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	United Kingdom VAT & Duties Tribunals (Customs) Decisions
You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> United Kingdom VAT & Duties Tribunals (Customs) Decisions >> WHA Ltd v Customs and Excise Commissioners [2002] UKVAT(Customs) C00300 (21 March 2002) URL: http://www.bailii.org/uk/cases/UKVAT/Customs/2002/C00300.html Cite as: [2002] STI 1235, [2002] UKVAT(Customs) C00300, [2002] V&DR 202, [2002] UKVAT(Customs) C300

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EXEMPT SUPPLIES - Insurance intermediary services - Recovery of input tax charged on insured scar repairs - Supplies to non-EU recipient - Motor repairs carried out under motor breakdown insurance cover - Insurance cover issued by UK insurer - Reinsured 100% with Gibraltarian reinsurer which retrocedes 85% of risk to second Gibraltarian reinsurer (Second Appellant) - Second Appellant appoints First Appellant to handle claims and to pay repair bills - Whether repair services are supplied by First Appellant to Second Appellant - No - Whether First Appellant makes separate supplies of claims handling and of claims satisfaction - Yes - Whether Second Appellant can recover UK tax charged by First Appellant on invoices relating to satisfaction of claims (i.e. covering garage repair charges) - No - Whether abuse of rights - No - VAT Act 1994 s.26(2)(c) - VAT Gen Regs Part XXI (Repayments to Third Country Traders) - Thirteenth Directive

LONDON TRIBUNAL CENTRE

WHA LTD First Appellant

VISCOUNT REINSURANCE Second Appellant

- and -

THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents

Tribunal:
STEPHEN OLIVER QC (Chairman)
JOHN CLARK FTII, Solicitor
KENNETH GODDARD MBE

Sitting in public in London on 15-19 and 22-23 October and 5-7 December 2001

Roderick Cordara QC and Giles Salmond, counsel, instructed by Andersen Legal, for the Appellants

Jonathan Peacock QC, instructed by the Solicitor for the Customs and Excise, for the Respondents

DECISION
1. This is the combined hearing of five separate appeals, as follows:

Reference	Appellant	Decision letters	Notice of Appeal	Sums in dispute
LON/1998/1063	WHA Limited	23/7/1998 and 9/7/1999	21/8/1998 and 3/10/2000	£1,810,050 £218,379 £59,209
LON/2000/513	Viscount Reinsurance Co Ltd	10/4/2000 and 16/1/2001	9/5/2000, 3/10/2000 and 12/2/2001	£2,873,109
LON/2000/245	WHA Limited	16/1/2001	12/2/2001	£8,308,380
LON/2001/454	WHA Limited	29/3/2001	27/4/2001	£308,380
LON/2001/646	WHA Limited	8/5/2001 and 15/5/2001	6/6/2001	£587.525

Dramatis Personae

UK companies:

The National Insurance and Guarantee Corporation Plc, trading as NIG Skandia ("NIG"): a UK insurer.

Oriel Group Plc: holding company of a group of companies including all those, UK and Gibraltar, listed hereafter.

Warranty Holdings Ltd ("Warranty Holdings"): NIG's agent for sales of motor breakdown insurance ("MBI") policies.

WHA Ltd ("WHA"): the First Appellant : since 2 March 1998 the claims handler in relation to MBI policies issued by NIG ("the NIG Policies").

UK individuals:

Peter Head : chief executive officer of Warranty Holdings : witness Michael McVeigh : claims handling executive with WHA : witness Christopher Ross-Roberts, chartered accountant: finance director of Warranty Holdings: witness

Gibraltarian companies

Crystal Reinsurance Company Ltd ("Crystal"), a Gibraltar based reinsurer. Practical Insurance Company Ltd ("Practical"), a Gibraltar based reinsurer. Viscount Reinsurance Company Ltd ("Viscount") : the Second Appellant : a Gibraltar based reinsurer.

Gibraltarian individuals

Christopher Celicia: part-time manager of Crystal.

Leigh-Anne Cruz : part-time manager of Viscount.

Alan Kentish : accountant with BDO-Fidecs of Gibraltar : director of Crystal and Viscount: witness

Colin Tattersall: non-executive director of Crystal and Viscount.

Background

3. The Oriel Group has carried out a scheme designed to enable recovery of VAT charged on supplies of garage services of labour and parts in response to claims under MBI policies. The scheme was referred to throughout the planning and implementation stage by a codename which we abbreviate as "Project C" All five appeals arise out of the implementation of Project C. Project C was adopted in the circumstances that we now describe.
4. NIG, which is independent of the Oriel Group, has been issuing MBI policies. The policies have covered the cost of repairs and replacement parts following breakdowns of second hand cars; the policies were for fixed amounts of cover which lasted for fixed periods.
5. For some years Warranty Holdings, a member of the Oriel Group, has been agent for NIG and the car dealers have "sold" the MBI policies as agents for Warranty Holdings to buyers of second hand cars.
6. Practical, a "captive" Gibraltar-based reinsurer which was a member of the Oriel Group, provided reinsurance to NIG for the MBI business, initially for 50 % of the risks assumed by NIG. In 1996 this became 90 % and in 1997 this became 100% of those risks.
7. Warranty Holdings was appointed by NIG to handle claims made under the NIG Policies. In the event of a breakdown the insured would contact Warranty Holdings. Warranty Holdings would direct the insured to take the vehicle to an approved repairer or to the dealer for repair. We refer to the repairer as "the garage". The garage provided repair services and parts; it billed Warranty Holdings for the whole amount or, if the repair costs exceeded the cover, the amount of the cover. Warranty Holdings, as claims handler, made arrangements with suppliers of spare parts and with the garages which were designed to keep down the costs of repairs.
8. For VAT purposes the transactions summarized above resulted in VAT on the repair services and parts supplied by the garage being irrecoverable. This was the problem that Project C was designed to solve. The problem arose because supplies of repair services and parts are standard rated. This means that the insurer has had to meet the VAT inclusive costs whether the garage makes the supplies to the insured and the insurer pays the insured's bill or whether those supplies are made to the insurer which pays for them. Because the insurer's own supplies are exempt, it gets no relief for input tax in respect of the VAT charged by the garage.
9. Project C was based on the operation of two strands of statutory provisions. The aim was that the first should hold and that that would be enough to secure relief from input tax on the supplies of labour and parts. The second strand related to the fall-back position should the first not hold. The statutory provisions in the first strand were VAT Act 1994^[1] section 26(2)(c) and Value Added Tax (Input Tax)(Specified Supplies) Orders 1992 (1992/3123) and 1999 (1999/3121) which we refer to collectively as ("the Specified Supplies Order"). The Specified Supplies Order is a measure that ensures that there is no VAT burden on the supply of certain insurance and financial services by EU businesses to consumers outside the UK. Those provisions operate as follows:

• Section 26(1) gives credit for input tax for "so much of the input tax for the period ... as is allowable by or under regulations as being attributable to supplies within subsection (2)."

• Supplies within subsection (2) include "taxable supplies" and "(c) such other supplies outside the UK and such exempt supplies as the Treasury may by order specify."

• The Treasury have specified in the Specified Supplies Order, as services within section 26(2)(c), "Services which are supplied to a person who belongs outside the member States ... provided the supply is exempt, or would have been exempt if made in the UK, by virtue of any item of Group 2" of the exempting Schedule (now Schedule 9). Item 4 of Group 2 covers claims handling services: Note (1)(c) to Group 2.

10. The effect of those provisions, if they apply, is that the UK claims handler's supplies to a non-EU recipient (which in this case is a Gibraltarian reinsurance company) will be within section 26(2)(c). On that basis WHA, the company chosen to perform the role of claims handler, will be able to deduct the tax charged by the garage on its supply of labour and parts and it will not have to charge output tax on its onward supply to the Gibraltarian reinsurance company. To make the provisions apply it is necessary to arrange:

for the garage to make its supplies of labour and parts to WHA (and not, as previously, to the insured car owner) and to invoice WHA for them;

for WHA's supplies to the Gibraltarian reinsurance company to fall within an item of Group 2; in this respect WHA will be an insurance intermediary whose services will include the provision of assistance in the administration of the relevant NIG Policy. In that capacity WHA's invoices will cover the amounts invoiced to it by the garages for labour and parts (to the extent that they fall within the NIG Policy).

11. Project C was designed on the grounds that WHA's services to the Gibraltarian reinsurance company would be exempt (i.e. within item 4 of Group 2 read with Note (2)). Alternatively, as we understood it, WHA's supplies would come within section 26(2)(c) on the grounds that they were "other supplies outside the UK". They would rank as such if they were "insurance services" within paragraph 5 of Schedule 5; this follows from article 16 of the Place of Supply of Services Order, SI 1992/3121 which directs that services within paragraph 5 are supplied where the recipient belongs (when the recipient belongs outside the EU). Either of those two grounds applied because all the services covered by WHA's invoices to the Gibraltarian reinsurance company were (in the words of Mr Cordara's skeleton argument) "plainly well within the concept of the provision of assistance in the administration and performance of such contracts, including the handling of claims. It really cannot be described as amounting to anything other than this".
12. Project C, as noted, envisaged that the supplies to the Gibraltarian reinsurer would be exempt or outside the scope of VAT and no tax would therefore be charged on them. Project C contained a fall-back line of defence. This brings the second strand of provisions into play. Those would be required if the Commissioners questioned the efficacy of Project C so far by, for example, asserting that the garage's supplies were not used by WHA to make its own supply of claims handling services to the Gibraltarian reinsurer. Another possibility was that they might contend that WHA's supplies were wholly or partly standard rated as being supplies of repairs and parts. In that event (which actually happened) WHA would have to charge VAT on the standard rated supplies and account for it to the Commissioners. Hence the need for the second part of Project C.
13. The second part of Project C involved the deployment of Article 2 of the Thirteenth Directive (as implemented in the UK by regulation 186 of the Value Added Tax General Regulations 1995). Those provisions, if they worked according to the design of Project C (as we understood Mr Cordara's explanation of it), would enable the Gibraltarian reinsurer to recover the VAT charged by WHA so long as the reinsurer's supplies were supplies outside the United Kingdom being supplies to a person who belonged outside the United Kingdom. For this purpose the recipient had to be a person whose place of business was established outside the EU : see Article 17.3 of the Sixth Directive. To qualify the Gibraltarian reinsurer for recovery of any VAT charged by WHA, it was therefore necessary to install another non-EU "trader" interposed between the Gibraltarian reinsurer and the UK "users" of the supplies originating from WHA.
14. The implementation of Project C, which had 2 March 1998 as its start date, involved a typical transaction with the following features:

(a) The purchaser of a second hand vehicle (the insured) buys a MBI Policy through the second hand dealer as agent for Warranty Holdings which in turn is agent for NIG.

(b) NIG reinsures 100% of the risk of that policy with Crystal, a Gibraltar- based reinsurer. NIG has appointed Crystal to deal with claims handling in relation to the policy.

(c) Crystal in turn has reinsured (retroceded) 85% of the risk of that policy with Viscount, another Gibraltar-based reinsurer. Crystal has appointed Viscount to deal with claims handling in relation to the policy.

(d) Viscount in turn has appointed WHA to deal with claims handling.

(e) When a claim arises under the NIG Policy (e.g. in the event of a breakdown) the insured contacts WHA who directs the insured to take the vehicle to an approved repairer (the garage). The garage provides the repair services and any parts. To the extent that the bill falls within the cover provided by the policy, the garage bills WHA for that amount. WHA, according to Project C, passes title to the parts to Viscount; Viscount passes title to the parts to Crystal and Crystal passes title to the parts to NIG. (As will be seen there is no specific provision of vesting of title to the parts in the insured.)

Warranty Holdings, WHA, Viscount and Crystal were all 100% subsidiaries within the Oriel Group at the time when Project C was implemented.

15. The solution that Project C has been designed to produce is, for the reasons explained above, the recovery by WHA of input tax on the repair services and parts supplied by the garage, with either WHA not having to charge output tax on its onward supply to Viscount or, if WHA does have to charge input tax on that onward supply, Viscount being able to recover that tax under the provisions of the Thirteenth Directive.

The issues : an overview

16. Before looking in more detail at the steps taken to implement Project C, we shall identify the issues.

Issue 1 : Can WHA recover input tax in respect of supplies made to it?

17. The supplies of labour and parts by the garage bear standard rated VAT. If, as Project C envisages, these are made to WHA and are used by WHA in making supplies in the course or furtherance of its own business, WHA obtains input tax relief on the strength of section 26(2)(c) and the Specified Supplies Orders. The threshold question is whether, as the Commissioners contend, the supplies of labour and parts are made by the garage to the insured and not to WHA. If the answer if "Yes", WHA will have no input tax to deduct in respect of labour and parts.
18. The supply of claims handling services is envisaged by Project C to be a supply to Viscount. If so, WHA will obtain input tax relief for "deductible" inputs, again on the strength of section 26(2)(c) and the Specified Supplies Orders. The Commissioners contend that the supplies are to NIG (in the UK) and not to Viscount; they are not therefore supplies falling within section 26(2)(c). If WHA's supplies are made to NIG, these will be exempt and there will be no recovery of input tax in respect of input tax attributable to its claims handling supplies.

Issue 2 : Is WHA obliged to charge output tax?

19. Project C was founded on the assumption that WHA's supplies to Viscount comprised a single exempt supply of insurance services, i.e. the provision of assistance in the administration and performance of contracts of insurance including the handling of claims (see the words of Schedule 9 Group 2 item 4). If that be right, WHA has been under no obligation to charge VAT (and correspondingly Viscount will have had no claim to recover the tax under the Thirteenth Directive). On the assumption that they fail on both limbs of Issue 1 and there have been supplies to Viscount, the Commissioners contend that there have been two separate supplies. One was the exempt supply of claims handling in return for a fee of £17.60 per claim. The other was the taxable supply of motor repairs, i.e. of labour and parts. VAT should have been charged on that latter supply and it was recoverable, if at all, by Viscount under the Thirteenth Directive.

Issue 3 : Can Viscount recover the tax charged on the supplies to it under the Thirteenth Directive?

20. The first aspect of this is whether Viscount makes supply to a non-EU person, i.e. Crystal, in the course or furtherance of a business or economic activity. The second aspect concerns the question of whether Viscount otherwise satisfies the terms of the Thirteenth Directive.

Summary of the arrangements

The NIG Policy

21. This opens with the words - "This policy offers you parts and labour protection for your policy". It states that " Your contract is between you and NIG".
22. NIG agrees to provide the insured with cover for the parts specified in the NIG Policy. The benefits vary depending upon the amount of the premium, the age of the car and the record of the dealer. Warranty Holdings is NIG's agent for the issue of the policy. The policy document provides that WHA -

"... will deal with any claims under your policy. If your vehicle breaks down please call WHA's Customer Support Line for advice as to the best course of action and the nearest approved repairer."

There then follow a number of explanations, such as what is covered by the NIG Policy, what the insured should do if an accident happens and how to make a claim. It states that NIG prefers the insured to use his supplying dealer or one of WHA's approved repairers; but he can use his local repairer if he wants to so long as the repairer follows WHA's claims procedures and sends the invoice to WHA.

23. The instructions about how to make a claim state, among other things, as follows:

"You agree that you will pay the costs of dismantling and repairing the vehicle if the cause of the breakdown is not covered by the policy and, if it is covered, all costs which exceed the limits on your proposed form ... . You are responsible for paying for any other work you ask the repairer to carry out ... (and) any amount the repairer charges over and above the amount authorized."

The "Terms and Conditions" of the NIG Policy state that NIG is the insurer responsible for the provision of the benefits under the policy and that "WHA has been appointed to deal with all matters relating to claims handling and settlement, including payment, of claims arising under this policy." They go on to state that no liability will be accepted for damage caused by any other thing, neglect, corrosion, any foreign matters getting into a part, lack of servicing, overheating or freezing, buse and damage, and for parts which have been fitted incorrectly or made or designed badly.

Appointment of Warranty Holdings as NIG's agent : Agreement between NIG and Warranty Holdings of 2 March 1998

24. Until the start date (2 March 1998) Warranty Holdings acted as NIG's agent to accept risks and to issue NIG Policies and to deal with claims arising under those policies. From the start date Warranty Holdings continued in that role except that "matters relating to claims and claims handling" were specifically excluded from its authority.
25. Warranty Holdings had the responsibility of collecting in all the premiums plus insurance premium tax paid in respect of the NIG Policies. Premiums are retained for sixty days from the end of the month in which the policy is sold. At the end of that period premiums plus insurance premium tax less commissions are paid to NIG. In addition Warranty Holdings is required to pay NIG £75,000 a month. NIG is required to supply Warranty Holdings with details of all claims and payments made to policyholders.

NIG reinsures with Crystal and passes control of claims to Crystal: Agreement of 27 April 1998

26. The first stage was for Crystal to be put into Practical's shoes. Practical had been reinsuring 100% of NIG's liabilities arising from the NIG Policies sold through Warranty Holdings. This was effected by a novation agreement dated Saturday 28 February 1998. It was signed by Alan Kentish and Colin Tattersall in the presence of Christopher Ross-Roberts. All three were at the Marbella Club Hotel in Spain. The novation agreement recited the earlier reinsurance agreements. Crystal undertook to be bound by their terms and NIG released Practical from all liabilities. Practical agreed to provide Crystal with sufficient capital and to apply all its available resources and assets to Crystal to enable Crystal to meet its liabilities.
27. The second stage was for NIG and Crystal to expand the earlier arrangements. NIG, as reinsured, continued to enjoy 100% reinsurance protection with Crystal as it had with Practical. There was introduced, however, a new measure of passing on "control of all claims" to Crystal, the reinsurer. This was effected by the 27 April 1998 agreement which terminated and superseded the earlier reinsurance agreements. It contained the following provisions:

"3. It is a condition precedent to any liability under this Agreement that

3.1 in the event of any claim or loss hereunder or under a NIG Policy, no payment, repair, offer or compromise shall be made in respect of any claims or losses under any NIG Policy without the consent of the Reinsurer [Crystal] who shall have the sole right to appoint adjusters and/or assessors and to control, or to appoint such person as it thinks fit to control, all claims handling, negotiations, investigations, adjustments and settlements in connection with such claims and losses and to make payment in respect thereof under and in accordance with the terms of the relevant NIG Policy Document..."

By clause 4 all claims and losses were to be settled at Crystal's expense. By clause

28. it was agreed-

"5.2 the Reinsurer [Crystal] shall procure that title to all parts which are appropriated for use in a repair under a valid claim under any NIG Policy shall be transferred to the Reinsurer [Crystal] together with the benefit of all rights in respect of such parts including the benefit of all warranties implied by law and the Reinsurer [Crystal] hereby agrees that all such parts and such rights which are transferred to it shall immediately after such transfer to it be transferred to the Reinsured [NIG] prior to such parts being fitted in the policyholder's vehicle.

NIG agreed to pay to Crystal the premiums on the NIG Policies (less commissions).

29. The effect of the agreement was for NIG to become a front for Crystal. It received a fee of £75,000 per month for acting in this capacity but passed on all premiums to Crystal and looked to Crystal to control claims and to settle them at its (Crystal's) expense. NIG was expressed to get title to parts installed in the insured's car to the extent that the installation was covered by the policy; and it gets the benefit of manufacturers' warranties relating to such parts. The policy document does not, as we have noted, in terms pass on title to the parts to the insured nor does it operate to transfer manufacturers' warranties to the insured.

Crystal agrees with Viscount for the retrocession of 85% of its liabilities under the NIG Policies and to assume control of claims handling

30. The first stage was an (undated) agreement apparently entered into on 28 February 1998 following board meetings of the two companies at Marbella. This recited the novation agreement between NIG, Practical and Crystal of 28 February novating the old reinsurance agreement. It went on to say in Recital D-

"Viscount is ready, willing and able to underwrite up to 85% of the Reinsurance Obligations upon the terms of this Agreement and has the necessary financial reserves and resources, technical reserves, margin of solvency and skill and expertise to enable it to do so."

The operative part provided that Viscount would meet 85% of liabilities under the old reinsurance agreements in return for receiving 85% of the amounts due and payable under those reinsurance agreements.

31. The second stage was a Deed of Retrocession between Crystal and Viscount dated 28 April 1998. This provided for Viscount to control all claims handling in the event of a claim under a NIG Policy and to appoint any person it saw fit to control the claims handling. In return for payment of 85% of the premiums on NIG Policies less commission Viscount agreed (in clause 5.2) to procure "that title to all parts which are appropriated for use in a repair under a valid claim under any NIG Policy shall be transferred to Viscount". Viscount went on to agree that all such parts which were transferred to it should immediately after such transfer to it be transferred to Crystal for subsequent transfer by Crystal to NIG. While the reinsurance agreement between NIG and Crystal provided for title to parts and the benefit of manufacturers' warranties to go to NIG, the Deed of Retrocession covered only title to parts which went to Crystal. Warranties stopped with Viscount. We do not know whether this was by design or by accident. No one suggested that it had been a mistake.

Viscount appoints WHA to deal with handling of claims arising under NIG Policies : the "Claims Handling Agreement" of 3 March 1998

32. WHA and Viscount entered into the agreement of 3 March 1998 which recited that Viscount had, under the Deed of Retrocession dated 28 April 1998, obtained the right to control the handling of claims arising under the NIG Policies. It related to outstanding and future claims. By clause 3.1, Viscount appointed WHA -

"... to appoint adjusters and/or assessors and to control all claims handling, negotiations, investigations, adjustments and settlements in connection with claims and losses under NIG Policies and to make payment in respect thereof under and in accordance with the terms of the relevant NIG Policy Documents which are subject to the terms of the Retrocession Agreement."

Clause 3.2 made the appointment of WHA subject to WHA "seeking prior authority from Viscount before reaching any settlement or paying any claim of £3,500 or more..." Specifically WHA agreed, in clause 6.1, to -

"handle, investigate, control, negotiate, validate, process, administer and settle all claims arising under NIG Policies in accordance with the terms of the relevant NIG Policy Documents

Under the heading "Title to Parts" WHA agreed to nominate a supplier of parts. It went on to say, in clause 7.1(ii), that -

"(ii) Immediately on an appropriation by WHA of a part for an authorized repair, and prior to such part being fitted in the vehicle to be repaired, the title to such part, together with the benefit of all rights of WHA in respect of that part including the benefit of all warranties implied by law, will pass immediately to Viscount, subject to such an obligation arising on such appropriation for Viscount to reimburse WHA for such part in accordance with the terms of this Agreement

33. The claims handling agreement stipulates that WHA had no authority to make "ex gratia payments" (unless Viscount had agreed this prior to settlement). We understand ex gratia payments to be payments made in respect of uncovered claims in special circumstances, such as to recognize the good relationship between Warranty Holdings and a particular dealer.
34. Under the heading "Accounting and Consideration" it is provided that all valid claims and losses (to include amounts paid to repairers and suppliers) under the NIG Policies are to be settled at WHA's expense; Viscount is to pay WHA the cost of all claims plus VAT and £17.60 for each claim settled and paid by WHA.

The lead-up to the implementation of Project C

35. In 1996 the Oriel Group was in financial difficulties and in breach of its covenants with its banks. Late that year a £12 million facility was obtained from a bank. This enabled the Group to repay existing loans and to recapitalize Practical, its Gibraltarian captive. By mid-1997 the group had again breached its covenants and had a serious cashflow crisis. However Practical, which was then reinsurer of all the liabilities under the NIG Policies, was adequately capitalized to meet solvency requirements imposed by the Gibraltar Financial Services Commission. This capital was retained with Practical and was not used for any purposes other than meeting claims under the NIG Policy; the financial problems of the rest of the Oriel Group did not therefore immediately impact on Practical.
36. In late 1996 Arthur Andersen, accountants, had been consulted about a possible restructuring of business operations to enable VAT to be recovered on motor vehicle repair costs. On 19 November 1996 Arthur Andersen indicated by letter that this would be possible and a conference with leading counsel was arranged. Arthur Andersen reported back on the conference on 7 January 1997.
37. Board minutes of the Oriel Group of 23 September 1997 record an entry that "the proposed VAT scheme should produce savings of £3 million a year". Minutes of the Motor Board of the Oriel Group (1 October 1997) which refer to "WH2" as the company whose role was taken by WHA, read as follows:

"As Board members will be aware, Project C is a VAT planning structure involving an offshore (non-EC) vehicle which will allow the Oriel Group to reclaim input VAT on claims paid. The structure is consistent with current VAT legislation and is likely to save us anything up to £3 million per annum in the cost of claims depending upon the size of the books to which the structure applied.

The structure involves the creation of a separate legal entity to handle claims administration (WH2) into which the existing claims administration staff and resources of Warranty Holdings will be transferred. It also involves a new offshore captive insurer (Practical 2) with a new contractual relationship between WH2 and Practical 2 which ensures that title to the goods and services passes to P2.

The final flow of VAT is likely to reflect a position whereby WH2 will be fully taxable for VAT purposes and charge VAT on the goods and services supplied to P2. WH2 may also charge a separate claims handling fee which may not be subject to VAT. WH2 will therefore be in a "nil" position on its VAT return. P2 will then use the 13^th Directive to recover the VAT charged by WH2 on the services provided to it including the cost of the claims."

38. A letter of 13 October 1997 summarizes progress. A note of a Meeting of the Oriel Group of 9 October records the key issue as being the requirement to recover VAT on the repairs. A letter from Arthur Andersen of 22 October minutes a meeting of 17 October at which it was decided that WHA would remain at Waltham Cross but move into a different building from that occupied by Warranty Holdings. The minute records that by retaining the claims administration at Waltham Cross the ability to deal with VAT inspections would be "greatly improved". Being unsure what the staff might say to a VAT inspector about the new arrangements - "It was agreed that staff should be told that the claims handling business will be split off from Warranty Holdings as a measure to improve claims handling".
39. In late 1997 the Oriel Group engaged BDO Fidecs in Gibraltar. Alan Kentish was the partner responsible. A letter from Arthur Andersen dated 23 January 1998 set out the proposals. This letter contained the necessary information required to obtain authorization in relation to Crystal and Viscount from the Gibraltar Financial Services Commission. The letter starts with the words - "This letter confirms the nature of the UK VAT planning on which we have been asked to advise It then sets out the key features of the arrangements. It explains that there are two elements to the recovery of VAT arising from those arrangements:

"1. To the extent that the supplies from WHA to Viscount are not subject to UK VAT, WHA will be able to recover VAT on its charges by the repairers on the basis that it is providing insurance-related services to a non-EU party.

2. To the extent that the supplies from WHA to Viscount are subject to UK tax, Viscount will be able to recover any VAT through the submission of an EC 13^th Directive refund claim ... This requires Viscount's insurance services to be provided to a non-EU counter party."

The letter concludes -

"The introduction of these arrangements is part of an associated business reorganization. For the avoidance of doubt WHA, and any of its associated companies, intend to make full disclosure of the arrangements, and if challenged by Customs and Excise, are prepared to take the matter to a VAT tribunal. It is however to be hoped that this will not be necessary, as the primary objective is to have a smoothly running, growing business."

A further letter dated 3 February 1998 was written by Arthur Andersen to Alan Kentish for the purpose of providing additional information to the Financial Services Commission. It states that the purpose of the new structure is to mitigate as far as possible a double tax cost arising from the fact that, with effect from 1 April 1997, insurers providing mechanical breakdown insurance policies marketed through motor dealers are obliged to charge insurance premium tax at 17½% on any policies sold. This, it is said, is in addition to the existing VAT cost (again 17½% on repairs). It goes on to state that the arrangement is "designed to mitigate the VAT cost on the repairs, so that only one layer of tax at 17½% arises, as is the case for all other vattable transactions." It then highlights three key elements of the arrangement as being -

The separation of the insurance arrangements and the claims handling functions currently performed by Warranty Holdings

The creation of two new reinsurance companies in Gibraltar

The change of the reinsurance arrangements such that the obligation to repair the car passes from NIG Skandia to Crystal, to Viscount.

40. It will be noted that none of the minutes and correspondence summarized so far identifies any function of Project C other than to mitigate the irrecoverable VAT charged on the cost of repairs. We conclude from the evidence that the purpose of those responsible for implementing Project C was to obtain that tax advantage. In evidence we heard of other benefits derived from the Project to which we now refer.
41. Christopher Ross-Roberts anticipated that the reconstruction required to implement Project C would provide an opportunity effectively to redeploy capital held within Practical or its replacement to the advantage of the Group. Until then Warranty Holdings had both sold policies and handled the claims made on them. This involved a monthly settlement with NIG on a "net basis", i.e. Warranty Holdings paid the amount of the premium received less the amount paid away as claims. The reconstruction involved in Project C would have the effect of segregating the selling of policies, by Warranty Holdings, from the handling of claims, by WHA. In this situation it would be appropriate (i) for Warranty Holdings to settle with NIG monthly on a gross basis, i.e. to pay the amount of the premium received without any deduction in respect of claims, and (ii) for WHA to have advanced to it, from the Gibraltar reinsurance companies, an amount from which it could pay claims.
42. The effect of this would be that capital in the Gibraltar reinsurance companies could be effectively transferred into WHA as the claims advance and would thus, without detriment to those companies' solvency positions, be brought within the scope of the borrowing arrangements, reducing the Oriel Group's overdraft position and increasing working capital. There was a particular timing advantage because the payment of gross premiums by Warranty Holdings was subject to a sixty day period of credit (i.e. Warranty Holdings did not have to pay NIG until sixty days after the end of the month in which it had received the premiums) while the claims float could be paid into WHA in advance of claims having to be paid.
43. We accept Mr Ross-Roberts' evidence on this. It does not, however, need two Gibraltar captives to achieve the cashflow benefits.
44. Messrs Ross-Roberts, Head and McVeigh spoke of an advantage obtained from the separation of claims handling from sales of policies. Where the same personnel in the same organization had responsibility both for selling policies through dealers (and earning commission from doing so) and settling claims, there was a temptation to let claims through so as not to discourage the dealers from selling more NIG Policies. Insufficient control over sales of policies and settlements of claims were leading to underwriting losses and these were perceived to be aggravated by the impact of higher rate insurance premium tax introduced in March 1997. A tight claims administration was needed if underwriting losses were to be checked and the creation of WHA as a separate claims handling company should, in his view, produce a tighter control. We accept their evidence that benefits were foreseen as the consequence of separating claims handling from sales of NIG Policies. We see those benefits as a significant by-product of the implementation of Project C. Having said that, we observe that it was not strictly necessary to have separate companies (i.e. WHA as well as Warranty Holdings) to achieve this.

The implementation of Project C

45. 2 March 1998 was chosen as the start date. WHA set up business in premises at Waltham Cross. These were separate from Warranty Holdings' headquarters. A buffet lunch was held to celebrate the start of WHA's activities. There had been a slippage in the execution of the agreements. For example, Viscount did not obtain its right to control claims handling until the Deed of Retrocession between Crystal and Viscount was executed on 28 April 1998. And yet the Agreement of 3 March 1998 by which Viscount appointed WHA to handle claims recited that Viscount had already obtained that right. Having heard the evidence, however, we were satisfied that, notwithstanding the dating of some documents, there had been a common purpose to implement Project C on 2 March 1998,
46. Over the next few months Arthur Andersen "audited" the arrangements. They visited Waltham Cross and various local offices and made an "implementation status report". They uncovered a number of inconsistencies and "misleading" explanations given to the public. We quote -

"There was initial confusion among the engineers following the changeover as to the role of WHA and its relationship with Warranty Holdings. Some confusion persists. Many of the payment administrators had been asked by repairers to explain the relationship between WHA and Warranty Holdings Ltd.

Action - A script should be prepared that clarifies what the administrators should be telling repairers. In particular, the phrase "we are providing claims handling services to NIG Skandia" is not appropriate. Instead, they can say "we are providing claims handling services to insurers" "

The Implementation Report went on to pick up specific errors. It had been found that one branch office had issued a notice stating that "WHA is contracted to work on behalf of the underwriters (NIG Skandia)". There was a recommendation that that notice should be withdrawn immediately. Another branch office of WHA was telling its inquirers that it was "actually the administration department for Warranty Holdings". Another branch office was telling its callers that "it's the same company but it's split into two, one has to do with claims and the other has to do with sales."

47. WHA has a list of authorized repairers whose labour rates and parts discounts are agreed. WHA has issued a "claims procedure" leaflet to these repairers. This requires the following steps to be taken by the repairer:

" 1. Obtain policy type and number from the proposal form ... Check proof of servicing.

2. With policyholder's authority, including agreement to pay all costs incurred by the repairer which do not form part of an authorized repair, establish precise cause of failure and the cost parts and labour required for the repair.

3. To obtain authorization to carry out a repair phone WHA's Claims Department.

No rectification to be carried out without prior authority from WHA.

4. After obtaining authority and having carried out the repair in accordance with the authority given, send a detailed VAT Repair Invoice for all parts used in the authorized repair and the authorized labour costs together with any relevant Service Invoices to WHA.

5. Obtain payment from policyholder for all costs in excess of those authorized by WHA."

48. Mr McVeigh was asked about the claims procedure. It is the insured who takes a car to a garage, gets the fault diagnosed by the garage and finds that it is not covered (e.g. because of fair wear and tear), bears the cost of diagnosis. If the fault is not covered, any corrective work and parts will be the insured's responsibility. Those features will have been agreed between policyholder and garage. Mr McVeigh was asked about repairs which are done and subsequently not authorized by WHA, e.g. because they turn out to relate to fair wear and tear. In that situation WHA may disclaim. The precise position is unclear. Mr McVeigh thought that in practice the garage would not proceed against the insured although there was nothing in writing to substantiate this. In any case, Mr McVeigh said, WHA only disclaimed in a very small percentage of cases.
49. We were shown a batch of 30 invoices issued by garages for work carried out under NIG Policies. Twenty-four of these were directed at and required payment from WHA. Six of them recorded that the insured had already paid. Mr McVeigh explained that these latter invoices would usually have related to emergency repairs. This, he said, was "within the tolerances". In those cases WHA would reimburse the insured.
50. Where the bill for labour and parts has exceeded the policyholder's cover, WHA has paid up to the amount of the cover. The garage's invoice might relate to parts that were covered and to parts that were not covered by the NIG Policy without specifying which; and WHA might pay the amount covered by the policy. What happened to title in this situation? Did it, as the arrangements envisaged, go from Viscount to Crystal to NIG? What happened to title when the invoice for the particular part exceeded the amount of the cover with the result that the insured had to make a contribution? Did the title to the whole of the new part go round the Gibraltar loop; or did only an undivided share go round the Gibraltar loop and if so what share? Mr McVeigh's answers to these questions did not convince us that the title trail sought to be set up by the contractual arrangements could work in practice. Then there were problems because some garages published their own terms and conditions. WHA had agreed with Viscount that "on an appropriation by WHA of a part for an authorized repair, and prior to such repair being fitted in the vehicle to be repaired, the title to such part, together with the benefit of all rights of WHA in respect of that part including the benefit of all warranties implied by law, will immediately pass "to Viscount" : see clause 7.1 of the Claims Handling Agreement. But at least one of the garages whose invoices we saw stipulated that that it (the garage) retained title to the parts it used until payment was received in full.
51. Another aspect of the title problem was that, according to the documentation, title to any part covered by a policy goes, not to the policyholder, but through the Gibraltar loop and back to NIG where it stops. There is nothing in the policy document that transfers it to the insured. Mr McVeigh said that no practical issue about title had arisen.
52. What about manufacturer's warranties and guarantees relating to parts installed by garages in insureds' cars? Here there was some confusion. Arthur Andersen, in a letter to the Commissioners, explained of the guarantee that "it remained with the owner of the part fixed to the vehicle". The agreement between WHA and Viscount passed the benefit of the warranty to Viscount; but the Deed of Retrocession did not pass it on to Crystal. Mr McVeigh's response was that WHA would take care of it.

Meanwhile in Gibraltar

53. Alan Kentish had dealt with a recapitalisation of Practical in 1996. Subsequent to that discussions between him and Mr Ross-Roberts and others about the implementation of Project C had taken place. In December 1997 he had been instructed to set up and manage Crystal and Viscount. In due course he and Mr Colin Tattersall became directors of both companies. Details of the "UK VAT planning" were given to Mr Kentish in a letter from Arthur Andersen (dated 23 January 1998: see paragraph 38 above). Mr Kentish passed this letter on to the Financial Services Commission as part of the procedure for obtaining authorization for the two companies. That letter and the subsequent letter from Arthur Andersen explained the background to the VAT planning. The Financial Services Commission duly gave authorizations for each of Viscount and Crystal to carry on reinsurance business.
54. On 28 February 1998 meetings of Crystal and Viscount took place at the Marbella Court Hotel. These minutes were drafted in advance and, as Mr Kentish accepted, the decisions had been taken beforehand. The meetings approved the participation of Crystal and Viscount in Project C and approved the execution of the relevant agreements. Crystal and Viscount engaged part-time managers to deal with the daily administration of the affairs of those companies. Crystal had an office in the suite occupied by BDO-Fidecs and Mr Celicia was its part-time manager. A Mrs Leigh-Anne Cruz was engaged as the part-time manager to deal with Viscount's business. Viscount had an office in the same building.
55. The evidence we saw showed that WHA in fact authorized all claims. How many claims in excess of £3,500 there were, we do not know. Mr Kentish told us that NIG issued 30,000 MBI Policies each month. All premiums for these policies were set by Warranty Holdings. The monthly receipts of cash by Crystal were of the order of £2-2.5 million. There were, Mr Kentish said, some 10,000 claims each month.

The activities of Viscount

56. By the Claims Handling Agreement between Viscount and WHA of 3 March 1998, WHA had been appointed "to control all claims handling ... and make payments" in respect of claims and losses under the NIG policies : see clause 3.1. Clause 3.2 required WHA to seek prior authority from Viscount before reaching any settlement and paying any claim of £3,500 or more. The evidence before us showed that WHA settled such claims first and referred to Viscount afterwards. There was no evidence of any occasion on which either Mr Kentish or Mrs Cruz had authorized a claim before it was met or of any occasion on which Viscount had refused to authorize a claim; they did not have the necessary information available to them, said Mr Kentish. The reality was that Viscount kept records of claims and built up statistical information. Whether WHA paid the insured direct (because the insured had engaged the garage directly and paid it) or paid the garage had not been a concern of Viscount.
57. By clause 8.1 (c) of the Claims Handling Agreement, WHA was not authorized to make ex gratia payments unless previously authorized by Viscount. These, said Mr Kentish, were not in fact authorized in advance by Viscount. On some occasions rebates on premiums were paid to successful dealers. These were borne by Viscount which collected an equal amount from Crystal.
58. From the start WHA's invoices to Viscount followed the scheme of clause 9.1. They identify separately the claims handling fees (i.e. the aggregate of the fees of £17.60 per claim) and the actual costs of meeting those claims. Arthur Andersen picked this up in a letter of May 1998 which said:

"Invoice WHA 00002, £662,000 odd. To reflect this single service being provided by WHA to Viscount a more appropriate description of the services would be claims handling services for March 1998 as per attached schedule. The breakdown of amounts should not appear on the face of the invoice, merely on an attached schedule."

The invoicing system was duly changed. The new-style invoice (of which an example is that of 26 February 1999) invoices Viscount for a single amount. A nil amount for VAT is stated on the face of the invoice. A separate schedule is attached. This breaks the single amount into three component parts. There is an amount for "claims paid" : this is about £1.45 million. From that is to be subtracted some £200,000 of "VAT to recover". Then there is a separate entry of some £177,000 referred to as "claims handling fee @ £17.60".

59. Turning to the management and control of the two Gibraltarian companies, we refer to a business plan prepared by Mr Kentish. The relevant passage was headed "Provision of Insurance Management Services". It says -

"Provision of insurance, administrative and accounting services to the company have been contracted out to BDO Fidecs .... They are independent of any insurance organizations and are fully licensed ..."

The term "the company'' appears to cover both Viscount and Crystal. The business plan goes on -

"The day-to-day administration is handled by Leigh-Anne Cruz : a part qualified member of the Chartered Insurance Institute, as well as having an accounting qualification. To ensure substance of the operations, she is actually part-time "employed" by one of the reinsurance companies."

In an earlier letter to the insurance supervisor at the Financial Services Commission, Mr Kentish had explained that "The two companies will be managed and controlled in Gibraltar by BDO Fidecs." Viscount and Crystal had separate rooms but shared fax, photocopier and kitchen facilities. Mrs Cruz, employed by Viscount, answered calls to and carried out certain jobs for Crystal. Overall there was a substantial degree of interchangeability between the two companies when it came to communications and use of staff. The particular functions carried out by Mr Celicia for Crystal were not made clear to us save that there was significantly less activity in Crystal than in Viscount.

60. The only reinsurance business that Viscount and Crystal have ever undertaken has been the NIG business that is the subject matter of the present appeal. Mr Kentish referred to there having been an exploration of other business opportunities, but we saw no convincing evidence of this. Mr Kentish explained the cashflow. Warranty Holdings collects the premiums and pays them, net of commissions, to NIG. NIG passes the whole amount on to Crystal and Crystal passes the appropriate percentage on to Viscount. Viscount then provides WHA with a cash float from which it can meet claims.
61. From the facts set out above and from the evidence as a whole we can make the following findings.
62. First, Viscount and Crystal as separate entities were creatures of Project C. There would never have been two captives but for the need to ensure that Viscount, as recipient of the supplies from WHA and as provider of supplies to a recipient outside the UK (Crystal), itself belonged in a country outside the EU. The second line of defence in the VAT scheme could not have worked without them.
63. Second, the overall management and control of the two Gibraltar companies came from BDO Fidecs through Alan Kentish with Mr Colin Tattersall as the other Gibraltarian executive director.
64. Third, the board meetings of Viscount and Crystal on 28 February 1998 at the Marbella Club Hotel implemented the Project C plan. There was, as we have already observed, no independent decision making in relation to the matters referred to in the minutes.
65. Fourth, despite those three features we find that Viscount and Crystal were two discrete companies with two separate trades. Their exposures to the overall risks assumed from NIG were different i.e. 15% by Crystal and 85% by Viscount. They had separate authorizations from the Financial Services Commission. They were separately audited and had separate accounts. They had long term functions and long term commitments. The formation of both was from the start to make and receive supplies of services of a significantly different nature.

Conclusions on Issue 1 : i.e. whether WHA recovers input tax in respect of supplies made to it

66. WHA's case is that it receives all the supplies of labour and parts made by the garages when they carry out repairs of cars covered by NIG Policies. WHA pays the VAT on the garage bills. Those supplies are used by WHA in making its onward supplies of an exempt comprehensive claims administration service to Viscount. This service consists of assistance in the administration and performance of the insurance and reinsurance contracts including the handling of claims : see the words of schedule 9 Group 2 item 4 and the definitions in Notes (1) and (2). It is immaterial for this purpose, argued Mr Roderick Cordara for the Appellants, whether that comprehensive claims administration service was a single composite supply or multiple supplies that together amounted to claims handling.
67. The Commissioners argue that the garages' supplies of repairs and services were to the insured and not to WHA. Thus WHA did not make onward supplies of the benefit of these to Viscount. The Commissioners argued also that WHA's claims

handling service was supplied to NIG rather than to Viscount. We shall deal with these in turn

68. In our opinion the garages make their supplies of repairs and parts to the insured. WHA pays for those to the extent that the bill of the garage in question is within the cover provided by the policy and so long as the repairs and parts are in other respects authorized by the terms of the policy.
69. Features of the arrangements that support that conclusion include the following -

The insured chooses the garage. WHA has a list of approved repairers and the insured is free to choose any one of these. Exceptionally, if the insured wishes or if an emergency dictates, he may use a non-approved repairer. In these circumstances the amount payable under the police may be limited to the amount which would have been charged under the approved repairer arrangements; the repairer obtains payment so long as he has followed WHA's claims procedures.

The insured authorizes the garage to carry out the investigatory work.

The insured is liable for work done by the garage where it is not covered by the policy. Work already done (including investigatory work relating to it), which WHA disclaims because it relates to a breakdown caused by any of the circumstances which are excluded from cover by the NIG Policy (see paragraph 24 above), is the responsibility of the insured. Also outside the cover will be the cost of the labour and parts where this exceeds the cover or where the labour and parts are otherwise outside the scope of the cover.

A significant number of invoices that we were supplied with (i.e. six out of thirty) showed, as mentioned in paragraph 48, that the garage had been paid by the policyholder.

WHA, as claims handler appointed to carry out the particular functions referred to in clause 3.1 of the Claims Handling Agreement, is put in funds to meet claims. It is accountable to Viscount for what it spends. Those funds are handled by it for the purpose of its appointment. They are, to use Mr Ross-Roberts' words, "a claims float". The supplies made by the garages are not used for the purposes of WHA's own business which is simply to handle claims for a flat rate fee. That is the position whether those supplies are used for the purpose of the insurer's business or (as we think to be the case) are used by the insured.

Mr McVeigh, when asked who the garage was providing its services to struck a note of reality when he replied "They were providing the services to the ... insured vehicle". (The insured vehicle is, of course, owned by the insured.)

As an indication of industry practice we have an observation of Mr Main of Arthur Andersen made at a meeting with the Commissioners in June 1998. The note records his agreement that it was industry practice to view the repair services being provided to the insured. He is, however, recorded as going on to say that "in this case significant time had been invested to break this perception".

70. We turn now to the documentation. The policy document itself contains nothing that indicates that the supply is other than to the insured. The insured is covered for the cost of the repair. When an insured event occurs the insured claims the cost of the repair and this is met within the policy conditions and limits. The policy document identifies WHA as the authorized claims handler. But it does not oblige WHA to provide the labour and parts. That is the responsibility of the garage. Insofar as WHA is obliged to make payments in settlement of claim, that obligation arises from the terms of its appointment but not under the NIG Policy itself.
71. The Claims Handling Agreement (clause 7.1(ii)), the Deed of Retrocession between Viscount and Crystal (clause 5.2) and the Deed of Reinsurance between Crystal and NIG (clause 5.2) are drafted with the object of securing that title to parts used in repair is transferred direct from garage to Viscount then on to Crystal then on to NIG. There is nothing, as we have already observed, that completes the trail to the policyholder. The matter is complicated by the fact, mentioned at the end of paragraph 49 above, that some garages stipulate that they should retain title to parts until they are paid. The Claims Handling Agreement provides for manufacturers' warranties to pass from garage to Viscount: see clause 7.1(ii). But, again as we have already observed, taking the paperwork at face value the warranties stop there. Finally, on the Claims Handling Agreement we should mention that it says nothing to the effect that the garage makes its supplies to WHA to the exclusion of the insured. The ''Claims Procedure" set out in paragraph 46 above requires the garage to obtain authorization from WHA to carry out repairs and directs that invoices for authorized repairs are to be sent to WHA. As we read it, this commits WHA to pay for authorized repairs. It does not, however, make WHA the customer of the garage. Still less does it operate to transfer title to the parts through WHA and into the Gibraltar loop.
72. We are satisfied that the documentation and the arrangements, designed to divert the supplies of labour and parts from their normal direct route from garage to insured by routing them instead via the Gibraltar loop, do no more than create a paper trail. Their purpose is to facilitate Project C. The reality is quite different. The following passage from the judgment of Laws J in Customs and Excise Commissioners v Reed Personnel Services [1995] STC 588 at 595b-e is in point. That ends with these words-

"In principle, the nature of a supply is to be ascertained from the whole facts of the case. It may be a consequence, but it is not a function, of the contracts entered into by the relevant parties."

"The whole facts" in this case point irresistibly to the conclusion that the documentation does not determine the nature of the garage's supply. The garage supplies the labour and parts to the insured.

73. We test this conclusion against the reasoning of Lord Millett in Customs and Excise Commissioners v Redraw Group [1999] STC 161 at 171 e-f. There he formulates a test directed at the identification of the recipient of supplies of services. The test focuses on the taxable person's claim to deduct tax. The taxable person "must identify the payment of which the tax to be deducted formed part". Here the taxable person is WHA and the payment is the amount paid to the garage in settlement of the insured's claim. The next stage in the Redrow test is to ask whether the taxable person making the payment obtains "anything - anything at all - used or to be used for the purposes of his business in return for that payment". If so, the supply will have been made to that taxable person. What does WHA obtain in return for the payment that is used for the purposes of its business? WHA's business in this connection is, as we have already noted, to discharge the liabilities of the insurer using money provided for the purpose by Viscount. There was no evidence showing that the benefit of the garage's supply of labour and parts is used for the purposes of WHA's business. The benefit of those enures to the insured or the insurer but not to WHA. It follows that there is no supply by WHA to Viscount of the benefit of the supplies of labour and parts.
74. This leaves the "claims handling" function of WHA. For this purpose we restate clause 3.1 of the Claims Handling Agreement which appoints WHA "to control all claims handling, negotiations, investigation, adjustments and settlements in connection with claims losses and NIG policies and making payments in respect thereof ...". For that it is paid £17.60 per claim and it is put in funds to cover the amounts due to the garages in respect of their invoices for approved repairs etc. The Commissioners contend that these actual claims handling services are made to NIG and not to Viscount. This is based on the proposition that the sole and predominant purpose of routing these through the Gibraltar loop is to facilitate the recovery of tax in the form of input tax on supplies used by WHA in making those claims handling supplies to Viscount; they should be treated for VAT purposes as following the economic reality, i.e that they are made to NIG.
75. We do not accept the Commissioners' argument on this point We recognize that the claims handling supplies have been put through the Gibraltar loop to facilitate Project C. We recognize that it is unusual, to say the least, for a retrocedent reinsurer such as Viscount to take on responsibility for claims handling. Mr Kentish conceded this. It must be even more unusual for title to parts to be passed through retrocedent reinsurer to reinsurer to insurer. But does the tax avoidance character of the transactions comprised in Project C disqualify the activities of WHA and of the two Gibraltarian captives from ranking as businesses or economic activities and the transactions between them from ranking as supplies for VAT purposes? We think not. All three companies have distinct and continuing businesses and business functions. They are part of a structure set up at great expense to last for at least the duration of Project C. However unusual and tax driven the scenario, the fact is that there is a need for a claims handler and that function is fulfilled by WHA. An Oriel Group company has been reinsuring NIG's liabilities for some years and that function is now fulfilled by Crystal. There is of course no "commercial" need to have a second Gibraltarian captive. That is a requirement purely of Project C. But Viscount assumes a substantially greater proportion of the liabilities than does Crystal. Thus they all have continuing businesses and all three make very large numbers of supplies. In this respect the present set up is to be distinguished from the one-off tax avoidance gambit adopted by Halifax Plc in the decision in Halifax Plc v Commissioners of Customs and Excise [2001] VATTR 71. In that case a sequence of transactions, having nothing to do with the ordinary business of the Halifax, took place for the sole purpose of achieving a tax advantage. The activities were, on the ground of that particular feature, disqualified from ranking as businesses or economic activities and the supplies were disregarded accordingly.
76. It follows that WHA has a business of claims handling. In the course of that business it holds funds provided by Viscount and disburses these in meeting approved garage bills. In return Viscount pays it £17.60 per claim. The claims handling supplies are, therefore, within section 26(2)(c) and the Specified Supplies Order,

Issue 2 : Is WHA obliged to charge output tax?

77. The relevance of this question is summarized in paragraph 20 above. The answer depends on whether, as Mr Roderick Cordara contends, WHA's "claims handling" supplies to Viscount embrace the provision of the benefit of labour and parts which have been supplied to it by the garage. All those activities taken together, he contends, constitute the provision of assistance in the administration and performance of the insurance and reinsurance contracts including the handling of claims. On that basis WHA's supplies to Viscount are in their entirely (exempt) claims handling services within Article 13B(a) of the Sixth Directive as implemented by Schedule 9, Group 2, item 4.
78. We have already concluded that the supplies of labour and parts are made by the garages direct to the insureds. On that basis those supplies, or the benefit of those supplies, do not go through WHA and onwards into the Gibraltar loop. If we are wrong on that, this question will become a live issue.
79. WHA's case is that it incurred the garage bills as principal. It did so as part of its claims handling service. Those bills were of the same nature as the travelling disbursements of solicitors when acting for their client. In Rowe & Maw v C&EC [1975] STC 340 these had been invoiced to clients as part of the general charge for professional services. So here, when WHA invoiced Viscount for these, WHA was obtaining consideration for its exempt claims handling supplies.
80. The Commissioners accept that WHA's supplies of claims handling are exempt supplies to the extent that those supplies fall within the wording of Note (1)(c) to Schedule 9. Note (1) is referring to services of an "insurance intermediary"; these are said (by Note (1)(c)) to cover "the provision of assistance in the administration and performance of (insurance and reinsurance) contracts, including the handling of claims". Those words, they say, cover the claims handling service supplied by WHA to Viscount in return for £17.60 per claim. However, to the extent that WHA's invoice cover the garage bills for labour and parts, they relate to a quite separate service. Alternatively, say the Commissioners, WHA's supplies of claims handling services (in the limited sense) are ancillary to its principal supply of parts and repair services and so standard-rated in their entirety.
81. We approach this with the guidance of the ECJ in Card Protection Plan v C&EC [1999] STC 271 in mind. In paragraphs 29 and 30 of the judgment (at 293) the tribunal is directed to ascertain and examine all the essential features of the transaction and determine whether these are in reality two separate and distinct supplies or whether there is one element which is ancillary to another principal element such that there is, on analysis, only one supply (the tax treatment of which is governed by the principal element). To be taken into account in this exercise are two overriding principles in paragraph 29. First every supply "must normally be regarded as distinct and independent". Second, that which comprises a single service from an economic point of view must not be artificially split.
82. We turn now to the essential features of the transaction, namely WHA's supply to Viscount. WHA is appointed to control claims handling and to make payments in respect of claims and losses : see clause 3.1 of the Claims Handling Agreement (paragraph 31 above). In return for its "obligations" Viscount pays it the cost of all claims plus £17.60 per claim (Clause 9.1). Those factors point to separate supplies. The first of these covers everything to be done in response to the insured's claim under the NIG Policy. The second supply covers the discharge of the insurer's obligation to meet the claim. The first is the claims handling supply. The second is that of satisfying the claim.
83. The claims handling supply involves responding to the insured when he wants to make a claim, checking whether he is covered, advising him of suitable authorized repairers (or, where he has already had the vehicle repaired, advising him to get the garage's invoice met by WHA), setting up bulk supply arrangements for parts, appointing loss adjusters, authorizing repairers authorizing repairs, etc. All those functions are carried out by WHA as principal and in return for the flat rate fee. Then comes the satisfaction of the claim. That supply does not start until the claim has been authorized. It involves checking and paying the garage's invoice using funds provided for the purpose by Viscount as the float.
84. That there would be two supplies was recognized at the outset in the Minutes of the Motor Board of 1 October 1997 (see paragraph 36 above). The Minutes, in our view, anticipated what actually happened.
85. WHA invoices Viscount periodically. This refers to the service as claims handling but breaks the amount into its two component parts (i.e. the aggregate of the £17.60 fees and the aggregate of the claims paid).
86. So far as the insured is concerned WHA is NIG's claims handler. So far as the garage is concerned WHA is acting for NIG by checking the work done and paying the cost of labour and parts to the extent that NIG is liable under the policy.
87. The claims handling supplies are capable of generating profit for WHA. The more economically it deals with these the more its profit. WHA's supplies of discharging the claims earn it nothing. They are a "wash"; it simply spends money advanced as a float by Viscount and receives no fee or commission for satisfying the claim.
88. Applying the Card Protection Plan approach, those features satisfy us that both supplies are separate and distinct. Neither is ancillary to the other. The claims handling service is exempt within item 4 of Group 2 of Schedule 9. The service of satisfying the claim is not exempt. It is excluded from exemption by Note (10) which reads as follows:

"Item 4 does not include any supply of services which -

(a) are supplied in consequence of a contract of insurance or reinsurance or of any arrangements made in connection with such a contract; and

(b) are so supplied either -

(i) instead of the payment of the whole or any part of any indemnity for which the contract provides, or

(ii) for the purpose, in any other manner, of satisfying any claim under that contract, whether in whole or in part."

Issue 3 : Can Viscount recover its input tax under the Thirteenth Directive?

89. We approach this on the basis that VAT has properly been charged by WHA on its supplies to Viscount. We shall examine the provisions of the Thirteenth Directive in detail when we come to the dispute as to the proper interpretation of that Directive and of its UK counterparts, i.e. Regulations 186 and 190 of the General Regulations. The Commissioners contend as a preliminary matter that Viscount is not able to recover that VAT because it did not incur it as input tax for the purposes of making a "supply" to a non-EU person (here Crystal) in the course of an economic activity. They say that on the proper construction of those expressions (as illustrated in the Halifax decision) Viscount's activities are disqualified because they have been inserted into the scheme for tax avoidance reasons only. We disagree. We think that Viscount (and Crystal) do conduct economic activities or, rather, activities that would be economic activities if conducted within the EU. The activities of both of those companies consist of making supplies of reinsurance facilities over a long term. The corporate structure is tax-driven to the extent that there are two companies and not just one. But that feature does not eliminate the character of those activities which have at all times been and remain businesses or economic activities. Our reasons are essentially the same as those that are found in paragraph 74 above.
90. This brings us to the question of whether on the proper interpretation of the relevant statutory provisions Viscount is entitled to repayment of the VAT charged by WHA on the provision of its claims handling services. This complex issue needs some explaining.
91. In essence the argument for Viscount is this. If and to the extent that Viscount were to be held to be in receipt of a taxable supply from WHA, Viscount would then be able to recover the input tax under the General Regulations made pursuant to the Thirteenth Directive. Put simply, the European legislation and the domestic legislation implementing it were designed just as much to encourage the provision of certain types of service by one non-EU person to another non-EU person as they were to encourage the provision of such services by an EU person to a non-EU person.

Legislation

92. We set out relevant extracts from the UK legislation. Regulation 186 of the VAT Regulations 1995 (SI 1995/2518) provides:

"186 Subject to the other provisions of this Part a trader shall be entitled to be repaid VAT charged on goods imported by him into the United Kingdom in respect of which no other relief is available or on supplies made to him in the United Kingdom if that VAT would be input tax of his were he a taxable person in the United Kingdom."

Regulation 190 provides:

"190—(1) The following VAT shall not be repaid—

(a) VAT charged on a supply which if made to a taxable person would be excluded from any credit under section 25 of the Act,..

Section 25(2) provides:

"(2) Subject to the provisions of this section, he is entitled at the end of each prescribed accounting period to credit for so much of his input tax as is allowable under section 26, and then to deduct that amount from any output tax that is due from him."

Section 26(2) provides:

"(2) The supplies within this subsection are the following supplies made or to be made by the taxable person in the course or furtherance of his business—

(a) taxable supplies;

(b) supplies outside the United Kingdom which would be taxable supplies if made in the United Kingdom;

(c) such other supplies outside the United Kingdom and such exempt supplies as the Treasury may by order specify for the purposes of this subsection."

Appellants' contentions

93. Having made the initial reference to regulation 186, Mr Cordara concentrated his attention on the European legislation. In the course of argument he made brief reference to section 26(2)(c) and to SI 1999/3121, and further reference to regulation 186. He cited Article 17 of the the Sixth Directive, and argued that the Eighth and Thirteenth Directives were part of the Article 17 machinery. He relied on the wording of the provisions themselves and on the following passage in paragraph 36 of the judgment of the ECJ in Société Generale des Grandes Sources d'Eaux Minérales Francises [1998] STC 981 at 997:

"Those reasons cannot in any event justify different treatment of taxpayers depending whether they are established in the Member State concerned or elsewhere..."

He argued that this principle of non-discrimination established a non-EU trader's right to a refund of VAT pursuant to this combination of the Thirteenth and Sixth Directives.

94. The relevant part of Article 17 provides:

"17(3) Member states shall also grant every taxable person the right to the deduction or refund referred to in paragraph 2 in so far as the goods and services are used for the purposes of:

(c) any of the transactions exempt pursuant to article 13(B)(a) [this refers to insurance etc.] .... when the customer is established outside the Community

95. Mr Cordara argued that this provided for a refund of the VAT charged to third country traders where the supply giving rise to that VAT was used in connection with insurance transactions. The supply made by WHA to Viscount was being used by Viscount for the purposes of exempt insurance and reinsurance transactions.
96. Mr Cordara argued that the scheme and the history of the Sixth and Thirteenth Directives viewed together were such as to allow provisions mentioned in Article 17 of the Sixth Directive to be "read into" the Thirteenth Directive even though they were not specifically mentioned. He resisted the argument of the Respondents that the absence of any reference in the Thirteenth Directive to Article 17(3)(c) meant that no relief could be available under the Thirteenth Directive. The Sixth Directive was the origin of all refunds and deductions under the system, and the Thirteenth had always been regarded by the Sixth as a means of application.
97. He argued that changes to the wording of the Sixth Directive could result in different heads of relief becoming available under the Thirteenth Directive. Article 17(3)(c) was inserted into the Sixth Directive in 1991; the Thirteenth Directive was adopted in 1986. The words relied on by Viscount had been present in other forms from 1977.
98. On this latter point, although Mr Cordara did not put the former wording to us, we have reviewed the version of Article 17(3) before the words were substituted by Council Directive 91/680/EEC of 16 December 1991. The change in the wording took effect from 1 January 1993. The wording applying before that date has many similarities to the current version. We doubt whether any significance can be attached to the change, but will refer to this again when considering the interpretation issue.
99. Mr Cordara contended that in any event Article 17(3)(c) was directly effective. Further, it had been the practice of the Commissioners for a number of years to grant third country banks and insurers refunds under the Thirteenth Directive machinery. This was appropriate, based on the wording of Article 17(3) and (4) and the Thirteenth Directive as a whole. He argued that the Sixth Directive made it very clear in simple language that a third country trader that incurs VAT in the EU for the purposes of exempt transactions can obtain a refund of its VAT. In other words, an exempt third country trader would be exempt with refund.
100. In the alternative, Mr Cordara contended that a refund could be available on the basis of Article 17(3)(a). This would permit a deduction of VAT charged to Viscount by a UK taxable person for the supply of goods and services in so far as those goods and services were used for the purpose of transactions carried out by Viscount in another country (Gibraltar) which would be deductible if they had been performed in the UK. The right to deduct would exist in relation to those transactions if they were performed in the UK by virtue of Article 17(3)(c) because Viscount was supplying exempt insurance services to a customer (Crystal) outside the Community. Article 17(3)(c) was therefore otiose in the context of Article 2 of the Thirteenth Directive. He referred to the Commission's proposals for the Eighth and Thirteenth Directives. He argued that VATA 1994 s 26 also supported the Appellants' case.
101. He contended that Viscount did not make supplies in the EU. The only relevant supply that it made was of reinsurance to Crystal. Under the Sixth Directive Article 9(2)(e), that service was a supply that occurred outside the EU. This meant that Viscount fulfilled the conditions of Article 17(3)(c) and so pursuant to the Thirteenth Directive was eligible for the refund of the tax charged by WHA.

The Commissioners' contentions

102. For the Commissioners, Mr Peacock argued that for both policy reasons and construction reasons, non-EU insurers could not recover VAT (being input tax charged to them on supplies made in the UK) in respect of supplies made by them of insurance services to a non-EU person. The domestic legislation, section 26(2)(c), reflected Article 17(3)(c) of the Sixth Directive. This in turn was designed to encourage the provision of certain types of service by an EU person to a non-EU person, and not the provision of services by one non-EU person to another non-EU person. The principle of non-discrimination laid down in the Grandes Sources case operated throughout and up to the borders of the EU; it did not operate outside the EU.
103. Mr Peacock maintained that as a matter both of policy and construction, no claim to recover VAT could be made under the Thirteenth Directive unless the VAT was attributable to supplies falling within Article 17(3)(a) or (b) of the Sixth Directive. Article 17(3)(a) provided for recovery where supplies were made outside a member state and those supplies would be taxable if made in the member state. Article 17(3)(b) provided for recovery where certain exempt supplies were made; none of these was relevant to these appeals. Article 17(3)(c) was a provision giving EU insurers providing insurance services to non-EU customers the status of exemption with refund in respect of those transactions. There was no reason to extend it to non-EU insurers, and therefore no reason for the Thirteenth Directive to refer to it.
104. Mr Peacock referred to the domestic legislation, and said that the position under the Directive was achieved by VAT Regulations 1995 regulation 190. This provided that no refund could be made under regulation 186 (ie under the Thirteenth Directive) where the VAT would be excluded from credit under section 25. Under section 26 credit under section 25 is only available where there is a "taxable supply" (section 26(2)(a)), where there is a supply which would be a "taxable supply" if made in the UK (section 26(2)(b)), or where a supply is made by a person in the UK to a person outside the EU (section 26(2)(c) and the Specified Supplies Order.
105. He maintained that a non-EU trader cannot satisfy section 26(2)(a) (which implements Article 17(2)) since he makes no "taxable supplies". For this reason the Thirteenth Directive makes no reference to Article 17(2). Equally, he cannot satisfy section 26(2)(c) (which implements Article 17(3)(c)) because he is not a person established in the UK making supplies to a customer outside the EU. For this reason the Thirteenth Directive makes no reference to Article 17(3)(c). A non-EU trader can, however, satisfy section 26(2)(b) (which implements Article 17(3)(a)) if, but only if, the supplies that he makes would be "taxable" if made in the UK. This is not the case if the supplies are of insurance services, as these are exempt.
106. To summarise Mr Peacock's argument, no claim can be made under the Thirteenth Directive by a non-EU insurer not established in the UK in respect of input tax suffered in the UK in making supplies to a non-EU person.

Conclusions

107. For convenience, we set out the wording of Article 2(1) of the Thirteenth Directive:

"1 Without prejudice to Articles 3 and 4, each Member State shall refund to any taxable person not established in the territory of the Community, subject to the conditions set out below, any value added tax charged in respect of services rendered or moveable property supplied to him in the territory or the country by other taxable persons or charged in respect of the importation of goods into the country, in so far as such goods and services are used for the purposes of the transactions referred to in Article 17(3)(a) and (b) of Directive 77/388/EEC or of the provision of services referred to in point 1(6) of Article 1 of this Directive."

108. The first question is whether as a matter purely of domestic legislation Viscount is able to claim a refund of the VAT charged to it by WHA. The claim has to be made under Part XXI of the VAT Regulations 1995. Under regulation 186 (see paragraph 91 above), Viscount has to establish that the VAT charged to it by WHA on the supplies made by the latter in the United Kingdom would be input tax of Viscount if Viscount were a taxable person in the United Kingdom. If it were, it would be carrying on an exempt business of providing reinsurance. Under regulation 190, no refund can be made where the VAT would be excluded from credit under section 25. Under section 25(2), the amount of the credit for input tax is governed by section 26. For an exempt trader, no credit is available under section 26(2)(a) or (b). Under section 26(2)(c), for the Specified Supplies Order to apply, Viscount would have to be a "taxable person" established in the United Kingdom, as well as making supplies of insurance services to a non-EU person. Viscount, having no form of establishment in the United Kingdom, cannot fulfil the requirement that it should be a taxable person.

The European Directives

109. The United Kingdom legislation reflects the Thirteenth and Sixth Directives. We review our conclusion on the domestic legislation against the Directives themselves.
110. The Thirteenth Directive makes provision for refunds of VAT to third country traders, referred to as "taxable person[s] not established in the territory of the Community". Article 2(1), cited at paragraph 106 above, refers specifically to refunds in so far as services are used for the purposes of the transactions referred to in Article 17(3)(a) and (b) of the Sixth Directive. No reference is made to Article

17(3)(c).

111. As indicated at paragraph 97, we do not regard the change in wording of Article 17 of the Sixth Directive as sufficiently great to warrant a reinterpretation of Article 2(1) of the Thirteenth Directive. Exempt transactions have not been subject to the refund procedure since the latter was adopted. We therefore examine the European legislation to see whether there is some alternative basis for granting refunds of VAT incurred in connection with this type of exempt transaction.

The initial question is one of interpretation; is there any reason why Article 2(1) of the Thirteenth Directive should be read as if it referred to Article 17(3)(c) of the Sixth Directive? On the face of Article 2(1) there is no obvious reason to do so. We do not accept Mr Cordara's contention that the Sixth Directive is the origin of all refunds and deductions under the system, and that the Thirteenth has always been regarded by the Sixth as a means of application. The Thirteenth provides a system of refunds to third country traders, and was designed to restrict the previous powers of member states to refuse refunds or impose special conditions; this appears from the first recital. We regard this as a self-contained system. It is therefore inappropriate to read into the Thirteenth Directive provisions contained elsewhere in the Sixth Directive where there is no express cross-reference. Further, the absence of a reference to Article 17(3)(c) when there are specific references to Article 17(3)(a) and (b) points to an intention that no such cross-reference is to be made. This question of intention raises that of the underlying policy relating to Article 17(3)(c).

112. The parties took different views on the policy behind Article 17(3)(c). The more restricted view taken by the Commissioners is that it is intended to encourage the provision of insurance services by a taxable person based in the UK to a non-EU person, and not the provision of such services by one non-EU person to another non- EU person. In the Appellants' view, the latter wider basis was correct. We consider it unlikely that the European Union would wish to confer any benefit on non-EU insurers who provide services to non-EU customers. We regard it as far more likely that the purpose of Article 17(3)(c) is to enable EU insurers to compete on an equal basis with non-EU insurers. (The latter can choose whether to incur VAT charges in the EU as part of their cost component; EU insurers have no such choice.) The "Proposal for an Eighth Council Directive" refers to the requirement that refund arrangements for persons established in non-member countries should not be more favourable than those accorded to Community taxable persons. This requirement was met by Article 8, which in turn was deleted by Article 7 of the Thirteenth Directive. We have referred in the previous paragraph to the reasons behind the Thirteenth Directive. The "Proposal for a Thirteenth Directive" mentions in relation to Article 1 that

" ... the same conditions of entitlement to refund should in principle be laid

down for both Community and non-Community taxable persons."

113. The general theme discussed in the introduction to the Proposal is that of reciprocity; the alternative approach would have been to conclude conventions with individual non-member countries to achieve this. Similarly, the reasoning for Article 4 is " ... to extend the same restrictions on refund entitlement as each Member State imposes on its own taxable persons." There is no apparent benefit to the EU to provide "exemption with refund" status to non-EU insurers; this would amount to generosity without reciprocity.
114. We conclude that it would be inconsistent with the apparent policy of the Thirteenth Directive to construe it as permitting a refund claim by reference to Article 17(3)(c) of the Sixth Directive. There is no reason to interpret Article 2(1) of the former as extending to any transactions other than those referred to in Article 17(3)(a) and (b) of the latter.
115. We refer to Mr Cordara's alternative contention that a refund could be available on the basis of Article 17(3)(a). To achieve this it is necessary to argue that the transactions would have been deductible if performed in the UK; the basis for this would be Article 17(3)(c). We are not comfortable with an interpretation of which the result would be that Article 17(3)(c) can be ignored for the purposes of a Thirteenth Directive refund claim, while at the same time it is the essential basis for the claim to be made by reference to Article 17(3)(a). Further, Article 17, as Mr Peacock argued, refers to "deduction or refund" in the context of traders in respectively a payment situation or a repayment situation. The refund mechanism for third country traders is provided by the Thirteenth Directive, not under Article 17 of the Sixth Directive. We agree with Mr Peacock's argument that if Article 17(3)(a) encompasses 17(3)(c), it must also encompass 17(3)(b), and so on the basis of the Appellants' contentions, there would be no need to refer to 17(3)(b). As this would result in the omission of any reference to transactions exempt under the Directive but carrying the right to recover input tax, this would render the reference to it in the Thirteenth Directive otiose, which we agree cannot be correct.
116. On the view that we take of the construction of the Directives, they have been fully implemented by the domestic legislation, so that the question of direct effect does not arise.

117 In summary, on the Thirteenth Directive issue, we do not consider that Viscount can make any refund claim in respect of the tax charged to it on the supplies made by WHA. The position is clear, and we see no reason for the question to be referred to the European Court of Justice.

Abuse of Rights

117. We have concluded that both these appeals fail. The abuse of rights issue arises only if we are wrong in concluding that Viscount has no claim for refund in pursuance of Regulation 190 of the VAT General Regulations. That provision implements the Thirteenth Directive. The Commissioners argue that, by reason of the abuse of right doctrine, Viscount is not entitled to recover sums under the Thirteenth Directive. The abuse of rights principle has the effect of cancelling Viscount's claim.
118. In the recent decision of this Tribunal in BUPA Hospitals Ltd and Goldsborough Developments Ltd (2002) VAT Dec. 71 (not referred to in argument) the tribunal explored the doctrine of abuse of rights in the context of a "prepayment scheme" designed to enable recovery of input tax in respect of supplies which, at the time of the "payment", were alleged to be going to be used in making onward taxable supplies; in fact, because of an anticipated change in the law, they would only be used (if at all) in making exempt supplies. The tribunal examined the abuse of rights doctrine as it has developed in recent years through decisions of the European Court of Justice.
119. The first area where the principle has developed covers the abuse of use of Community law to circumvent national law. That is not the position here. Viscount's claim stands or falls on the application of regulations 186-190 of the General Regulations.
120. The second situation is where there has been an abuse of use of Community law to gain a financial advantage from Community funds. That is exemplified by the decision of the ECJ in Emsland-Stärke v Hauptzollamt Hamburg Jonas, C-110/99. That case, as was mentioned in the BUPA decision, concern the application of a Council Regulation. Community Regulations play no part here. We are here concerned with a domestic provision which properly implements the Thirteenth Directive. Viscount is not, therefore, relying on its enforceable Community rights; it is quite simply relying on domestic law rights. Under the domestic law there is no doctrine of abuse of rights.
121. The third situation where the Community law abuse of rights principle has been considered is where Community law has been used in a manner which is alleged to be contrary to a national abuse of right provision. Here we have no national abuse of rights provision.
122. It follows, as we see it, that the EC doctrine of abuse of rights has not developed to a sufficient extent to enable it to be deployed in the present circumstances to negate Viscount's claim for repayment of the tax charged by WHA.

Conclusion

123. For all the reasons given above we dismiss the appeals. The parties have three months from the release of this decision in which to agree the amounts of the assessments under appeal. If these cannot be agreed, the matter should be referred back to us for further directions. We award the Commissioners their costs. If the amount of the costs cannot be agreed the matter should be referred back for further directions.

STEPHEN OLIVER QC CHAIRMAN

Note 1   All references to UK primary legislation are to VAT Act 1994    [Back]