Case C-288/07 Isle of Wight District Council and others v Her Majesty’s Revenue and Customs
Local authorities acting as public authorities are outside the scope of VAT unless not to tax their activities “would lead to significant distortions of competition” with private sector operators. Off street car parking in the UK is provided both by local authorities and private companies. In this context HMRC considered that the “competition” test was satisfied and that Local Authorities were subject to VAT in providing off street car parking. The correct interpretation of the competition test raised a series of legal questions that were ultimately referred by the Chancery Division to the ECJ for clarification.
Before the VAT Tribunal HMRC contended that an “activities” approach should be adopted. In other words, whether there was an effect on competition should be assessed on a broad brush basis across the UK rather than on a local authority by local authority basis. They further argued that “significant” meant more than “de minimis” and that “would lead to” included an assessment of potential competition, of which there only needed to be a possibility. Those arguments did not find favour with the Tribunal. HMRC appealed to the Chancery Division (Rimer J.) who decided to stay the case and make a reference on the issues raised by HMRC’s arguments.
In its Judgment the ECJ concluded that the activities approach was the correct approach, that future competition was relevant provided it was a real possibility, and that “significant” meant more than “egligible”.
HMRC were represented by Christopher Vajda QC, Paul Harris and Ben Rayment.
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Paul Harris QC