THE SUPREME COURT
[Appeal No: 414/2009]
Clarke J.
MacMenamin J.
Dunne J.
Vieira Limited
Applicant/Appellant
and
The Revenue Commissioners
Respondent
Judgment of Mr. Justice Clarke delivered the 20th October, 2015.
1. Introduction
1.1 While the underlying system by which many taxes are collected has changed significantly as a result of the introduction of self-assessment, the question of the raising by the Revenue Commissioners of an assessment to tax remains an important part of that system. In general terms, many provisions of taxation legislation permit, in particular circumstances, the Revenue Commissioners or an appropriate official to raise an assessment. In order for such an assessment to be raised, it is normally required that a relevant person has reason to believe that the tax in question is due. One such provision is to be found in s.23 of the Value Added Tax Act 1972 (“the VAT Act”) which permits the raising of an assessment where a relevant Revenue official has “reason to believe” that the total amount of VAT properly payable is greater than the tax actually paid.
1.2 In this case, the respondents (“the Revenue”) conducted an audit of the affairs of the applicant/appellant (“Vieira”). In the course of that audit, questions were raised as to whether certain arrangements entered into by Vieira relating to property, which had formed the basis of Vieira’s acknowledged VAT liability, had the VAT consequences for which Vieira contended. Certain discussions ensued, but ultimately an assessment (or, on one view, two assessments) for substantial additional sums of VAT were raised by the Revenue.
1.3 Vieira unsuccessfully challenged the lawfulness of the raising of such an assessment or assessments in the High Court. Vieira has appealed to this Court against the findings of the High Court. In order properly to understand the issues which arose on this appeal it is necessary to say something about the facts and the relevant provisions of the VAT Act.
2. The Facts
2.1 Vieira was engaged in the construction of houses. It entered into a series of licence agreements with an auctioneer, the terms of which it will be necessary to address in a little more detail in due course. It is Vieira’s case that those licence arrangements created a so-called self-supply which had the effect of raising an immediate, although relatively low, obligation to pay VAT, but also, it is said, had the effect of removing the houses which were subject to the licence agreements from the VAT net so that no VAT was said to be payable when the houses ultimately were sold to third parties. By the time these issues came to be debated between Vieira and the Revenue, Vieira had accounted for VAT on what it contended was a correct basis. The assessment or assessments raised by the Revenue represented the difference between the VAT actually paid by Vieira and an amount calculated as being due on the basis of the Revenue’s view that VAT ought properly to have been charged on the properties when they were ultimately sold. Those two views as to the proper tax treatment of the situation form the backdrop to the issues which arise on this appeal.
2.2 For present purposes, it is sufficient to note that Vieira entered into licence agreements on the 5th January, 2004, with a Joseph McPeake who was an estate agent. Vieira is, in those licence agreements, described as the Licensor while Mr. McPeake is described as the Licensee.
2.3 The substance of each of the licences is to be found in clause 1, which provided that the Licensor grants to the Licensee “licence to enter upon and use and occupy the Property subject to the terms and conditions hereinafter appearing”. The term “the Property” was defined by reference to a schedule which specifies an individual house within the development then being undertaken by Vieira. It would appear that separate licences were entered into in respect of different aspects of the development.
2.4 More specifically, clause 3 provided that the Licensee (i.e. Mr. McPeake) could enter onto the property whenever he wished and that he should “have possession of the Property during the period of this agreement”. The agreements did not provide for any payment by Mr. McPeake as Licensee. Each licence was expressed, in clause 13, to be for a period of fourteen days subject to the parties agreeing to a longer period, but also subject to a proviso for termination in the case of default and automatic termination (under clause 14) in the event of the sale of the relevant property by Vieira to a “third party purchaser”.
2.5 The Revenue, in the person of Mr. Aidan O’Brien, an inspector of taxes, commenced a VAT audit in respect of Vieira on the 23rd August, 2005. The audit concerned six separate two-month VAT periods encompassing a twelve-month period ending on the 31st August, 2004. That twelve-month period corresponded with Vieira’s accounting year. Mr. O’Brien met with Vieira’s auditor and a solicitor from Matheson who was advising Vieira. Certain explanations and discussions took place at a meeting during which Vieira’s case as to the proper tax treatment for VAT purposes of the relevant transactions was put forward. Thereafter, certain correspondence was exchanged between Mr. O’Brien and Matheson in which Mr. O’Brien argued for a different tax treatment to the one on which Vieira’s VAT return had been based and Matheson put forward the argument in favour of Vieira’s view.
2.6 As noted earlier, the essential difference between the two sides centred on the question of whether a self-supply had occurred for the purposes of the VAT Act as a result of Vieira entering into the relevant licence agreements with Mr. McPeake. In simple terms, the VAT Act defines self-supply as occurring in a range of circumstances. The broad intent of that aspect of the VAT Act is to cover a situation where goods are owned by a VAT registered person or body for the purposes of their business but where the goods concerned are, as it were, taken out of the business by being supplied to their owner in a private and non-business capacity. Thus, in a relatively straightforward example, a self-supply would occur where a person engaged in the business of selling white goods took a refrigerator, which had been purchased for the purpose of resale as part of the business, for his own use and installed it in his own home. That self-supply would give rise to a transaction on which VAT would need to be charged in accordance with the self-supply provisions of the VAT Act. However, if, on some subsequent occasion and wholly unconnected with the individual’s business, the same refrigerator was sold on to a third party, then no VAT liability would arise on that subsequent transaction in much the same way that no VAT liability would arise in the event that a third party purchaser of the refrigerator who bought it for entirely private purposes might sell it on some subsequent occasion.
2.7 However, while that broad description may indicate, in the most general terms, the thinking behind self-supply, it must, of course, be understood that the question of whether a self-supply has or has not occurred in the circumstances of any particular case is entirely dependent on whether the technical requirements of the VAT Act in respect of a particular type of supply have been met. In that context, two further points need to be noted. The first is that, of course, the VAT Act is the means by which Ireland’s European Union obligations under various VAT directives have been transposed into Irish law. It follows that it is necessary to have regard to those directives in interpreting the VAT Act. Second, it is important to note that, in relation to many aspects of the VAT regime, including rules relating to self-supply, specific provision is made for the sale of immoveable property.
2.8 However, again for present purposes, it is sufficient to note that Mr. O’Brien and Vieira’s advisors maintained their respective, different viewpoints on the question of whether a self-supply had actually occurred.
2.9 It was in those circumstances that an assessment or assessments were raised. On the basis of the evidence before the High Court, it would appear that two separate documents (one each referable to two separate accounting years on Vieira’s part) were produced within the Revenue. The relevant documents were exhibited in the evidence before the High Court. On one of them, a line appears which, under the heading “Type”, refers to “s23 Asmt” which would appear to refer to an assessment under s.23 of the VAT Act. A period of the 1st September, 2002, to the 31st August, 2003, is then given followed by a sum under the heading “Liability” of €1,270,379 and a sum under “Collections” of €129,697.42 leaving a balance of €1,140,681.58. The exhibit also discloses that the relevant electronic record would appear to have been last updated on the 13th December, 2006, at 15:18 by Mr. O’Brien. On that basis, Mr. O’Brien asserted that an assessment in respect of that twelve-month period was raised at that time on that date.
2.10 Mr. O’Brien also exhibited what is said to be a second assessment for the period of the 1st September, 2003, to the 31st August, 2004. That document is in the same form as the previous document to which reference has been made, save that, of course, the dates and amounts are different. The full sum said to be due on foot of that assessment is €1,944,340. Again, that document contains a printout of an electronic record which suggests that it was last updated, again by Mr. O’Brien and again on the 13th December, 2006, but in this instance at 15:22. On that basis, Mr. O’Brien deposed that there was a second assessment raised, in effect some four minutes later than the first, in respect of the latter period from the 1st September, 2003, to the 31st August, 2004.
2.11 When, however, a document was served on Vieira giving notice of the assessments in question, a single document was served which was in the following form. The notice of assessment was issued on the 14th December, 2006, which is, of course, the day after the documents specifying the two separate assessments to which reference has already been made are said to have been created. The document is addressed to Vieira and is headed “Value Added Tax - Notice of Assessment of Tax Payable”. On the first page there is a schedule which has four headings, being respectively “Period”, “Assessment of Total Tax”, “Total Amount of Tax” and “Balance of Tax Due and Payable”. In that schedule, the period is stated to be “[a]s specified on the following page(s)”. Thereafter, a single set of numbers is included showing a total sum allegedly due of €3,085,021.
2.12 On the second page, again under the title “Value Added Tax - Notice of Assessment of Tax Payable” two separate periods are specified, being respectively the 1st September, 2002, to the 31st August, 2003, and the 1st September, 2003, to the 31st August, 2004. In respect of each period, there is a separate calculation giving rise to two separate balances which correspond with the sums to which reference has already been made which are included in the documents generated the previous day. There is also a total, which again comes to the sum of €3,085,021, being the total sum which appears on the first page.
2.13 It is against the backdrop of that sequence of events that the issues which arise on this appeal need to be identified. I, therefore, turn to those issues.
3. The Issues
3.1 The first issue concerns a contention on the part of Vieira that the Revenue did not have “reason to believe” that the relevant amounts of VAT were truly due. It was argued that the Revenue failed to engage with the analysis put forward by Vieira’s advisors to such an extent that it could not be said that they had, in accordance with the relevant jurisprudence, considered the question of whether the VAT in question was due to a sufficient extent to permit a sustainable and legitimate view to be taken that there was reason to believe that VAT was in fact due.
3.2 In a sense, a number of subsidiary questions arise under this heading. The first is as to whether the evidence discloses a failure on the part of the relevant Revenue officials to sufficiently engage with the argument put forward by Vieira’s advisors.
3.3 The second concerns an issue raised in reply by counsel for the Revenue who drew attention to evidence to the effect that, as a fallback position, the Revenue had considered (and had that view confirmed by advice) that the matter could also be dealt with under the jurisprudence of the European Court of Justice (“ECJ”) stemming from the decision in Halifax plc and ors v. Commissioners of Customs and Excise (Case C-255/02) [2006] E.C.R. I-01609. In that case, the Grand Chamber of the Court ruled that the Sixth VAT Directive must be interpreted as precluding any right of a taxable person to deduct import VAT where the transaction from which that right derives constitutes an abusive practise. The Court went on to hold that a finding of abusive practice requires first that the transactions concerned, “notwithstanding formal application of the conditions laid down by the relevant provisions of the Sixth Directive and the national legislation transposing it”, result in the accrual of a tax advantage, the grant of which would be contrary to the purpose of those provisions. Second, it must also be apparent from a number of objective factors that the essential aim of the transaction concerned was to obtain a tax advantage. Finally, the Court held that where an abusive practise is found to exist, the transactions involved must be redefined so as to re-establish the situation which would have prevailed in the absence of the transactions constituting that abusive practise.
3.4 A third potential question in relation to this issue arises out of a debate disclosing at least a potential difference of emphasis in the jurisprudence as to the proper test to be applied in determining whether it can properly be said that a party, such as a Revenue official, had the requisite “reason to believe” in accordance with the legislation in question. That difference can be said to lie between the positions adopted by Charleton J. in Menolly Homes Ltd v. The Appeal Commissioners and anor [2010] IEHC 49 and O’Neill J. in Vieira v. the Revenue Commissioners [2009] IEHC 431.
3.5 The second issue concerned the question of whether the Revenue had issued one or two assessments and, indeed, a connected question of whether it was open to the Revenue to raise more than one assessment in the circumstances of this case. While such an issue might not appear ordinarily to be of any great moment, it is of particular relevance in the circumstances of this case. At the relevant time, there was a four year limitation period on the raising of an assessment of VAT (as provided, with effect from the 1st January, 2005, by s.30(4)(a)(ii) of the VAT Act in its then form). It was common case that at least part of the first year mentioned in the notice of assessment fell outside of that period. As there was no differentiation as and between VAT said to be due between one part of that year and another, it followed that the Revenue, quite properly and correctly, accepted that the assessment in respect of that year was statute barred and that the tax mentioned in that assessment or part of the assessment could not properly be collected. However, the Revenue maintained that there was no barrier to the raising of the assessment in respect of the second year, all of which year was within time.
3.6 It is in that context that it was argued either that there was only one assessment (in which case the entirety would have fallen as being statute barred) or that, if there were two assessments, such a course of action was not, it was said, permitted under the legislation. If that latter proposition were correct then, of course, the assessment would also either be unenforceable as being incorrectly formulated or else it would be statute barred.
3.7 The third issue, which was argued by counsel for the Revenue, concerned an assertion that the second point, being the question of whether there had been one or two assessments, had not been raised either at the stage when leave to seek judicial review was granted or, it was said, at the hearing before the High Court. In those circumstances, it was argued that this Court could not, or at least should not, entertain the second point at all. Clearly, it would only be necessary to consider this third issue if the Court were persuaded that there was some merit in the “one/two assessment” issue, for if it were not, in the Court’s view, a good point anyway, it would not matter whether it was too late to raise it. In those circumstances, I would propose leaving over that point until such time as I have set out my views on the second issue.
3.8 Against the background of those issues, it is necessary to consider the views of the trial judge on the first and second issues.
4. The High Court Judgment
4.1 The trial judge noted that the equivalent statutory provision to s.23(1) of the 1972 Act in the United Kingdom is s.73(1) of the Value Added Tax Act 1994, which provides that where a taxable person has, among other things, failed to make any returns, or where the returns are incomplete or incorrect, the Customs and Excise Commissioners “may assess the amount of VAT due from him to the best of their judgment” and notify this to the taxable person. The trial judge considered the meaning of the phrase “best of their judgment” as discussed by Woolf J. in Van Boeckel v. Customs and Excise Commissioners [1981] S.T.C. 290, in the following terms:
"…it should be recognised, particularly bearing in mind the primary obligation, to which I have made reference, of the taxpayer to make a return himself, that the commissioners should not be required to do the work of the taxpayer in order to form a conclusion as to the amount of tax which, to the best of their judgment, is due. In the very nature of things frequently the relevant information will be readily available to the taxpayer, but it will be very difficult for the commissioners to obtain that information without carrying out exhaustive investigations. In my view, the use of the words 'best of their judgment' does not envisage the burden being placed on the commissioners of carrying out exhaustive investigations. What the words 'best of their judgment' envisage, in my view, is that the commissioners will fairly consider all material placed before them and, on that material, come to a decision which is one which is reasonable and not arbitrary as to the amount of which is due. As long as there is some material on which the commissioners can reasonably act then they are not required to carry out investigations which may or may not result in further material being placed before them."
4.2 Ultimately, the trial judge held as follows:
“4.8 The concept of having “reason to believe” involves an analysis of the subjective state of mind of the respondent’s inspector based on the objective information before him. The reason which gives him to believe that tax is due and payable must be based on facts which are known to him. I am satisfied that the correct test is not dissimilar to that enunciated by Woolf J. in Van Boeckel v. Customs and Excise Commissioners [1981] S.T.C. 290 in respect of ‘to the best of their judgment’, in the sense that the act of determining whether tax is due must be based on the material placed before an inspector and that a reasonable, as distinct from arbitrary, conclusion must be arrived at after assessing that material. It can be formulated as follows:- on the basis of the material before the inspector can he reasonably conclude that an amount was due to entitle him to raise an assessment for a particular period?”
4.3 The trial judge found that at the time the assessment (or assessments) were raised in December 2006, Mr. O’Brien held the financial returns and accounts for the financial years ending the 31st August, 2002, 2003 and 2004, and that he possessed information as to the overall sales figures and the amount of VAT which Vieira had paid and the sales of underdeveloped sites. Further, the trial judge accepted that Mr. O’Brien had concluded that the licence agreements were a device to avoid VAT on the basis of the information before him and the interviews he had had with representatives and advisors of Vieira. Therefore, the trial judge held that Mr. O’Brien had “ample ‘reason to believe’ that an amount of tax was due and payable by [Vieira], which he was able to calculate by reference to the extensive aforementioned financial material.” In addition, the trial judge was satisfied that the volume and quality of information available to Mr. O’Brien would also satisfy the test proposed by Vieira, namely, that of having an opinion that was bona fide, factually sustainable and not unreasonable.
4.4 In deciding that two separate VAT assessments had, in fact, been made, the trial judge had regard to the language of s.23 of the 1972 Act in holding that there is no doubt that a notice of assessment is not the same as an actual assessment. Further, the trial judge noted that the Value Added Tax (Estimation of Tax Payable and Assessment of Tax Payable or Refundable) Regulations 2000 (S.I. No. 295 of 2000) set out in regulation 5 (2) what a notice is to contain, and that the U.K. Court of Appeal in Honig v. Sarsfield [1986] S.T.C. 246 held that the charge to tax arose from the relevant statutory provisions together with the making of the assessment and was in no way dependent on notice to the taxpayer.
4.5 Further, the trial judge noted that s.23 of the Act of 1972 expressly refers to "any period". He held that this must be construed as enabling the inspector to raise assessments in respect of specific periods and that it is for the inspector to choose the appropriate period in respect of which he has reason to believe tax is due and payable. The trial judge noted that “[s]ection 23 of the Act of 1972 does restrict an inspector to making one assessment and one assessment only. It is quite clear that separate assessments can be raised in respect of separate periods and not one assessment in respect of several periods.” The judge noted that the actual assessments to VAT in this case were made on the 13th December, 2006, the day before the notice was issued, and that Mr. O'Brien made separate calculations in respect of both and created two separate computer printouts. Ultimately, the trial judge held that the separate balances of tax due for the two specified periods illustrated the fact that there were two assessments encapsulated in the notification of the assessment, and that, for those reasons, the assessment for the second period, 1st September, 2003, to 31st August, 2004, was valid.
4.6 Further, the trial judge noted that the issue of the time limit for the notice of assessment was raised for the first time some 20 months after proceedings were instituted, and in excess of two years after the notice of assessment was raised. This, the trial judge found, occurred in circumstances where Vieira brought proceedings “on the basis that it was only alerted to the claimed paucity of the knowledge on the part of the [Revenue] in April and May of 2007.” Therefore, the trial judge found that while there was no delay in the commencement of proceedings, which were commenced within the three-month time period prescribed by O.84 r. 21 of the Rules of the Superior Courts, there was “gross, culpable delay” on the part of Vieira in bringing their amended ground regarding the time limit for the notice of assessment. The trial judge found as follows:
“Whilst there was correspondence between the parties in February 2009 in which the applicant raised the ‘out of time’ issue for the first time, thereby prompting a concession from the respondents that the assessment for the earlier of the two periods in the notice of assessment was, in fact, out of time, no explanation is offered as to why this state of affairs was not raised earlier, given that the state of the law in this regard was well settled and all the relevant facts were known to the applicant once the notice of assessment was served. In my judgement there was gross culpable delay on the part of the applicant in this regard which has not been explained or excused, the consequence of which is that I must hold that the applicant was out of time in bringing this amended ground.”
4.7 Before going on to address the specific issues which arise, it is appropriate that I record a number of observations which have informed the order in which I consider it to be appropriate to address the issues.
5. Some Observations
5.1 The first observation is simply to record the uncontroversial fact that this case is not concerned with determining whether the arrangements entered into by Vieira in respect of the licence agreements with Mr. McPeake actually have the tax consequences which, on the one hand, Vieira assert, or which, on the other hand, the Revenue maintain. The merits of the legal argument as to whether the licence agreements entered into create a self-supply are a matter which would ultimately have to be determined by the Appeal Commissioners (or, if necessary, by the courts on appeal) in the event that there is a valid assessment or assessments raised in time and a valid appeal by Vieira against that assessment or assessments.
5.2 These proceedings are not, therefore, concerned with the question of whether VAT is actually due, but rather with the question of whether there was a valid assessment or assessments in the first place. With particular reference to the question of whether the Revenue had, in accordance with s.23 of the VAT Act, “reason to believe” that tax is due, it is not, therefore, necessary to reach a conclusion as to whether the Revenue view is correct. Rather, it is only necessary to assess whether the Revenue has met the threshold of having, as a matter of law, reason to believe that the tax was due.
5.3 The second observation derives from the fact that, on the Revenue’s case, there were two independent bases for suggesting that the inspector had reason to believe that the tax was, in fact, due. The first involved an assertion that the inspector had properly addressed the argument put forward by Vieira’s advisors which suggested that the tax was not due and had come to a reasonable view that the argument thus advanced was not sustainable. On that basis, counsel for the Revenue argued that the threshold for “reason to believe” under s.23 of the VAT Act had been met, with it following that the question of whether the Revenue or Vieira were actually correct would be a matter for the Appeal Commissioners. However, counsel also argued that, as a matter of fact, the inspector, as an alternative, formed what was said to be a reasonable view that the same amount of tax was due under the “abusive process” jurisprudence deriving from Halifax. It should be said that counsel for Vieira strongly argued that the facts did not support the underlying contention that the inspector actually had relied on the requisite belief on Halifax type grounds.
5.4 Given that argument, it seems to me that the starting point has to be to consider what the proper approach should be where it is asserted that there are two, allegedly independent, grounds on which a decision maker might be argued to have “reason to believe” that a state of affairs exists which justifies taking action authorised by statute. I, therefore, turn next to that question.
6. Two alternative bases?
6.1 It seems to me that it is important at the outset to identify two different types of cases which may potentially arise in many types of situations.
6.2 In certain circumstances, a decision maker may be required to take into account a range of factors in reaching an ultimate conclusion. The weight to be attached to each factor may well be a matter for debate, and ultimately may well be a matter which the decision maker must decide as part of the decision making process. In such a circumstance, it is possible to envisage a case where a decision maker properly considers a range of factors but can be demonstrated to have inappropriately considered one material factor. But if that factor was one which was required to be taken into account, and on the hypothesis that it was not properly considered, there may well then be a case that the overall decision must nonetheless be regarded as tainted even though there may have been other factors, properly considered, which might, of themselves, have justified the decision in the first place. The issues which arise in such a case are complex, but it is not necessary to deal with them here.
6.3 On the other hand, it is possible to envisage a case where there is a range of independent bases upon which a decision can be justified. In such a case, any one factor may be sufficient. The factors may not be in any way dependent on one another. It seems to me that the legal issues which arise in such a case may be much simpler. Provided that there is a sustainable basis on which the decision in question could have been made, and provided that any other factor which may have been considered as a separate and independent ground for coming to the same decision could not have influenced the question of whether the sustainable basis was present or not, then it may not always be necessary to analyse any other grounds put forward to justify the decision, for that sustainable ground may, independently, and in and of itself, be sufficient to justify the decision.
6.4 The point might be explained in this way. If ground (a) and ground (b) are entirely independent bases for making a decision, and if the decision maker has properly and sustainably found ground (a) to exist, then the decision may well be justified irrespective of how the decision maker addressed ground (b). In such a case, the decision maker was not required to consider ground (b) at all, for ground (a) provided a self-contained basis for reaching the decision concerned. Even if some legitimate criticism can be made of the way in which ground (b) was considered, that may not have any effect on the validity of the decision, for it could not have influenced the question of whether ground (a) was found to be present, and ground (a) would, in and of itself, be sufficient.
6.5 In contrast, one might envisage a case where a decision maker was required to have regard both to factor (a) and factor (b) in reaching an overall decision. The decision maker may have properly considered factor (a) and found that it weighed heavily in favour of making the decision. On the other hand, some significant flaw may be exposed in the way in which the decision maker considered factor (b). In such a case, it may well not be clear as to whether the same decision could or should have been made had factor (b) been properly taken into account, for a consideration of that factor was required to form part of the mix in any event. If that factor was not properly considered, then it might have been that, no matter what view was taken of factor (a), a different decision would have been made. Even if there might be an argument that the same decision would have been reached in any event based on the weight to be attached to factor (a) alone, there would still be a strong argument that the decision as a whole was tainted.
6.6 For those reasons, there will be cases where, provided that the two asserted bases are fully independent, and provided that each, entirely by itself, would be sufficient to justify the decision in question, it may only be necessary that there be one sustainable basis for the decision in order for the decision to be lawful.
6.7 In the circumstances of this case, it seems to me that the two arguments put forward on behalf of the Revenue concerning “reason to believe” are entirely independent. The relevant VAT could be due either because the technical view of the Revenue on whether the licence agreements operated as a self-supply was correct, or, entirely independently, and even if, or, indeed, because that technical view was wrong, if the case nonetheless came within Halifax and the jurisprudence which has developed thereafter. It follows that if the Halifax point provides a legitimate basis for the Revenue contention that the inspector had reason to believe that VAT was due, then that, of itself, is sufficient to justify determining that the inspector had, indeed, “reason to believe” that the VAT was due. I, therefore, propose to consider that question first, incorporating as it does the prior issue of whether it can be said that Halifax was, as a matter of fact, a separate, independent and stand alone basis for making the assessment or assessments concerned. I, therefore, turn to that question.
7 Was Halifax a separate, stand alone basis?
7.1 As noted earlier, counsel for Vieira suggested that the evidence did not support the Revenue’s factual contention in that regard. It follows that it is necessary to look at the evidence in a little more detail.
7.2 A number of affidavits were sworn and filed on each side. However, in a second affidavit sworn by Mr. O’Brien on the 17th December, 2007, he refers to the fact, which had already been addressed in his first affidavit, that he had, prior to raising the assessment or assessments concerned, consulted not only with his superiors, but also with technical advisors which I infer may have involved legal advice from either solicitor or counsel. When referring to this issue, Mr. O’Brien says the following at para. 10 of that second affidavit:-
“My own view is supported by my discussions with my superior and with the receipt of internal expert technical advice, which advice confirmed my opinion that the licence device did not operate to take the property out of the VAT net and even if it did it was an abuse of rights and as such was subject to the Halifax decision and required it to be redefined to re-establish the position had the licence not been in place”.
Mr. O’Brien reconfirmed in the same paragraph that the advice to which he referred predated the assessment or assessments.
7.3 It seems to me to be clear, therefore, that Mr. O’Brien gave evidence that the Halifax point provided a separate and stand alone basis for coming to the view that VAT was due. As he puts it in his affidavit, “even if it did”, meaning even if the licence arrangements did operate as a self-supply, nonetheless Halifax would, in his view, and in the view of those who advised him, provide a separate basis for coming to the view that the VAT claimed was due.
7.4 Counsel for Vieira drew attention to the fact that the contemporaneous documentation and, indeed, Mr. O’Brien’s affidavits make it clear that he did not consider the Halifax point to be necessary because he came to the view that the licence agreements did not technically achieve the end of creating a self-supply in the manner contended for on behalf of Vieira. That much is clearly true. But it is equally true, as deposed to by Mr. O’Brien in the passage from his affidavit which I have already cited, that he had a back-up position. He came to the view, and it was a view supported by considered advice, that even if he was wrong in his assessment of whether the licence agreements technically operated to create a self-supply, VAT was nonetheless due under Halifax principles.
7.5 On the facts, it is clear, therefore, that while Mr. O’Brien did not think that he had to go so far as to rely on Halifax, he did in fact rely on Halifax as a fallback position in the event that his technical view on the question of whether there was a self-supply was wrong. It is clear on the facts, therefore, that he did rely on the Halifax point as a separate basis for raising the assessment. It is also clear that the Halifax point is entirely independent of the other point. Indeed, it is, in one sense, a directly opposite point. Halifax would only arise in the event that Vieira was technically correct on the self-supply argument.
7.6 In those circumstances, it seems to me that, provided the Halifax point provided an appropriate basis for having “reason to believe” that the tax was due, it provides a stand alone justification for issuing the assessment or assessments irrespective of whether the criticism made of the way in which Mr. O’Brien considered the technical arguments on self-supply are well founded. Even if that criticism was justified and Mr. O’Brien’s consideration of those issues fell short of being sufficient to meet the threshold for being able to sustainably hold that he had “reason to believe” that the VAT was due on that basis, the Halifax point would, in and of itself, provide a separate potential sustainable justification for having “reason to believe” that the same sums were due. It is, therefore, necessary to consider the Halifax point.
8 The Halifax Point
8.1 It must again be recalled that this Court is not being asked to consider whether the Halifax principles actually require, in all the circumstances of this case, the form of reverse engineering that the ECJ has mandated should occur in circumstances where an abusive practise is established. The only issue which this Court has to consider is whether there were sufficient materials and argument available to Mr. O’Brien for him to have “reason to believe” that Halifax could be deployed. In my view, the answer to that question is clear. The underlying issue is whether the creation of the licence agreements amounted to an abusive practise. If that was so, then Halifax is clear authority for the fact that VAT liability must be calculated as if the licence agreements had not been in place. It is certainly arguable that the import of Halifax is that tax becomes due and can be the subject of a valid assessment if an abusive practise is properly identified.
8.2 It is important to recall that this judgment is not concerned with the question of whether VAT is actually due. It follows that it is not necessary to consider whether an argument based on the Halifax line of jurisprudence would necessarily prevail. Indeed, it is important to note that the jurisprudence which derives from Halifax has evolved by subsequent decisions of the ECJ and, indeed, may well continue to develop. However, for the purposes of this judgment, it is only necessary for the Court to consider whether Mr. O’Brien had “reason to believe” that the proper application of that jurisprudence to the facts of this case would lead to the relevant VAT being due.
8.3 In that context, it is important to distinguish between the consequences of deploying Halifax, on the one hand, and the general anti-avoidance provision contained in s.811 of the Taxes Consolidation Act 1997 (as amended). In the latter case, a series of procedures is required to be followed before tax can be said to be due. An inspector of taxes who believes that a particular scheme is caught by s.811 must follow those procedures before it can be said that tax is due. In such a case, the inspector could not simply raise an assessment for the tax which might be due should the Revenue find itself in a position to be able successfully to deploy the section. But it is at least arguable that the consequences of a measure amounting to an abusive practise within the meaning of that term as used in Halifax gives rise to an immediate liability to tax (subject only, of course, to the right of the tax payer to appeal) which can be the subject of a legitimate assessment. It follows that Mr. O’Brien was entitled to have “reason to believe” that any VAT which would have been due, in the event that the licence agreements had not been entered into, was in fact due, subject only to Mr. O’Brien also having “reason to believe” that the licence agreements were an abusive practise. In passing, I should note that no issue was raised concerning the question of whether Mr. O’Brien could have had reason to believe that the actual sums specified in the assessment or assessments were the correct sums. That is not to say that his calculations might not be the subject of debate on an appeal before the Appeal Commissioners. However, no question concerning his calculation was put forward as a ground for suggesting that he could not have had reason to believe that the precise sums claimed were due provided that he was correct in principle.
8.4 It is, therefore, necessary to consider whether there is sufficient evidence from which it can be concluded that Mr. O’Brien had “reason to believe” that the licence agreements were an abusive practise for the purposes of the Halifax jurisprudence. In my view, there clearly was. It must, yet again, be emphasised that nothing which is said in this judgment should be taken as expressing any view as to whether the licence agreements were in fact an abusive practise. The only issue is as to whether Mr. O’Brien had reason to believe that they were.
8.5 It must be recalled that the case which Vieira makes as to the effect for VAT purposes of the licence agreements is relatively straightforward. It is said that the effect was to give, rent free, to Mr. McPeake possession of the various properties for a fourteen-day extendable period. It is said that, for technical reasons, parting with possession in that way is sufficient to create a self-supply which takes the properties out of the VAT net subject only to paying VAT, at a much lower level, on the basis of the self-supply itself.
8.6 Obviously, the Halifax point only arises in the event that the technical arguments on self-supply are determined in favour of Vieira. On that assumption, it would follow that, due to technical provisions of the VAT Acts, entering into a simple licence of that type may provide a mechanism by which property which has been developed as part of a business can be extracted by means of a self-supply from the business in a way which will very significantly reduce the amount of VAT which must be charged. There is no doubt that, if the technical argument is correct, there is, in the words of the ECJ in Halifax, an “accrual of a tax advantage”. The question would be whether the accrual of such an advantage, in the circumstances outlined, would be contrary to the purpose of the relevant provisions of EU VAT law. Given that this matter may come to be considered in detail by both the Appeal Commissioners and, (possibly) the courts, I will do no more than to state that, at this stage, it was entirely sustainable for Mr. O’Brien to come to the view that that requirement of Halifax was met. He had, on the evidence, in my view, reason to believe that the accrual of that tax advantage would be contrary to the purposes of the sixth directive.
8.7 The second leg of the test identified by the ECJ in Halifax is that, from a consideration of various objective factors, it must be apparent that the essential aim of the relevant transaction was to obtain a tax advantage. Again, I am satisfied that there is sufficient evidence to support the view that Mr. O’Brien had reason to believe that the essential aim of the licence agreements was, indeed, to significantly reduce the amount of VAT which would need to be paid. While it is ultimately a matter for the Appeal Commissioners and the courts, it is difficult, on the materials currently available, to see that there was any other comparable advantage to the licence agreements. There is no evidence to suggest that it made the task of selling the properties by Mr. McPeake significantly easier because he was given the sort of possession which the licence agreements provided for. That is not to say that arguments might not be put forward and evidence be presented which might legitimately persuade either the Appeal Commissioners or the courts that a different conclusion could be reached on this point. For present purposes, it is only necessary to say that I am satisfied that Mr. O’Brien had “reason to believe” that the second aspect of the test identified in Halifax was met, being that the essential purpose of the licence agreements was to obtain a tax advantage.
8.8 It follows that I am satisfied that Mr. O’Brien had reason to believe that the Halifax jurisprudence could be deployed for the purposes of recalculating the VAT liabilities of Vieira as if the licence agreements had not been entered into and further had reason to believe that the sums set out in the assessment or assessments would, on the basis of such recalculation, be due and be properly included in an assessment.
8.9 It follows that the trial judge was correct to reject the argument put forward by Vieira which was based on the contention that Mr. O’Brien did not have an appropriate “reason to believe”. Furthermore, in my view, this matter is sufficiently clear that it is unnecessary to address the subtle distinction concerning the appropriate threshold which derives from the respective judgments of Charleton J. and O’Neill J. to which reference has been made. I would leave to a case in which that distinction might be decisive a decision on the appropriate threshold.
8.10 Furthermore, for the reasons already identified, I am satisfied that the Halifax point, given that I found it to be valid, provides a sufficient stand alone basis justifying the raising of the assessment or assessments so that it is unnecessary, therefore, to consider the merits of the technical issues raised. As those issues may well be the subject of detailed consideration on their merits before the Appeal Commissioners or the courts, I do not think it would be appropriate to say anything more about those issues at this stage.
8.11 It follows that it is necessary, therefore, to turn to the question of whether there were in fact one or two assessments in the circumstances of this case.
9 Were there one or two assessments?
9.1 The starting point has to be to consider the terms of the provision of the VAT Act which permits the raising of an assessment and requires that the relevant tax payer be given notice of it. The provision concerned is to be found in s.23(1) of the VAT Act which is in the following terms:-
“23.—(1) Where the Revenue Commissioners have reason to believe that the total amount of tax payable by an accountable person, in relation to any period consisting of one taxable period or of two or more consecutive taxable periods, was greater than the total amount of tax (if any) paid by him in relation to that period, then, without prejudice to any other action which may be taken, they may, in accordance with regulations but subject to section 30, make an estimate in one sum of the total amount of tax which in their opinion should have been paid in respect of the taxable period or periods comprised in such period and may serve a notice on the person specifying—
(a) the total amount of tax so estimated,
(b) the total amount of tax (if any) paid by the person in relation to the said period, and
(c) the balance of tax remaining unpaid.”
9.2 The first point to note is that the relevant belief of the Revenue Commissioners can relate to an underpayment of tax “in relation to any period consisting of one taxable period or of two or more consecutive taxable periods”. Clearly, the assessment or assessments raised in this case related to twelve consecutive two-month periods spanning a total of 24 months. Vieira argued that it is not permissible to divide up such a continuous period into two or more assessments. It is said that the requirement in s.23(1) that the assessment may relate to a period or to two or more consecutive periods requires that, in the event that the requisite belief is formed by the Revenue in respect of two or more consecutive periods, a single assessment must be issued.
9.3 On the other hand, counsel for the Revenue argued that the proper construction of the section is to the effect that it simply permitted the Revenue to include two or more VAT periods in a single assessment provided that the VAT periods concerned were consecutive. In my view, that latter construction is correct. There is no reason in principle why the Revenue cannot form the view that there has been an underpayment of VAT in respect of one taxable period and, separately and independently, an underpayment of VAT in respect of another consecutive VAT period. In such a case, the Revenue will have “reason to believe” that there has been an underpayment of tax “in relation to any period consisting of one taxable period” independently in respect of both VAT periods. There is no reason in principle why that cannot lead to two separate assessments.
9.4 However, if the Revenue choose so to do, then the alternative phrase within the section can be deployed, and a single assessment can be raised in respect of “two … consecutive taxable periods”. Either method is consistent with the section.9.5 By similar reasoning, it seems to me that an assessment can be raised for one set of consecutive VAT periods and a second assessment be raised for another set of consecutive VAT periods even though the two sets of VAT periods may themselves be consecutive. Again, in such a case, the Revenue will, in accordance with the wording of the section, have had reason to believe that there has been an underpayment of tax in respect of “two or more consecutive taxable periods”. The fact that the Revenue also has reason to believe that there was an underpayment of tax in respect of a different group of two or more taxable periods, which were themselves consecutive to the first group, does not prevent the section properly applying, separately, to each group of two or more taxable periods so as to permit a separate assessment to be raised in respect of each of them.
9.6 It follows, in my view, that at least at the level of principle, the Revenue was entitled, in the circumstances of this case, to raise whatever number of assessments they wished (obviously subject to a limit of twelve) in respect of the twelve VAT periods comprised in the two years encompassed in the review. There was no reason in principle, therefore, why two assessments could not have been raised in respect of each of the six two-month VAT periods encompassed in each of the relevant accounting years.
9.7 The next question which logically arises is as to whether, in fact, two assessments were raised. In that context, it is important to note that s.23 makes a distinction between the Revenue making “an estimate in one sum of the total amount of tax” which should be paid, and serving “a notice on the person” specifying the calculation (in accordance with sub-subsections (a) to (c)) of the tax said to be due. The estimate is the assessment. The notice is a notice of assessment. They are different, although closely connected, things.
9.8 I will return shortly to the question of the notice of assessment served in this case. However, on the facts, it seems clear that two separate assessments, or in the precise words of s.23, two separate exercises in which there was “an estimate” of the sum said to be due, were actually made.
9.9 It is also clear, again from the wording of s.23 itself, that the estimate must be carried out in accordance with any relevant regulations. The relevant regulations provide for an appropriate officer of the Revenue signing a list containing the relevant particulars and for the retention by the Revenue of that list. It is clear, therefore, that the assessment or estimation is an internal exercise which is conducted within the Revenue by an appropriate officer complying with the terms of the regulations. The assessment or estimation does not, in and of itself, require notice to be given to the taxpayer concerned. It is clear, therefore, that the two separate documents which were generated at, respectively, 15.18 and 15.22 on the 13th December, 2006, were both assessments in respect of the two separate twelve-month periods comprising six VAT periods each. There were, therefore, clearly two separate assessments.
9.10 It follows that the Revenue was both entitled in principle and did in fact make two separate estimations or assessments of tax due, being in each case for a year comprising six two-month VAT periods. The only complication which arises concerns the fact that the notice of assessment (which is required to be given in accordance with s.23 itself) to some extent combines both of the assessments. It is, therefore, necessary to consider whether that fact has any bearing on the legal issues which arise in this case.
9.11 The starting point has, again, to be the section itself. Section 23(1) provides that the Revenue “may serve a notice” which must specify the total amount of tax estimated, the total amount of tax (if any) paid and the balance remaining unpaid. The reference to the total amount of tax estimated is, in fact, to the total amount of tax “so estimated”. That is clearly a reference to the estimate of the total amount of tax due for the period concerned in the original assessment. It seems clearly to follow, therefore, that where the Revenue chooses to raise two or more separate assessments in respect of any one taxpayer, it is necessary to “serve a notice” on that taxpayer in respect of each separate estimation or assessment.
9.12 There can be little doubt, therefore, that had the Revenue simply served notice on Vieira relating to composite sums over the full two-year period which were said to amount to the tax estimated as due, the tax paid, and the balance outstanding, then there would have been a failure on the part of the Revenue to comply with its obligations under s. 23. Such notice would not have specified any of the relevant matters by reference to a single assessment but rather on a global basis cumulatively covering the contents of two separate assessments. Such a notice could not, therefore, be said properly to have recorded “the total amount of tax so estimated”, for the total amount of tax so estimated must be the total amount of tax contained in one assessment rather than the cumulative amount of tax over a series of assessments.
9.13 It must be recalled that, for the reasons which I have already identified, I consider that counsel for the Revenue was correct in his argument that s.23 is broadly permissive as to whether the Revenue can raise a single assessment over a series of periods or a number of assessments covering groups of periods within that overall timescale. Which course of action to adopt is the Revenue’s call. But having decided to issue two assessments, it follows that the obligation to give notice must be taken to apply separately to those two assessments. The final question comes down to one of whether the form of notice actually given in this case, where the content of two or more separate assessments are included in a single notice, complies with the requirements of s.23 together with a subsidiary question as to what consequences would flow from a finding of non-compliance in that regard.
9.14 What s. 23 requires is that the Revenue “serve a notice” specifying the tax estimated, the tax paid and the balance remaining unpaid deriving from an assessment. In reality, the question comes down to whether that obligation is met by serving a single notice which makes reference to two different assessments or estimations. It is clear on the facts that the notice served in this case, on the second page, separately set out the relevant particulars of tax estimated, tax paid and balance due in respect of each of the periods in relation to which assessments had been raised the previous day. Therefore, in respect of each of those assessments, the Revenue did, in fact, serve a notice on the taxpayer, being Vieira, specifying the matters detailed in the section. The fact that it was a single document which specified those matters separately in respect of each of the two assessments does not take away from the fact that, separately in respect of each of those two assessments, a notice was served specifying the matters which the statute requires. In those circumstances, I am satisfied that proper notice under the section was given in respect of the two separate assessments.
9.15 For the reasons set out earlier, I am also satisfied that the trial judge was correct to conclude that there were actually two assessments in this case.
9.16 In those circumstances, it does not seem to me that it is necessary to address the third issue raised by the Revenue on this appeal.
10 Conclusions
10.1 For the reasons set out earlier in this judgment, I would, therefore, dismiss the appeal. I am satisfied that the relevant Revenue official did actually rely on a Halifax type basis as a stand alone, independent and fallback ground for having reason to believe that the amounts of tax specified in the relevant assessments were due. In those circumstances, it is unnecessary to consider whether the Inspector also had a sustainable basis for having reason to believe that the tax was due by virtue of not accepting the technical argument on self-supply advanced on behalf of Vieira. There was, in my view, a sustainable basis, in any event, for having “reason to believe” that the relevant sums were due on Halifax type grounds. That, of itself, is sufficient to meet the “reason to believe” test irrespective of precisely how the threshold for meeting that test is defined
10.2 Again, for the reasons set out earlier in this judgment, I am satisfied that the proper interpretation of s.23 of the VAT Act permits the Revenue to raise two or more separate assessments in respect of consecutive VAT periods or groups of consecutive VAT periods. I am also satisfied that, on the evidence, two separate assessments were raised in this case, each relating to six consecutive two-month VAT periods. I am also satisfied that the notice of assessment given under s.23 meets the requirement to give notice in respect of each separate assessment by virtue of the fact that, on its second page, the VAT estimated to be due, the VAT paid and the balance said to remain outstanding are each separately set out in respect of the two accounting years which formed the subject of the separate assessments.
10.3 In those circumstances, it does not seem to me to be necessary to deal with the third issue raised by the Revenue which was as to whether it was open, in all the circumstances of the case, for Vieira to argue the single assessment point.
