Vieira Ltd v O'Donagain (Inspector of Taxes)

• Jurisdiction: Ireland
• Court: High Court
• Judge: Ms. Justice Costello
• Judgment Date: 08 May 2018
• Neutral Citation: [2018] IEHC 266
• Docket Number: [2016/RA 2/2012]
• Date: 08 May 2018

[2018] IEHC 266

THE HIGH COURT

REVENUE

Costello J.

[2016/RA 2/2012]

IN THE MATTER OF A CASE STATED PURSUANT TO SECTION 941 OF THE TAXES CONSOLIDATION ACT, 1997

BETWEEN

VIEIRA LIMITED

APPELLANT

AND

DERMOT O"DONAGAIN (INSPECTOR OF TAXES)

RESPONDENT

Taxation – S. 941 of the Taxes Consolidation Act, 1997 – S.25 of the Value Added Tax Act, 1972 – Case stated

Facts: The present appeal came by way of a case stated by the learned judge of the Circuit Court. The learned judge sought the opinion of the High Court on two questions namely, whether the learned judge was correct in law in determining that the relevant arrangements did not constitute surrender of possession for the purpose of the Value Added Tax Act ('VATA') and that such arrangements were liable to be set aside.

Ms. Justice Costello answered the questions raised by the learned Circuit Court judge in the affirmative. The Court held that the appellant had obtained a tax advantage by avoiding the usual charge to VAT on the sale of the houses as a result of the licence agreements that it regarded as a self-supply of goods for the purposes of VATA. The Court found that the principal aim of the licence agreements was to obtain a tax advantage and thus, it was an abusive practice within the meaning of the principle laid down in Case C-255/02 Halifax plc et al v. Commissioners of Customs & Excise [2006] ECR I-1609.

JUDGMENT of Ms. Justice Costello delivered on 8th day of May 2018

Introduction

1 This is an appeal by way of case stated pursuant to s.941 of the Taxes Consolidation Act, 1997 as applied to VAT by s.25 of the Value Added Tax Act, 1972 as amended (hereinafter ' VATA') from Her Honour Judge Jacqueline Linnane dated the 21st March, 2017. The case stated seeks the opinion of the High Court on two questions:

(1) Based on the facts found was I correct in law in determining that the arrangements did not constitute either a letting of immovable goods or a surrender of possession for the purposes of the VATA 1972?

(2) Based on the facts found was I correct in law in concluding that the arrangements constitute an abuse of rights so as to be liable to be set aside in accordance with the principles outlined by the Court of Justice of the EU in its judgment in Case C-255/02 Halifax plc et al v. Commissioners of Customs & Excise [2006] ECR I-1609 and so to permit the assessment to stand?

The facts as found by the Circuit Court

2 The appellant is a company incorporated in the State and is registered for VAT with the number 8284762L. The appellant, a building development company, was formed with a view to the development of a very large housing development in Tyrellstown, County Dublin. The company was never in business as a landlord. The aim was to sell the houses.

3 The development at Tyrellstown was the first of its kind in Ireland, with a greater density of housing and involving 35 different house types, considerably greater than normal. It was constructed in a number of phases between 2001 and 2009. In order effectively to market new houses it is generally required to have a similar showhouse available to allow prospective purchasers to view. That was a problem in Tyrellstown due to the number of house types and the prevalence of first time buyers.

4 Mr. McPeake of McPeake Auctioneers was the sole selling agent in respect of the development at Tyrellstown. He was an independent third party charged with the sale of the houses constructed by the appellant. He testified that the vast majority of the sales were to first time buyers and included foreign nationals.

5 In respect of the first phase of the development, which consisted of approximately 70 houses, a showhouse complex of twelve houses was constructed and fitted out. It included about half of the 35 different house types to be developed at Tyrellstown. The houses for sale were in close proximity to the showhouse complex and the houses in the first phase were sold with the assistance of the showhouse complex. There was no licence agreement governing the access of McPeake Auctioneers to the showhouses in this first phase.

6 In respect of the second phase of the development, sales were more difficult. The showhouse complex was no longer representative of the types of houses being sold. This was due both to the number of house designs being used and a change in the relevant building regulations, in particular with respect to disabled access, which necessitated material alterations to the floor plan of the houses. Mr. McPeake stated that this difficulty was greater since a larger than usual proportion of the buyers in Tyrellstown were first time buyers and/or did not have English as their first language. Therefore, misunderstandings as to the nature of the alterations made between the showhouses and the houses to be developed in phase 2 could easily arise. Mr. McPeake said he had particular concerns regarding this issue in the context of misinformation/misrepresentation based on his years of experience and his caution regarding issues of description of the property being sold.

7 Further to advice from its tax advisors, the appellant entered into written licence agreements with McPeake Auctioneers. A letter from the appellant to Mr. McPeake dated the 3rd March, 2003 provided as follows:

'I write to confirm your appointment as sole selling agent for those houses in the current phase of Tyrellstown, Dublin 15, listed at the end of this letter, being developed by Vieira Ltd...

As discussed, we have decided to enact a new sales process, which has been designed to serve as an incentive to you to close out sales quickly, while reducing the level of management that is required from this company. To that end, you will be given possession of contracted units in advance of their sale in order that you will then be able to exhibit these units to prospective purchasers who may wish to see a constructed house rather than a drawing. We understand this will help avoid any problems surrounding misrepresentation until such time as the new show complex is complete.

Accordingly, in respect of each dwelling unit contracted for sale, you will enter into a form of licence, whereby you take possession of each unit. The licence will grant you access for the purposes outlined above and is designed to serve as an incentive for you to complete the sale of the licensed unit, which as stated, will be contracted to a third party. This incentive is created by the licence period being for 2 weeks, after which a fee will be required from you to renew the licence (to continue having access to the said unit for show purposes) and such fee will be set against any commission you eventually receive.'

8 The appellant executed licence agreements for a total of 198 units of completed/nearly completed residential houses at Tyrellstown to McPeake Auctioneers for the purpose of McPeake Auctioneers' activities as sales agent for the development over a period between 2003 and 2004. At no time were all 198 units licensed together.

9 No licence agreement was ever renewed or extended. There was never any discussion of what the licence fee would be. No licence fee was ever demanded or paid. In fact, McPeake Auctioneers continued to have access to the houses after the expiry of the two week period for the same purposes right up to the completion of the sale of the houses.

10 A set of keys was provided to McPeake Auctioneers who were authorised to permit access to each property to prospective purchasers for the purposes of viewing the property. Mr. McPeake confirmed that McPeake Auctioneers would, on a regular basis, provide keys to those contractors wishing to access the property during the period of the licence agreement to carry out works, including snagging on behalf of the appellant. The appellant's foreman also had keys and had access to the property at any time. Mr. McPeake had no doubt that the foreman would have access to the houses at any period and that he would have keys that would get anybody in.

11 McPeake Auctioneers did not bring furniture, fittings or carpets onto any property. Under the terms of the licence agreement (which will be considered more fully below) McPeake Auctioneers was responsible to keep the premises secure and was required to have relevant public liability insurance cover. Mr. McPeake confirmed that McPeake Auctioneers held general public liability insurance which he believed covered the user of the relevant premises although he had not clarified that with his insurer. Mr. McPeake also confirmed that he did not employ security personnel, but McPeake Auctioneers were liable for ensuring that the doors and windows were fully secured at the end of a viewing. There were disputes with foremen as to whether doors and windows had been left open.

12 Mr. McPeake and his sales team accessed each particular licensed property to show the prospective purchasers of other houses in the development, the layout, design and finish of the particular property. Mr. McPeake testified that the keys would be returned on request to the foreman or to the appellant's solicitors, when the closing was imminent, or directly to the purchaser in some cases.

13 Mr. McPeake testified that the licence agreements would facilitate his efforts to address his concerns regarding the misinformation/misrepresentation and reduce the time spent by his office on sales. In response to a question that there was no need for the licence, Mr. McPeake testified that it was the advisors' way of helping to solve a misrepresentation problem. He did not seek a licence agreement. It was put to him and he dealt with it. In response to a question that the licence agreement did not assist with misrepresentation issues, Mr. McPeake testified that this was incorrect; he described the licence agreement as more pressure on him or a stick with which to beat him. Mr. McPeake said the Tyrellstown...