Upper Tribunal rules on VAT grouping conditions

In HSBC Electronic Data Processing (Guangdong) Ltd & Ors v HMRC [2022] UKUT 00041, the Upper Tribunal (UT) found that in terms of VAT grouping, ‘established’ and ‘fixed establishment’ should be interpreted in accordance with CJEU case law concerning the place of supply rules, although their meaning is highly fact-sensitive.

• HSBC Electronic Data Processing (Guangdong) Ltd and four other companies (together, the companies) within the HSBC group provided global services for the group.
• In December 2017, HMRC issued decisions that removed the companies from HSBC’s UK VAT group on the basis that:
  • The companies had not been established or had a fixed establishment in the UK since at least 1 October 2013. This would mean they ceased to be eligible to be members of the UK VAT group from that date.
  • HMRC had made decisions to remove the companies from the HSBC VAT Group with effect from January 2018 under their powers for the protection of the revenue (s.43C(1) VATA 1994).
• The companies Appealed to the First Tier Tribunal (FTT) which directed that there should be a preliminary hearing of four issues by the Upper Tribunal (UT) as:
  • An appeal from any decision of the FTT on the identified points would be inevitable.
  • The UT’s binding guidance on the law and its application would assist the FTT in making its decision.

The UT concluded that:

• When interpreting ‘established’ or ‘fixed establishment’ in s.43A VATA 1994, Articles 10 and 11 of Council Implementing Regulation 282/2011 “provide a helpful starting point, when read in the light of the CJEU case law”.
  • CJEU case law on the Place of supply rules should be taken into account.
  • The precise meaning of the terms ‘established’ and ‘fixed establishment’ in any given case is highly fact-sensitive.
  • When considering the phrase ‘persons established in’ (Article 11 of the Principal VAT Directive), it is necessary to consider whether the prospective VAT group members, individually, have a fixed establishment in the UK and not whether the collective of persons forming the VAT group has a fixed establishment in the UK.
• HMRC’s ‘necessary for the protection of the revenue’ power is not limited to abusive practices under Halifax principles: it has a wider application.
• When considering s.84(4D) VATA 1994, it is only necessary to examine whether HMRC could reasonably have decided upon the date of removal from the VAT group specified in the notice, not whether it had reasonably done so in the given case.
  • S.84(4D) states that where an appeal is made against the removal of a member from a VAT group and the appeal includes the date of removal, the appeal in respect of the date should only be allowed where the tribunal considers that HMRC could not reasonably have been satisfied that it was appropriate.

The case will return to the FTT for a full hearing following the UT's determination of the preliminary issues.

Useful guides on this topic

Groups
What are the conditions for forming a VAT group? What rules apply once a VAT group is in place? 

Abuse of rights: VAT
What does 'abuse of rights' or 'abuse of law' mean? How does this impact VAT planning? What are the primary cases?

Place of supply: Services
The place of supply (POS) of a service determines whether the supply is within the scope of UK VAT and whether VAT is payable on that supply.

External link

HSBC Electronic Data Processing (Guangdong) Ltd & Ors v HMRC [2022] UKUT 00041

HSBC Electronic Data Processing (Guangdong) Ltd & Ors [2020] TC07879