An attempt by Customs & Excise to force overseas companies to pay VAT when they have related businesses in the UK has collapsed, following a landmark ruling in the High Court.
Customs, which had already been thwarted by a VAT tribunal last year, wanted a Hong Kong-based satellite TV broadcaster to pay VAT because it used production facilities provided by a related company in London.
The department confirmed last week it had decided not to appeal against the High Court judgment, but was concerned companies would set VAT avoidance schemes using current or newly set-up overseas subsidiaries.
Customs argued the production company in London created a branch or agency for the Hong Kong broadcaster, Chinese Channel, and should be liable to pay UK VAT.
But Deloitte & Touche, the company’s accountants, countered that it enjoyed a VAT-free regime in Hong Kong, where it provided its services, and this should apply to the related company in London.
John Kennedy, a Deloitte & Touche VAT partner, said there could be a significant number of companies that could be collecting VAT in good faith when they do not need to.
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