Taxpayer successful in application for permission to rely on expert evidence

In CCLA Investment Management Ltd v HMRC [2022] UKFTT 195 (TC), the First-tier Tribunal (FTT) granted permission for the taxpayer to rely on expert evidence.

Background

The decision concerns an application by CCL Investment Management Ltd (CCL) for expert evidence to be permitted in its appeal.

The underlying appeal concerns HMRC’s rejection of claims made under section 80, Value Added Tax Act 1994 (VATA). The central issue in the appeal is whether supplies of 'Fund Management Services' by CCL should be treated as exempt supplies on the basis that they were “the management of special investment funds as defined by Member States”, referred to as the 'EU SIF Exemption', provided by Article 135(1)(g), Directive 2006/112/EC. Those supplies were treated as taxable. It was not disputed that the supplies were not within the exemption in Group 5, Schedule 9, VATA, and were standard rated as a matter of UK law. However, CCL contended that the funds should be classified as Special Investment Funds (SIFs) and therefore fall within the EU SIF Exemption.

It was not in dispute that:

a. Not all investment funds qualify as SIFs for the purposes of the EU SIF Exemption. 

b. Funds which constitute Undertakings for Collective Investment in Transferrable Securities (UCITS), within the meaning of Article 1, Directive 2009/65/EC, as amended (the UCITS Directive), qualify as SIFs. 

c. A fund that does not qualify as a UCITS, within the meaning of the UCITS Directive, may nonetheless qualify as a SIF for the purposes of the EU SIF Exemption if it has: 

(i) characteristics identical to those of a UCITS; or 

(ii) has features that are sufficiently comparable for it to be in competition with a UCITS.

In considering whether a fund is 'sufficiently comparable', amongst other factors, the fund must be subject to State supervision and subject to the same conditions of competition and appeal to the same circle of investors as UCITS.

The parties disagreed as to what constitutes State supervision.

CCL argued that expert evidence was relevant in determining whether the requirement for specific State supervision and/or sufficient comparability was satisfied. 

HMRC was of the view that the question whether any of the funds in question were to be treated as a SIF, for the purposes of the EU SIF Exemption, was a matter of law only and therefore expert evidence was not required.

CCL applied to the FTT for permission to rely on expert evidence.

FTT decision

The application was granted. 

Although there are a number of conflicting FTT decisions on whether it is necessary to make an application to the FTT to admit expert evidence, the judge (Judge Anne Scott) was of the view was that permission is not required in all cases.

The FTT did not accept HMRC’s argument that it is rare to have expert evidence before the FTT and noted that expert evidence is regularly adduced in a wide range of cases which are determined by the FTT.

Further, the FTT was not persuaded by HMRC's submission that CCL did not make out a case for expert evidence because the issue was one of law. HMRC's submission that CCL should have provided HMRC with a draft expert report was also rejected by the FTT; the judge considered that submission to be "wholly inappropriate".

Comment

This decision will not come as a surprise to those who regularly conduct tax appeals before the FTT. Arguments relating to relevance and the weight to be attached to expert evidence should be made at the substantive hearing and the FTT should be slow to deprive litigants of the opportunity to adduce the evidence they consider appropriate, whether that be evidence which goes to factual disputes or, as in this case, expert evidence.   

The decision can be viewed here.