). Subsequent case law has established that this means those that are normal in the context of the relevant line of business, not necessarily normal for the particular taxpayer: Revenue and Customs Comrs v Weald Leasing Ltd (Case C-103/09 )[2011] STC 596 ,[2010] ECR I-13589 . I do not think that the court can have intended to set up a third distinct test, in addition to the two which are set out in paras 74–75 and repeated in its order. The 'normality' of a transaction is relevant to the question posed in the court's first test, about the 'purpose' of the relevant provision of the VAT Directives. 'Normal commercial operations' will not as a general rule be regarded as contrary to the purpose of the Directives, since these must be assumed to have been designed to accommodate them. Thus in Weald Leasing the taxpayer's decision to take equipment on lease from an intermediate company rather than buy it outright was an ordinary commercial transaction. It was not abusive even though it was unusual for the taxpayer in question and was designed to obtain a tax advantage by spreading the liability to tax over a longer period. The choice between leasing and outright purchase was a choice accommodated by the scheme of the VAT legislation. The tax treatment of lease payments being a facility available under the legislation itself, resort to it could not be regarded as contrary to its purpose. For the same reason, a transaction is not abusive merely because it falls within an exception or derogation from ordinary principles of EU law governing the incidence of VAT, such as the right enshrined in the Sixth Directive to deduct input tax generated by transactions in another member state. It follows that the sourcing of goods or services from a country in which the VAT regime is more favourable is not in itself abusive, even though the object and effect is to allow the deduction of input tax without the payment of output tax ( Revenue and Customs Comrs v RBS Deutschland Holdings GmbH (Case C-277/09 )[2011] STC 345 ,[2010] ECR I-13805 ). The reason, as the court explained in that case at paras 51–52, is that this is a choice inherent in a scheme of taxation that is designed to be fiscally neutral as between different member states while allowing for some differences between their implementing laws. Likewise, the conduct of a genuine business activity through a subsidiary incorporated in another member state is not abusive, although the sole reason for the choice is that it has a lower rate of corporation tax: Cadbury Schweppes plc v IRC (Case C-196/04 )[2006] STC 1908 ,[2006] ECR I-7995 . Precisely the same considerations must apply to a decision to source goods or services from outside the European Union, an option which is inherent in the territorial limits of the EU VAT regime and the assignment of economic relations with third countries to other policies of the Union. [12] The second difficulty which arises from the application of the principle of abuse of law to tax avoidance is that of concurrent purposes. Tax avoidance schemes are rarely directed exclusively to tax avoidance. It is difficult to conceive of a scheme, other than a fraudulent one, which achieved absolutely nothing but a tax advantage. They are usually directed to achieving a commercial purpose, such as the provision of the call centres in Halifax , in a way which avoids a tax liability that would otherwise be associated with it. The potential for abuse consists in the method chosen to achieve the commercial purpose. In Ministero dell'Economia e delle Finanze v Part Service Srl (Case C-425/06 )[2008] STC 3132 ,[2008] ECR I-897 , the consideration payable by the lessee under a leasing transaction was artificially split between two contracts, one with the lessor and the other with an associated company of the lessor. The latter contract was structured so as to qualify as an exempt financial contract under Italian law, so as to reduce the amount chargeable to VAT. The transactions had a legitimate commercial purpose, namely the leasing of the cars, but the method of achieving that purpose was held to be open to challenge if 'the accrual of a tax advantage constitutes the principal aim of the transaction or transactions at issue' (para 45). This conclusion seems to me to do no more than make explicit something which is implicit in the Halifax tests. Identifying the 'essential aim' in a case of concurrent fiscal and commercial purposes depends on an objective analysis of the method used to achieve the commercial purpose. As Advocate General Maduro observed in a passage from (para 89) of his opinion which was in terms approved by the court (para 75), the taxpayer's choices must be 'at least to some extent, accounted for by ordinary business aims'. The question is therefore whether the commercial objective is enough to explain the particular features of the contractual arrangements which produce the tax advantage. [13] These considerations effectively answer a question which is likely to arise in most cases involving prearranged sequences of transactions. Is the relevant 'aim' that of the scheme as a whole or of its component parts? The answer is that it may be either or both. Because the principle of abuse of law is, in this context, directed mainly to the method by which a commercial purpose is achieved, it is necessary to analyse each transaction by which it is achieved. Because the purpose of each step will generally be to contribute to the working of the whole scheme, the effect of the whole scheme has also to be considered. In WHA Ltd v Revenue and Customs Comrs[2007] EWCA Civ 728 ,[2007] STC 1695 ,[2008] 1 CMLR 522 (para [22]), Lord Neuberger, delivering the leading judgment in the Court of Appeal, rejected the submission that the court was confined to considering the artificiality or purpose of each individual step, since these will commonly be individually unassailable but designed to produce the tax advantage in combination. I agree with this observation.”
“To my mind, the objection to the reasoning of the First-tier Tribunal is more fundamental. They approached their task at too high a level of generality. They observed, quite correctly, that the secured financing of carrying costs through a bank was an ordinary commercial arrangement. They identified a number of commercial objectives which they regarded as explaining why Pendragon entered into the scheme. But they did not ask themselves whether Pendragon's commercial objectives explained the particular features of the transactions which produced the tax advantage. In particular, they did not ask themselves whether they explained the particular method by which the bank was involved at Steps 2, 3 and 4. This meant that they did not answer the critical question on which, in point of law, the identification of the 'essential aim' depended. If they had done, they would have been bound to conclude that the features which produced the tax advantage had no other rationale.”
“It follows that the transactions fall to be redefined 'so as to re-establish the situation that would have prevailed in the absence of the transactions constituting that abusive practice': Halifax , para 98. The redefinition is purely notional. Its effect is not to alter retrospectively the terms of the transactions, but simply to entitle the Commissioners, as between themselves and the taxpayer, to treat them for the purpose of assessing VAT as if their abusive features had not been present: see [the CJEU Decision] paras 50–51. The object of any redefinition in this case must be to deprive the taxpayer of the illegitimate advantage of paying VAT only on their profit margin on the resale of the cars to the consumer.”
“… I would single out two points: (a) Lord Sumption's recognition, at the end of [11], that it is not abusive to conduct a genuine business activity through a subsidiary incorporated in another member state, or to source goods or services from outside the EU, that being 'an option which is inherent in the territorial limits of the EU VAT regime'; and (b) his discussion of 'concurrent purposes' at [12], and the insight that '[t]he potential for abuse consists in the method chosen to achieve the commercial purpose'.”
“Whether the first test [ie the accrual of a tax advantage which would be contrary to the purpose of the legislative provisions] is satisfied entails identifying (a) the tax advantage that the scheme gave the University and (b) the purposes of that part of the VAT code with which we are concerned. It is then necessary to compare the purpose and objectives of the part of the VAT code allegedly being abused with the purpose and results achieved by the activity at issue. If the tax advantage results from a choice that the VAT code intended to give the taxable person, then there is no abuse: Advocate General Poiares Maduro in Halifax at para 88.”
“In the course of considering the submissions for the University advanced by Paul Lasok QC, Lewison LJ referred to the post- Halifax decision of the CJEU in the Weald Leasing case ( Revenue and Customs Comrs v Weald Leasing Ltd (Case C-103/09 ) EU:C:2010:804 ,[2011] STC 596 ,[2010] ECR I-13589 ) as authority for the proposition that consideration of the first test 'positively requires an examination of the object and effects of the impugned transactions, as well as their purpose': see [29]. He also rejected a submission that the question whether a transaction was artificial goes only to the second test, and is irrelevant in considering the first test. Lewison LJ said, at [33], that he found this submission 'very difficult to square' with the (pre- Halifax ) case of Emsland-Stärke GmbH v Hauptzollamt Hamburg-Jonas (Case C-110/99 ) EU:C:2000:695,[2000] ECR I-11569 ) in which the CJEU had said (at para 59): '… a finding that there is an abuse presupposes an intention on the part of the Community exporter to benefit from an advantage as a result of the application of the Community rules by artificially creating the conditions for obtaining it.' Lewison LJ then said: '[34] Clearly the artificial creation of conditions which formally comply with the requirements for obtaining a tax advantage is at the heart of the principle of abuse of rights. If Mr Lasok's submission were correct it would simply substitute one form of formalism for another.'”
“41. It is also apparent from the case law of the court that the term supply of services is therefore objective in nature and applies without regard to the purpose or results of the transactions concerned and without its being necessary for the tax authorities to carry out inquiries to determine the intention of the taxable person (see, to that effect, Halifax , paras 56 and 57 and the case law cited). 42. As regards in particular the importance of contractual terms in categorising a transaction as a taxable transaction, it is necessary to bear in mind the case law of the court according to which consideration of economic and commercial realities is a fundamental criterion for the application of the common system of VAT (see, to that effect, Revenue and Customs Comrs v Loyalty Management UK Ltd, Baxi Group Ltd v Revenue and Customs Comrs (Joined cases C-53/09 and C-55/09)[2010] STC 2651 ,[2010] ECR I-9187 , paras 39 and 40 and the case law cited). 43. Given that the contractual position normally reflects the economic and commercial reality of the transactions and in order to satisfy the requirements of legal certainty, the relevant contractual terms constitute a factor to be taken into consideration when the supplier and the recipient in a 'supply of services' transaction within the meaning of arts 2(1) and 6(1) of the Sixth Directive have to be identified. 44. It may, however, become apparent that, sometimes, certain contractual terms do not wholly reflect the economic and commercial reality of the transactions. 45. That is the case in particular if it becomes apparent that those contractual terms constitute a purely artificial arrangement which does not correspond with the economic and commercial reality of the transactions. 46. The court has held on various occasions that preventing possible tax evasion, avoidance and abuse is an objective recognised and encouraged by the Sixth Directive (see Halifax , para 71 and the case law cited) and that the effect of the principle that the abuse of rights is prohibited is to bar wholly artificial arrangements which do not reflect economic reality and are set up with the sole aim of obtaining a tax advantage (see Ampliscientifica Srl v Ministero dell'Economia e delle Finanze (Case C-162/07 )[2011] STC 566 ,[2008] ECR I-4019 , para 28; Tanoarch sro v Tax Directorate of the Slovak Republic (Case C-504/10 )[2012] STC 410 , para 51; and JJ Komen en Zonen Beheer Heerhugowaard BV v Staatssecretaris van Financiën (Case C-326/11 )[2012] STC 2415 , para 35). 47. In the main proceedings, it is not disputed that, formally, in accordance with the contractual terms, Alabaster provided the lenders with the supplies of loan broking services and that it was the recipient of the supplies of advertising services provided by Wallace Barnaby. 48. However, taking into account the economic reality of the business relationships between, on the one hand, Mr Newey, Alabaster and the lenders and, on the other hand, Mr Newey, Alabaster and Wallace Barnaby, as apparent from the order for reference and, in particular, the matters of fact mentioned by the Upper Tribunal (Tax and Chancery Chamber) in the third question, it is conceivable that the effective use and enjoyment of the services at issue in the main proceedings took place in the United Kingdom and that Mr Newey profited therefrom. 49. It is for the referring court, by means of an analysis of all the circumstances of the dispute in the main proceedings, to ascertain whether the contractual terms do not genuinely reflect economic reality and whether it is Mr Newey, and not Alabaster, who was actually the supplier of the loan broking services at issue and the recipient of the supplies of advertising services provided by Wallace Barnaby. 50. If that were the case, those contractual terms would have to be redefined so as to re-establish the situation that would have prevailed in the absence of the transactions constituting that abusive practice (see, to that effect, Halifax , para 98). 51. In the present case, the re-establishment of the situation that would have prevailed in the absence of the transactions at issue, if the referring court were to consider them to constitute an abusive practice, would, in particular, mean that the services agreement and the advertising arrangements concluded between Alabaster and Wallace Barnaby could not be relied upon against the Commissioners, who could legitimately regard Mr Newey as actually being the supplier of the loan broking services and the recipient of the supplies of advertising services at issue in the main proceedings. 52. In the light of the foregoing considerations, the answer to the first to fourth questions is that contractual terms, even though they constitute a factor to be taken into consideration, are not decisive for the purposes of identifying the supplier and the recipient of a 'supply of services' within the meaning of arts 2(1) and 6(1) of the Sixth Directive. They may in particular be disregarded if it becomes apparent that they do not reflect economic and commercial reality, but constitute a wholly artificial arrangement which does not reflect economic reality and was set up with the sole aim of obtaining a tax advantage, which it is for the national court to determine.”
“[62] As is apparent from this passage, the CJEU did not rule out the possibility that, in the light of its knowledge of the facts found by the FTT and reflected in the order for reference, the transactions in issue might constitute an abuse in the Halifax sense. The key paragraph for this purpose is para 48, which requires account to be taken of the economic reality of the relevant business relationships between each of Mr Newey , Alabaster, the lenders and Wallace Barnaby, as well as the matters of fact mentioned in the third question referred to the Court. The third question reads as follows: '(3) In circumstances such as those in the present case, in particular, to what extent is it relevant: (a) Whether the person who makes the supply as a matter of contract is under the overall control of another person? (b) Whether the business knowledge, commercial relationship and experience rests with a person other than that which enters into the contract? (c) Whether all or most of the decisive elements in the supply are performed by a person other than that which enters onto the contract? (d) Whether the commercial risk of financial and reputational loss arising from the supply rests with someone other than that which enters into the contracts? (e) Whether the person making the supply, as a matter of contract, sub-contracts decisive elements necessary for such supply to a person controlling that first person and such sub-contracting arrangements lack certain commercial features?' [63] Since it is not the function of the CJEU to decide issues of fact, the question was remitted in the usual way to the Upper Tribunal as the referring court. A question which we raised at the hearing was what degree of probability the CJEU had in mind when it used the expression 'it is conceivable that' in para 48. Some light may be thrown on this by the original French text, with which we were supplied at our request after the hearing. The words 'it is conceivable that' are a translation of 'il ne peut être exclu que', which might be more literally rendered as 'it cannot be excluded that', or more colloquially as 'one cannot rule out the possibility that'. To my mind, the French phrase may imply a slightly higher degree of likelihood than the English phrase, but the important point is that the CJEU clearly considered the possibility to be a real one when all the relevant factors had been fully taken into account, although it presumably considered such an outcome to be relatively improbable on the information which it had available to it: otherwise a less tentative expression would have been used.”
“50. Mr Vajda [HMRC’s counsel] argued that there was no business advantage to the operation of Alabaster in Jersey, and that Alabaster was not run in a commercial manner. He said that the operations we have described of signing off forms such as OAFs were not normal commercial practice. We accept that, if compared with an arrangement that might have been entered into between independent parties operating at arm’s length, the arrangements lack certain commercial features. It is true, and the Appellant [ie Mr Newey] accepted, that the loan broking business could have been carried out in the UK, and the loan broking business could have been pursued with an integrated, rather than sub-contracted, processing service. Nevertheless, we find that Alabaster carried on a commercial business. It was itself a commercial enterprise, carrying on economic activities of loan broking for which it equipped itself to a limited extent with its own staff and directors, and to a large extent through engaging the services of the Appellant under the Services Agreement. This was no brass plate company. Nor do we consider that it is in any way material to the question of commerciality that advice on the decision-making processes in Alabaster had been given by Moore Stephens. 51. Mr Vajda referred us to a submission made by the Appellant to the Office of Fair Trading that had been written by its recently-appointed compliance officer, who had previously worked as an underwriter in the business. That submission had been made in response to a fact-finding study by the OFT into the UK debt consolidation market. In it the Appellant described the way the Ocean Finance business operated, and did not distinguish between the Appellant and Alabaster. We do not find this to be indicative of the true relationship between the Appellant and Alabaster, or as being relevant to a consideration of the nature of the Appellant’s business. In our view that is established by the contractual arrangements and the actual course of dealings, and not by a summary that, it seems to us, is directed at a completely different purpose, and for which the actual business structure would not be of any relevance. 52. It is common ground that the Appellant’s operation in the UK was a substantial one. We were referred to the salaries of senior staff and underwriters in the UK, which were substantial when contrasted with those of the Alabaster directors and Lucy Woodworth. However, this merely emphasises the extent of the processing operation that Alabaster had contracted to equip itself to conduct its loan broking business. We do not infer from this that it must have been the Appellant that was carrying on the loan broking business. We are satisfied that the loan broking business was carried on by Alabaster, with the services of the Appellant provided through the Services Agreement. 53. There was much reference by Mr Vajda in cross-examination of both Mr Boylan and Mr Newey to Alabaster “rubber stamping” decisions of others. This was put to the witnesses in connection with all stages of the processes, including advertising approvals, the OAFs, valuation requests and Case to Bank Submissions. It was also described as “window dressing”
“… whether contractual terms are decisive for the purposes of identifying the supplier and the recipient in a 'supply of services' transaction within the meaning of arts 2(1) and 6(1) of the Sixth Directive, and, if the answer is in the negative, under what circumstances those terms may be recharacterised [?]”
“56. It is clear from Customs and Excise Commissioners v Reed Personnel Services Ltd[1995] STC 588 that questions of the characterisation of a supply cannot be determined wholly by reference to the concept of contractual duty. Whilst the construction of a contract between two or more parties is relevant to the enquiry as to the proper analysis of the relevant supply for VAT purposes, it is not determinative. Nevertheless the contract is one of the factors on which an overall view must be taken. … 60. … There are a number of contracts between a number of parties: the contracts for the provision of loan broking services by Alabaster to the lenders, the contract between Wallace Barnaby and Alabaster for the advertising services and the Services Agreement between Alabaster and the Appellant. These contracts must all be considered as part of the overall factual circumstances. Whilst the Appellant was not party to Alabaster’s contracts with the lenders or Wallace Barnaby, it was part of the overall factual circumstances and accordingly those circumstances and its involvement must be considered in determining the nature of the respective supplies and whether, in the case of the advertising services, those supplies were to the Appellant and not to Alabaster and, as regards the loan broking services, those supplies were made by the Appellant and not by Alabaster.”
“In all essential respects, it seems to me that the FTT directed themselves correctly on the relevant legal principles, including the need to examine the factual circumstances as a whole, the fact that the contractual position is not necessarily conclusive, although it must be the starting point, and the need to have regard to the economic purpose of the contracts. They observed correctly, at [71], that 'when all the facts and circumstances have been taken into account, it remains the case that the proper analysis of the supply might well be consistent with the contractual position'.”
“On occasion advertising space would become available at a late stage, and would be offered to Alabaster through Ekay and Wallace Barnaby, following discussion with [Mr Newey]. However, if there was insufficient time to obtain a decision from an Alabaster director, the advertisement would not be placed. We had evidence, which we accept, that this happened on a number of occasions. No advertising was commissioned without the approval of Alabaster.”
“[74] It is important to note that in [90] the FTT appear to have proceeded on the express footing that the Alabaster arrangements did not involve the making of any exempt supplies in the UK, and that it was the absence of any such exempt supplies which made HMRC's arguments unsustainable. Had such exempt supplies existed, the FTT clearly considered it arguable that a scheme designed to prevent otherwise irrecoverable input VAT from being incurred might be contrary to the purposes of the VAT legislation. Unfortunately, however, it is common ground that the FTT were mistaken in their assumption, at any rate if it is read literally. It has always been an agreed fact that, under the new arrangements involving Lichfield and then Alabaster, exempt supplies of financial services continued to be made in the UK by the Jersey company. This apparent error of law was accordingly one of the grounds upon which HMRC appealed to the Upper Tribunal, and it is also the subject of the third ground of appeal to this court. Furthermore, the perceived absence of an exempt supply to which irrecoverable VAT might be attributable is a theme which runs through the FTT's remaining discussion of this issue: see [92] and [95]. … [97] It is fortunately unnecessary for us to decide how far the Upper Tribunal's diagnosis of error was intended to go, because I am satisfied that even on the narrower view there was clearly a material error of law in the FTT Decision. Furthermore, in respectful disagreement with the Upper Tribunal, I am unable to accept its benevolent reading of the FTT's repeated statements that the arrangements in Jersey did not involve the making of any exempt supplies in the UK. I cannot escape the impression that, at this critical point in their analysis of the abuse issue, the FTT momentarily lost sight of the agreed fact that Alabaster did make supplies of exempt services in the UK . If the FTT had in mind that there were indeed exempt supplies made by Alabaster, but the fact that they were made by a person who did not belong in the UK made all the difference, they would surely have said so. Furthermore, it would then have been necessary for the FTT to explain why, on that basis, the mischief which they had correctly identified (of artificial attempts to avoid or neutralise the burden of input tax attributable to exempt supplies) was no longer applicable, and why the Jersey arrangements were nevertheless not contrary to the purpose of the VAT legislation.”