The issue of shares is an exempt supply of services, despite a bold attempt in the High Court to argue that it was not a supply at all.
In 1992 Mirror Group plc issued 196,392,000 ordinary shares to EU residents and non-EU residents. It incurred £1,530,997.98 VAT on financial, legal and other fees of the issue. The shares were issued to fund expansion of the business. Mirror maintained that it was entitled to reclaim the whole amount of VAT as input tax. Customs ruled that it was only entitled to reclaim the portion of input tax which related to the supply to non-EU residents. This was upheld by the VAT tribunal.
On appeal to the High Court, it was agreed that a supply of services must have these six characteristics:
- it must constitute a transaction;
- something had to be done by the person making the supply;
- what was supplied must not be goods;
- what was done must be capable of being used by and for the benefit of an identified recipient;
- the benefit given to the identified recipient given to an identified recipient must be capable of being regarded as a cost component of the activity of another person in the commercial chain; and
- there must be a consideration for what was done.
Mirror said there was a seventh characteristic, namely that there must be a transfer of the resources of the person making the supply.
The court said there was no basis for this seventh characteristic in either UK or EU law. To follow Mirror’s argument would turn the concept of VAT on its head.
Mirror Group Newspapers Ltd v Customs and Excise. QBD [2000]
[2000]