Rank: Upper Tribunal sets aside First tier Tribunal decision on fiscal neutrality

05 Oct 2012

The Upper Tribunal (Mr Justice Norris) today set aside a decision of the First Tier Tribunal(“FTT”) in 2009  that the United Kingdom had breached the principle of fiscal neutrality in the period up to 2005 by subjecting certain types of gaming machines (“Part III machines”) to VAT but not imposing VAT on Fixed-Odds Betting Terminals (“FOBTs”).  Although HMRC had withdrawn a number of their legal arguments against the FTT’s decision following a reference by the Upper Tribunal to the European Court of Justice, HMRC argued that it followed from the ECJ’s judgment that the FTT had erred in law in holding that FOBTs and Part III machines were “similar”.  The Upper Tribunal agreed with HMRC that the FTT had gone wrong by (a) applying a “high level of abstraction” test (previously laid down by Norris J himself in an earlier ruling in the case) rather than the test laid down by the ECJ, which was to examine “the relevant or significant elements or circumstances liable to have a considerable influence on the consumer’s decision to play one game or the other”; and (b) regarding differences in stake and prize limits as legally irrelevant to the question of similarity. The question of whether FOBTs and Part III machines were similar, applying the correct test, has been remitted to the FTT for re-determination.

Rank’s is the lead case in a large number of claims for repayment of VAT imposed on Part III machines over the years leading up to 2005: the claims are estimated to be worth many hundreds of millions of pounds.  The Upper Tribunal’s judgment will not only be important for these cases but also for other cases where taxpayers seek to argue that different tax treatment of similar products infringes the principle of fiscal neutrality.

George Peretz and Laura Elizabeth John acted for HMRC; Paul Lasok QC and Valentina Sloane acted for Rank.

Click to read the judgment in HMRC v Rank