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The Upper Tribunal has upheld the First Tier Tribunal’s judgment in the important and long-running litigation between local authorities and the HMRC over the question of whether the latter was correct in deciding that the treatment of local authorities as non-taxable persons when providing services that are otherwise taxable would lead, as a real possibility, to actual or potential distortions of competition (on a more than negligible scale) with private operators supplying the exact same services for the purposes of Article 4.5(2) of the Sixth VAT Directive (now Article 13 of Directive 2006/112/EC).
The appellant local authorities had appealed against the First Tier’s findings that the non-application of VAT to Local Authority provision of off-street parking would distort competition and that the degree of distortion would be more than negligible. Those findings were made, applying guidance provided by the Grand Chamber of the ECJ to whom a reference had been made by the High Court on an earlier appeal. The local authorities alleged that the First Tier had erred insofar as it had made findings of fact based on an incorrect understanding of the relevant road traffic legislation. The Upper Tribunal has dismissed the appeal in a judgment in which it comprehensively upheld the First Tier’s analysis.
This litigation, which has been running for more than ten years, is regarded as a test-case and although car-parking was the subject considered by the Tribunal, the same principles may apply to the provision of other services or supplies provided by a local authority where there are private operators providing the same service in the same market. Local authorities had collectively brought very significant Fleming claims which, pursuant to the Upper Tribunal’s Judgment, HMRC will not be required to refund.
Ben Rayment and Brendan McGurk successfully acted for HMRC.
Click to read the judgment in Isle of Wight v HMRC