CCLA Investment Management Limited v The Commissioners for HMRC

In addition to UCITS, other open-ended funds are authorised by the FCA for marketing to retail investors including non-UCITS retail schemes (“NURS”), qualified investor schemes (“QISs”) and long-term asset funds (“LTAF”). Whilst all of these are AIFs, they can be marketed to retail investors and are required to be authorised by the FCA in a similar manner to UCITS.

As AIFs, they must have an AIFM. But because they are authorised funds, they are also subject to COLL (with appropriate modifications). As authorised funds, the Depositary is required to be independent of the AIFM.

The investment powers for NURS are very similar to those for UCITS, but they permit additional eligible assets (immovable property and gold), apply higher investment and concentration limits in some areas, and permit (but limit) permanent borrowing. HMRC accept that NURS are a SIF and benefit from the SIF Exemption.

The investment and borrowing powers for QIS and LTAF are considerably more permissive, reflecting the fact that they can be marketed only to sophisticated retail (as well as professional) investors.

Money Market Funds (“MMFs”) hold bank deposits or money market instruments. Interest and other income derived from the investments are distributed to investors pro rata to their investment in the MMF. The COIF Deposit Fund and the CBF Deposit Fund operate in a similar way to an MMF. MMFs can be constituted as a UCITS, NURS or QIS.

Investment Trust Companies (“ITCs”) are investment companies with a fixed capital structure (and are therefore closed-ended) and are incorporated under company law. ITCs are required to be approved by HMRC as meeting the requirements of s1158 Corporation Tax Act 2010. These requirements include a condition that the business of the ITC must consist of investing its funds in shares, land, or other assets with the aim of spreading investment risk. In addition, the ordinary shares of the ITC must be admitted to trading on a regulated market (typically the Main Market of the London Stock Exchange). An ITC is required to have a published investment policy. Although ITCs’ shares (in common with other listed companies’ shares) cannot be directly marketed to retail investors, they can be acquired by retail investors, as their shares are traded on the London Stock Exchange. ITCs are regarded by the FCA as unregulated funds within the scope of AIFMD, even though they are regulated by the FCA in its capacity as UK Listing Authority. The relevant FCA sourcebook governing listed companies is LR (Listing Rules). LR 15 sets out the provisions governing the listing of closed-ended investment funds, such as ITCs. Few restrictions are placed on the investment powers of an ITC by LR 15. Of these the most relevant to this appeal are:

In addition to the application of LR 15, the ITC will be a client of its investment manager, who must be regulated by the FCA. The investment management relationship will be governed by COBS.

The CAIF regime was created in 2016, and the first CAIF was registered by the Charity Commission in December 2017. CAIFs are registered with the Charity Commission as a charity and authorised by the FCA. The effect of this is that they are subject to the regulation of both the FCA and the Charity Commission. In other words, a CAIF is both an investment fund authorised and regulated by the FCA, as well as being a registered charity. Like the COIFs, the only permitted investors in a CAIF are charities.

Since the establishment of the CAIF regime, the Charity Commission has stopped registering new COIFs. For this reason, new funds created by CCLA which are intended for charity investment have been established as CAIFs.

CAIFs are subject to COLL, and COLL 14 sets out the provisions relating to CAIFs. COLL 14.1.3 R provides that CAIFs can be established as a UCITS, NURS, QIS or LTAF.

Included within the evidence bundle were a number of articles and examples of promotional literature relating to CAIFs.

Ms Patterson’s unchallenged evidence was that the FCA expects the FMC, AIFM, and the Depositary to ensure compliance with the scheme particulars of the UCITS or AIF. However, the FCA does not routinely monitor or test compliance itself. The FCA will receive in the case of AIFs very detailed periodic reports from the AIFM on the AIFs that they manage, on a monthly or quarterly basis, with great detail about their exposures, the use of derivatives, the geographical markets in which they are invested, the type of investment assets, and so on, so that it can monitor overall trends in the marketplace but can also delve into one particular fund if it had concerns. That information is not reported on a regular basis for UCITS. The reporting requirement for AIFs was introduced with the AIFMD because of the regulators’ concerns about systemic risk in the marketplace and exposures to derivatives.

The FCA expects the Depositary to monitor compliance with the scheme particulars and the relevant FCA sourcebook for both UCITS and AIFs, and the Depositary is under an obligation to report areas of concern to the FCA. In the case of a breach, Ms Patterson’s evidence was that the FCA would expect to also have received a report from the FMC or AIFM with details about what the breach was, the materiality of the breach, the size of the breach, the way in which it arose, whether it was absolutely a one−off for some reason, such as extenuating market circumstances, or indeed whether there was a series of small breaches; and it would question the FMC or the AIFM (as the case may be) and the Depositary about this. The FCA would then come to a judgment as to whether it would (in the words of Ms Patterson) “as it were, rap the firm over the knuckles and say, ‘Don’t do this again, sort it out’”. In more serious cases it could require an expert person to investigate and report on the relevant systems and controls, and consider enforcement action such as levying a fine on the defaulter, or censuring individuals. Ms Patterson’s evidence is that the FCA would treat breaches by a fund whose investors included retail clients (or in the case of AIFs, investors other than “per se” professional clients – such as opted-up retail clients) more seriously than breaches by funds without retail investors (irrespective of how the fund was constituted or regulated).

Enforcement by the FCA should be distinguished from the FCA undertaking systemic or thematic reviews, and the evidence of Mr Hugh Smith was that the FCA had visited CCLA in the course of these kinds of review. However, these visits would not have been prompted by (or in order to check for) defaults or in order to enforce compliance with the FCA Handbook.

The FCA can require an FMC, AIFM, or a Depositary to compensate investors in the event of the mismanagement of a fund (such as significant or persistent breach of rules or gross negligence).

In its 1 July 2014 policy paper, the Charity Commission says in relation to its regulatory role:

The paper makes virtually the same statements in relation to CDFs in sections 7.5 and 7.6.

At the risk of stating the obvious, the Charity Commission is not a competent authority for the purposes of the AIFMD or the UCITS Directive.

The COIFs are established pursuant to a Charity Commission scheme under s96 Charities Act 2011 (or the corresponding earlier provisions). The COIFs are registered charities and have at all times been subject to the regulatory oversight of the Charity Commission (both before and after the introduction of the AIFMD regime). The only permitted investors are charities.

The six COIFs are AIFs. Prior to July 2014, the COIFs were treated as unregulated collective investment schemes.

Because the AIFMD provided that CCLA could not act as an AIFM in circumstances where it conducted activities under the Markets in Financial Instruments Directive (Footnote: ⁶) (“MiFID”), CCLAFM was appointed as the AIFM of the COIFs in July 2014, but delegated the actual delivery of fund management services back to CCLA. The COIFs have at all material times been managed by CCLA or CCLAFM, which have at all material times been regulated for these purposes by the FCA (or its predecessors).

The Charity Commission’s 2014 guide to CIFs states (at section 2.2):

As regards CDFs, the Charity Commission’s Model Scheme document includes provisions restricting the kinds of deposits eligible for investment, diversification requirements, and requirements relating to the liquidity of the investment portfolio in a similar manner to authorised MMFs.

Although the COIFs (as AIFs) are subject to FUND and not COLL, in practice CCLA has managed the COIFs largely in line with the requirements of COLL.

The very great majority of charity investors in the COIFs are classified as retail investors. Although AIFs cannot usually be marketed to retail investors, COBS 4.12B7R provides an exemption for promotions made to persons eligible to invest in funds constituted under ss 96 or 100, Charities Act 2011 (which includes the COIFs).

Mr Donmall cross-examined Mr Hugh Smith at length about CAIFs, and challenged the evidence in his witness statement that (in the eye of an investor) there was no material difference between a CIF and a CAIF. Mr Donmall noted that a significant number of fund managers had converted their charitable funds from CIFs to CAIFs, and referred Mr Hugh Smith to documentary evidence stating that CAIFs had advantages over CIFs – in particular their regulatory environment and that they qualified for the SIF Exemption. Mr Hugh Smith’s unchallenged evidence was that CCLA is the largest manager of charity assets in the UK, and the great majority of those assets are held through the COIFs. As CCLA has increased its assets under management over many years, Mr Hugh Smith believed that the fact that the COIFs were organised as CIFs and not CAIFs appears not to have any great bearing on investor behaviour. Mr Hugh Smith stated that at the time of the hearing CCLA had no plans to convert the COIFs into CAIFs, but it is a matter that they keep under review.

The CBF Funds are established under the 1958 Measure. Each CBF Fund is a charity in its own right, but the 1958 Measure exempts the CBF Funds from regulatory oversight by the Charity Commission. At all material times they have been managed by CCLA.

HMT issued a consultation document in March 2013 about the implementation of AIFMD in the UK. In it they stated that funds constituted under church legislation (which would include the CBF Funds) “are outside the scope of AIFMD because they do not raise external capital and the funds are not managed as a regular business.” The CBF Funds are not regulated as AIFs by the FCA, and the FCA applies neither COLL nor FUND to them.

Because the basis on which HMT reached their view was unclear, we requested further written submissions from the parties on this point after the hearing. CCLA submit that it may be that HMT regard the Church of England as a unitary entity, and therefore as a single investor and in consequence there is no pooling of investments. However, as both parties recognise, this is inconsistent with the underlying legal status of the various emanations of the Church of England. The institutional structure of the Church is that there are separate legal entities for each parish and diocese. We were referred to the decision of the House of Lords in Aston Cantlow and Wilmcote with Nillesley PCC v Wallbank and another [2003] HL 37 at paragraph [84]:

HMRC submit that HMT may have reached its view on the basis that the CBF Funds are not operating by way of business. However, as submitted by the Appellants, although the trustee of the CBF Funds may be exempt from registration on the basis that the trustee is not operating the funds by way of business, CCLA, as investment manager, manages the funds by way of business, and it is FCA authorised. There is a difference of view between HMRC and the Appellants on the distinction between “management” of the funds by CCLA and “operation” of the funds by the trustee – but this is not a distinction which we need to resolve.

All that said, both parties confirm that in their view the CBF Funds are collective investment schemes for the purposes of the SIF Exemption, and we agree and so find. However, HMRC note that the CBF Funds are not treated as AIFs by the UK state, and that this is acknowledged in documents issued to investors in the CBF Funds.

The CBF Funds have at all material times been managed by CCLA, which has at all material times been regulated for these purposes by the FCA (or its predecessors).

Given HMT’s view that the CBF Funds are not AIFs, the FCA does not regulate them as investment funds and the FCA does not require them to appoint an AIFM or a Depositary. Instead, the relationship between the CBF Funds and CCLA is governed by COBS and those provisions within the FCA Handbook that are of general application. This includes a requirement for CCLA to deal with the FCA in an open and cooperative way and disclose anything to the FCA of which the regulator would reasonably expect notice (PRIN 2.1R). In practice, CCLA manages the CBF Funds in a similar way to its management of its other funds that fall within AIFMD.

Notwithstanding the absence of any regulatory requirement to appoint a Depositary, the trustee of the CBF Funds has appointed a regulated entity to monitor CCLA in respect of its management and administration of the CBF Funds. But this entity is not a “Depositary” for regulatory purposes and does not have a regulatory obligation to report regulatory breaches to the FCA.

Investors in the CBF Funds are restricted to charitable trusts with objects connected to the Church of England. These include Church of England parishes, dioceses, cathedrals, and other church charitable trusts. Many of these entities are small and are classified as retail investors.

As the CBF Funds are unregulated, they cannot be marketed to retail investors. However, marketing to Church bodies is permitted by COBS 4.12B7R, which provides an exemption for promotions made to persons eligible to invest in funds constituted under the 1958 Measure.

The governing documents of the CBF Funds refer to the manager being authorised by the FCA and operating in accordance with the FCA Handbook (or its predecessors' rules). As with the COIFs, the Funds’ governing documents include restrictions and limitations that directly mirror many (but not all) of the requirements of UCITS and COLL. Examples of provisions that are not mirrored include the absence of prescriptive limits on the exposure of the fund to any one issuer’s securities or on the amounts that can be invested in another collective investment fund. Other examples of non-mirrored provisions include wider powers of borrowing than would be permitted for a UCITS, and high-level statements about the need for diversification, rather than prescriptive limits.

The LAPF is an unregulated open ended collective investment scheme approved by HMT as a scheme under s11 Trustee Investments Act 1961. The trustee is the Local Authorities Mutual Investment Trust, a company which is exempt from the need to be authorised by the FCA by virtue of paragraph 45 of the Schedule to the FSMA 2000 (Exemptions) Order 2001 (SI 2001/1201).

The LAPF invests in real estate either directly or indirectly by investing in other real estate funds (including UCITS and AIFs).

It is not disputed that HMT has not undertaken any ongoing supervision of the LAPF – for example CCLA and CCLAFM were appointed as investment managers without HMT involvement.

The LAPF is an AIF. Prior to July 2014, it was treated as an unregulated collective investment scheme.

Because the AIFMD provided that CCLA could not act as an AIFM in circumstances where it conducted activities under MiFID, CCLAFM was appointed as the AIFM of the LAPF, but delegated the actual delivery of fund management services back to CCLA. The LAPF has at all material times been managed by CCLA or CCLAFM, which have at all material times been regulated for these purposes by the FCA (or its predecessors).

AIFs cannot usually be marketed to retail investors. Many of the local authority investors in the LAPF are classified as retail investors. In order to invest in the LAPF, they must “opt-up” to be treated as professional investors, but this is subject to CCLA being satisfied that the investor has an appropriate level of expertise to justify professional treatment. Alternatively, some local authorities invest through an independent financial advisor for which another exemption is available.

Mr Hugh Smith’s evidence was that the Funds were marketed in competition with funds managed by other fund managers. From the perspective of a typical charity investor (the vast majority of which will be classified as retail investors), there are many types of funds into which they could invest, and which are actively marketed in competition with one another. The charity sector is well served by the market, and a number of leading fund managers operate CIFs, CDFs, and CAIFs. Further, charities are not restricted to investing in CIFs, CDFs, and CAIFs – they can invest in other collective funds such as UCITS or NURS, provided the fund’s investment policy is not contrary to the charity’s objects. Included in the documentary evidence were a number of surveys and comparisons comparing various fund managers serving the charity sector.

Aside from the CBF Funds, there are no other funds specifically designed for Church of England investors. However, Church entities can invest in other funds, including charity investment funds (such as CIFs, CDFs, and CAIFs), as well as bespoke investments and segregated accounts operated by wealth managers.

There are two property funds in direct competition with the LAPF which are managed by competitor fund managers and targeted at local authority investors, both of which are AIFs. Mr Hugh Smith was also aware of three other property funds, although not specifically designed for local authority investment, are recommended as investment vehicles for local authorities. These three funds are AIFs, of which one was structured as a NURS.

The term “special investment funds as defined by Member States” is not defined in legislation. Its meaning has been considered in a number of decisions of the CJEU. It can be unpacked into two elements – “special investment funds” and “as defined by Member States”.

The CJEU considered the qualification “as defined by Member States” in its decision in JP Morgan Fleming Claverhouse Investment v The Commissioners for HM Revenue & Customs (Case C-363/05) [2008] STC 1180. This decision considered the application of the SIF Exemption to ITCs which did not come within the UK domestic VAT exemption at the time. In issue in the Claverhouse appeal was the extent of the discretion of Member States to define special investment funds. The CJEU held that the discretion of Member States to determine which funds could benefit from the SIF Exemption was limited, but that that closed-ended funds (such as ITCs) were capable of coming within the meaning of special investment funds.

In its decision in Wheels Common Investment Fund Trustees Ltd & Others v The Commissioners for HM Revenue & Customs (Case C-424/11) [2014] STC 495 at [14] the CJEU said:

The central issue in this appeal is the meaning of “special investment fund”. As the harmonisation of investment fund regulation in the EU was originally based on UCITS, such funds have been used by the CJEU as the comparator for determining whether an investment fund is a SIF. The jurisprudence of the CJEU in relation to SIFs has had as its focus whether a fund is comparable to a UCITS. We were taken to a number of decisions of the CJEU on this issue.

We have referred to Abbey National plc above. The issue in dispute was the meaning of “management”, which is not in dispute in this appeal. But the Court explained the reasons behind the SIF Exemption, and that the common system of VAT should be fiscally neutral for small investors as regards the choice between direct investment in securities and investment through a collective investment scheme. In her opinion the Advocate General Kokott said (at [68]):

This reasoning is then adopted by the CJEU at [62] of its decision:

As also discussed above, Claverhouse concerned the extent of the discretion (if any) conferred on Member States to define which funds constituted SIFs, and whether a closed-ended fund (such as an ITC) was capable of constituting a SIF. It held that for closed-ended funds, the discretion of Member States to define SIFs was limited, but that closed-ended funds were not excluded from being SIFs.

In her opinion, Advocate General Kokott said the following:

At paragraph [15] of its decision, the CJEU noted that, unlike AUTs and OEICs, ITCs are not subject to authorisation by the Financial Services Authority (“FSA”) (the predecessor to the FCA) under FSMA, but were regulated as listed companies by the FSA acting as the UK listing authority. The Court confirmed (as it had decided in Abbey National) that the legal form cannot determine whether a fund is a SIF, and therefore “the provisions of the UCITS Directive cannot be relied on to derive a restricted meaning of the term ‘special investment funds’” (at [31]). The Court then went on to consider the application of the principle of fiscal neutrality:

The Court then went on to give guidance to the national court as follows:

The issue in Finanzamt Frankfurt am Main V-Höchst v Deutsche Bank AG (Case C-44/11) [2012] STC 1951 related to the provision of investment management services by Deutsche Bank to its clients. The dispute did not relate to collective investments in any form, and the CJEU held that the SIF Exemption was not available. Interestingly Advocate General Sharpston said the following in her opinion:

Advocate General Sharpston appears to suggest that if funds are in competition, such that one incurs VAT and the other does not, this may not matter to some large investors who are taxable, and therefore able to recover any VAT charge as input tax. We note that this reasoning was not adopted by the CJEU in its decision.

Wheels Common Investment Fund Trustees Ltd and others v Revenue and Customs Commissioners (Case C-424/11) [2014] STC 495 concerned the pooling of investments by a number of different defined benefit occupational pension schemes, and whether the pooled fund was a SIF. At paragraphs [18] to [20] of its decision, the CJEU restated the principles that the purpose of the SIF Exemption is to:

At paragraph [21] the Court noted that this principle does not require the transactions to be identical, as the settled case law is that the principle also precludes treating similar transactions for services, which are in competition with each other, differently for VAT purposes

The CJEU started from the position (at [23]) that UCITS are SIFs. It then went on to state at [24] that:

However, the Court concluded that a defined benefit scheme could not come within the SIF Exemption, because it was not sufficiently comparable to a UCITS, as it constitutes a benefit granted to employees, and the members of the underlying pensions schemes did not bear any investment risk. It therefore followed that the Wheels fund could not benefit from the SIF Exemption.

Although the Court stated that the fund was “not open to the public”, we consider that this was in the context of the fund being used to provide pension benefits for employees, in contrast to it being an investment vehicle. This interpretation is confirmed by the opinion of Advocate General Cruz Villalón in ATP.

ATP Pension Service A/S v The Skattemimisteriet (Case C-464/12) [2014] STC 2145 - considered a defined contribution pension scheme.

In his opinion, Advocate General Cruz Villalón discussed the methodology that should be adopted to determine whether there was a competitive relationship such that the principle of fiscal neutrality applied:

The Advocate General then went on to analyse the relevant comparative criteria in more detail:

We note that the regulatory framework governing the fund was not addressed in the Advocate General’s opinion.

The Court in its decision set out the principles by which to determine whether a fund is comparable to one which falls within the UCITS Directive as follows:

The Court went on to contrast the circumstances in ATP with those in Wheels, because in Wheels the beneficiaries of the fund did not bear any investment risk.

As with the opinion of the Advocate General, the Court made no reference to the regulatory framework governing the fund.

The Court therefore concluded at [59] that the ATP fund could come within the SIF Exemption as:

Although there was no reference in the CJEU’s decision in ATP to the need for specific Member State supervision, in Staatssecretaris van Financiën v Fiscale Eenheid X NV cs (Case 595/13) [2016] STC 2230 the CJEU decided that such supervision was a requirement for the SIF Exemption to apply.

Advocate General Kokott rehearsed in her opinion the observations made in previous decisions of the CJEU, namely that VAT had been harmonised before financial regulation. It was for this reason that the Sixth VAT Directive had to refer to national law when exempting from VAT the management of investment funds subject to specific state supervision – as originally only Member States determined which funds were to be subject to State regulation. However, once investment funds were regulated at the EU level by the UCITS Directive, the CJEU limited the discretion of Member States to define SIFs for the purposes of the SIF Exemption. Advocate General Kokott then went on to say:

She observed at [28] that the ATP judgment is consistent with the requirement for state supervision:

At [29] the Advocate General noted that limiting the application of the SIF Exemption of funds subject to state supervision was consistent with the obligation to interpret tax exemptions strictly.

The Advocate General then went on to consider funds investing solely in immoveable property (such as the funds that were the subject of the appeal in question) as these were not capable of qualifying as a UCITS (at least as regards EU law as it stood in 1996). She made a number of points in relation to such a fund:

In its decision, the CJEU noted with approval the comments made by Advocate General Kokott at [21] to [29] of her opinion and endorsed her opinion that a fund investing exclusively in immoveable property (which in 1996 could not be a UCITS) can only be treated as a SIF if national law provided for state supervision of such a fund:

The Court went on to consider whether the principle of fiscal neutrality limited the scope of the SIF Exemption to funds which invested solely in securities:

The decision concerned a fund which invested in real estate. At [55] the Court specifically rejected the argument that there was any lack of spreading of risks merely because the fund invested in real estate. However, we note that when the case went back to the national courts of the Netherlands, the domestic courts found that there was no specific state supervision, as the funds under appeal were exempt from regulation. Further the domestic courts held that there was no fund management, as the funds simply operated the properties (such as arranging for caretaking and letting).

The Learning Centre (Romford) Ltd v Revenue and Customs Commissioners; LIFE Services Ltd v Revenue and Customs Commissioners [2020] STC 898; [2020] EWCA Civ 452 was a decision of the Court of Appeal addressing the principle of state regulation and fiscal neutrality. LIFE provided day services to adults with disabilities, it had a formal care plan with the local council for the provision of those services. The issues before the Court were (i) whether LIFE could benefit from a VAT exemption because it was state regulated, and (ii), if not, was it a breach of the principle of fiscal neutrality to treat LIFE differently. It was held that LIFE was not state regulated, for reasons which are not relevant to this appeal. The Court went on to consider the principles of fiscal neutrality as considered by the CJEU in that Court’s decision in Rank:

The Court of Appeal continued as follows:

In addition to the report of the EU’s VAT committee, to which we made reference above, we were also referred to a report dated 10 December 2018 §ed by the EU Commission from KPMG on the operation of the AIFMD. KPMG was a previous employer of Ms Patterson, and she is cited in the report as responsible for “quality assurance”.

In the report’s “Executive Summary” it states:

Mr Donmall put to Ms Patterson the position that UCITS are intended for retail investors and AIFs are intended for professional investors (although Mr Donmall acknowledged that AIFs can be adapted for marketing to retail investors – but in their generic form they are not). Ms Patterson’s response was that the essence of the EU regulation relating to UCITS and AIFs was not about limiting the kinds of clients permitted to invest in a particular kind of fund, but rather was about “passporting” - namely the marketing of these funds across the EU. So, the UCITS regime, from the outset, was designed to have a passport for retail investors anywhere in the EU and that therefore the rules relate to that. Her evidence was likewise with AIFs: the passport given is only in relation to professional investors and the associated requirements are not as detailed as for UCITS. However, Ms Patterson’s evidence was that professional investors can, and do, invest in UCITS. In addition, although the AIFMD provided a passport to allow AIFs to be marketed throughout the EU to professional investors, Member States have discretion under Article 43 of AIFMD to allow retail investors to invest in AIFs, and that NURS were an example of this.

The parties dispute what is meant by “specific state supervision” as decided by the CJEU in Fiscale Eenheid. HMRC’s case is that “state supervision” requires direct regulation of the fund by the FCA (or its predecessors) because the supervision needs to be of a form that is substantially and functionally equivalent to that of a UCITS. In contrast CCLA submits that state supervision needs only to be “sufficiently comparable” to that which applies under the UCITS Directive, and that the criterion of comparability, when combined with the requirement of fiscal neutrality, requires functional rather than formal equivalence.

HMRC’s case starts from the point that not all collective investment schemes are SIFs. This, Mr Donmall submits, follows from the jurisprudence of the CJEU as summarised in the VAT Committee’s Working Paper 936. He then goes on to note that Article 4 of the AIFMD defines AIF to mean those collective investment undertakings that are not UCITS – so that the universe of AIFs are all collective investment funds that are not UCITS. If (as CCLA submits) the requirement for state supervision is met by the fact that the AFM and the Depository are regulated – then it would follow that all AIFs would meet this requirement (as mandated by the AIFMD), and all AIFs would benefit from the SIF Exemption. This is, he submits, plainly wrong.

Mr Donmall asks, if not all collective investment schemes are SIFs, what are the criteria which determine those which are? When considering whether funds are comparable with UCITS, Mr Donmall submits that the comparison has to be undertaken with the objective of the SIF Exemption in mind and state supervision is one of the relevant elements of comparison with UCITS. Mr Donmall submits that the SIF Exemption requires specific state supervision comparable to the supervision of UCITS – and not merely any kind of state supervision. He submits that this is implicit in the decision of the CJEU in Fiscale Eenheid where the court referred at [63] to the fund being “subject to comparable state supervision”.

Mr Donmall submits that the language of “specific” state supervision of a fund imports a requirement that the fund must itself be specifically authorised by the state (in distinction to some kind of indirect supervision through the regulation of its manager).

Further, the substantive content of the state supervision must have the effect of regulating the fund in a manner comparable to a UCITS fund, so that it appeals to the same circle of potential investors as a UCITS fund – namely retail investors. Mr Donmall submits that the regulatory position is that all UCITS can be marketed to retail investors, whereas AIFs (with limited exceptions) can only be marketed to professional investors. It follows that for a fund to be sufficiently comparable with UCITS for the purposes of exemption, the fund must be authorised by the competent national authority, such that level of protections in the fund are appropriate for retail investors. When asked by us what he meant by “level of protections”, Mr Donmall referred to the product regulation features required for UCITS, such as (but not limited to) the requirements for diversification of investments and limits on borrowings. Mr Donmall gave the example of a hedge fund which chose to invest in a wide range of listed securities – merely because in practice it had a similar investment portfolio to a UCITS fund, the hedge fund would not be comparable to a UCITS fund.

Mr Donmall referred us to Abbey National at [62] in support of his submission that the overarching purpose of the SIF Exemption is to help small investors, because small investors are unable in practice to have a diversified portfolio through making direct investments. This point is made elsewhere in the jurisprudence of the CJEU, for example by Advocate General Kokott in her opinion in Claverhouse at [30] and [46] and by Advocate General Cruz Villalón in ATP at [40].

In considering Claverhouse, Mr Donmall submits that the decision of the CJEU makes only passing reference in paragraph [15] to the regulation of ITCs by the FSA (the predecessor of the FCA) in its capacity as UK Listing Authority. The decision of the Court does not address the question raised by Advocate General Kokott in her opinion at [49] whether the level of investor protection afforded by ITCs is comparable to that of UCITS. Instead, the decision appears to assume that the supervision of ITCs by the FSA as UK Listing Authority is comparable, and the decision is focussed on whether a closed-ended fund is capable of benefiting from the SIF Exemption because of the form that it has taken. He submits that the nature of state supervision was not articulated by the CJEU in Claverhouse as a decisive element in reaching its decision. He submits that the CJEU’s jurisprudence on state supervision did not stop with Claverhouse, but continued to be developed in Fiscal Eenheid. Mr Donmall notes that the exemption in UK domestic law for management fees incurred by ITCs (Footnote: ⁷) makes no reference to any requirement for specific state supervision (beyond the requirement that the ITC’s shares are listed on the FCA’s official list), and submits that to that extent the incorporation of the SIF Exemption into UK domestic law has gone further than EU law requires.

Mr Donmall referred us to the Court of Appeal’s decision in LIFE in relation to the application of the EU principle of fiscal neutrality. We were referred to paragraph [32] of the decision (citing paragraph [33] of the CJEU’s decision in Rank), which makes the point that the similar nature of the supplies means that they are in competition – rather than the fact that the suppliers are in competition means that they are similar. “Similarity” is defined at paragraph [43] of Rank as being supplies which have similar characteristics and meet the same needs from the point of view of consumers.

Mr Donmall also cites LIFE as authority for distinguishing between suppliers who are subject to a standard because they are regulated, and suppliers who voluntarily choose to subject themselves to that standard. Mr Donmall submits that a supplier cannot bring themselves within a VAT exemption on the grounds of fiscal neutrality by voluntarily choosing to meet similar requirements to those applying to a regulated supplier, in circumstances where the VAT exemption applies only to suppliers who are subject to a statutory scheme of regulation (see [67] to [68]).

Mr Donmall submits that the language of the CJEU is in terms of providing small investors with access to investments. He submits that this dovetails with the use of UCITS as the touchstone, because it is UCITS that are the primary class of fund that may be marketed to retail investors. He submits that this shows that the underlying purpose of the SIF Exemption is not merely the supply of the management of collective investment, but of collective investment with protections for the small investor – which is why there is a requirement for state regulation and supervision of the fund itself.

For a fund to be authorised by the FCA, the application for authorisation has to be accompanied by the relevant fund documents - these are scrutinised by the FCA and compared with the regulatory requirements. So, submits Mr Donmall, an investor acquiring an interest in an authorised fund has the comfort that the FCA have undertaken the tedious job of checking the fund’s documents and making sure that it fulfils the regulatory requirements. In contrast, an AIF, by its very nature, cannot offer that same degree of reassurance. The existence of the regulatory framework may of itself create a distinction in the eyes of a consumer (see LIFE at [62]).

Mr Donmall contrasts the nature of the regulation of UCITS in the UK with the regulation of AIFs:

In contrast, Mr Donmall submits, state supervision under the AIFMD is not substantially and functionally equivalent to that under the UCITS Directive, as the regulation of a fund by the state is indirect. Under the UCITS Directive, it is the fund that it regulated, whereas, under AIFMD, it is the AIFM that is regulated and not the fund itself. This is, at least in part, a consequence of the diverse nature of non-UCITS funds, and the fact that they are intended for professional investors (see, for example, EU VAT Committee’s working paper 936 at 2.2.2). Because AIFs are for professional investors, there is not the same need for prescriptive regulation.

Mr Donmall pointed out the following aspects of AIF regulation:

For these reasons, an AIF is not subject to specific state supervision, as the fund is not itself regulated by the state. Mr Donmall submits that the indirect regulation of an AIF through the regulation of the AIFM and Depositary is not equivalent to regulation under UCITS – as an AIF is not intended for retail investors, cannot be marketed to retail investors, and does not have the level of product regulation which is the hallmark of a UCITS fund.

Prior to the enactment of AIFMD, non-UCITS funds were unregulated. Mr Donmall submits that such funds were plainly not comparable or in competition with a UCITS fund. They were not authorised or regulated in any way by the FCA or its predecessors, there was no product regulation, and such funds could not be promoted to the general public.

When considering the application of these principles to the Funds, Mr Donmall submits that none of them are entitled to the SIF Exemption:

Mr Scorey submits that the Funds benefit from the SIF Exemption under the principle of fiscal neutrality as the Funds are (from the perspective of consumers) in competition with UCITS.

The parties agree that the funds satisfy conditions (a) to (c) of paragraph 4 of the EU VAT Committee’s guidelines. CCLA’s case focuses on conditions (d) and (e) of paragraph 4 of the EU VAT Committee guidelines – namely that for the SIF Exemption to apply, the fund must be subject to specific state supervision, and the fund must be subject to the same conditions of competition and appeal to the same circle of investors who would use UCITS.

Mr Scorey submits that for the SIF Exemption to apply to a fund:

Mr Scorey submits that the application of the SIF Exemption must be consistent with the principles of fiscal neutrality. This means that businesses must be able to choose the form of organisation which from a strictly commercial perspective best suits them without running the risk of their transactions being excluded from the exemption (see Abbey National at [68]).

Whilst HMRC take the position that “specific state supervision” requires direct regulation of the fund by the FCA, CCLA’s position is that this approach is too narrow and formalistic. Rather, Mr Scorey submits that the state supervision of non-UCITS funds need only be “sufficiently comparable” to that which applies to UCITS. This is because it is “comparability” and “fiscal neutrality” that underpins the CJEU’s jurisprudence, and the requirement is for functional rather than formal equivalence. Mr Scorey submits that the test is not whether the Funds are directly regulated by the FCA, but rather whether their regulation is sufficiently comparable to the regulation of UCITS. The jurisprudence of the CJEU, says Mr Scorey, is that to be treated as a SIF, a fund needs to be subject to regulation which is akin to that governing UCITS – it does not require the same form of regulation. In other words, the test requires the Tribunal to look at the function and effect of the regulatory regime, and not the particular form of regulation. Mr Scorey submits that HMRC are wrong to insist that comparability can only arise if the fund itself is regulated. Even if the fund is not regulated as such, the overall regulatory regime may qualitatively be comparable to that applicable to UCITS.

CCLA’s position is that since July 2014, the COIFs and the LAPF satisfy the “specific state supervision” requirements as they are subject to regulation under the AIFMD. As with the UCITS Directive, the AIFMD provides for regulation as regards:

Whilst the scheme of regulation under AIFMD is not identical to that applying to UCITS, it imposes a regime for the authorisation, structure and activities of investment funds, and a requirement for the provision of information in order to protect investors.

A key difference emphasised by HMRC is that in the case of UCITS, the fund itself is regulated and authorised, whereas in the case of AIFs, it is the fund manager (rather than the fund) which is regulated. Mr Scorey submits that the fund is regulated, albeit indirectly. This is not a material distinction, rather a change in the mechanics or approach to regulation.

Mr Scorey submits that UCITS are not a closed category of funds that are entitled to benefit from the SIF Exemption. He pointed to NURS as an example of a non-UCITS fund that benefits from the exemption. A NURS is an AIF. Under UK regulatory rules, it is regulated through the FUND sourcebook in addition to parts of COLL. The jurisprudence of the CJEU in Fiscal Eenheid provides that funds investing in real property can potentially benefit from the SIF Exemption. As such funds are investing in property, the requirements of the UCITS Directive and COLL regulating investment in securities are irrelevant. This shows that it is not the case that there is a requirement for the regulation of the fund itself. A similar argument can be made in respect of ITCs. What is critical for the SIF Exemption is that the fund has characteristics that are similar to UCITS and that there is regulation to ensure compliance with those features. Whether that regulation is of the fund itself or is indirect (through the fund manager) is irrelevant.

The Scheme Documents for the COIFs and the CBF Funds substantially mirror the requirements that apply to UCITS. Where there are differences, Mr Scorey submits that they are immaterial in determining whether the COIFs and the CBF Funds are comparable to UCITS for SIF Exemption purposes. He referred us to COLL 5.7.7 R (governing FAIFs, a form of NURS) which relaxes some restrictions. He submitted that this shows that an exact mirroring of the restrictions in COLL is not required, given that COLL itself allows for some flexibility.

Mr Scorey submits that the fact that the COIFs and the CBF Funds choose to adopt substantially all of the obligations that apply to UCITS (notwithstanding that they are not under a regulatory requirement to do so) makes those funds comparable to UCITS - it does not matter that the funds have chosen to apply them, because that application by choice is not by a whim. Once the funds choose to shackle themselves with these obligations the COIFs are required by the FCA Handbook to comply with them unless and until they are changed. Whilst in a parallel universe CCLA could have adopted practices and procedures that departed significantly from those applicable to UCITS, it did not.

Further, Mr Scorey submits that the Funds were always subject to state supervision, even before the enactment of the AIFMD. Mr Scorey submits that because CCLA, the manager of the funds, is regulated by the FCA, that is sufficient to meet the requirement that there is state supervision of the Funds. Mr Scorey makes this submission based upon the nature of the regulation of ITCs. Historically, these were supervised by the FCA only in its capacity as UK Listing Authority – and not under COLL – this was certainly the case at the point in time when the CJEU decided Claverhouse. It was only following the introduction of the AIFMD that ITCs have been treated as AIFs and have had to appoint an AIFM and Depositary.

As regards the COIFs, they have always had a regulated fund manager (in the same way as ITCs) prior to the introduction of the AIFMD. In addition, they were (and are) subject to the supervision of the Charity Commission. This is because the COIFs have charitable status and are subject to the supervision of the Charity Commission. They were subject to the Commission’s model scheme document, which substantially mirrors the requirements of COLL. They were managed by CCLA, which was subject to the FCA’s (and its predecessors’) authorisation, regulation, supervision, and enforcement. The COIFs had an independent authorised trustee (which acted as the equivalent of the Depositary) (since 2000 for the CIFs, and for the CDF from 2008 and 2014).

Mr Scorey referred to the submissions made by HMRC in relation to CAIFs. Mr Scorey submits that the only relevant distinction between CAIFs and the COIFs is the fact that CAIFs are directly regulated by the FCA through COLL, rather than being AIFs subject to FUND. CAIFs exist alongside CIFs and CDFs. The COIFs are marketed directly in competition with CAIFs operated by competitors, and Mr Scorey submits that they provide a compelling example of a fund which benefits from the SIF Exemption which is subject to comparable regulation and is in competition with the COIFs.

Similarly, the LAPF and the CBF Funds (although not regulated by the Charity Commission) have always been operated and managed in accordance with the FCA’s Handbook.

In addition to being subject to state supervision, Mr Scorey accepted that for the principle of fiscal neutrality to apply, the Funds must be in competition with funds that are SIFs or are equally attractive to potential investors. Mr Scorey referred to the evidence of Mr Hugh Smith, which demonstrated that all of the Funds were in competition with SIFs.

There is substantial common ground between the parties on the legal framework within which this appeal has to be resolved. We need to determine whether the Funds have characteristics which are equivalent to those of UCITS, or whether the Funds are sufficiently comparable to UCITS so as to be in competition with them.

The guidelines issued by the EU VAT Committee were treated by both parties as a useful summary of the requirements for the application of the SIF Exemption. It is not disputed that the Funds satisfy the conditions set out in sub-paragraphs (a) to (c) in paragraph 4. The questions which we have to address are (i) whether the Funds are subject to specific state supervision, and (ii) whether they are subject to the same conditions of competition and appeal to the same circle of investors who would use UCITS.

Mr Donmall submits that for a fund to be subject to specific state supervision, the fund itself must be regulated by the FCA (as the UK’s financial regulator). As none of the Funds are UCITS or NURS, they do not meet this requirement, and therefore cannot benefit from the SIF Exemption.

Mr Scorey submits that HMRC’s approach is too formalistic. What is required is supervision that is sufficiently comparable to the supervision of a UCITS.

We find that for the SIF Exemption to apply, it is not necessary that the fund itself is regulated by the FCA. We base this finding on the jurisprudence of the CJEU in its following decisions:

From this we find that direct regulation of the fund by the FCA (as national competent authority) is not required for a fund to be eligible for the SIF Exemption. Indeed, we note that where a UCITS is constituted as an ACS there is no fund entity that is capable of being authorised, and it is the AFM that is in fact the subject of the authorisation.

We do not accept Mr Donmall’s submission that Item 10 of Group 5 (Finance), Schedule 9, VAT Act (the exemption in UK law for management fees incurred by ITCs) goes further than EU law requires. Exemptions are interpreted strictly, and it would be inconsistent with the requirements of the PVD for the UK to enact an exemption which extends further than is required by EU law. In this context we note that no enforcement action has been taken by the EU in relation to the extent of this exemption. We find that ITCs are SIFs, although (as they have the benefit of Item 10 of Group 5) they do not need to rely on the direct effect of the SIF Exemption. In the case of ITCs, we note that they are required to have a published investment policy (both as a matter of the Corporation Tax Act 2010 and under LR 15). However, neither the Corporation Tax Act 2010 nor LR impose limits on the investments it can make or on the level of borrowings. We also note that ITCs are also subject to the regulatory oversight of HMRC and its predecessors in addition to the regulatory oversight of the FCA as the UK Listing Authority. In order to obtain and maintain approved investment trust status, an ITC must satisfy HMRC that it meets the requirements of s1158, including the requirement that “all or substantially all of its business consists of investing its funds in shares, land or other assets with the aim of spreading investment risk and giving members of the company the benefit of the results of the management of its funds” (Footnote: ⁸).

We find that for a fund to be treated as a SIF it must be subject to regulation which is sufficiently comparable to the regulation of UCITS. We find that regulation pursuant to the AIFMD meets this requirement. Although an AIF is not itself directly regulated by the FCA, it is indirectly regulated through the regulation of the AIFM and the Depositary. The AIFMD and FUND impose regulatory requirements relating to risk management, liquidity management and investment concentration. AIFMs are required to report regularly about the AIF to investors and the FCA, and regulatory requirements are imposed to require disclosure of the fund’s investment strategy and objectives. An AIF is required to have a Depositary, which is under an obligation to report regulatory and scheme/prospectus breaches to the FCA. The evidence before us is that the approach taken to the enforcement of regulatory requirements by the FCA is similar for UCITS and for AIFs (in circumstances where the AIF’s investors are not “per se” professional clients). We find that these are sufficiently comparable to the regulation of a UCITS for the purposes of the SIF Exemption. We are supported in this finding by the opinion of Advocate General Kokott in Fiscal Eenheid at paragraph [40] where she refers to the:

We make the following further observations.

First, whilst regulation under the AIFMD may meet the requirements of specific state supervision, it does not of itself mean that an AIF is eligible for the SIF Exemption. The fund must in addition meet the other conditions of paragraph 4 of the EU VAT Committee’s guidelines. In particular, the fund must be sufficiently comparable to UCITS and must be subject to the same conditions of competition and appeal to the same circle of investors who would use UCITS. This will require that the investment policy and objectives of the fund must not only be sufficiently comparable to UCITS, but must also appeal to the kinds of investors who would use UCITS – in other words retail investors. As the guidelines state, whether an AIF qualifies as a SIF will need to be determined on a case-by-case basis. In particular, if an AIF does not target the same circle of investors as UCITS - because of the characteristics of its investment portfolio or because of the conditions under which the investors are allowed to participate in that fund - that AIF cannot be treated as a SIF. In consequence, some of the more esoteric varieties of AIFs (such as commodity funds, hedge funds, infrastructure funds, and private equity funds) are unlikely to appeal to retail investors, and so would not be treated as SIFs. Further, such investments are unlikely to be sufficiently comparable to the investments undertaken by UCITS. This is the answer to Mr Donmall’s concern that all AIFs could benefit from the SIF Exemption.

Second, we distinguish the circumstances of the COIFs and the LAPF from the circumstances in LIFE. In LIFE, the trader was not subject to any scheme of statutory regulation, but voluntarily chose to provide its services to the same standard as that of a regulated trader. In this case the COIFs and the LAPF have been subject to a statutory scheme of regulation under the AIFMD since July 2014, and we have found that the statutory scheme is sufficiently comparable to the regulation of UCITS.

In contrast, the CBF Funds are not subject to a statutory scheme of regulation, and we find that the circumstances of these funds are similar to the circumstances discussed in LIFE in that they have voluntarily chosen to apply similar requirements to those found in COLL and the UCITS Directive. We find that the CBF Funds are not similar to SIFs.

For completeness we place no weight on the fact that the CBF Funds have chosen to appoint an independent regulated entity to act as if it was a depositary. Ms Patterson’s evidence was that Depositaries are considered by the FCA and other European regulators as a core feature of investor protection. We find that the Depositary has a key regulatory function. As the entity is not appointed in accordance with the requirements of COLL or FUND it is not under any regulatory obligation to report regulatory breaches to the FCA, and is therefore not in a similar position to a Depositary of a UCITS or an AIF.

Third, we had no evidence from investors as to the competitive nature of the market in which the Funds operate and whether a consumer would regard the Funds as similar to SIFs. The jurisprudence of the CJEU, and the authority of the Court of Appeal in LIFE (at [70]) is that a national court does not require consumer evidence for these purposes, and we are expected to make an assessment using our own experience of the world, whilst not ruling out evidence of consumer surveys or experts in cases of difficulty. The evidence that we have is from Mr Hugh Smith, and limited documentary evidence (including some journalism and surveys of the charity investment sector). Although the terms of the scheme documents relating to the COIFs and the CBF Funds do not exactly mirror the requirements of COLL and the UCITS Directive, based on the evidence and our own experience of the world we find that they are sufficiently similar to appeal to the kinds of investors who would invest in UCITS, and are therefore in competition with SIFs. However, we find that the LAPF is not similar to, and is not in competition with, SIFs.

Fourth, whilst we note the concern raised by Mr Donmall that the Funds have discretion to amend their investment policies, the evidence before us is that they have not done so to any material extent – and that to do so requires a process to be followed. The evidence of Mr Hugh Smith was that once a Fund had adopted policies, there was in practice only a very limited ability to depart from them. We note that this is very similar to the position of ITCs, which are required under the Corporation Tax Act 2010 and LR to have and to publish an investment policy, and then to stick to it.

Finally, we find that supervision by the Charity Commission does not amount to specific state supervision. The CJEU’s jurisprudence requiring specific state supervision is clearly intended to refer to financial services’ regulatory supervision. The policy of the Commission (at stated in their 2014 policy paper) is that it only regulates CIFs and CDFs “as charities with regard to their compliance with charity law” and that it is “not a financial advisor or regulator”. We find that this is a statement of what has always been the case. The Commission does not have the expertise to undertake regulation of financial services and there is no evidence that it has ever done so.

We find that HMT did not exercise any regulatory supervision of the LAPF. Whilst the scheme establishing the LAPF was approved by HMT, its involvement with the LAPF thereafter ceased. There is no evidence that HMT undertook any regulatory supervision in relation to the LAPF after it approved the scheme.

We also find that the fact that CCLA and CCLAFM are regulated by the FCA and its predecessors is not of itself sufficient to meet the requirement for specific state supervision. In the case of the CBF Funds, the regulatory relationship between CCLA and the CBF Funds is the same as the regulatory relationship with any client who has given CCLA a discretionary investment mandate. This would also be the case for the COIFs and the LAPF prior to July 2014 and the enactment of AIFMD. This is not the regulation of an investment fund, but the regulation of the same kind as applies to any discretionary investment mandate in place between a private client and a wealth manager. We find that this does not meet the requirement for specific state supervision.

We agree with Mr Scorey that the only relevant distinction between CAIFs and the COIFs is the fact that the CAIFs are directly regulated by the FCA. We have found that this is not a necessary requirement for a fund to benefit from the SIF Exemption. We also agree with Mr Scorey that the fact that CAIFs are marketed directly in competition with the COIFs supports his submission that the COIFs are in competition with funds which benefit from the SIF Exemption.

We find that with effect from July 2014, with the introduction of the AIFMD, the COIFs were subject to specific state supervision. We find that from July 2014 at the latest, the COIFs were subject to the same conditions of competition and appeal to the same circle of investors who would use UCITS. We find that that the terms of the scheme documents relating to the COIFs are sufficiently similar to the requirements of COLL and the UCITS Directive that they appeal to the kinds of consumers who would invest in UCITS, and are therefore in competition with SIFs. We therefore find that with effect from July 2014, the COIFs were entitled to benefit from the SIF Exemption.

However, we find that prior to July 2014, the COIFs were not entitled to benefit from the SIF Exemption as they were not subject to specific state supervision.

We find that the CBF Funds were at no time subject to specific state supervision, and are not therefore entitled to benefit from the SIF Exemption.

We find that with effect from July 2014, with the introduction of the AIFMD, the LAPF was subject to specific state supervision. We find that it was not subject to specific state supervision prior to this date. However, we find that the LAPF was not subject to the same conditions of competition and appeal to the same circle of investors who would use UCITS. We therefore find that the LAPF is not entitled to benefit from the SIF Exemption.

As this hearing addresses solely the principle of whether CCLA is entitled to the benefit of the SIF Exemption in respect of supplies made by it, the quantum of the refund to which it is entitled remains to be determined. If the parties are unable to reach agreement on the amount of the refund, they have liberty to apply to the Tribunal to determine quantum.

This appeal was made to the VAT and Duties Tribunal, and was transferred to the First-tier Tribunal (Tax Chamber) on 1 April 2009 pursuant to Article 6, Transfer of Tribunal Functions and Revenue and Customs Appeals Order 2009 (SI 2009/56). Because this is appeal transferred to this Tribunal, rather than was started in this Tribunal, it has not been, and cannot be, categorised. Had Rule 23 (categorisation) in fact applied, the present case would, it seems likely, have been categorised as a complex case, but CCLA would have had a right to opt out of the costs shifting regime – and Mr Scorey submits that CCLA would have opted-out (as they did in respect of at least one of the appeals that has been consolidated into this appeal).

The question arises as to whether the appeal is subject to the costs provisions of Rule 10, Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009, or to the costs provisions of Rule 29, Value Added Tax Tribunals Rules 1986. If Rule 10 of the 2009 Rules applies, there is no costs shifting, as the appeal has not been categorised as complex. If Rule 29 of the 1986 Rules applies, the Tribunal has full discretion to make an award of costs.

Paragraph 7 of Schedule 3 to the Transfer Order gives this Tribunal discretion to make a direction disapplying Rule 10 and applying Rule 29 of the 1986 Rules. Whether it should do so was addressed by the Upper Tribunal in HMRC v Atlantic Electronics Ltd [2012] UKUT 45 (TCC). Warren J (Chamber President) decided that the default position (absent any direction by the Tribunal) was that Rule 10 applied - and that it was incumbent on a party who wished to operate in a costs shifting regime to make an application to disapply Rule 10, and apply (old) Rule 29 within a reasonable time of the transfer. As no application to disapply Rule 10 has been made, and as this appeal has not been categorised as complex, we have no discretion to make an award of costs, and do not make one. Even if an application had been made to disapply Rule 10, given the length of time that has passed since the transfer of the appeal to this Tribunal, we would have declined to make a direction to that effect.

This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.