Isle of Man VAT assessment on supplies of doctors upheld
In Income Plus Services Limited ("IPS") v Customs and Excise Division Isle of Man Treasury (“IOMCE”) (2021) 2DS 2020/28, IPS appealed against the decision of the Isle of Man VAT & Duties Tribunal to uphold an assessment to VAT and Penalties (c.£2.5mil) which was issued following a routine inspection, during which IOMCE discovered that IPS had been treating supplies of doctors and nurses as exempt: IPS had failed to charge VAT in respect of certain supplies of medical staff employment businesses in the UK on the (erroneous) basis that those supplies were of ‘medical services.’
By its appeal, IPS invited the Tribunal, and then the High Court of Justice of the Isle of Man, to re-characterise the nature of its business and the identity of the recipients of its supplies. IPS argued that the ‘economic and commercial reality’ of its contractual arrangements did not reflect the contractual relationships.
The Tribunal dismissed IPS’s appeal. The decision of the Tribunal was upheld, and the Court has provided some helpful commentary on the correct test to apply on an appeal of this nature on a point of law: paras. [20] to [25] and [44]. In relation to IPS’s attempt to re-characterise the nature of its supplies, the following comments of the Court are also worth noting (at [77]):
“The Tribunal recognised that it could in principle have decided that the contractual arrangements do not properly reflect the economic and commercial reality, and that it was not strictly necessary to treat those arrangements as a sham in order to have reached such a conclusion. We would not disagree – in particular where the tax authority asserts that what is in the contract does not represent the true position. However, where a contracting party chooses to structure his contract in a particular way, he is likely to have an uphill battle in persuading a court that the contract he drafted and chose to enter into does not in fact reflect the commercial and economic reality of what he was doing, such that the tax authority and the court should re-evaluate the arrangements” (emphasis added).
Marika Lemos and Charlie Hill represented IOMCE. The decision can be found here.
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