Top 10 tax cases of 2021

2021 marked another busy year for the world of tax disputes, and no doubt 2022 will be just as eventful. As the year draws to an end, and in a reflective mood, we look back at the most notable cases over the last twelve months. Difficult as it was to whittle down the numbers, we have shortlisted our top 10 cases – a festive buffet of tax administration, VAT, transfer pricing, indirect taxes, and more.

Danske Bank A/S v Skatteverket (Case C 812/19)

In Skandia the ECJ had decided that membership of different VAT groups ‘switched off’ the rule that intra-entity transactions do not give rise to a taxable supply. Danske Bank confirms that this extends to situations where it is the principal establishment which is part of a VAT group and its non-VAT grouped branch is established in a different member state. More generally, the ECJ also suggested that the territorial scope of VAT grouping should exclude persons established in other Member States.

HFFX v HMRC and Odey Asset Management v HMRC [2021] UKFTT 36 / [2021] UKFTT 31

These two appeals – which went separately through the FTT – concerned the taxation of amounts paid to corporate partners of partnerships which operated ‘special capital schemes’. Whilst HMRC’s primary argument, that the sums paid to such corporate partners were to be taxable as partnership profits in the hands of individual members, was dismissed in both appeals, the FTT in both cases did ultimately agree with HMRC’s secondary argument that the sums were taxable as miscellaneous income received by the individual members, albeit for differing reasons. The two judgments, however, reached opposing conclusions on HMRC’s tertiary argument regarding the sale of occupational income provisions.

KSM Henryk Zeman v HMRC [2021] UKUT 182

The UT held that, whilst it does not have a general supervisory jurisdiction on VAT issues, the FTT does have jurisdiction to consider a taxpayer’s appeal against a VAT assessment on the public law ground of legitimate expectation. The UT’s decision joined a body of previously conflicting case law surrounding taxpayers’ reliance on public law grounds of appeal against HMRC in the FTT. We suspect this will not be the last decision we see on this issue.

Test Claimants in the Franked Investment Income Group Litigation v HMRC [2020] UKSC 47

The Supreme Court (by a majority of 4 to 3) upheld the principle first established in Kleinwort Benson that the Limitation Act 1980 applies to claims for restitution of monies paid under a mistake of law, so that a six year time limit applies to such claims commencing from the time when the claimant has discovered the mistake (or could have reasonably discovered it). However, the Court also held that the decision of the House of Lords in Deutsche Morgan Grenfell (that a claimant should not be treated as having discovered their mistake, where that mistake is based on a new judicial decision, until that decision is handed down) was wrong.

The Prudential Insurance Company Ltd v HMRC [2021] UKFTT 50

Another in a long line of cases which have wrestled with the difficulties of applying the deeming provisions in the context of VAT grouping. In this case, the FTT held that investment management services provided by a taxpayer to the representative member of the VAT group of which it was part, and which gave rise to consideration in the form of performance fees paid after the taxpayer had left that VAT group, did not give rise to supplies for VAT purposes.

Tinkler v HMRC [2021] UKSC 39

The Supreme Court prevented the taxpayer from relying on a technical failure by HMRC to properly serve notice of an enquiry by estoppel by convention, highlighting the importance of raising objections (particularly to formalities) at an early stage.

TP Icap Ltd v Nex Group [2021] EWHC 1375

This High Court decision concerning the obligations of a purchaser to notify claims made under warranties, tax warranties and a tax deed illustrates the difficulties of providing valid notification of potential claims where investigations arise but the results of that investigation are uncertain. The High Court struck out parts of the claimant's claim on the basis that its purported notice of a claim and subsequent claims under an agreement were either premature or ineffective.

Vitol Aviation v HMRC [2021] UKFTT 0353

This FTT decision concerning the ability of a taxpayer to require HMRC to issue a closure notice in the context of a diverted profits tax (DPT) enquiry highlights the importance of considering all strategic options in an active enquiry case.

Westow Cricket Club v HMRC [2021] UKUT 23

If you have a question about the tax effects of a transaction, you might be tempted to ask HMRC. In the absence of an unequivocal view, how far may you rely on their guidance? In this case, the UT held that a letter from HMRC giving an incorrect (but non-definitive) view on the VAT treatment undertaken by the taxpayer did provide a reasonable excuse for incorrectly issuing a certificate of zero-rating, despite HMRC making explicit statements that their letter was not definitive advice.

Wilmslow Financial Services plc v HMRC [2020] UKFTT 516

In HMRC v Newey (t/a Ocean Finance) the FTT, after a decade of litigation, considered that certain VAT-advantaged sub-contracting arrangements were not abusive. Faced with very similar arrangements, in Wilmslow the FTT held that the arrangements were abusive and that the commercial reality was that the business was carried on by the UK intermediary. Importantly, this case highlights how fact specific the application of the principles of abuse and the operation of the economic and commercial reality tests are.