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Legal 500, 2018

31 March 2021

Balhousie Holdings Ltd v HMRC; (SC)

The Supreme Court today released its decision in Balhousie Holdings Ltd v HMRC, allowing Balhousie’s appeal against the decision of the Inner House of the Court of Session.

Roger Thomas QC led for Balhousie.

The case concerned the potential claw-back of  zero-rated supply of a care home under the Value Added Tax Act 1994.  In cases where, within ten years of the original zero-rated supply, the taxpayer disposes of its entire interest in the relevant property or ceases to use the property for an approved purpose.

In Balhousie, in order to fund its purchase, the company entered into a sale and leaseback transaction with a funder.  Despite the fact that Balhousie never moved out of occupation of the property or used the premises otherwise than for an approved purpose, HMRC insisted that the sale transaction amounted to the ‘disposal of its entire interest in the property’.  The Supreme Court unanimously rejected this argument, holding that there was no basis on which it could be said that the company had disposed of its entire interest, given that throughout it retained a property interest in the premises.

Lady Arden, gave a concurring judgment, albeit for different reasons, holding that the recent decision of the Court of Justice in Mydibel v Etat belge meant that, under EU law, there was a single transaction consisting of the sale and leaseback which could not therefore amount to the disposal of the company’s entire interest in the property.  As she observed, Mydibel “develops that jurisprudence [previously expounded in cases such as Part Service] by reaching the same conclusion, on the basis of economic substance, not where there was more than one supplier but where the parties were on the opposite sides to each other in the relevant transactions. The CJEU extended its jurisprudence on economic substance to these situations for what may have been the first time.”

The judgment can be read here.