TMI Blog2001 (5) TMI 935X X X X Extracts X X X X X X X X Extracts X X X X ..... for the taxpayer. Kenneth Parker Q.C. and Philippa Whipple for the commissioners. Their Lordships took time for consideration. 23 May. Lord Slynn of Hadley 1 My Lords, I have had the advantage of reading the text of the speech prepared by my noble and learned friend, Lord Scott of Foscote. The key to the decision in this case is, as Mr Kenneth Parker argued, that regulation 32 of the Value Added Tax (General) Regulations 1985, provides a separate code for determining the amount of input tax relevant to the making of out-of-country supplies which is distinct from the code in regulation 30 where, as Nourse LJ rightly thought plain, taxable supplies do not include out-of-country supplies: [1999] STC 424. Moreover I see nothing in article 17(5) of the Sixth Council Directive (77/388/EEC) which precludes the adoption of regulation 32 of the 1985 Regulations. Accordingly, for the reasons given by Lord Scott, I too would dismiss the appeal. Lord Cooke of Thorndon 2 My Lords, I have had the advantage of reading in draft the opinion of my noble and learned friend, Lord Scott of Foscote. For the reasons given by him, I would dismiss this appeal. Lord Hope of Cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal. Lord Millett 7 My Lords, I have had the advantage of reading in draft the speech of my noble and learned friend, Lord Scott of Foscote. I agree with it, and for the reasons he gives I too would dismiss the appeal. Lord Scott of Foscote 8 My Lords, the issue in this appeal is the method to be adopted for calculating the amount of input tax for which the appellants, the Liverpool Institute for Performing Arts (LIPA), were entitled to credit when making their VAT returns. The issue turns on the construction to be given to regulations 30 (attribution of input tax to taxable supplies) and 32 (attribution of input tax to foreign and specified supplies) of the Value Added Tax (General) Regulations 1985. 9 The 1985 Regulations were made in exercise of the power conferred by section 15(3) of the Value Added Tax Act 1983, as amended: The Commissioners shall make regulations for securing a fair and reasonable attribution of input tax to supplies . . . and any such regulations may provide for (a) determining a proportion by reference to which input tax for any prescribed accounting period is to be provisionally attributed to those supplies; . . . The 1985 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... governing deductions should be harmonized to the extent that they affect the actual amounts collected; whereas the deductible proportion should be calculated in a similar manner in all the member states . . . 14 Article 2 expressed the general principle of VAT: The following shall be subject to Value Added Tax: 1. the supply of goods or services effected for consideration within the territory of the country by a taxable person acting as such; 2. the importation of goods. 15 Article 9 laid down the general rule that the place where a service is supplied shall be deemed to be the place where the supplier has established his business . . . but then provided for a number of exceptions, which included the supply of advertising services, where the place of supply was to be the place where the customer has established his business . . . (paragraph (e)). Hence, article 16 of the 1992 Order. 16 Article 17 of the Sixth Directive dealt with deductions of input tax. Paragraphs 2, 3 and 5 are important. So far as relevant to the issues in this case, they provided as follows: 2. In so far as the goods and services are used for the purposes of his taxable transactions, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hose goods and services is deductible. Nor is there any problem where the input goods and services are used exclusively for the purpose of transactions that do not attract VAT, e g exempt transactions. In that case none of the input tax paid in respect of those goods and services is deductible. The problem only arises in relation to so-called residual input tax , i e input tax on goods and services which are used indiscriminately for all transactions of the taxable person, some of which attract VAT, some of which are exempt from VAT, and some of which, e g gratuitous transactions not made for business purposes, may fall outside the VAT system. 19 In relation to these, some formula or criteria are needed in order to determine the amount of the residual input tax that is deductible. Article 17(5) proposes the article 19 formula but, under the However . . . . part of the paragraph, allows member states some flexibility to make other provision. 20 I can now turn to the domestic legislation. Section 1 of the 1983 Act provides for VAT to be charged . . . on the supply of goods and services in the United Kingdom . . . And section 2 says that a taxable supply is a supply of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same meaning it would have had in the Act. Supplies made in carrying on any activity other than the making of taxable supplies would, apart from exempt supplies which are expressly mentioned, be apt to cover out-of-country supplies and supplies made otherwise than in the course or furtherance of a busiess. 25 Paragraph (2) continues: (d) there shall be attributed to taxable supplies such proportion of the input tax on such of those goods or services as are used or to be used by him in making both taxable and exempt supplies as bears the same ratio to the total of such input tax as the value of taxable supplies made by him bears to the value of all supplies made by him in the period. This sub-paragraph is dealing with residual input tax. It prescribes a value-based method of apportionment. Some of the difficulties it presents are immediately apparent, others only become apparent, to me at least, after several rereadings. First, taxable supplies must, surely, have the same meaning here as elsewhere in regulation 30. It must be limited to supplies in the United Kingdom that are taxable. It must, therefore, exclude exempt supplies, out-of-country supplies and supplies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egulation 30 (see paragraph 89 of the tribunal decision), and, second, in a case where the supplies made by the taxpayer included out-of-country taxable supplies, exempt supplies and in-country taxable supplies, regulation 30(2)(d) would come into play with the taxable supplies numerator including both in-country and out-of-country taxable supplies and with the all supplies denominator including those supplies plus the exempt supplies. Presumably the all supplies denominator would also include non-business supplies. The paragraph (2)(d) fraction would be applied to the residual input tax after deduction therefrom of the amount of input tax determined under regulation 32 as being attributable to the out-of-country supplies. 31 Carnwath J agreed with the tribunal. He said [1998] STC 274, 282: . regulation 32 is ancillary to regulation 30 and simply designed to ensure that out-of-country supplies are (in line with the scheme of the Sixth Directive) treated in the same way as taxable supplies. This means, in effect, treating the word 'taxable supplies' in regulation 30(2)(d) in other than its ordinary sense. 32 The Court of Appeal disagreed [1999] STC 424 di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the basis of use. 37 The regulation 32 use-based apportionment applies only in respect of out-of-country supplies. Where input goods and services are used in part in making out-of-country supplies and in part in making in-country supplies, article 17(5)(c) does not, Mr Cordara submitted, enable a usebased apportionment to be imposed in respect of the out-of-country supplies with a value-based apportionment applying in respect of the incountry supplies. He submitted, as I understood it, that there must be one regime, and one regime only, either the value-based regime of article 19 or a use-based regime imposed under article 17(5)(c). I do not accept that article 17(5)(c) requires this one regime approach. Sub-paragraph (c) refers to apportionment on the basis of the use of all or part of the goods and services . The goods and services referred to are the input goods and services. So a use-based apportionment can be prescribed in respect of the input tax on some of the goods and services, leaving the input tax on the other goods and services to be apportioned by a value-based method. There can, therefore, be two regimes. It is true that regulation 32 does not split the input ..... X X X X Extracts X X X X X X X X Extracts X X X X
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