Revenue

Value added tax - company sold to third party outside VAT group - automatically ceasing to be part of VAT groupCommissioners of Customs and Excise v Barclays Bank Plc: ChD (Ferris J): 10 July 2000

T., a wholly-owned subsidiary of the respondents, was a member of Barclays VAT group.

On 24 February 1995 T.

entered into a contract with the respondents for the fitting out of new office premises intended to be occupied by a division of the respondents, which paid T.

149.6 million in consideration of the work to be done under the contract.

On 27 February 1995 the only two issued shares in T.

were transferred by the respondents to a charitable trust.

The respondents established before a VAT tribunal that T.

automatically ceased to belong to the VAT group once it ceased to be controlled by the respondents, a finding which had important consequences for the respondents' VAT liability in relation to the 149.6 million it had paid to T.

The commissioners appealed.Nigel Pleming QC (instructed by Solicitor, Customs & Excise) for the commissioners.

David Milne QC, Gregory Sinfield (solicitor) and James Henderson (instructed by Lovells) for the respondents.Held, dismissing the appeal, that the Sixth Council Directive (77/388/EC) (OJ 1977 L145/1), transposed into UK law by s.

43 of the Value Added Tax Act 1994, meant that member states could only treat two or more legally independent entities as a single taxable person if (i) they were both established in the member state in question, and (ii) the two entities were closely bound to one another by financial, economic and organisational links; that as s.

43(6) only applied to cases where there had been a change in control the commissioners had no power to terminate group treatment in the case of a business which ceased to be resident or have an established place of business in the United Kingdom, yet it could hardly be supposed that such an entity was to remain entitled to group treatment merely by the simple expedient of refraining from making an application under s.

43(5)(b); that such an entity automatically ceased to be entitled to group treatment on ceasing to be eligible for membership of the group; that if that were so where eligibility was lost by reason of a failure to satisfy condition (i), it must also be so where eligibility was lost under condition (ii); and that while that interpretation meant that s.

43(6) had no work to do, the effect of the commissioners' preferred interpretation would be to confer group treatment on an entity which was no longer entitled to it, a conclusion which could not be reconciled with the second indent of art.

4 of the Sixth Directive.