C-103/09 Weald Leasing

JUDGMENT OF THE COURT (Third Chamber)

22 December 2010 (*)

(Sixth VAT Directive – Concept of ‘abusive practice’ – Leasing transactions effected by a group of undertakings to spread the payment of non-deductible VAT)

In Case C‑103/09,

REFERENCE for a preliminary ruling under Article 234 EC from the Court of Appeal of England and Wales (Civil Division) (United Kingdom), made by decision of 24 February 2009, received at the Court on 13 March 2009, in the proceedings

The Commissioners for Her Majesty’s Revenue and Customs

v

Weald Leasing Ltd,

THE COURT (Third Chamber),

composed of K. Lenaerts, President of the Chamber, D. Šváby, R. Silva de Lapuerta (Rapporteur), E. Juhász and T. von Danwitz, Judges,

Advocate General: J. Mazák,

Registrar: L. Hewlett, Principal Administrator,

having regard to the written procedure and further to the hearing on 3 June 2010,

after considering the observations submitted on behalf of:

– Weald Leasing Ltd, by M. Conlon QC and N. Shaw, Barrister, instructed by S. Walsh, Solicitor,

– the United Kingdom Government, by S. Ossowski, acting as Agent, assisted by M. Hall, Barrister,

– Ireland, by D. O’Hagan, acting as Agent, assisted by A. Aston SC,

– the Greek Government, by G. Kanellopoulos, S. Trekli and M. Tassopoulou, acting as Agents,

– the Italian Government, by G. Palmieri, acting as Agent, assisted by F. Arena, avvocato dello Stato,

– the European Commission, by R. Lyal and M. Afonso, acting as Agents,

after hearing the Opinion of the Advocate General at the sitting on 26 October 2010,

gives the following

Judgment

Legal context and the dispute

1This reference for a preliminary ruling concerns the interpretation of the concept of ‘abusive practice’, as referred to in the judgments in Case C‑255/02 Halifax and Others [2006] ECR I-1609, Case C-425/06 Part Service [2008] ECR I-897 and Case C-162/07 Ampliscientifica and Amplifin [2008] ECR I-4019.

2The reference has been made in proceedings between the Commissioners for Her Majesty’s Revenue and Customs (‘the Commissioners’) and Weald Leasing Ltd (‘Weald Leasing’) regarding value added tax (‘VAT’) charged to that company on account of certain leasing transactions which it had effected.

Legal context

European Union (‘EU’) legislation

3Article 2(1) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1), as amended by Council Directive 95/7/EC of 10 April 1995 (OJ 1995 L 102, p. 18) (‘the Sixth Directive’), provides:

‘The following shall be subject to [VAT]:

1. the supply of goods or services effected for consideration within the territory of the country by a taxable person acting as such.’

4Article 17(2)(a) of the Sixth Directive, in the version resulting from Article 28f thereof, provides:

‘In so far as the goods and services are used for the purposes of his taxable transactions, the taxable person shall be entitled to deduct from the tax which he is liable to pay:

(a) [VAT] due or paid within the territory of the country in respect of goods or services supplied or to be supplied to him by another taxable person.’

5Article 27 of the Sixth Directive is worded as follows:

‘1. The Council, acting unanimously on a proposal from the Commission, may authorise any Member State to introduce special measures for derogation from the provisions of this Directive, in order to simplify the procedure for charging the tax or to prevent certain types of tax evasion or avoidance. Measures intended to simplify the procedure for charging the tax, except to a negligible extent, may not affect the overall amount of tax due at the final consumption stage.

2. A Member State wishing to introduce the measures referred to in paragraph 1 shall inform the Commission of them and shall provide the Commission with all relevant information.

3. The Commission shall inform the other Member States of the proposed measures within one month.

4. The Council’s decision shall be deemed to have been adopted if, within two months of the other Member States being informed as laid down in the previous paragraph, neither the Commission nor any Member State has requested that the matter be raised by the Council.

5. Those Member States which apply on 1 January 1977 special measures of the type referred to in paragraph 1 above may retain them providing they notify the Commission of them before 1 January 1978 and providing that where such derogations are designed to simplify the procedure for charging tax they conform with the requirement laid down in paragraph 1 above.’

National legislation

6Paragraph 1(1) in Schedule 6 to the Value Added Tax Act 1994 (‘the VAT Act 1994’) provides:

‘Where-

(a) the value of a supply made by a taxable person for a consideration in money is (apart from this paragraph) less than its open market value, and

(b) the person making the supply and the person to whom it is made are connected, and

(c) if the supply is a taxable supply, the person to whom the supply is made is not entitled under sections 25 and 26 to credit for all the VAT on the supply,

the Commissioners may direct that the value of the supply shall be taken to be its open market value.’

The dispute in the main proceedings and the questions referred for a preliminary ruling

7The Churchill Group of Companies (‘the Churchill Group’) predominantly supplies insurance services exempt from VAT.

8Churchill Management Ltd (‘CML’) and its subsidiaries, Churchill Accident Repair Centre (‘CARC’) and Weald Leasing, are members of the Churchill Group.

9CML and CARC have an input VAT recovery rate of about 1%, so that, when they purchase equipment, they may deduct only 1% of the VAT on the purchase of that equipment.

10Weald Leasing’s trading activity consists in purchasing the assets in question and then leasing them out.

11Suas Ltd (‘Suas’) is a company owned by a VAT consultant to the Churchill Group and his wife but is not part of that group. Its only significant trading activity is leasing assets from Weald Leasing and then subleasing them to CML and CARC.

12When CML or CARC needed new equipment, it was purchased by Weald Leasing, which leased it to Suas, which, in its turn, subleased it to CML or CARC.

13By resorting to that series of transactions, CML and CARC avoided having to purchase outright the equipment they needed or to pay in a single sum the total amount of non-deductible VAT on those purchases.

14The aim of those transactions was to divide and spread the payment of that amount in order to defer the Churchill Group’s VAT liability.

15CML and CARC were not immediately liable for the non-deductible VAT on the total cost of the equipment purchased, but on the amount of rent relating to that equipment, spread over the term of the leasing agreements.

16The Commissioners raised VAT assessments disallowing the deduction by Weald Leasing of the input VAT paid on the assets leased between October 2000 and October 2004, on the ground that the transactions at issue were not economic activities and constituted an abuse of rights.

17Weald Leasing appealed against the assessments, arguing that those transactions had not been entered into solely to obtain tax advantages and that making taxable supplies of equipment by means of leasing agreements was not contrary to the purpose of the Sixth Directive.

18After the judgment in Halifax and Others was delivered, the Commissioners abandoned their argument that the leasing transactions at issue were not economic activities and argued only that those transactions constituted an abusive practice.

19By decision of 7 February 2007, the VAT and Duties Tribunal held that the essential aim of those transactions was to obtain a tax advantage, consisting in the deferral of the Churchill Group’s VAT liability through the conclusion of leasing agreements, but that the advantage was not contrary to the relevant provisions of the Sixth Directive.

20The VAT and Duties Tribunal held also that any abuse could only arise not from the leases themselves, but from the level of rentals under the leases and from the arrangements to avoid a Direction from the Commissioners under Schedule 6 to the VAT Act 1994.

21The Commissioners appealed against that decision to the Chancery Division of the High Court of Justice of England and Wales on the ground that the tax advantage obtained by the Churchill Group was contrary to the purpose of the Sixth Directive.

22By judgment of 16 January 2008, the Chancery Division of the High Court of Justice of England and Wales dismissed the Commissioners’ appeal against that decision, on the ground that the fact that the transactions at issue were not carried out in the context of normal commercial operations was not sufficient to conclude that they were an abusive practice, since the tax advantage obtained by the Churchill Group by having recourse to those transactions was not contrary to the principle of fiscal neutrality or to any other provision of the Sixth Directive.

23The Commissioners appealed to the referring court on the ground that the Chancery Division of the High Court of Justice of England and Wales had failed to examine the question whether the leasing transactions at issue were part of the participants’ normal commercial operations. They argued that it would be contrary to the purpose of the Sixth Directive to allow a taxpayer to deduct input VAT secured as a result of transactions which had no genuine commercial purpose, which were not at arm’s length, which did not carry the burdens and risks typically associated with such transactions and which had not taken place as part of the participants’ normal commercial operations.

24In those circumstances the Court of Appeal of England and Wales (Civil Division) decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling:

‘(1) In circumstances such as those that exist in the present case, where a largely exempt trader adopts an asset leasing structure involving an intermediate third party, instead of purchasing assets outright, does the asset leasing structure or any part of it give rise to a tax advantage which is contrary to the purpose of the Sixth Directive within the meaning of paragraph 74 of the [j]udgment in … Halifax [and Others]?

(2) Having regard to the fact that the Sixth VAT Directive contemplates the leasing of assets by exempt or partly exempt traders, and having regard to the Court’s reference to “normal commercial operations” in paragraphs 69 and 80 of the [j]udgment in Halifax [and Others] and 27 of [the judgment in] Ampliscientifica [and Amplifin] and also to the absence of any such reference in the [j]udgment in … Part Service, is it an abusive practice for an exempt, or partly exempt, trader to do so even though in the context of its normal commercial operations it does not engage in leasing transactions?

(3) If the answer to question 2 is yes:

(a) what is the relevance of “normal commercial operations” in the context of paragraphs 74 and 75 of the [j]udgment in Halifax [and Others]: is it relevant to paragraph 74 or to paragraph 75 or to both;

(b) is the reference to “normal commercial operations” a reference to:

(1) operations in which the taxpayer in question typically engages;

(2) operations in which two or more parties engage at arm’s length;

(3) operations which are commercially viable;

(4) operations which create the commercial burdens and risks typically associated with related commercial benefits;

(5) operations that are not artificial in that they have commercial substance;

(6) any other type or category of operations?

(4) If the asset leasing structure or any part of it is found to constitute an abusive practice, what is the appropriate redefinition? In particular, should the national court or the tax collecting authority:

(a) ignore the existence of the intermediate third party and direct that VAT be paid on an open market value of the rentals;

(b) redefine the leasing structure as an outright purchase; or

(c) redefine the transactions in any other way which either the [national] court or the tax collecting authority considers to be an appropriate means by which to re-establish the situation that would have prevailed in the absence of the transactions constituting the abusive practice?’

The questions referred

The first and second questions

25By its first and second questions, which it is appropriate to examine together, the national court asks, in essence, whether the fact that an undertaking resorts to asset leasing transactions such as those at issue in the main proceedings, involving an intermediate third party company, instead of purchasing assets outright, results in the accrual of a tax advantage the grant of which is contrary to the purpose of the Sixth Directive and whether, if that undertaking does not engage in leasing transactions in the context of its normal commercial operations, resort to such transactions constitutes an abusive practice.

26It should be recalled that the application of EU legislation cannot be extended to cover abusive practices by economic operators, that is to say, transactions carried out, not in the context of normal commercial operations, but solely for the purpose of wrongfully obtaining advantages provided for under EU law and that that principle of prohibiting abusive practices also applies to the sphere of VAT (see Halifax and Others, paragraphs 69 and 70, and Ampliscientifica and Amplifin, paragraph 27).

27On the other hand, a trader’s choice between exempt transactions and taxable transactions may be based on a range of factors, including tax considerations relating to the VAT system. Where the taxable person chooses one of two transactions, the Sixth Directive does not require him to choose the one which involves paying the higher amount of VAT. On the contrary, taxpayers may choose to structure their business so as to limit their tax liability (see Halifax and Others, paragraph 73, and Part Service, paragraph 47).

28In that context, the Court has held that, in the sphere of VAT, finding that an abusive practice exists requires that two conditions be met.

29First, notwithstanding formal application of the conditions laid down in the relevant provisions of the Sixth Directive and in the national legislation transposing it, the transactions concerned must result in the accrual of a tax advantage the grant of which would be contrary to the purpose of those provisions (see Halifax and Others, paragraph 74, and Part Service, paragraph 42).

30Second, it must also be apparent from a number of objective factors that the essential aim of the transactions concerned is to obtain a tax advantage. The prohibition of abuse is not relevant where the economic activity carried out may have some explanation other than the mere attainment of tax advantages (see Halifax and Others, paragraph 75, and Part Service, paragraph 42).

31As regards the main proceedings, the decision making the reference states that the essential aim of the leasing transactions at issue in the main proceedings was to obtain a tax advantage, namely spreading the payment of the VAT on the purchases in question, so as to defer the Churchill Group’s VAT liability.

32However, before it can be concluded that there was an abusive practice, it must also be the case that, notwithstanding formal application of the conditions laid down in the relevant provisions of the Sixth Directive and the national legislation transposing it, that tax advantage is contrary to the purpose of those provisions.

33In that regard, it should be pointed out that the leasing transactions come within the scope of the Sixth Directive and that the tax advantage that could arise through recourse to such transactions does not, in itself, constitute a tax advantage the grant of which would be contrary to the purpose of the relevant provisions of that directive and the national legislation transposing it.

34A taxable person cannot be criticised for choosing a leasing transaction which procures him an advantage consisting, as is apparent from the decision making the reference, in spreading the payment of his tax liability, rather than a purchase transaction which does not procure him any such advantage, provided that the VAT on that leasing transaction is duly and fully paid.

35It is not disputed that that is the position as regards the VAT on the leasing transactions at issue in the main proceedings and that, for each of those transactions, the companies concerned have paid the correct amount of output VAT and deducted, when they could, the correct amount of input VAT.

36In fact, if Weald Leasing was entitled to deduct VAT on the assets it purchased, it was because it carried on, not insurance business, but leasing activities subject to, and not exempt from, VAT.

37Likewise, CML and CARC did not deduct the VAT on the rentals paid to Suas, because 99% of it was irrecoverable.

38Furthermore, resort to a leasing transaction in respect of an asset does not automatically mean that the amount of VAT on that transaction will be less than would have been paid if the asset had been purchased.

39That being so, the national court will have to determine, first, whether the contractual terms of the leasing transactions at issue in the main proceedings are contrary to the Sixth Directive and of the national legislation transposing it. That would particularly be the case if the rentals were set at levels which were unusually low or did not reflect any economic reality.

40Secondly, the national court will also have to determine whether the involvement of an intermediate third party company, in this case Suas, in those transactions is such as to preclude the application of those provisions.

41In that regard, the national court will have to ascertain whether, as is apparent from certain documents in the case file and as was stated at the hearing, the involvement of Suas in those transactions precluded the Commissioners from applying Paragraph 1 in Schedule 6 to the VAT Act 1994 so far as the transactions were concerned.

42In that context, Weald Leasing’s argument that the principle of prohibiting abusive practices does not apply to breach of Paragraph 1 in Schedule 6 to the VAT Act 1994 because that provision is purely a question of national law cannot be accepted, because that provision was adopted on the basis of Article 27 of the Sixth Directive and forms part of the national legislation implementing that directive.

43Moreover, the fact that an undertaking which resorts to leasing transactions such as those at issue in the main proceedings does not engage in leasing transactions in the context of its normal commercial operations does not affect the foregoing considerations.

44A finding that there was an abusive practice is inferred, not from the nature of the commercial operations usually engaged in by the party which made the transactions in question, but from the object and effects of those transactions, as well as their purpose.

45In those circumstances, the answer to the first and second questions is that the tax advantage accruing from an undertaking’s recourse to asset leasing transactions, such as those at issue in the main proceedings, instead of the outright purchase of those assets, does not constitute a tax advantage the grant of which would be contrary to the purpose of the relevant provisions of the Sixth Directive and of the national legislation transposing it, provided that the contractual terms of those transactions, particularly those concerned with setting the level of rentals, correspond to arm’s length terms and that the involvement of an intermediate third party company in those transactions is not such as to preclude the application of those provisions, a matter which it is for the national court to determine. The fact that the undertaking does not engage in leasing transactions in the context of its normal commercial operations is irrelevant in that regard.

The third question

46In view of the answer given to the first and second questions, there is no need to answer the third question.

The fourth question

47By its fourth question, the national court asks, in essence, how the leasing transactions at issue in the main proceedings should be redefined, if they or any part of them constituted an abusive practice.

48In that regard, it should be borne in mind that, where an abusive practice has been found to exist, the transactions involved in it must be redefined so as to re-establish the situation that would have prevailed in the absence of the transactions constituting that abusive practice (see Halifax and Others, paragraphs 94 and 98).

49In the first place, it is therefore for the referring court to determine, on the basis of the guidance provided in reply to the first and second questions, whether certain elements of the leasing transactions at issue in the main proceedings constituted an abusive practice.

50If that were the case, it would, secondly, be for that court to redefine those transactions so as to re-establish the situation that would have prevailed in the absence of the elements constituting that abusive practice.

51Thus, if the national court concluded that certain contractual terms of the leasing transactions at issue in the main proceedings and/or the intervention of Suas in those transactions constituted an abusive practice, that court would have to redefine those transactions disregarding the existence of Suas and/or by varying or disapplying those contractual terms.

52In that context, the redefinition by that court must go no further than is necessary for the correct charging of the VAT and the prevention of tax evasion (see, to that effect, Halifax and Others, paragraph 92).

53In those circumstances, the answer to the fourth question is that, if certain contractual terms of the leasing transactions at issue in the main proceedings, and/or the intervention of an intermediate third party company in those transactions, constituted an abusive practice, those transactions must be redefined so as to re-establish the situation that would have prevailed in the absence of the elements of those contractual terms which were abusive and/or in the absence of the intervention of that company.

Costs

54Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.

Operative part

On those grounds, the Court (Third Chamber) hereby rules:

1. The tax advantage accruing from an undertaking’s recourse to asset leasing transactions, such as those at issue in the main proceedings, instead of the outright purchase of those assets, does not constitute a tax advantage the grant of which would be contrary to the purpose of the relevant provisions of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment, as amended by Council Directive 95/7/EC of 10 April 1995, and of the national legislation transposing it, provided that the contractual terms of those transactions, particularly those concerned with setting the level of rentals, correspond to arm’s length terms and that the involvement of an intermediate third party company in those transactions is not such as to preclude the application of those provisions, a matter which it is for the national court to determine. The fact that the undertaking does not engage in leasing transactions in the context of its normal commercial operations is irrelevant in that regard.

2. If certain contractual terms of the leasing transactions at issue in the main proceedings, and/or the intervention of an intermediate third party company in those transactions, constituted an abusive practice, those transactions must be redefined so as to re-establish the situation that would have prevailed in the absence of the elements of those contractual terms which were abusive and/or in the absence of the intervention of that company.

Signatures

[Signatures]

Notes

* Language of the case: English.

OPINION OF ADVOCATE GENERAL

MAZÁK

delivered on 26 October 2010 (1)

Case C‑103/09

The Commissioners for Her Majesty’s Revenue & Customs

v

Weald Leasing Limited

(Reference for a preliminary ruling from the Court of Appeal (England and Wales))

(Value added tax (VAT) – Sixth Council Directive 77/388/EEC – Concept of ‘abusive practice’ and ‘normal commercial operations’ – Transaction designed solely to obtain a tax advantage – Leasing and sub-leasing transactions intended to defer the payment of VAT – Redefinition of abusive practice)

I – Introduction

1This reference for a preliminary ruling concerns, inter alia, the interpretation of the concept of ‘abusive practice’, as referred to in the judgment in Case C‑255/02 Halifax and Others, (2) and its application in Case C‑425/06 Part Service (3) and Case C‑162/07 Ampliscientifica and Amplifin. (4) The reference was made in the course of proceedings between the Commissioners for Her Majesty’s Revenue and Customs (‘the Commissioners’) and Weald Leasing Limited (‘Weald Leasing’) concerning the taxation of leasing transactions effected by the latter.

II – The dispute in the main proceedings and the questions referred for a preliminary ruling

2The Churchill Group of Companies (‘the Churchill Group’) predominantly supplies insurance services exempt from value added tax (VAT). (5) Churchill Management Limited (‘CML’) and its subsidiaries, Churchill Accident Repair Centre (‘CARC’) and Weald Leasing, (6) are members of the Churchill Group. CML and CARC have an input VAT recovery rate of about 1%, so that, when they purchase assets/equipment, they may deduct only 1% of the VAT on the purchase of those assets/equipment. (7) Weald Leasing’s sole trading activity consists in purchasing the assets/equipment in question and then leasing them to Suas Limited (‘Suas’). Weald Leasing is independently registered for VAT.

3Suas is a company owned by a VAT consultant to the Churchill Group and his wife, but Suas is not part of that group and is separately registered for VAT. Suas’ only significant trading activity is leasing assets from Weald Leasing and then subleasing them to CML and CARC.

4When CML or CARC needed new equipment, it was purchased by Weald Leasing, which leased it to Suas, which, in its turn, subleased it to CML or CARC. By resorting to that series of transactions CML and CARC avoided having to purchase directly the equipment they needed or pay in a single sum the total amount of non-deductible VAT on those purchases. The aim of those transactions was to divide and spread the payment of that amount in order to defer the Churchill Group’s VAT liability. CML and CARC were not immediately liable for the non-deductible VAT on the total cost of the equipment purchased, but on the amount of rent relating to that equipment, spread over the term of the leasing agreements.

5The Commissioners raised VAT assessments disallowing the deduction by Weald Leasing of the input VAT paid on the assets leased between October 2000 and October 2004, on the ground that the transactions in question were not economic activities and constituted an abuse of rights. Weald Leasing appealed against the assessments, arguing that those transactions had not been entered into solely to obtain tax advantages and that making taxable supplies of equipment by leasing was not contrary to the purpose of the Sixth Directive. After the judgment in Halifax (8) was delivered, the Commissioners abandoned their argument that the leasing transactions in question were not economic activities and argued only that those transactions constituted an abusive practice.

6By decision of 7 February 2007, the VAT and Duties Tribunal held that the essential aim of those transactions was to obtain a tax advantage. Accordingly, those transactions satisfied the second condition for applying the doctrine of abuse, as set out in paragraph 75 of the Court’s judgment in Halifax. In particular, the Tribunal stated that it did not find ‘any of the explanations for the transactions other than the attainment of tax advantages by the Churchill VAT Group to be remotely convincing’. The VAT and Duties Tribunal found that the grant of the tax advantage was not contrary to the purpose of the relevant provisions in the Sixth Directive and that accordingly, the first condition set out in paragraph 74 of the Court’s judgment in Halifax was not satisfied. The Tribunal could find nothing in the Sixth Directive to show that an exempt trader could not defer or spread the burden of input tax by leasing, even in situations such as this case where Weald Leasing was a company connected to CML and CARC. The VAT and Duties Tribunal held also that any abuse could only arise, not from the leases themselves, but from the level of rentals under the leases and from the arrangements to avoid a Direction from the Commissioners under Schedule 6 to the Value Added Tax Act 1994 (‘the VAT Act 1994’). (9)

7The Commissioners appealed against that decision to the Chancery Division of the High Court of Justice of England and Wales. The only issue on appeal was whether the tax advantage obtained by the Churchill Group was contrary to the purpose of the Sixth Directive. By judgment of 16 January 2008, the Chancery Division of the High Court of Justice of England and Wales dismissed the Commissioners’ appeal against that decision, on the ground that the fact that the transactions in question were not carried out in the context of normal commercial operations was not sufficient to conclude that they were an abusive practice, since the tax advantage obtained by the Churchill Group by resorting to those transactions was not contrary to the principle of fiscal neutrality or to any other provision of the Sixth Directive. (10)

8It was in those circumstances that the Court of Appeal of England and Wales (Civil Division) decided to stay the proceedings and to refer the following questions to the Court for a preliminary ruling:

‘(1) In circumstances such as those that exist in the present case, where a largely exempt trader adopts an asset leasing structure involving an intermediate third party, instead of purchasing assets outright, does the asset leasing structure or any part of it give rise to a tax advantage which is contrary to the purpose of the Sixth Directive within the meaning of paragraph 74 of the judgment in … Halifax?

(2) Having regard to the fact that the Sixth VAT Directive contemplates the leasing of assets by exempt or partly exempt traders, and having regard to the Court’s reference to “normal commercial operations” in paragraphs 69 and 80 of the judgment in Halifax and 27 of [the judgment in] … Ampliscientifica [and Amplifin] and also to the absence of any such reference in the judgment in … Part Service, is it an abusive practice for an exempt, or partly exempt, trader to do so even though in the context of its normal commercial operations it does not engage in leasing transactions?

(3) If the answer to Question 2 is yes:

(a) what is the relevance of “normal commercial operations” in the context of paragraphs 74 and 75 of the judgment in Halifax: is it relevant to paragraph 74 or to paragraph 75 or to both;

(b) is the reference to “normal commercial operations” a reference to:

(1) operations in which the taxpayer in question typically engages;

(2) operations in which two or more parties engage at arm’s length;

(3) operations which are commercially viable;

(4) operations which create the commercial burdens and risks typically associated with related commercial benefits;

(5) operations that are not artificial in that they have commercial substance;

(6) any other type or category of operations?

(4) If the asset leasing structure or any part of it is found to constitute an abusive practice, what is the appropriate redefinition? In particular, should the national court or the tax collecting authority:

(a) ignore the existence of the intermediate third party and direct that VAT be paid on an open market value of the rentals;

(b) redefine the leasing structure as an outright purchase; or

(c) redefine the transactions in any other way which either the court or the tax collecting authority considers to be an appropriate means by which to re-establish the situation that would have prevailed in the absence of the transactions constituting the abusive practice?’

III – Proceedings before the Court

9Written observations were submitted by Weald Leasing, the Greek Government, Ireland, the Italian Government, the United Kingdom Government and the Commission. All, except the Italian Government, presented oral submissions at the hearing held on 3 June 2010.

IV – Preliminary remarks

10Following the judgment of the Court in Halifax, it is clear that the abuse of law principle, as established by the case-law of the Court and which prevents European Union (EU) law being relied on for abusive or fraudulent purposes, also applies in VAT cases. However, the extension of the abuse of law principle to the sphere of VAT law may not impinge on the principle of legal certainty or on a trader’s freedom to structure its business or opt for transactions in order to incur less VAT. (11)

11Given that a finding of abuse of law in the field of VAT arises notwithstanding the fact that a trader has formally complied with the letter of the VAT legislation, I consider that the principle in question must be applied only in exceptional cases where the abuse is evident and any remedies must be applied in a parsimonious manner solely to the extent of the abuse in question. The Court stated in Halifax that in the absence of a clear and unambiguous legal basis, a penalty may not be imposed for a finding of abusive practice. (12) Rather, transactions involved in an abusive practice must be redefined so as to re-establish the situation that would have prevailed in the absence of the transactions constituting that abusive practice. (13)

12In the judgment in Halifax, the Court laid down a two-part test which must be satisfied in order to find an abusive practice. First, the transactions concerned, notwithstanding the formal application of the conditions laid down by the relevant provisions of the Sixth Directive and the national legislation transposing it, result in the accrual of a tax advantage the grant of which would be contrary to the purpose of those provisions. Second, it must also be apparent from a number of objective factors that the essential aim of the transactions concerned is to obtain a tax advantage. (14)

13The two part test in question is, as submitted by the Greek Government, cumulative in nature. In order to establish the existence of an abusive practice for VAT purposes it is thus not sufficient to prove that a particular transaction results in the accrual of a tax advantage or even that the transaction is essentially aimed at, or has no rational or explanation other than, obtaining such an advantage. To find otherwise would impinge notably on a trader’s recognised freedom to limit its tax liability. (15) It is therefore necessary to go further and establish that the transaction results in a tax advantage which would be contrary to the purpose of the Sixth Directive and the national legislation transposing it.

14It would appear from the order of reference that the second part of the Halifax test has been satisfied in the main proceedings as the VAT and Duties Tribunal held that the essential aim of the relevant leasing and sub-leasing arrangements in the main proceedings was to obtain a tax advantage. According to the order for reference, the arrangements resulted, inter alia, in a cash flow advantage to CARC and CML.

15The order for reference also states that in that context the rents under the leases were kept low because the higher the rent, the higher the irrecoverable VAT suffered by CML and CARC. Moreover, it would appear from the order for reference that under the leasing agreement between Weald Leasing and Suas, the rent payable on the assets was calculated so as to pay back 100 per cent of the cost to Weald Leasing in 10 years, irrespective of the expected life of the specific assets/equipment in question.

V – The first and fourth questions

16The referring court by its first question asks in essence if the arrangements as set out above or any part thereof result in the accrual of a tax advantage the grant of which would be contrary to the purpose of the Sixth Directive and the national legislation transposing it.

17Weald Leasing claims that in the context of VAT, one of the tax advantages of leasing for exempt or partly exempt traders is the ability to spread irrecoverable input tax over the duration of the lease. However, this tax advantage is not, of itself, sufficient to render the transactions abusive as it is simply the fiscal effect of their choice which is specifically contemplated by the Sixth Directive. It is not abusive as it has not been obtained wrongfully. In particular, there was no attempt by CML and CARC to recover any more input tax than that to which they are entitled. Whilst Weald Leasing obtained a cash flow advantage there was no outright saving of tax and nor was such a saving intended. According to Weald Leasing this is a key distinguishing feature between the present case and University of Huddersfield (16) as the only element of the leasing arrangements which might be regarded as potentially abusive is the level of the rentals. Weald Leasing notes that the only legislative provision that might potentially have been contravened is paragraph 1, Schedule 6, to the VAT Act 1994 which is a domestic law provision which does not transpose a provision of the Sixth Directive. Rather, it is an exception to the basic rule of valuation in Article 11A(1) of the Sixth Directive, made pursuant to a derogation granted to the United Kingdom in accordance with Article 27(2) of that directive. Such derogations do not give rise to Community (and now EU) law rights or obligations. (17) Consequently, the EU law doctrine of abuse does not apply to any contravention of paragraph 1, Schedule 6, which is a matter solely for domestic law.

18The United Kingdom Government considers that despite the formal appearance of leasing, the arrangements in question were not at arm’s length and were a contrived and artificial attempt to disguise the true underlying commercial and economic reality which was that the Churchill Group of companies, through CML and CARC, selected and bought assets for use in its exempt insurance business. Weald Leasing sought in effect to secure the VAT advantages of leasing without carrying the associated economic and commercial burdens. The Greek Government considers that the leasing scheme in question had as its purpose and effect that acquisitions of assets by CARC and CML were taxed differently from similar acquisitions by their competitors providing similar services. The application of this scheme infringes the principle of fiscal equality and, by extension, the principle of fiscal neutrality. Ireland considers that the Churchill Group supplies 99% exempt services and to the extent that its input tax is not deductible the Sixth Directive must be seen as providing that the burden of paying this tax be assumed immediately upon its becoming chargeable, in order that it be passed on to the ultimate consumer. Weald Leasing and Suas are principally, if not solely, mechanisms for avoiding this and, being manifestly artificial, constitute an abuse. Ireland claims that all or most of the leasing arrangements are artificial and thus abusive and not simply the level of rental payments. The Italian Government considers that a leasing structure intended to enable a predominantly exempt taxable person to deduct the full amount of input VAT paid on goods or services purchased for its business is contrary to the principle of the fiscal neutrality of VAT enshrined in the Sixth Directive.

19The Commission considers that the leasing of assets does not give rise to a tax advantage contrary to the purpose of the VAT legislation. There is no difference in economic terms for the State whether the assets are purchased or leased. While the deferral of the tax burden may be considered by the taxpayer to provide a cash flow advantage, he pays for that advantage in the long run. The Commission also considers that the use of a captive leasing company does not in itself constitute an abuse of law. The real risk of abuse in such circumstances lies in the opportunity for the taxpayer to manipulate the amount of the lease payments in order to reduce the amount of VAT paid. The Commission notes that the intervention of Suas appears to have had the sole purpose of preventing the tax authorities from verifying and reviewing the calculation of the taxable amount. That transaction would thus appear to fulfil the first part of the Halifax test. A transaction aimed at preventing the effective enforcement of the VAT rules must be regarded as equivalent to one aimed at obtaining an advantage contrary to the purpose of those rules.

20In my view, and as submitted by the Commission in its observations, a trader is free, in principle, to choose whether to purchase or lease assets/equipment (18) for use in the course of its business. Moreover, the fact that an exempt trader chooses to enter into a leasing arrangement in respect of assets/equipment rather than purchase them outright in order to benefit from a more favourable treatment under VAT legislation, by deferring (19) its VAT burden is not, in itself, sufficient to support the finding that an abuse of that legislation has occurred. Where a trader chooses to lease equipment it pays VAT on the periodic rental payments made over the duration of the lease rather than a once-off payment of VAT on the purchase of that equipment. I consider that such a transaction is not in itself contrary to the purpose of the Sixth Directive and the national legislation transposing it. In my view, the transaction does not necessarily infringe the principle of fiscal neutrality. As Weald Leasing and the Commission indicated, the lease rather than the purchase of equipment does not in itself result in the trader paying less VAT or deducting more VAT than that to which a trader is entitled. Thus while there may be cash flow advantages for the trader, there is no inherent VAT saving in leasing rather than purchasing equipment.

21I consider that the setting-up and use of a wholly owned or ‘captive’ subsidiary, in this case Weald Leasing, which for VAT purposes is a separate or independent taxpayer, (20) with the sole purpose of obtaining a VAT advantage in the form of a deferral of VAT is not per se abusive, as such an advantage could be obtained by entering into an arm’s length leasing arrangement with an unrelated third party. (21) Thus, the adoption of an asset leasing structure involving an unrelated third party or a wholly owned subsidiary which is independently registered for VAT by a largely exempt trader instead of purchasing assets outright in order to defer the payment of irrecoverable tax does not in itself give rise to a tax advantage which is contrary to the purpose of the Sixth Directive. Where, however, the rental payments under the leasing arrangements are set at artificially low levels, which do not reflect open market conditions, thereby in turn artificially reducing the amount of VAT payable, that part of the transaction relating to the level of payments rather than the lease itself would, in my view, be contrary to the purpose of the Sixth Directive and the national legislation transposing it.

22As regards the arrangements concerning Suas, the order for reference states that the interposition of that company between Weald Leasing and CARC and CML meant that the Commissioners were unable to make a Schedule 6 direction (VAT Act 1994). It would appear, subject to verification by the referring court, that in order for the Commissioners to make a Schedule 6 direction, thereby entailing that the value of a supply is calculated at its open market value, the Commissioners must demonstrate, inter alia, that the person making the supply and the person to whom it is made are connected (22) and that the supply was at less than its open market value.

23It appears from the order for reference that Weald Leasing itself argued before the referring court that ‘[t]he real tax advantage obtained by the participants arose from the interposition of Suas, thereby preventing a Schedule 6 Direction’. In its submissions to the Court, Weald Leasing considers that the abuse principle only applies to tax advantages which are contrary to Community law provisions and not to attempts to circumvent domestic law.

24I consider that Weald Leasing’s submission cannot be accepted. It would appear from the file before the Court, and subject to verification by the referring court, that paragraph 1, Schedule 6, of the VAT Act 1994 was enacted pursuant to a derogation under Article 27 of the Sixth Directive. (23) In my view, provisions of national legislation which were adopted in accordance with the derogations laid down in Article 27 of the Sixth Directive form an integral part of the national VAT system, are binding on a taxable person under national law (24) and may be relied upon by the tax authorities of a Member State before the national courts against that person. (25) For the purposes of the application by the national courts of the abuse principle as laid down in Halifax, any distinction between national provisions which implement the provisions of the Sixth Directive and those which were adopted in full compliance with a derogation permitted under that directive is, in my view, contrived and tends to undermine the integrity of the national VAT system and indirectly the EU VAT system.

25I therefore consider that the doctrine of abuse as laid down in Halifax (26) applies to abuses of national provisions which were adopted in full compliance with the terms of Article 27 of the Sixth Directive. As regards the application of that principle in the main proceedings which is a matter for the national court, I consider that the use of a purely artificial structure essentially designed in order to gain a tax advantage by preventing tax authorities from directing in accordance with the provisions of national law adopted in full compliance with the Sixth Directive that the value of leasing arrangements between connected persons be taken to be their open market value is an abusive practice.

26By its fourth question, the referring court seeks guidance on how to redefine the arrangements in the event that the asset leasing structure or any part of it is found to constitute an abusive practice.

27The Court at paragraph 94 of the judgment in Halifax stated that transactions involved in an abusive practice must be redefined so as to re-establish the situation that would have prevailed in the absence of the transactions constituting that abusive practice. It follows from my assessment of the first question as regards the existence and extent of the abuse in the main proceedings that if the national court finds that the interposition of Suas in the relevant arrangements was artificially orchestrated essentially for the purpose of preventing a Paragraph 1, Schedule 6, direction (VAT Act 1994) in order to gain a tax advantage, the United Kingdom tax authorities should be entitled, as indicated by the Commission in its submissions, to treat the series of transactions in the main proceedings as leases by Weald Leasing to CML and CARC thereby ensuring that VAT is paid on an open market valuation (27) of those leases.

28Thus, where a purely artificial structure is adopted in leasing arrangements in order to prevent tax authorities from directing, in accordance with the provisions of national law adopted in full compliance with a derogation permitted under the Sixth Directive, that the value of those arrangements between connected persons be taken to be their open market value, those arrangements should be redefined by ignoring the presence of that structure.

VI – The second and third questions

29By its second question the referring court asks whether it is an abusive practice for an exempt, or partly exempt, trader to engage in the leasing of assets even though in the context of its ‘normal commercial operations’ it does not do so. By its third question the referring court asks a number of questions concerning the interpretation and application of the terms ‘normal commercial operations’.

30The expression ‘normal commercial operations’ is used in two paragraphs of the Halifax judgment. At paragraph 69 of the judgment in Halifax, the Court enunciated a broad principle that transactions which are not carried out in the context of normal commercial operations will be considered abusive where their purpose is to wrongfully obtain an advantage provided for by EU law. At paragraph 80 of that judgment, the Court stated that ‘[t]o allow taxable persons to deduct all input VAT even though, in the context of their normal commercial operations, no transactions conforming with the deduction rules of the Sixth Directive or of the national legislation transposing it would have enabled them to deduct such VAT, or would have allowed them to deduct only a part, would be contrary to the principle of fiscal neutrality and, therefore, contrary to the purpose of those rules’. The Court then stated at paragraph 81 of Halifax that ‘[a]s regards the second element [of the two part test], whereby the transactions concerned must essentially seek to obtain a tax advantage, it must be borne in mind that it is the responsibility of the national court to determine the real substance and significance of the transactions concerned. In so doing, it may take account of the purely artificial nature of those transactions and the links of a legal, economic and/or personal nature between the operators involved in the scheme for reduction of the tax burden’.

31The reference to ‘normal commercial operations’ is however absent in the Part Service judgment (28) despite the Court’s reliance on the two part test laid down in paragraphs 74 and 75 of Halifax. (29) In the judgment in Ampliscientifica and Amplifin (30) the Court stated at paragraphs 27 and 28 that ‘the principle prohibiting the abuse of rights is intended to ensure, particularly in the field of VAT, that [EU] legislation is not extended to cover abusive practices by economic operators, that is to say transactions carried out not in the context of normal commercial operations, but solely for the purpose of wrongfully obtaining advantages provided for by [EU] law. The effect of that principle is therefore to prohibit wholly artificial arrangements which do not reflect economic reality and are set up with the sole aim of obtaining a tax advantage.’

32I consider that the terms ‘normal commercial operations’ do not require an examination of the ‘typical’ business activity of a particular trader. (31) Thus the concept of ‘normal commercial operations’ in the context of VAT abuse is unrelated to the operations a taxpayer habitually engages in. An attempt to distil the typical or habitual commercial operations of a given trader is, in my view, an inherently unpredictable exercise (32) and thus unworkable in a tax law context where legal certainty is required.

33An assessment of whether a transaction is carried out in the context of ‘normal commercial operations’ refers, in my view, to the second part (33) of the two part test laid down in Halifax and thus the nature of the transaction or scheme in question and whether it is a purely artificial construct established essentially in order to obtain a tax advantage rather than for other commercial reasons. (34) In that regard, the links of a legal, economic and/or personal nature between the operators involved in the scheme for reduction of the tax burden (35) are relevant and thus whether the parties to the transaction operate at arm’s length. (36) Moreover, the question whether a transaction gives rise to commercial burdens and risks typically associated with such transactions is relevant to the assessment of the artificial nature of the transaction and thus whether its essential aim is to obtain a tax advantage. I would note in addition that it is the objective nature of the transaction (37) which is relevant in such an assessment rather than the subjective motivation of the taxpayer.

VII – Conclusion

34In the light of the foregoing observations, I propose that the Court should answer as follows the questions referred by the Court of Appeal (England and Wales):

(1) The adoption of an asset leasing structure involving an unrelated third party or a wholly owned subsidiary which is independently registered for value added tax by a largely exempt trader instead of purchasing assets outright in order to defer the payment of irrecoverable tax does not in itself give rise to a tax advantage which is contrary to the purpose of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment.

(2) The use of a purely artificial structure essentially designed in order to gain a tax advantage by preventing tax authorities from directing in accordance with the provisions of national law adopted in full compliance with Sixth Directive 77/388 that the value of leasing arrangements between connected persons be taken to be their open market value is an abusive practice.

(3) Where an abusive practice has been found to exist, the transactions involved must be redefined so as to re-establish the situation that would have prevailed in the absence of the transactions constituting that abusive practice. Where a purely artificial structure is adopted in leasing arrangements essentially in order to prevent tax authorities from directing that the value of those arrangements between connected persons be taken to be their open market value, those arrangements should be redefined by ignoring the presence of that structure.

(4) The concept of ‘normal commercial operations’ in the context of value added tax abuse is unrelated to the operations a taxpayer typically or habitually engages in. An assessment of whether a transaction is carried out in the context of ‘normal commercial operations’ refers to the nature of the transaction or scheme in question and whether it is a purely artificial construct established essentially in order to obtain a tax advantage rather than for other commercial reasons. The links of a legal, economic and/or personal nature between the operators involved in the scheme for reduction of the tax burden and thus whether the parties to the transaction operate at arm’s length, the question whether a transaction gives rise to commercial burdens and risks typically associated with such transactions are relevant for the purpose of assessing the nature of the transaction.

Notes

(1) Original language: English.

(2) [2006] ECR I‑1609 (‘Halifax’).

(3) [2008] ECR I‑897.

(4) [2008] ECR I‑4019.

(5) See Article 13.B of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1) (‘the Sixth Directive’) which provides, inter alia, that Member States shall exempt insurance transactions. See now Article 135(1) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1) (‘the VAT Directive’).

(6) Weald Leasing is a wholly owned subsidiary of CML and is independently registered for VAT.

(7) See Article 17(2) and (5) of the Sixth Directive, see now Articles 168 and 173 of the VAT Directive.

(8) Cited in footnote 2.

(9) Paragraph 1(1) in Schedule 6 to the VAT Act 1994 provides:

‘Where –

(a) the value of a supply made by a taxable person for a consideration in money is (apart from this paragraph) less than its open market value, and

(b) the person making the supply and the person to whom it is made are connected, and

(c) if the supply is a taxable supply, the person to whom the supply is made is not entitled under sections 25 and 26 to credit for all the VAT on the supply,

the Commissioners may direct that the value of the supply shall be taken to be its open market value.’

(10) The High Court accepted the Commissioners’ submission that CML, CARC, Weald Leasing and Suas did not bear the ordinary economic and commercial risks typically associated with the leasing of assets. It accepted that the leasing arrangements were ‘commercially hollow’ because they were so different from what might be expected of parties dealing at arm’s length and concerned to behave as if in the course of normal commercial operations. It also accepted that although the leasing arrangements were not shams and despite attempts to confer the outer appearances of familiar commercial arrangements, the transactions were artificial in the sense that but for having the essential aim of obtaining a tax advantage, they would never have been made in any commercial context. Accordingly, the High Court accepted that the transactions fell outside the parties’ normal commercial operations. However, after referring to paragraphs 69 to 80 of the Court’s judgment in Halifax (cited in footnote 2), the Judge concluded that just because a scheme fell outside normal commercial operations, that did not mean that it amounted to an abusive practice. In that context, the Judge observed that the Court did not refer to ‘normal commercial operations’ either in paragraph 74 or in paragraph 86 of its judgment when setting out the first condition for application of the principle of abuse. He concluded that if the Court had intended the references to ‘normal commercial operations’ in paragraphs 69 and 80 of its judgment in Halifax to be important, the Court would have explained further what it meant by this term.

(11) See the judgment in Halifax (cited in footnote 2), paragraphs 69 to 73.

(12) See Halifax, cited in footnote 2, paragraph 93.

(13) See Halifax, cited in footnote 2, paragraph 94.

(14) See Halifax, cited in footnote 2, paragraphs 74 and 75.

(15) See Halifax, cited in footnote 2, paragraph 73.

(16) Case C‑223/03 [2006] ECR I‑1751.

(17) Case C‑309/06 Marks & Spencer [2008] ECR I‑2283, paragraph 28.

(18) The lease of equipment constitutes, in principle, a supply of services pursuant to Article 6(1) of the Sixth Directive and Article 24(1) of the VAT Directive.

(19) I would note by contrast that Ireland states in its written pleadings that the principle of fiscal neutrality requires that a person who is not entitled to deduct tax when it becomes chargeable should be liable to bear the burden of its non-deductibility by paying it at that point in time.

(20) Pursuant to Article 4 of the Sixth Directive a taxable person means any person who independently carries out in any place any economic activity whatever the purpose or result of that activity.

(21) See by analogy, Case C‑23/98 Heerma [2000] ECR I‑419. In that case the Court held that a member of a partnership which let immovable property to the partnership of which he is a member and which is itself a taxable person acts independently within the meaning of Article 4(1) of the Sixth Directive. The Court noted that there was no relationship of employer and employee similar to that mentioned in the first subparagraph of Article 4(4) of the Sixth Directive between the partnership and the partner which would preclude the independence of the partner. The partner, in letting tangible property to the partnership, acted in his own name, on his own behalf and under his own responsibility, even if he was at the same time manager of the lessee partnership. It follows therefore in my view that the mere existence of a close relationship between two separate taxpayers is not sufficient for the tax authorities to treat those taxpayers as one. See by contrast, Case C‑355/06 van der Steen [2007] ECR I‑8863. The Court found in that case that there was a relationship of employer/employee between a company and a director of that company. The Court found firstly that the company paid the director a fixed monthly salary and annual holiday payment. The company deducted income tax and social security contributions from his salary. Secondly, at the time of providing services in his capacity as employee, the director did not act in his own name, on his own behalf and under his own responsibility, but on behalf and under the responsibility of the company. Thirdly the director did not bear any economic business risk in acting as manager and performing the work in the course of the company’s dealings with third parties.

(22) It would appear from the file that if the leasing arrangements in question had not involved Suas, which is not part of the Churchill Group and is not formally connected to Weald Leasing or CARC or CML, the national tax authorities would have been able to direct that the value of the supplies in question be taken at their open market value.

(23) Article 27(1) of the Sixth Directive provides that ‘[t]he Council, acting unanimously on a proposal from the Commission, may authorise any Member State to introduce special measures for derogation from the provisions of this Directive, in order to simplify the procedure for charging the tax or to prevent certain types of tax evasion or avoidance …’. The procedure for such an authorisation is laid down in Article 27(2) to (4) of the Sixth Directive. Pursuant to Article 27(5) ‘[t]hose Member States which apply on 1 January 1977 special measures of the type referred to in paragraph 1 above may retain them providing they notify the Commission of them before 1 January 1978 and providing that where such derogations are designed to simplify the procedure for charging tax they conform with the requirement laid down in paragraph 1 above’.

(24) See by analogy, Marks & Spencer, cited in footnote 17, paragraphs 20 to 28. In my view, that judgment provides that a taxpayer does not derive a directly enforceable EU law right in respect of exemptions or derogations adopted by a Member State in compliance with the Sixth Directive. See, however, Advocate General Kokott’s Opinion in that case where she effectively states that a taxpayer derives both a national law and an EU law right (point 43 of the Opinion).

(25) See, by analogy, Case 5/84 Direct Cosmetics [1985] ECR 617, paragraph 37.

(26) Cited in footnote 2.

(27) Halifax, cited in footnote 2. An assessment of the open market value of a leasing arrangement necessarily implies taking into consideration the duration of those arrangements in the light of the nature of the assets/equipment in question.

(28) Cited in footnote 3.

(29) Cited in footnote 2.

(30) Cited in footnote 4.

(31) Despite the inclusion of the terms ‘their normal commercial operations’ (emphasis added) at paragraph 80 of the Halifax judgment (cited in footnote 2).

(32) Not least because a trader’s business operations may change and evolve over time.

(33) See therefore paragraph 75 of Halifax (cited in footnote 2).

(34) The referring court used the terms ‘commercially viable’ in its question 3(2)(3). As that term could be interpreted as meaning a transaction which is profitable in nature, I shall avoid using that term.

(35) See Halifax (cited in footnote 2), paragraph 81.

(36) In my view, the referring court must examine and weigh all the applicable contractual terms and relevant circumstances.

(37) See paragraph 75 of Halifax (cited in footnote 2).