Developer loses appeal over VAT arrangement on house sales

Principal aim of the ‘artificial’ arrangement was to obtain a tax advantage – court

A building company has lost an appeal in which it claimed an arrangement to license out new homes to an auctioneer before they were sold to individual purchasers meant it didn't need to account for VAT on each sale.

The Court of Appeal found the High Court was correct to conclude the principal aim of the licence arrangement between Vieira Ltd, which built 198 homes in Tyrellstown, Dublin, and Joe McPeake of McPeake Auctioneers was to obtain a tax advantage and was artificial in nature.

The case arose out of a dispute between Vieira and Revenue over whether the firm's VAT liability had already been discharged when it paid €4.4 million or if VAT was additionally payable on the sale price of each home. The difference between the two was at issue.

Vieira was assessed by Revenue for VAT of some €1.9 million on houses sold between September/October 2003 and August 2004. Vieira contended it had already paid the appropriate VAT of around €4.4 million.

The company appealed the assessment and it was confirmed by the Tax Appeals Commission.

Vieira then appealed to the Circuit Court, contending it had previously accounted for VAT by means of this “self-supply” arrangement and asserted that the licence agreements were either a letting of immovable property or a surrender of possession for the purposes of the VAT Act 1972.

The Circuit Court dismissed the appeal concluding that “at no stretch of the imagination” could the licence agreements be considered a letting of immovable property, under EU case law principles, or a surrender of possession.

It said Mr McPeake did not go into occupation or use any of these properties but merely accessed them with his sales team for the purpose of showing prospective purchasers the layout, etc. The court heard there were 35 different types of houses in the scheme which presented difficulties in presenting one show house for all purchasers.

That decision was confirmed in subsequent appeals to the High Court and now the Court of Appeal, which dismissed the appeal on all grounds.

Ms Justice Máire Whelan, on behalf of the three-judge CoA, said there was ample evidence for the High Court judge to find the licence agreements constituted neither a lease/letting nor a surrender of possession.

This was a valid conclusion that flowed from that court’s evaluation of the relevant jurisprudence and its application to the salient facts as identified by the trial judge.

She also found the High Court was correct in finding no basis has been made out for directing a preliminary reference of the case to the Court of Justice of the EU, as requested by Vieira and opposed by Revenue.