The European Court of Justice (ECJ) has reached a decision in the case of HMRC v Paul Newey t/a Ocean Finance (C-653/11). This case concerned the relevance of contractual terms to the identification of the supplier and recipient of services for the purposes of value added tax (VAT). The UK had asked for a preliminary ruling from the ECJ on the question of the importance of contracts in determining the identity of the taxable person involved in making a supply of services for VAT purposes.
The Court held that, although the contractual terms are a factor to be taken into consideration, they are not decisive in identifying the supplier or recipient of services under the VAT Directive. This is particularly the case if the terms do not represent the economic reality of the transaction and are part of an artificial arrangement that is entered into solely with the aim of gaining a tax advantage.
