Adequacy of consultation with EU VAT Committee "not relevant" to HMRC decision making

The Upper Tribunal has handed down judgment in HSBC Electronic Data Processing (Guandong) Ltd v HMRC [2022] UKUT 00041 (TCC) in which it determined four preliminary issues relating to "VAT grouping" arrangements made by HSBC as part of its offshoring of various functions and processes to lower cost jurisdictions (including call centers).

Issue 2 was "Is the question of whether the UK discharged its obligation to consult the VAT Committee relevant? If it is relevant what would be consequences of any breach of the obligation to consult? (the "VAT Committee Issue")"

The Upper Tribunal held that whether or not the UK had consulted adequately with the EU VAT committee could not be relevant, in principle, to the lawfulness of HMRC's decision to terminate group membership of HSBC's various off shore service companies.

The VAT Act 1994 created the domestic scheme for VAT grouping in the UK through primary legislation. Whether there had been consultation with an EU level Committee (comprised of the European Commission and Member States) before its enactment could not be relevant to the lawfulness of a decision to terminate grouping under that legislation. There was no directly effective right to be a VAT group member, which could be capable of disapplying that legislative scheme.

The Upper Tribunal's decision on issue 2 meant that it was not necessary for it to consider HMRC's further arguments that it would be incompatible with Parliamentary Privilege for the Tribunal to consider the adequacy of consultation on legislative provisions that were ultimately enacted in primary legislation and that, if there was a competition between a hierarchy of "constitutional" statutes, Article 9 of the Bill of Rights 1689 would take precedence over the European Communities Act 1972 and the European Union (Withdrawal) Act 2018.

The Upper Tribunal also clarified the meaning of "fixed establishment" (issue 1), held that EU member states could adopt VAT grouping provisions both to prevent tax evasion and a wider concept of avoidance by taxpayers (issue 3) and the correct interpretation of section 84(4D) of the VAT Act 1994 (issue 4). The Upper Tribunal declined to address the post Brexit decision of the CJEU in C-812/19 Danske Bank A/S v Skatteverket EU:C:2021:196.

Katherine Apps acted for HMRC as part of a team of counsel and presented the arguments on issue 2. Katherine was instructed by HMRC Solicitors Office and Legal Services.