The Supreme Court has allowed three property developers to amend their appeal over VAT assessments on the sale of 15 holiday homes in Baltimore, County Cork. The ruling concerns only the amendment of their notice of appeal; it does not decide whether the disputed VAT provision was permitted by an EU derogation.
Edward Cussens, John Jennings and Vincent Kingston had built the homes as business partners. In 2002, they leased them to an associated company for 20 years and one month, then took a two-year lease back. Both leases were surrendered about a month later. The partners subsequently sold the freeholds to purchasers for a combined sum of about €3 million.
The partners paid VAT on the creation of the long lease but not on the later transactions. In August 2004, an Inspector of Taxes assessed them for additional VAT on the sales. Their appeal was dismissed by an Appeal Commissioner and the Circuit Court. The High Court upheld the assessments in 2008 after a case stated. The partners appealed that judgment to the Supreme Court.
The underlying dispute includes whether the lease arrangement was an abusive practice under the test set out by the European Court of Justice in the Halifax case. The Circuit Court found the leases had no commercial reality and were arranged to reduce VAT. The High Court agreed that the transactions constituted an abusive practice and should be redefined for VAT purposes.
The partners sought permission to add a challenge to the validity of a 1979 Irish derogation from the EU’s Sixth VAT Directive. They argued that the derogation could not make the relevant Irish VAT provisions compatible with the Directive. The Inspector of Taxes opposed the amendment, saying the challenge had not been argued in the lower courts and was a new point.
Justice Laffoy, delivering the Supreme Court’s judgment on 20 May 2015, said the derogation issue was closely related to arguments made in the High Court about the Directive and could properly be regarded as arising from questions in the case stated. The Court also noted that the respondent had not corrected the partners’ mistaken understanding of the derogation’s basis, and that the document had not been provided when requested in 2012. The Court granted leave to amend the notice of appeal.
The Court expressly reserved the substantive question. It noted that the relevant VAT provision, section 4(9), was enacted in 1998, after the derogation was notified in 1979, and that both sides acknowledged this timing. Whether the derogation permitted section 4(9) was not determined on the amendment application and remains for the substantive appeal.