The case of Balhousie is the first VAT case heard and decided by the Supreme Court following the UK’s withdrawal from the EU. The most interesting thing about it is just how little emphasis the majority of the judges placed on EU law. This contrasts with the approach many VAT practitioners have previously taken of essentially ignoring whatever our own domestic legislation says and instead honing in on the language of the parent EU provision and how that has been interpreted by the CJEU. However, we may now need to start paying more attention to the language of our own domestic laws, just as the majority did in Balhousie.
What happened in Balhousie was that a company made a zero-rated purchase of a care home, and for financing reasons it sold the care home to a financial institution and leased it back to itself. The question for the court was whether the sale could be split off from the leaseback and treated as the company’s disposal of its entire interest in the care home, meaning that the company would lose much of the benefit of the zero-rating of its purchase. All the judges decided that the sale and leaseback was one transaction and could not be split in the way HMRC had contended, meaning that the company was victorious and able to rejoice about all the VAT it would not have to pay.
The way in which the judges arrived at that answer, however, differed radically between the majority led by Lord Briggs on the one hand, and Lady Arden on the other. Ordinarily, in deciding whether a sale and leaseback comprised one transaction or two, one would think that the CJEU’s caselaw on single and multiple supplies, e.g. Card Protection Plan etc, would be the first port of call. Indeed, that was exactly what Lady Arden thought. She answered the question before the court solely by reference to EU law: in particular, she considered that the CJEU’s decision in Mydibel authorised her to depart from the usual principle that every supply should be treated separately and instead enabled her to treat the sale and leaseback as a single transaction.
The majority of the judges were having none of this EU law approach. What is remarkable about the judgment of Lord Briggs, with whom the majority agreed, is the near total absence of any consideration of EU law at all. He mentioned some of the classics of the genre, such as the CJEU’s decisions in BLP, Halifax and Bookit, but only in order to dismiss them as being irrelevant. His view was that the case raised a very short point about the meaning of a domestic provision that could be answered solely by reference to domestic principles of statutory construction. After considering the purpose of the domestic provision, he decided that because through the sale and leaseback transaction the company had maintained some ‘skin in the game’, i.e. it remained committed to the project of operating the care home, it was only fair that it should also benefit from the zero-rating of that transaction.
This battle between the majority and Lady Arden over the ongoing relevance of principles of EU law foreshadows the battles that are likely to occur in the Court of Appeal and Supreme Court over the months and years to come, as the implications of our withdrawal from the EU are played out. Will Lady Arden come to be seen as having made a valiant last stand, nobly defending the sanctity of EU legal principles against the insurmountable tide of domestic law supremacy and the fatal opposition of her fellow judges? Or will the decision of the majority come to be seen as an aberration, as an isolated example of the court getting its head turned by the dizzying possibilities offered by Brexit only to inevitably settle back down with its old and familiar companion, the CJEU? Only time will tell.
Sarabjit Singh QC specialises in indirect tax and public law, including the interface between the two. To discuss any issues raised in this article with him, please email him at firstname.lastname@example.org. To arrange a private training talk please contact our Marketing Manager, Olivia Kaplan, email@example.com.
Listen to Sarabjit discuss the likely increasing use of Henry VIII powers following the UK’s withdrawal from the EU on episode 143 of our podcast Law Pod UK here.