Cussens v Brosnan

• Jurisdiction: Ireland
• Judge: MacMenamin J.,Dunne J.,O’Donnell J.,Laffoy J.
• Judgment Date: 21 April 2016
• Neutral Citation: [2016] IESC 79
• Docket Number: [Appeal No 229/2008]
• Court: Supreme Court
• Date: 21 April 2016

[2016] IESC 79

THE SUPREME COURT

O’Donnell J.

Clarke J.

MacMenamin J.

Laffoy J.

Dunne J.

[Appeal No 229/2008]

BETWEEN

EDWARD CUSSENS, JOHN JENNINGS

AND

VINCENT KINGSTON

APPELLANTS

AND

T. G. BROSNAN (INSPECTOR OF TAXES)

RESPONDENT

Preliminary ruling – Order for reference – Value Added Tax – Supreme Court referring a question for a preliminary ruling – Whether the principle of abuse of rights is directly effective against an individual, even in the absence of a national measure, whether legislative or judicial, giving effect to that principle

Facts: The appellants, Mr Cussens, Mr Jennings and Mr Kingston, appealed to the Supreme Court nominally against T. G. Brosnan (Inspector of Taxes), the real respondent on the appeal being the Revenue Commissioners. The proceedings arose from assessments raised by the Commissioners on the appellants in August 2004 in respect of Value Added Tax (VAT) for periods between January 2002 and June 2004 on the sales of fifteen holiday homes, which had been developed by the appellants, to purchasers. At the relevant time, national law in relation to VAT was governed by the VAT Act 1972. The disputed assessments, which pre-dated the decision of the Court in Halifax and Ors, C-255/02, EU: C:2006:121, were premised on the Commissioners’ contention that certain transactions in relation to the properties entered into by the appellants prior to the sales of the properties to the purchasers thereof constituted an abusive practice under European Union law and should be disregarded for the purposes of assessing VAT. In raising the disputed assessments the Commissioners did not invoke any legislative provision or any common law principle in force under national law.

Held by O’Donnell, Clarke, MacMenamin, Laffoy and Dunne JJ that the Court would refer the following questions to the Court for preliminary ruling pursuant to Article 267 of the Treaty on the Functioning of the European Union: (1) Is the principle of abuse of rights, as recognised in the judgment of the Court in Halifax as being applicable in the sphere of VAT, directly effective against an individual in the absence of a national measure, whether legislative or judicial, giving effect to that principle, in circumstances where, as here, the redefining of the pre-sale transactions and the purchaser sales transactions (collectively referred to as the appellants’ transactions), as advocated by the Commissioners, would give rise to a liability on the part of the appellants to VAT, where such liability, on the proper application of the provisions of national legislation in force at the relevant time to the appellants’ transactions, did not arise? (2) If the answer to question (1) is that the principle of abuse of rights is directly effective against an individual, even in the absence of a national measure, whether legislative or judicial, giving effect to that principle, was the principle sufficiently clear and precise to be applied to the appellants’ transactions, which were completed before the judgment of the Court in Halifax was delivered, and, in particular, having regard to the principles of legal certainty and the protection of the appellants’ legitimate expectations? (3) If the principle of abuse of rights applies to the appellants’ transactions so that they are to be redefined – (a) what is the legal mechanism by means of which the VAT due on the appellants’ transactions is assessed and is collected, since no VAT is due, assessable or collectable in accordance with national law, and (b) how are the national courts to impose such liability? (4) In determining whether the essential aim of the appellants’ transactions was to obtain a tax advantage, should the national court consider the pre-sale transactions (which it has been found were effected solely for tax reasons) in isolation, or must the aim of the appellants’ transactions as a whole be considered? (5) Is s. 4(9) of the VAT Act to be treated as national legislation implementing EC Council Directive 77/388 of 17 May, 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – common system of Value Added Tax: uniform basis of assessment, as amended by Council Directive 95/7 of 10 April, 1995 (OJ05. 05.1995 L102p18) (the Sixth Directive), notwithstanding that it is incompatible with the legislative provision envisaged in Article 4(3) of the Sixth Directive, on the proper application of which the appellants, in relation to the supply before first occupation of the properties, would be treated as taxable persons, notwithstanding that there had been a previous disposal which was chargeable to tax? (6) If s. 4(9) is incompatible with the Sixth Directive, are the appellants, by relying on that sub-section, engaged in an abuse of rights contrary to the principles recognised in the judgment of the Court in Halifax? (7) In the alternative, if s. 4(9) is not incompatible with the Sixth Directive, have the appellants achieved a tax advantage which is contrary to the purpose of the Directive and/or s. 4? (8) Even if s. 4(9) is not to be treated as implementing the Sixth Directive, does the principle of abuse of rights as established by the judgment of the Court in Halifax nevertheless apply to the transactions in issue by reference to the criteria laid down by the Court in Halifax?

Questions referred to the Court of Justice of the European Union for a Preliminary Ruling.

Decision of the Court

Decision of the Supreme Court referring a question to the Court of Justice of the European Union (the Court) for a Preliminary Ruling

1 This is an order for reference for a preliminary ruling by the Supreme Court pursuant to Article 267 of the Treaty on the Functioning of the European Union. The question relates to the interpretation of EC Council Directive 77/388 of 17 May, 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – common system of Value Added Tax: uniform basis of assessment, as amended by Council Directive 95/7 of 10 April, 1995 (OJ05. 05.1995 L102p18) (the Sixth Directive).

2 The reference is made in this appeal to the Supreme Court brought by Edward Cussens, John Jennings and Vincent Kingston (the appellants) nominally against T. G. Brosnan (Inspector of Taxes), the real respondent on the appeal being the Revenue Commissioners (the Commissioners). The proceedings arise from assessments raised by the Commissioners on the appellants in August 2004 in respect of Value Added Tax (VAT) for periods between January 2002 and June 2004 (the disputed assessments) on the sales of fifteen holiday homes (the properties), which had been developed by the appellants, to purchasers. At the relevant time, national law in relation to VAT was governed by the VAT Act 1972, as amended (the VAT Act). The disputed assessments, which pre-dated the decision of the Court in Halifax and Ors., C-255/02, EU: C:2006:121 ( Halifax), were premised on the Commissioners’ contention that certain transactions (the pre-sale transactions) in relation to the properties entered into by the appellants prior to the sales of the properties to the purchasers thereof (the purchaser sales transactions) constituted an abusive practice under European Union law and should be disregarded for the purposes of assessing VAT. In raising the disputed assessments the Commissioners did not invoke any legislative provision or any common law principle in force under national law.

The impugned transactions

3 The pre-sale transactions which the Commissioners contended constituted an abusive practice and the context in which they were entered into were as follows:

(a) The appellants jointly owned a development site at Baltimore, County Cork which they had acquired with the intention of developing it by constructing fifteen holiday homes on it and, when constructed, selling on the properties with freehold title and for profit. The properties were substantially completed by December 2001.

(b) In order, as they acknowledge, to reduce their liability for VAT on the sale of the properties to the ultimate purchasers, the appellants, on the advice of their tax advisers, entered into the following transactions:

(i) By a lease dated 8th March, 2002 (the Long Lease), the appellants leased the properties to a company associated with them, Shamrock Estates Limited (SEL), for a term of twenty years and one month from 8th March, 2002 at an annual rent of €66,100 per annum, subject to annual review, and payable in arrears.

(ii) By an agreement dated 8th March, 2002 (the Short Lease), SEL leased back the properties to the appellants for a term of two years from 8th March, 2002 subject to a rent of €67,000 per annum which was not payable until the termination of the tenancy. It was a term of the lease-back arrangement that the tenancy would terminate immediately prior to the disposal by the appellants of the freehold or a long leasehold interest in the properties.

(iii) On 3rd April, 2002, the Long Lease in favour of SEL and the Short Lease were both extinguished by mutual surrender, so that the appellants once again became the owners of the entire freehold interest in the properties, that is to say, the land and the houses built on the land.

(c) After mid-May 2002 all of the properties were sold to purchasers at the best price the appellants could obtain, the purchasers acquiring the freehold interest from the appellants. On those purchaser sales transactions the purchasers paid to the appellants sums which aggregated approximately €3m.

Provisions of the Sixth Directive relevant to assessment of VAT on the transactions

4 At the kernel of the appellants’ case as to the application of the principle of abuse of rights is Article 4(3)(a) of the Sixth Directive, the core issue raised by the appellants being whether the provisions of the VAT Act on which the appellants relied, in particular, s. 4(9) and s. 4(6), were...