Arrangement is not abusive

The German claimant RBS Deutschland Holdings bought cars in the UK reclaimed the input tax and leased them to UK customers through various agreements with a UK bank.

The claimant did not account for VAT on the basis that the supply of services was in Germany; for German purposes the lease of the cars was a supply of goods in the UK.

HMRC refused the claim for input tax on cars on the ground that the deduction was not due where goods acquired were then used for transactions that were not subject to VAT. The department also argued that the arrangements were an abusive practice with the aim of obtaining a tax advantage.

The matter was referred by the Court of Session to the European Court of Justice.

The court said that under the Sixth Directive a member state could not refuse a...