Centralan Property Ltd. v Commissioners of Customs & Excise

Where capital land is disposed of through successive supplies during the adjustment period, the proper application of regulation 115(3) of the Value Added Tax Regulations 1995 SI 1995/2518 must be construed consistently with article 20(3) of the Sixth VAT Directive. The national court must determine whether the Directive treats the asset as fully taxed, fully exempt, or partly taxed and partly exempt. Where that interpretation depends on unresolved questions concerning supplies of immovable property and the interaction of different interests in land, and the answer is necessary to decide the appeal, a reference to the European Court of Justice is appropriate.

Centralan acquired the Harrington Building, reclaimed input VAT and leased the building to the University of Central Lancashire. During the third adjustment interval it disposed of its interest through two transactions: an exempt 999-year reversionary lease to Inhoco, followed three days later by a taxable transfer of the freehold reversion to the University.

The VAT and Duties Tribunal treated the transactions as pre-ordained and apportioned the adjustment between them, confirming a liability of £796,090. Centralan appealed, contending that the transfer alone disposed of its whole interest. The central issue was the proper construction and application of regulation 115(3) in light of article 20(3) of the Sixth VAT Directive.

1. Reference necessary. The true construction of regulation 115(3) depended on the interpretation of article 20(3) of the Sixth VAT Directive. No decision of the European Court of Justice supplied sufficient guidance on its application to successive supplies of immovable property.
2. Directive framework. Article 20(3) treats capital goods supplied during the adjustment period as continuing to be used by the former owner until the period expires. The use is presumed to be fully taxed where the delivery is taxed and fully exempt where it is exempt. The provision must accommodate the different systems of land law in Member States.
3. Unresolved issue. It was necessary to determine what constituted the delivery of the building where a 999-year lease was granted and the freehold reversion was transferred shortly afterwards. The court also identified the possible alternatives of treating the asset as fully taxed, fully exempt, or partly taxed and partly exempt according to the relative values of the supplies.
4. Article 234 approach. A decision on the interpretation of article 20(3) was necessary to enable judgment on the appeal. Given the absence of sufficient European authority, the general importance of the issue, and the risk of delay and expense from postponing the reference, the court answered both questions in the affirmative.
5. The proposed question was referred to the European Court of Justice. Further proceedings in the appeal were stayed pending the ruling.

1. High Court (Chancery Division) On appeal from the VAT and Duties Tribunal, the Vice-Chancellor referred questions concerning article 20(3) of the Sixth VAT Directive and stayed further proceedings.
2. VAT and Duties Tribunal The Tribunal rejected Centralan’s case and confirmed a VAT liability of £796,090, holding that the two supplies required apportionment.