C00236
CUSTOMS DUTIES — importations of motor cars from Japan to United Kingdom — sale by Japanese manufacturer to associated intermediary company — onward sale by intermediary to distribution company in each Member State — sale by distribution company to retail customer before entry of car into Community territory — car entered, or purportedly entered, by retail customer — whether value for customs duty purposes to be fixed by reference to first transaction value — Customs Code art 29, Implementing Regulations, art 147
VALUE ADDED TAX — value of importation fixed by reference to value for customs duty purposes — Sixth Directive art 11B(1) — whether scheme for effecting sale to final consumer before importation designed to reduce incidence of VAT abusive — yes — execution of scheme also failed on facts — appeal dismissed in substance
MANCHESTER TRIBUNAL CENTRE
NISSAN MOTOR MANUFACTURING (UK) LIMITED
Appellant
- and -
THE COMMISSIONERS FOR HER MAJESTY’S
REVENUE AND CUSTOMS
Respondents
Tribunal:Colin Bishopp (Chairman)
Sitting in public in North Shields on 21, 22 and 23 March 2006
Richard Barlow, counsel, for the Appellant
Melanie Hall QC, instructed by the Acting Solicitor for HM Revenue and Customs, for the Respondents
© CROWN COPYRIGHT 2007
1
DECISION
Dramatis personae
Mr Barlow
/Richard Barlow, counsel for the Appellant
Mr Davison
/John Davison, author of the scheme in issue in the appeal
Mrs Hall
/Melanie Hall QC, counsel for the Respondents
NESAS
/Nissan Europe SAS, a French company
Nissan
/The Nissan group of companies, including NESAS, NMGB, NML and NMUK
NMGB
/Nissan Motors GB Limited
NML
/Nissan Motors Limited, a Japanese manufacturing company
NMUK
/Nissan Motor Manufacturing (UK) Limited (the Appellant), a company which manufactures cars within the UK and is also the registered keeper of a customs warehouse
Vardy
/Reg Vardy plc, an authorised Nissan dealer
Introduction
1.In form, this appeal by NMUK is against the Respondents’ decision, first communicated to it by letter of 1 September 2004, that NMGB is liable to account for additional customs duty and VAT on three cars imported into the United Kingdom from Japan. The import declarations, prepared by NMGB (acting as the importers’ agent) in each case described the importer as an individual, declared the value of the car by reference to the “first transaction” or “prior sale” value (to the meaning of which I shall come) and contained a calculation of the relevant duty and VAT based on that value. The Respondents’ decision was that the duty and VAT must be based on the significantly higher price actually paid by each importer. The letter was followed by a post-clearance demand, or C18, dated 11 October 2004 and addressed to NMGB. The aggregate amount demanded was £A, comprising customs duty of £B and VAT of £C, an amount which represents the difference between the duty and tax the Respondents say was due, and the duty and tax actually paid. A review of the decision was requested by NMUK (which it is accepted was competent to require a review), by letter of 1 October 2004, but the decision and the post-clearance demand were upheld on that review, the result of which was communicated by letter of 18 November 2004. As NMUK requested the review, it is the Appellant: see the Finance Act 1994, section 16(2).
2.In reality, however, the appeal has been brought in order to test the effectiveness of a scheme devised on behalf of NMUK by Mr Davison, then employed by it as a senior controller with customs duty responsibilities (he has since retired from NMUK’s employment), by which it seeks to reduce substantially the incidence of United Kingdom VAT on cars imported into the territory of the European Community from Nissan’s manufacturing plants situated elsewhere. If the means by which the three importations with which I am concerned are found to be effective, Nissan intends, I was told, to import many other vehicles in the same way. The Respondents’ position is that the scheme relies for its effect on an abuse of rights, that it is a principle of European law that a person guilty of such an abuse is to be deprived of the advantage he would gain by it, and that the post-clearance demand has been properly issued for that purpose. They also contend that, whatever may have been intended, the three cars with which I am concerned were not in fact imported by the individual purchasers, but by NMGB.
3.The four Nissan companies—NESAS, NMUK, NMGB and NML—all play a part in the execution of the scheme. Whenever it is unnecessary to refer to them individually, or when I refer to them collectively, I shall use the name “Nissan”. I heard evidence from Mr Davison and from several officers of HM Revenue and Customs who had been involved in the discussions with him about the scheme—David Robertson, Guy Clift, Sidney Hardy, Alan Douglas, Keith Pike and Lesley Forrest. I had also the purely formal statement of another officer, Lynette Driscoll, and bundles of relevant documents. I mean no disrespect to the HMRC witnesses when I say that the oral evidence I heard from them added little to the documents, and I shall make very limited reference to it in this decision.
4.I should also mention that a particular feature of the case troubled me and, after the oral hearing of the appeal had been concluded, I invited the parties to make further submissions on that feature. They duly did so, in writing, and as they were in agreement about it, I decided not to increase the costs of the case, nor add further to the delay in releasing this decision, by asking for additional oral argument. I have instead prepared this decision on the footing that the parties are right. Nevertheless, I remain troubled by the point, and I shall return to it in the form of a postscript to this decision. I add my regret that I have dwelt on the matter for rather too long.
The scheme
5.I was provided with a statement of those of the salient facts which had been agreed between the parties. A number of matters remained in dispute. I have come to the conclusion that this decision will be of greater utility to the parties if I first deal with Mr Davison’s scheme by taking its intended operation and examining its effectiveness, or lack of it, on the assumption that it is not impeded by any error in execution. Therefore in this section I shall deal with the scheme, as it was devised by Mr Davison, in a neutral fashion, in order to explain it and to put everything else which follows in its context. After dealing with the parties’ submissions about the scheme, and my conclusions, I shall return to the disputed facts.
6.NMUK manufactures cars at a plant in Sunderland. It is also the authorised keeper of a customs warehousing facility in the United Kingdom. From that warehouse NMGB distributes, within the UK, cars manufactured by NMUK, as well as those manufactured by NML in Japan and elsewhere outside the European Union. Nissan’s practice has for some time been that NML sells cars manufactured in Japan and destined for sale within the European Union to NESAS; the contractual arrangements between the two companies provide that title passes when the invoice is issued. NESAS, after applying a mark-up, in turn sells the cars to the distribution company within each country, in the instant case NMGB. Again, title passes when the invoice is issued. On arrival in the UK, vehicles imported from outside the European Union are stored in NMUK’s warehouse from which, after payment of the appropriate duty and tax, they are released to dealers within the UK, for onward sale to retail customers. The Respondents accept that Nissan’s usual method of handling its importations from outside the European Union is perfectly proper and that Nissan does not engage in value-shifting (that is, they agree that the price charged on the sale by NML to NESAS and the mark-up applied by NESAS are commercially determined). The variation on that normal arrangement which Mr Davison devised was to arrange that the three cars were sold by NMGB to final customers while they were still at sea, outside Community waters. The scheme necessarily excludes the dealers from the chain of transactions.
7.The arrangements which Mr Davison sought to make were, for all practical purposes, identical in each of the three cases. The customers Mr Davison selected for the purpose of the test were Nissan employees, since he could rely on their cooperation. As it happens, each had already placed an order with Vardy, at a local branch, for a Nissan 350Z car, a model manufactured only in Japan. Although the customers were Nissan employees, their intended purchases were treated in the same way as purchases by the public would have been—that is, the employees received no financial or other benefit in the context of their purchases by reason of their employment. Two cars were intended, it appears, for the purchasers’ own use, while the third was immediately sold on by the purchaser to a friend. None of the customers was VAT-registered. For present purposes I assume that Vardy was induced to release the three customers from their contracts with it, in order that they could place new orders for the same cars or, at least, cars with identical specifications, with NMGB; if the scheme achieves its intended purpose Nissan will, I understand, endeavour to sell cars in this manner to customers who have not yet placed an order.
8.For reasons to which I shall come, I was not provided with copies of the replacement orders, but copies of invoices from NMGB to the three purchasers were produced and I assume from them (in this part of the decision) that NML sold the cars to NESAS which in turn sold them to NMGB, for onward sale to the customers. Each customer also signed an authority enabling NMGB to act as his agent in the importation, and NMGB did indeed make all the necessary arrangements, requiring the customers to do no more, in that respect, than sign the import declarations. NMGB undertook to discharge the customs duty and VAT, and any other costs, out of the price paid by the customer and to indemnify the customer if, unexpectedly, he should be called on to make any further payment. That, at least, was Mr Davison’s evidence: there was no documentary support for it but I am satisfied that the three customers would not have agreed to participate had there been no assurance that they would be indemnified against any additional cost.
9. From the customer’s point of view, the only apparent difference was that he was required to enter into a second contract, with NMGB, to buy the same car at the same price, and to sign the import declaration. The car was delivered to him at Vardy’s premises, and Vardy’s staff undertook all the usual pre-delivery tasks of a dealer, such as procuring the registration of the cars, paying the initial road tax and preparing the car for delivery to a retail customer. The customers may have had some understanding of the purpose behind Mr Davison’s request that they buy their cars in this way, and were aware that they were guinea-pigs in a test, but they knew little or nothing of the detail. As I shall explain, it is clear that two at least were still under the impression that they were buying their cars from Vardy but, again, I shall assume for present purposes that they did in fact contract for their purchase with NMGB.
10.I should add at this stage that Mr Davison, who was well acquainted with several of the officers who gave evidence, began to discuss with them his idea that it might be possible for Nissan to sell cars, by retail, from NMUK’s warehouse in 2002. That proved to be impossible, and he then put forward the possibility of selling cars while they were still at sea. He did not attempt to conceal what he had in mind, but he did not tell the officers about the three sales with which I am concerned until after they had taken place.
11.The Respondents accept that it is possible to sell cars to final consumers while they are still at sea but, they say, such sales do not have the tax consequences for which NMGB argues. Their case is that NMGB’s structuring the sales in this fashion (assuming it was successful in so doing) amounts to an abuse of law because it is designed to circumvent the purposes of the Sixth VAT Directive (77/388/EEC). (I shall refer in this decision to the Sixth Directive, rather than its recent replacement, as it was the legislation in force at the relevant time.) In addition, they say, the first transaction rule, on which the scheme is entirely dependent for its effect, or supposed effect, applies only where the importer is a taxable person, which none of the customers was. Thus, although the arrangements achieved their purpose, when viewed from the perspective of the law of contract alone (assuming, that is, that they were as Mr Davison intended), other considerations come into play when one has regard to the fiscal consequences.
The law and the operation of the scheme
12.In the case of an importation of a car from Japan in Nissan’s normal manner (that is, by successive sales by NML to NESAS, by NESAS to NMGB and by NMGB to a dealer), customs duty is charged by reference to the value of the car determined in accordance with article 29(1) of Council Regulation 2913/92/EEC (“the Code”) which, so far as material, is in these terms:
“The customs value of imported goods shall be the transaction value, that is, the price actually paid or payable for the goods when sold for export to the customs territory of the Community …”
13.That provision must be read with article 147 of Commission Regulation 2454/93/EEC (“the Implementing Regulations”), the relevant part of which (as amended and in force at the material time) reads:
“For the purposes of Article 29 of the Code, the fact that the goods which are the subject of a sale are declared for free circulation shall be regarded as adequate indication that they were sold for export to the customs territory of the Community. In the case of successive sales before valuation, only the last sale, which led to the introduction of the goods into the customs territory of the Community, or a sale taking place in the customs territory of the Community before entry for free circulation of the goods shall constitute such indication.
“Where a price is declared which relates to a sale taking place before the last sale on the basis of which the goods were introduced into the customs territory of the Community, it must be demonstrated to the satisfaction of the customs authorities that this sale of goods took place for export to the customs territory in question.”
14.Those provisions contain the first transaction rule to which I have referred. Taking Nissan’s normal practice for an example of its application, the customs duty levied on each car on importation is assessed by reference to the price by which it was sold by NML to NESAS, rather than on the higher price paid by NMGB to NESAS. That is because the sale by NML to NESAS was of a car “sold for export to the customs territory of the Community”. The fact that the car is released for free circulation in the United Kingdom—by transfer from NMUK’s warehouse to a selling dealer—is sufficient evidence, or “adequate indication” as article 147 puts it, that that is so. So much is common ground.
15.The value of the car (or of any other goods) as it is assessed for customs duty purposes is relevant also for the purposes of determining the amount of import VAT which must be paid. Article 11 of the Sixth Directive deals with the “taxable amount”; and section B of the article specifically with the importation of goods. Paragraph 1 of that section states that
“The taxable amount shall be the value for customs purposes, determined in accordance with the Community provisions in force …”
16.The “Community provisions in force” are those in the Code and the Implementing Regulations which I have set out. Paragraph 1 of article 11 is implemented in the United Kingdom’s domestic law by section 21 of the Value Added Tax Act 1994, entitled “value of imported goods”. The material parts of the section, as it was in force at the time, are as follows:
“(1)For the purposes of this Act, the value of goods imported from a place outside the member States shall (subject to subsections (2) to (4) below) be determined according to the rules applicable in the case of Community customs duties, whether or not the goods in question are subject to any such duties.
(2)For the purposes of this Act the value of any goods imported from a place outside the member States shall be taken to include the following so far as they are not already included in that value in accordance with the rules mentioned in subsection (1) above, that is to say—
(a)all taxes, duties and other charges levied either outside or, by reason of importation, within the United Kingdom (except VAT);
(b)all incidental expenses, such as commission, packing, transport and insurance costs, up to the goods’ first destination in the United Kingdom; …