 “Abusive” tax planning case under appeal
HMRC is challenging the tax planning entered into by Weald Leasing Ltd on the basis that it was an “abuse of rights” under the European Court of Justice’s doctrine set out in the Halifax case in 2006. HMRC’s view is that the taxpayer entered into a commercially hollow series of leases with low rental values solely in order to obtain a VAT saving. If effective, the planning saved Weald VAT because instead of incurring irrecoverable VAT on the full cost of the assets up front, the planning converted the cost of the assets into low rent charges over a period of time. This reduced and delayed the taxpayer’s irrecoverable VAT. In HMRC’s view, the taxpayer should be taxed as if it had not entered into this tax planning.
The High Court, however, in its decision this January disagreed and ruled against HMRC holding that entering into the leases was not abusive. HMRC has just announced in Revenue & Customs Brief 08/08 that it is applying for leave to appeal the case to the Court of Appeal. The Court of Appeal is likely to agree to hear the appeal as the question of what conduct amounts to abusive VAT avoidance is an important issue.
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