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Case Alert: Isle of Wight Council, distortion of competition ruling

Wednesday, October 31, 2012

by Nick Ryan

A decision has been reached for this long running case over the VAT treatment of off street car parking as provided by Local Authorities in the UK and has relevance to similar services as provided by the public sector in Ireland. It had been argued that Local Authorities should account for VAT on such parking as opposed to treating it as a non-business activity and therefore outside the scope of VAT. This case was originally heard by Tribunal in 2004 and considered the position for Local Authorities in that whether some of the services they provided, which were also provided by private companies, should be considered as taxable supplies of services as otherwise, they would appear to be a distortion of competition.
Following the ECJ decision in 2008 which ruled that to evaluate whether or not a distortion of competition might occur it is necessary to consider the activity as a whole rather than by reference to the competition in any single local area, the matter has been reconsidered. Also of note is that, as part of this decision, the ECJ stated that the distortion of competition had to be “significant” which in its view meant something more than negligible.
Following this ECJ decision the UK High Court referred the matter back to the Tribunal for it to consider the basis of whether there is a case for distortion of competition. In reaching its decision the Tribunal considered a significant level of evidence covering the operation of off street parking in the UK and the actual and potential competition between private operators and Local Authorities. The Tribunal had also to consider the issue of the treatment of Local Authorities as non taxable persons and whether this would lead to either a negligible or a significant level of distortion of competition.
Based on this evidence the Tribunal has dismissed the Local Authorities appeal and ruled that there is a distortion of competition, which is significant and therefore the supply of off street parking by the Local Authority is a taxable business activity.
This decision provides further inroads against the argument applied by Local Authorities and the Tax authorities, consider the stance taken by the Irish Revenue, that these organisations are not in business and therefore none of their activities are of a taxable nature.
Should you have any questions on this case, or require further information on this or other VAT matters, then please contact Nick Ryan + 353 238838181 or by email, advice@thevatpractice.ie