The following cases were referred to in the decision:
Acre Friendly Society VAT (LON/91/26) No. 7649; [1992] BVC 814
Newcourt Property Fund VAT (LON/90/1029) No. 5825; [1991] BVC 652
Rompelman & Anor v Minister van Financiën VAT (Case 268/83) (1985) 2 BVC 200,157
Repayment supplement - Purchase of commercial property subject to VAT - Purchaser completing in one VAT period but only opting for tax in the next period - Whether input tax deductible in period when paid by purchaser to vendor - Value Added Tax Act 1983, Value Added Tax Act 1983 section 14 subsec-or-para (2) section 15 schedule 6A subsec-or-para 2sec. 14(2) and 15 and Sch. 6A, para. 2(2); SI 1985/886 section 30 section 35Value Added Tax (General) Regulations 1985 (SI 1985/886), regs. 30 and 35 ; sixth Directive 77/388 of 17 May 1977 (OJ 1977 L145/1), eu-directive 77/388 article 17art. 17 .
The issue was whether the appellant was entitled to a repayment supplement, because the commissioners had refused to allow it to deduct VAT on the purchase of a commercial property in the period when the purchase was made, on the ground that the appellant only opted for tax in the following period.
The appellant ("LMPS") was at all material times registered in the names of its trustee companies. On 18 December 1991 it purchased a commercial property in Portland Place, London W1. LMPS received a VAT invoice and paid VAT of £497,117.25. LMPS's return for the period ended 31 December 1991, which was submitted to the commissioners on 31 January 1992, reclaimed the tax paid. On 5 February LMPS elected to waive the exemption (opted for tax) on the building.
Evidence was given for LMPS that the option for tax was not made immediately because the premises were intended for occupation by the Lawson Mardon Group (Europe) Ltd ("LMGE") and LMPS did not wish to opt until it became certain that LMGE would take the lease. If that company had not done so it was the intention of LMPS to sell the building and "unopted" properties were easier to sell than taxable ones.
LMPS contended that input tax on the purchase of the building was deductible in the period in which it was paid because it was input tax on goods and services "to be used exclusively in making taxable supplies". The property had been bought for the purpose of making a taxable supply to LMGE and it was used for that purpose without any exempt supply having been made first. The general principle as to input tax deduction had been laid down in Rompelman & Anor v Minister van Financiën (Case 268/83) VAT (1985) 2 BVC 200,157 , where the court said that "it was a fundamental characteristic of the VAT system that on any transaction VAT is chargeable only after deduction of the amount of tax borne directly by the cost of the various components of the price of goods and services".
The commissioners argued that LMPS was not entitled to deduct the input tax in question in its December return because it had not then opted for tax. An option for tax only took effect, at the earliest, from the day on which it was made. In this case the option was made on 5 February 1992 and up to then the property could only be used for an exempt or some other non-taxable supply. In the present case the tax was deductible in the period ended 31 March 1992 since no previous exempt supply had been made.
Held, dismissing the pension scheme's appeal:
1. Until an election had been made LMPS could not establish that the building was "used or to be used" in making taxable supplies so that input tax on its acquisition could not be attributed to taxable supplies. An intention to make taxable supplies at some future date was insufficient particularly where no firm decision had been taken to exercise the option to tax.
2. In the Rompelman case the reference to "the" goods or services makes it clear that the deduction must be allowed when tax becomes chargeable on a taxable transaction. That might be in a different period from the one in which the tax became chargeable.
3. In refusing deduction for the period to 31 December 1991, but allowing it in the following period after the election had been made, the commissioners correctly applied the UK legislation and complied with the principles of Community law.
DECISION[The tribunal set out the facts summarised above and continued as follows.]
Turning now to the statutory provisions, by Value Added Tax Act 1983 schedule 6 group 1Grp. 1 of Sch. 6 to the Value Added Tax Act 1983, subject to certain exceptions which are not relevant here, the.