Tony McClenaghan and Barney Horn comment on Rank Group VAT Appeal Win

[private] In a significant judgment today, the High Court has upheld the earlier decision of the VAT Tribunal and ruled that the Rank Group Plc (Rank) is entitled to a refund from HM Revenue & Customs (HMRC) for VAT overpaid on games of interval bingo and certain gaming machines. In a strong decision in favour of Rank, the High Court stated that there was no objective justification for the differential in tax treatment by HMRC which breached the European Community principle of fiscal neutrality.

The High Court confirmed that the principle of fiscal neutrality which prevents treating similar goods or services differently for VAT is a fundamental corner stone for equality in fiscal treatment.

Tony McClenaghan, senior indirect tax partner at Deloitte, who advised Rank, said: “This is a landmark decision endorsing one of the most important principles of Community law, fiscal neutrality. This underpins fair and effective tax policy. It remains to be seen whether HMRC will appeal the decision, however, the decision of both the VAT Tribunal and the High Court are clear and unequivocal and we would expect the Court of Appeal to share this view.

“The same principles should apply to any taxpayer which has paid VAT on the income from these activities. Other organisations in the leisure industry should consider their own grounds to submit claims for overpaid VAT and interest to HMRC following the guidance laid down by the High Court in this ruling.”

The interval bingo appeal concerned identical supplies of bingo games, one played under s.14 of the Gaming Act 1968 and one played under s.21 of the Gaming Act 1968, the former being subject to VAT, and the latter being exempt from VAT. It was common ground that the games were identical and therefore HMRC failed to persuade the High Court that there was any objective basis for the differential in tax treatment. This resulted in a breach of fiscal neutrality.

The gaming machines appeal, referred to as the “Slots appeal”, concerned supplies of certain gaming machines which were subject to VAT, and other similar gaming machines, which were comparable, which were treated as exempt from VAT. This also caused a breach of fiscal neutrality and distortion of competition. HMRC amended the law in 2005, to tax all of these gaming machines.

Barney Horn, indirect tax partner at Deloitte, commented: “This decision upholds the principles set out by the European Court of Justice in the Linnewebber case. This requires the same or similar services to be treated in the same way for the purposes of VAT. Both the VAT & Duties Tribunal and now the High Court have accepted this argument and upheld Rank’s claim for overpaid VAT.”

HMRC has until 29 June 2009 to appeal this decision to the Court of Appeal.[/private]