The case of Paul Newey (trading as Ocean Finance) concerned a UK loan broker arranging loans between lenders and borrowers within the UK. Mr. Newey set up a Jersey company called Alabaster (CI) Ltd and gave this company the right to use the trading name of Ocean Finance. The contracts concluded in respect of brokerage services were concluded between the lenders and Alabaster and the commission was paid to Alabaster. The contract for advertising services was then entered into by Alabaster. As Alabaster was in Jersey which is not part of the UK for VAT purposes no input tax needed to be charged on advertising services from the UK.
The UK tax authority HMRC considered that the advertising services were actually supplied to Mr. Newey in the UK and that VAT was therefore due on the services. Mr. Newey successfully appealed against the decision in the First Tier Tribunal but on a further appeal the Upper Tribunal referred the case to the European Court of Justice (ECJ).
On 20 June 2013 the ECJ held that although the contractual terms must be taken into account they are not decisive in determining the VAT liability. The case now returns to the Upper Tribunal for a decision. HMRC commented on 9 July 2013 that the ECJ view confirms its stance that the contractual terms are not decisive in determining VAT liability. HMRC will continue to launch in-depth investigations where it considers that a tax advantage is being obtained by artificial arrangements.
