No VAT on council-operated off-street car parks

VAT Tribunal judgment (about 28 pages) handed down on 23 January 2006 in Isle Of Wight Council and others v Revenue and Customs [2006] UKVAT V19427. The Tribunal allowed appeals by four local authorities against HM Revenue and Customs' refusal to exempt their off-street car parking revenues from VAT. Previous steps in the litigation had established that the car parks were provided by the councils "as public authorities", and that the relevant legal test for the applicability of VAT was Article 4.5 of the Sixth VAT Directive, under which VAT only applies "in respect of these activities or transactions where treatment [of public authority providers] as non-taxable persons would lead to significant distortions of competition".

The Tribunal held that HMRC had to establish the significance of the distortion of competition that would result for VAT-exempt treatment. It adopted an earlier characterisation by Advocate General Jacobs of "significant" as "exceptional in comparison with the normal consequences" of VAT-exempt treatment for services provided as public authorities. The Tribunal went on to consider as a "self-evidently obvious 'normal' consequence" of such treatment the fact that VAT-exempt treatment would give the council a competitive advantage compared to a private car park operator. It rejected any parallel with the notion of effect on competition under Article 87, on the grounds that the State aid regime was "strict" and did not feature the word "significant".

The Tribunal's principal basis for allowing the local authorities' appeals was that:

HMRC has appealed to the Chancery Division of the High Court.

For further information or advice please contact Franck Latrémolière.

Filed under HMRC, VAT.

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