[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback] | ||
United Kingdom Supreme Court |
||
You are here: BAILII >> Databases >> United Kingdom Supreme Court >> Balhousie Holdings Ltd v Revenue and Customs (Scotland) [2021] UKSC 11 (31 March 2021) URL: http://www.bailii.org/uk/cases/UKSC/2021/11.html Cite as: 2021 SC (UKSC) 15, [2021] 1 WLR 2164, 2021 SLT 453, [2021] 3 All ER 599, 2021 GWD 12-182, [2021] UKSC 11, [2021] WLR(D) 184, [2021] STC 753, [2021] STI 1297, [2021] WLR 2164, [2021] BVC 5, 2021 SCLR 340 |
[New search] [Context] [View without highlighting] [Printable PDF version] [View ICLR summary: [2021] WLR(D) 184] [Buy ICLR report: [2021] 1 WLR 2164] [Help]
[2021] UKSC 11
On appeal from: [2019] CSIH 7
JUDGMENT
Balhousie Holdings Ltd (Appellant) v Commissioners for Her Majesty’s Revenue and Customs (Respondent) (Scotland)
|
before
Lord Hodge, Deputy President Lord Briggs Lady Arden Lord Sales Lord Carloway
|
JUDGMENT GIVEN ON |
|
|
31 March 2021 |
|
|
Heard on 26 and 27 January 2021 |
Appellant |
|
Respondent |
Philip Simpson QC |
|
Kieron Beal QC |
Roger Thomas QC |
|
Ross Anderson |
(Instructed by Brodies LLP (Edinburgh)) |
|
(Instructed by Office of the Advocate General (Scotland)) |
LORD BRIGGS: (with whom Lord Hodge, Lord Sales and Lord Carloway agree)
3. In the present case P is a company within the appellant’s VAT group, Balhousie Care Ltd (“BCL”). It acquired a recently constructed care home in Scotland under a zero-rated first grant from the developer, and then financed that acquisition by a sale and leaseback of the building with a finance house. The question which has divided the parties and the courts below is whether the sale and leaseback constituted a disposal by BCL of its entire interest in the care home, so as to trigger a self-supply charge under paragraph 36(2).
5. The language of paragraph 36(2) is simplicity itself. A self-supply charge is triggered:
“… if P has, since the beginning of the relevant period, disposed of P’s entire interest in the relevant premises (or part).”
As already explained, P is a person to whom one or more relevant zero-rated supplies relating to a building (or part of a building) have been made: see paragraph 35(1). The relevant period is ten years beginning with the date of completion of the relevant premises. “Relevant premises” means the building (or part of a building) in relation to which a relevant zero-rated supply has been made to P: see paragraph 35(2). “Entire interest” is not defined, but it is clear from paragraph 37(1) that an interest includes a right or licence in the relevant premises. As is common ground, “interest” plainly includes a lease.
The Facts
12. The appellant Balhousie Holdings Ltd is the representative member of a VAT group that includes BCL. Accordingly, any supplies made to or by BCL are treated as having been made to or by the appellant: section 43 of VATA. The Balhousie group, which includes companies outside the VAT group, owns and operates care homes in Scotland. The group (but not the VAT group) includes Faskally Care Home Ltd (“Faskally”).
16. The Missives for the Sale by BCL to Target provided, inter alia, that:
a) the Date of Entry was to be 8 March 2013, or such other date as might be agreed (clause 1.1);
b) the Date of Settlement was the date on which settlement was actually effected, whether the Date of Entry or some other date (clause 1.1);
c) the Price for the Home was to be £4,007,561 (clause 1.1);
d) “Subject to the Seller’s right of occupation and possession of the Properties conferred by the Lease, the Seller shall give the Purchaser entry to, and actual vacant possession of, the whole of the Properties on the Date of Entry, the giving of such possession being an essential condition of the Missives” (clause 4);
e) on the Date of Entry, Target was to pay the Price for the Home, and, in exchange, BCL was to deliver a disposition conveying the Home to Target, the lease executed by BCL and the appellant, and various other documents (clause 10.1). These provisions were protected by a non-supersession clause (clause 10.3). The terms of the disposition were set out in Schedule Part 4 (as were the terms of the disposition by Faskally to BCL);
f) on the Date of Settlement, Target was to grant a lease of the Home (and the other two properties) to BCL, in agreed terms (the terms were set out in Schedule Part 3). The lease was to apply from that date, whether or not executed by then (clause 11).
17. The Lease provided inter alia:
a) the term commenced on 8 March 2013 (clauses 1.1.47, 1.1.48 and 2.1.1);
b) the Lease was for 30 years (clauses 1.1.47 and 2.1.1);
c) the rent was £318,000 pa, subject to upwards review (clauses 1.1.39 and 2.1.1.1);
d) BCL was to use the Home only as a care home and as ancillary residential accommodation and offices (clauses 1.1.4 and 3.16.1).
The Zero-Rating Scheme and the Self-Supply Charge, in Detail
“have been adopted for clearly defined social reasons and for the benefit of the final consumer.”
In that formulation the phrase “the final consumer” means the person who acquires goods or services for his personal use, as opposed to an economic activity: see European Communities Commission v United Kingdom (Case C-416/85) [1990] 2 QB 130 at 139-140 per Advocate General Darmon at para 14. There is no dispute that zero-rating for the classes of supplies in connection with the construction of (inter alia) care homes in items 1 to 4 of Group 5 satisfies those conditions. This is because the provision of care homes for members of the public in need of them is a relevant social purpose, and because the residential occupants of care homes are for this purpose final consumers. The way in which the zero-rating of supplies to builders and owners of care homes actually benefits their occupants is less straightforward, but it may be assumed for present purposes that the reduction in the burden of taxation on those supplies causes a reduction in the cost of the construction and acquisition of care homes which developers and owner-operators pass on to the residential occupants, to some indefinite extent, in reduced prices for occupancy and the caring services provided therein.
23. There was extended debate before this court about the extent to which the jurisprudence of the CJEU was of assistance in resolving the issue about the construction of paragraph 36(2) and its application to the facts. In particular a number of decisions of the CJEU were prayed in aid, on both sides, on the question whether multiple transactions needed to be viewed separately or together for VAT purposes. They included BLP Group Plc v Customs and Excise Comrs (Case C-4/94) [1996] 1 WLR 174, Halifax Plc v Customs and Excise Comrs (Case C-255/02) [2006] Ch 387, Centralan Property Ltd v Customs and Excise Comrs (Case C-63/04) [2006] STC 1542, Bookit Ltd v Revenue and Customs Comrs (Case C-607/14); EU:C:2016:355, National Exhibition Centre Ltd v Revenue and Customs Comrs (Case C-130/15) [2016] STC 2132, Ministero dell’Economia e delle Finanze v Part Service Srl (Case C-425/06) [2008] STC 3132 and Mydibel SA v État belge (Case C-201/18) [2019] STC 1342. Whilst Mydibel indicates that it may well be appropriate to tax a lease and leaseback financing arrangement as a single transaction (if the national court considers that to be supported by the evidence), these CJEU cases tend to show that the question whether multiple transactions need to be viewed separately or together for VAT purposes in any particular case is heavily context dependent. There is no single answer that applies across the entire field of VAT.
“The ultimate question is whether the relevant statutory provisions, construed purposively, were intended to apply to the transaction, viewed realistically.”
Per Ribeiro PJ in Collector of Stamp Revenue v Arrowtown Assets Ltd [2003] HKCFA 46, 6 ITLR 454, para 35, approved for general use in Barclays Mercantile Business Finance Ltd v Mawson [2005] 1 AC 684, para 36 and UBS AG v Revenue and Customs Comrs [2016] 1 WLR 1005, para 66 per Lord Reed. It is nothing to the point that the present case is not about tax avoidance, or that it is about VAT rather than taxes on income or gains. This principle of statutory construction is of general effect, as Lord Drummond Young rightly observed in the Inner House, at para 13.
27. Paragraph 35 sets out the circumstances in which Part 2 applies, in the following terms:
“(1) This Part of this Schedule applies where one or more relevant zero-rated supplies relating to a building (or part of a building) have been made to a person (‘P’).
(2) In this Part of this Schedule -
‘relevant zero-rated supply’ means a grant or other supply which relates to a building (or part of a building) intended for use solely for -
(a) a relevant residential purpose, or
(b) a relevant charitable purpose,
and which, as a result of Group 5 of Schedule 8, is zero-rated (in whole or in part);
‘relevant premises’ means the building (or part of a building) in relation to which a relevant zero-rated supply has been made to P;
‘relevant period’, in relation to relevant premises, means ten years beginning with the day on which the relevant premises are completed.”
“Paragraph 37 applies on each occasion during the relevant period when -
(a) there is an increase in the proportion of the relevant premises falling within sub-paragraph (2) or (3), and
(b) as a result, the proportion of the relevant premises so falling (‘R2’) exceeds the maximum proportion of those premises so falling at any earlier time in the relevant period (‘R1’).”
This concept of an increase is designed to deal with a succession of triggering events, where there is a disposal of P’s entire interest in, or change of use of, only a physical part of a relevant building, such as a floor or a wing of it. Its effect is to impose a self-supply charge proportionate only to that physical part of the whole.
31. Paragraph 37 provides as follows:
“(1) Where this paragraph applies, P’s interest, right or licence in the relevant premises held immediately prior to the time when the increase referred to in paragraph 36(1) occurs is treated for the purposes of this Part of this Schedule as -
(a) supplied to P for the purposes of a business which P carries on, and
(b) supplied by P in the course or furtherance of that business
immediately prior to the time of that increase.
(2) The supply is taken to be a taxable supply which is not zero-rated as a result of Group 5 of Schedule 8.
(3) The value of the supply is taken to be -
(a) in the case of the first deemed supply under this paragraph, the amount obtained by the formula -
R2 x Y x (120-Z)/120, and
(b) in the case of any subsequent deemed supply under this paragraph, the amount obtained by the formula -
(R2-R1) x Y x (120-Z)/120
(4) For the purpose of sub-paragraph (3) -
(a) R1 and R2 have the meaning given by paragraph 36(1)(b),
(b) Y is the amount that yields an amount of VAT chargeable on it equal to -
(i) the VAT which would have been chargeable on the relevant zero-rated supply,
or
(ii) if there was more than one supply, the aggregate amount of the VAT which would have been chargeable on the supplies,
had the relevant premises not been intended for use solely for a relevant residential purpose or a relevant charitable purpose, and
(c) Z is the number of whole months since the day on which the relevant premises were completed.”
32. A number of relevant points emerge from this paragraph. First, sub-paragraph (1) expressly contemplates that P may, immediately before the triggering event, only have a licence in the relevant premises. This need not be a proprietary interest at all (per Nourse LJ in IDC Group Ltd v Clark [1992] 2 EGLR 184 at 186: “a licence properly so called is a permission to do something on or over land which creates no interest in it”). Nonetheless it is an economic interest. A licence is necessarily an interest of a lesser amount than the minimum necessary to give rise to a zero-rated first grant under item 1 of Group 5, which must be a “major interest” (which, in Scotland, as already noted, is the interest of the owner or the lessee’s interest under a lease for a period of not less than 20 years). The focus on the period immediately prior to the triggering event also contemplates that P may have altered its interest in the relevant premises since (if at all) receiving a zero-rated first grant, but before triggering the self-supply charge under paragraph 36(2). Secondly, sub-paragraph (4)(b)(ii) expressly contemplates that the self-supply charge may claw back the benefit of the zero-rating of any number of prior zero-rated supplies to P. Consistently with paragraph 35(2), as already noted, the scheme of Part 2 of Schedule 10 is not therefore limited just to clawing back the benefit of a zero-rated first grant under item 1 of Group 5 (contrary to the main focus of HMRC’s argument). It could apply for example to a developer which intends itself to use the building for the qualifying purpose, who receives zero-rated supplies of construction services and building materials, but no zero-rated first grant, but then changes its mind and then changes its use of the building or, without any change of use, disposes of its entire interest in the building, in each case within ten years of its completion. Thirdly, the last part of the two formulae in effect tapers the self-supply charge from 100% to 0% of the aggregate of the VAT that would have been charged on the relevant zero-rated supplies but for zero-rating, over ten years, to reflect the number of months since the day on which the relevant premises were completed.
“(2) The relevant premises fall (or part of the relevant premises falls) within this sub-paragraph if P has, since the beginning of the relevant period, disposed of P’s entire interest in the relevant premises (or part).
(3) The relevant premises fall (or a part of the relevant premises falls) within this sub-paragraph if -
(a) those premises do not (or that part does not) fall within sub-paragraph (2), and
(b) those premises are (or that part is) being used for a purpose that is neither a relevant residential purpose nor a relevant charitable purpose.”
It is convenient to address the purpose of sub-paragraph (3) first, because it is clear and not in dispute. Taken together with the tapering provision in paragraph 37, it is designed to claw back the benefit of the tax relief consequent upon zero-rating of relevant supplies by reference to the point in time at which, because of a change in the use of the relevant premises (or part of them) from a qualifying to a non-qualifying use, the benefit of the relief can no longer flow through to the intended beneficiaries as consumers. If the beneficiaries get the benefits for half the ten year period (before it is ended by a change of use), then half the tax relief is clawed back. If they get the benefits for nine years, then only one tenth of the tax relief is clawed back.
42. In the present case the Sale and the Lease were two simultaneous transactions, one by way of disposal by BCL and the other by way of acquisition by BCL, in each case of a much more than de minimis interest in the whole of the Home. Each was a transfer of a major interest, (although retention of a major interest is not necessary to protect P from paragraph 36(2)), and there was no moment when BCL had neither of them. So paragraph 36(2) was not engaged. Nor would it have mattered if, contrary to the facts, the Sale and the Lease had not been linked transactions, in the sense that one would not have happened without the other, so long as they were simultaneous, as in fact they were. The parties’ underlying purposes and intentions are equally irrelevant, although in other VAT contexts, such as under item 2 of Group 5, read in connection with note (12)(a), they may occasionally be decisive. All that mattered was that, as the FtT found, the two transactions were simultaneous (or in their language “contemporaneous”) in their effect, leaving no realistic room for a scintilla temporis. There is some indication, both in HMRC’s submissions to this court and in Lord Drummond Young’s opinion (at para 39) that the notion of a scintilla temporis never quite disappeared from their analysis. He speaks of the Sale as being “followed by” the Lease, and of the Lease only taking effect once Target was the heritable proprietor of the Home. But that supposed lack of simultaneity was firmly and rightly rejected by the FtT, and not thereafter pursued on appeal. While it may appear to have some theoretical or technical attraction as a matter of Scottish or even English conveyancing law, it departs from the necessarily realistic view of the facts called for by the true construction and application of the relevant paragraphs: see in a different context Abbey National Building Society v Cann [1991] 1 AC 56, 92 per Lord Oliver of Aylmerton:
“Of course, as a matter of legal theory, a person cannot charge a legal estate that he does not have, so that there is an attractive legal logic in the ratio in Piskor …. Nevertheless, I cannot help feeling that it flies in the face of reality. The reality is that, in the vast majority of cases, the acquisition of the legal estate and the charge are not only precisely simultaneous but indissolubly bound together.”
In my judgment the same is equally true of the reality of a sale and leaseback, in Scotland as much as in England. This does not violate important principles of property law; it instead just focuses on the aspects of the transactions relevant to the statutory VAT consequences.
45. Reference was made to Sargaison v Roberts [1969] 1 WLR 951 and Robert Gordon’s College v Customs and Excise Comrs [1996] 1 WLR 201. They reach opposing conclusions, in differing contexts, about the legitimacy of treating separate transactions as a single transaction for tax purposes. Like the decisions of the CJEU mentioned earlier, they disclose no invariable rule about aggregating or not aggregating separate transactions for VAT purposes. Not only do they ante-date the developing EU jurisprudence about this question, as to which the warning of Lord Walker in College of Estate Management v Customs and Excise Comrs [2005] 1 WLR 3351, 3362, para 28 is apposite, but they are each context-dependent as well, and neither concerns the provision currently in issue, which had not then been enacted. HMRC also sought to draw a comparison with the capital goods scheme in Part XV of the Value Added Tax Regulations 1995 (SI 1995/2518). Again, this uses different language (“whole or part of his interest in the capital item”), exists for a different purpose, and is therefore of limited value in construing the language in paragraphs 35 to 37 themselves.
LADY ARDEN:
Overview of the issues
47. According to the Opinion of the Inner House of the Court of Session, delivered by Lord Drummond Young, the relevant question on the appeal to them in this case was: what, for VAT purposes, is the relevant transaction? Lord Drummond Young continued: “As we have already indicated, a transactional approach is central in the application of VAT legislation, and determining the identity of each transaction is a vital part of that analysis” (para 38). The Opinion concluded: “We are accordingly of opinion that the sale and the leaseback are as a matter of substance two entirely different transactions, the second being dependent on the completion of the first. This would be reflected in the Land Register, where two distinct transactions would inevitably be separately recorded. After the grant of the lease, Balhousie Care continued to be entitled to occupy the property, but the right to do so was dependent on the lease, not on their former ownership of the property” (para 40).
48. A key assumption, therefore, made by the Inner House was that paragraphs 35 to 38 of Schedule 10 to the Value Added Tax Act 1994 (“VATA”) should be interpreted in accordance with the principles of EU VAT law (see for example, paragraph 31 of the Opinion). Specifically it is assumed that P can be said to have disposed of his entire interest in premises as required by paragraph 36(2) of Schedule 10 to VATA if, applying the principles of VAT law, that is the effect of the relevant transaction under which this disposal is said to have occurred. If that key assumption is correct, those principles included the principle, which I will call “the single supply principle”, to be derived from Card Protection Plan Ltd v Customs and Excise Comrs (Case C-349/96) [1999] 2 AC 601 and other cases, that normally each supply should be treated as a separate transaction for VAT purposes. It follows that the contrary proposition must also be true, namely that if under the principles of EU VAT law the relevant transactions would be treated as a single transaction then the composite effect of the transactions must be considered and applied for the purposes of paragraph 36(2). In this case, there is no doubt that, when the composite effect of the relevant transactions with Target alone is considered, there was no disposal by P, Balhousie Care Ltd (“BCL”), of its entire interest in the Huntly care home.
My answer to the first question is that the conditions for zero-rating engage the principles of EU law
51. The EU introduced measures to harmonise VAT from 1991. There were several directives, including the Sixth Directive (Directive 77/388/EEC). This contained an important transitional provision in article 28(2) permitting member states to retain reduced rates and zero rates applicable at the 31 December 1975 on certain conditions. One of those conditions in article 28(2) (as amended by Council Directive 92/77/EEC of 19 October 1992) was that the national legislation permitted to be maintained had to be “in accordance with Community law” and satisfy the conditions in the last indent of article 17 of the second VAT Directive (Directive 67/228/EEC). In Marks & Spencer PLC v Revenue and Customs Comrs (Case C-309/06) [2008] STC 1408, the Court of Justice of the European Union (“the CJEU”) held that the general principles of VAT law applied to exemptions and zero rating:
“32. The second question asks, in essence, whether a trader has a right, under the general principles of Community law, including the principle of fiscal neutrality, to claim a refund of the VAT which was wrongly levied, when the rate which should have been applied stems from national law.
33. It must be noted at the outset that the actual wording of article 28(2)(a) of the Sixth Directive, in the version resulting from Directive 92/77, states that the national legislation which may be maintained must be ‘in accordance with Community law’ and satisfy the conditions stated in the last indent of article 17 of Directive 67/228. Although the addition relating to being ‘in accordance with Community law’ was made only in 1992, such a requirement, which forms an integral part of the proper functioning and the uniform interpretation of the common system of VAT, applies to the whole of the period of erroneous taxation at issue in the main proceedings. As the court has had occasion to point out, the maintenance of exemptions or of reduced rates of VAT lower than the minimum rate laid down by the Sixth Directive is permissible only in so far as it complies with, inter alia, the principle of fiscal neutrality inherent in that system (see, to that effect, Gregg v Customs and Excise Comrs (Case C-216/97) [1999] STC 934; [1999] ECR I-4947, para 19, and EC Commission v France (Republic of Finland intervening) (Case C-481/98) [2001] STC 919; [2001] ECR I-3369, para 21).
34. It thus follows that the principles governing the common system of VAT, including that of fiscal neutrality, apply even to the circumstances provided for in article 28(2) of the Sixth Directive and may, if necessary, be relied on by a taxable person against a national provision, or the application thereof, which fails to have regard to those principles.
35. As regards, more specifically, the right to a refund, as is apparent from the settled case law of the court, the right to obtain a refund of charges levied in a member state in breach of rules of Community law is the consequence and the complement of the rights conferred directly on individuals by Community law (see in particular, to that effect, Marks & Spencer (para 30 and the case law cited)). That principle also applies to charges levied in breach of national legislation permitted under article 28(2) of the Sixth Directive.
36. The answer to the second question must therefore be that where, under article 28(2) of the Sixth Directive, both before and after the insertion of the amendments made to that provision by Directive 92/77, a member state has maintained in its national legislation an exemption with refund of input tax in respect of certain specified supplies but has misinterpreted its national legislation, with the result that certain supplies which should have benefited from exemption with refund of input tax under its national legislation have been subject to tax at the standard rate, the general principles of Community law, including that of fiscal neutrality, apply so as to give a trader who has made such supplies a right to recover the sums mistakenly charged in respect of them.”
“30. Zero-rating.
(1) Where a taxable person supplies goods or services and the supply is zero-rated, then, whether or not VAT would be chargeable on the supply apart from this section -
(a) no VAT shall be charged on the supply; but
(b) it shall in all other respects be treated as a taxable supply; …”
54. It follows that it is not enough that those provisions would be interpreted under domestic law as having the effect explained by Lord Briggs. Nor do the principles established in Commission of the European Communities v Ireland (Case C-415/85); ECLI:EU:C:1988:320 and Commission of the European Communities v United Kingdom (Case C-416/85) [1990] 2 QB 130 assist in this case. The Commission there challenged certain zero rates of tax applied (in the latter case) by the United Kingdom on the ground that they went beyond that which was permitted by the transitional provision in article 28(2) of the Sixth Directive and the last indent of article 17 of the Second Directive, which restricted the circumstances in which member states could provide for zero-rating to “clearly defined social reasons”. The European Court of Justice (“the ECJ”) ruled that there should be only a limited review of these reasons at the EU level. It recognised that the identification of such reasons was in principle a matter of political choice for the member states. Further, that choice could be the subject of supervision at the Community level only insofar as the concept had been distorted and led to measures which because of their effects and their true objectives lay outside the scope of article 28 (para 14). The review by EU law was limited in relation to the identification of social reasons because those matters are peculiarly a matter for individual member states. But the ECJ could investigate whether the further condition that the zero-rating was for “the benefit of the final consumer” was satisfied, and whether the zero-rating was proportionate. As is clear from the citation from Marks & Spencer in para 51, the CJEU (the successor to the ECJ) has now taken this jurisprudence further by holding that the principles of VAT law apply to zero-rating and exemptions.
My answer to the second question is that, following Mydibel, a sale and leaseback for funding purposes is treated for VAT purposes as a single supply
55. The CJEU delivered its judgment in Mydibel v État belge (Case C-201/18) [2019] STC 1342 on 27 March 2019, shortly after the Inner House had delivered its Opinion in this matter and so the Inner House was not able to consider this decision. In my judgment, the judgment of the CJEU in this case shows that, in the context of a sale and leaseback for funding purposes, the CJEU will depart from its single supply principle and treat the two otherwise separate transactions together.
“36. It is clear that the sale and lease back transactions at issue in the main proceedings are characterised by the combined and simultaneous grant, first, of an emphyteutic right by the taxable person to the two financial institutions at issue in the main proceedings and, second, of a lease of real property by those two institutions to the taxable person.
37. It must therefore be determined whether, in the context of the main proceedings, the grant of the emphyteutic right and of the leasing of real property must be considered separately or together.
38. The Court has ruled that there is a single supply where two or more elements or acts supplied by the taxable person to the customer are so closely linked that they form, objectively, a single, indivisible economic supply, which it would be artificial to split (judgment of 21 February 2008, Ministero dell’Economia e delle Finanze v Part Service Srl (Case C-425/06) EU:C:2008:108 … para 53 and the case law cited).
39. It is for the national court to assess if, the contractual structure of the transaction notwithstanding, the evidence put before the court discloses the characteristics of a single transaction (judgment of 21 February 2008, Part Service … para 54).
40. In the present case, it is stated in the order for reference that the sale and lease back transactions at issue in the main proceedings are purely financial transactions designed to increase Mydibel’s liquidity and that the buildings at issue in the main proceedings remained in the possession of Mydibel, which used them in an uninterrupted and permanent manner for the purposes of its taxable transactions.
Those facts appear to indicate that, subject to verification by the referring court, each of those transactions forms a single transaction, since the creation of the emphyteutic right over the buildings at issue in the main proceedings is inseparable from the lease of real property covering those buildings.
41. It follows that, subject to verification by the referring court, each sale and lease back transaction at issue in the main proceedings constitutes a single transaction. In those circumstances, those transactions cannot be classified as ‘supplies of goods’ in so far as the rights transferred to the financial institutions at issue in the main proceedings following those transactions, namely the civil law emphyteutic rights reduced by the rights stemming from the leases of real property of which Mydibel is the beneficiary, do not empower them to dispose of the buildings at issue in the main proceedings as if they were their owners.”
59. The second ground of suggested distinction is that the transaction in Mydibel was one of lease and leaseback, involving the carving out of successive lesser interests, rather than sale and leaseback and that the conditions in paragraph 36 were accordingly not fulfilled. Those conditions require disposal of the entire interest. It is correct that the transaction in Mydibel was an emphyteutic transaction which involved the grant by Mydibel of a sub interest to the financial institution in return for payment by the financial institution and the grant of an option to acquire the property back in due course. But that is in reality a difference of detail rather than of substance. Different legal systems have different means of facilitating the use of immovable property as security. In the case of an emphyteutic transaction of immovable property, there may be a supply of goods for VAT purposes because article 15(2)(b) of the Principal VAT Directive provides that member states may regard as tangible property “rights in rem giving the holder thereof a right of use over immovable property”. That would be sufficient to cover an emphyteutic possessory right. In the present appeal, it is said that a similar analysis would be possible under Scots law, though it may not be possible under English and Welsh law because the Statute of Quia Emptores 1290 (18 Edw 1, c 1) forbade subinfeudation, ie the process of creating new tenancies (see F W Maitland The Constitutional History of England ed H A L Fisher, Cambridge University Press (1908), p 24). But I doubt whether it matters whether it was a sale and leaseback or lease and leaseback, as is evident from the fact that on several occasions the CJEU itself refers to the transactions in Mydibel as ones of sale and leaseback. The fact remains that there were two transactions going in either direction, and the CJEU held that they should be treated as a single transaction. It is not relevant to this point that under VATA there has to be a disposition of an entire interest, which did not occur under the transaction in Mydibel.
Conclusion