VENTGROVE LTD AGAINST KUEHNE + NAGEL LTD [2022] ScotCS CSIH_40 (06 September 2022)

VENTGROVE LTD AGAINST KUEHNE + NAGEL LTD [2022] ScotCS CSIH_40 (06 September 2022)

VAT was properly due on the break option payment as it constituted consideration for a taxable supply by the landlord, who had opted to tax the property. The economic reality, as established by binding EU case law (MEO and Vodafone Portugal), required VAT to be charged on such termination payments, regardless of HMRC's previous policy or guidance. No legitimate expectation could arise to the contrary, and the lease required payment of VAT without the need for a separate demand.

Citation
[2022] ScotCS CSIH_40
Parties
Pursuer and Reclaimer: Ventgrove Limited; Defender and Respondent: Kuehne+Nagel Limited; Intervener: Advocate General for Scotland (representing The Commissioners for Her Majesty's Revenue and Customs)
Jurisdiction
Scotland
Judgment Date
06 September 2022
Procedural Posture
Commercial Action (reclaiming Motion and Cross Appeal) / Appeal From Commercial Judge's Interlocutor; Inner House, Court of Session
Outcome
Reclaiming motion allowed; cross-appeal refused; commercial judge's interlocutor recalled; case remitted for further proceedings on remaining issues.
Legal Topics
VAT on Lease Break Payments, Interpretation of Lease Terms, Legitimate Expectation in Tax Law, Contractual Termination Rights, Application of EU VAT Law
Commercial Law Tax Law Landlord and Tenant Law VAT on Lease Break Payments Interpretation of Lease Terms Legitimate Expectation in Tax Law Contractual Termination Rights Application of EU VAT Law

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Parties

Ventgrove Limited

Pursuer and Reclaimer

Kuehne+Nagel Limited

Defender and Respondent

Advocate General for Scotland (representing The Commissioners for Her Majesty's Revenue and Customs)

Intervener

Procedural Posture

Commercial Action (reclaiming Motion and Cross Appeal) / Appeal From Commercial Judge's Interlocutor; Inner House, Court of Session

Legal Issues

  1. 1 Whether VAT was 'properly due' on a lease break payment under a break option in the lease
  2. 2 Whether HMRC guidance or policy created a legitimate expectation that VAT would not be charged on such a payment
  3. 3 Whether a demand for VAT was required before the tenant was obliged to pay it under the lease terms

Ratio Decidendi

VAT was properly due on the break option payment as it constituted consideration for a taxable supply by the landlord, who had opted to tax the property. The economic reality, as established by binding EU case law (MEO and Vodafone Portugal), required VAT to be charged on such termination payments, regardless of HMRC's previous policy or guidance. No legitimate expectation could arise to the contrary, and the lease required payment of VAT without the need for a separate demand.

Court Disposition

Reclaiming motion allowed; cross-appeal refused; commercial judge's interlocutor recalled; case remitted for further proceedings on remaining issues.

Orders

  • Sustain landlord's second plea-in-law to the extent of excluding from probation the second, third and fourth sentences in Answer 8.
  • Repel tenant's first and third pleas-in-law.