HM Revenue and Customs Brief 18/13
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Issued 9 July 2013
VAT: Tax avoidance using offshore entities - European Court's
judgment in Paul Newey (trading as Ocean Finance)
Purpose of this brief
This brief updates taxpayers and their advisors on the recent
decision of the European Court (CJEU) in Paul Newey (trading as Ocean
Finance), case C-653/11.
Businesses with VAT appeals affected by the European Court's
decision in the Newey case, and their advisors.
For information only
Mr Newey was a loan broker, established in the United Kingdom
who arranged loans by UK lenders to UK borrowers. His services were
exempt from VAT and as a result he could not recover VAT on advertising
services supplied to him.
In order to avoid this irrecoverable VAT, Mr Newey set up a
company, Alabaster (CI) Ltd, in Jersey, and granted it the right to use
the business name Ocean Finance. Broking contracts were
concluded between the lenders and Alabaster, and the broking
commissions were paid not to Mr Newey, but to Alabaster. Alabaster then
entered into a contract for the supply of advertising services.
HMRC took the view that, notwithstanding the contractual
terms, the advertising services concerned were supplied to Mr Newey in
the United Kingdom and were therefore taxable in the United Kingdom.
The First Tier Tribunal allowed Mr Newey’s appeal against that decision
and HMRC appealed to the Upper Tribunal, which referred questions to
The CJEU decided that although contractual terms should be
taken into consideration, they are not decisive. They may be
disregarded where they do not reflect economic and commercial reality
and are a wholly artificial arrangement set up with the sole aim of
obtaining a tax advantage.
It is now for the Upper Tribunal to decide the case in light
The guidance from the CJEU confirms HMRC’s view that economic
reality must be considered and that contractual relationships do not
necessarily determine VAT issues. HMRC will continue to mount in-depth
investigations where we believe that a tax advantage may have been
About the Author
© Crown Copyright 2013.
A licence is needed to reproduce this article and has been republished
for educational / informational purposes only. Article reproduced by
permission of HM Revenue & Customs.
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Article Published/Sorted/Amended on Scopulus 2013-07-16 11:15:16 in Tax Articles