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Revenue & Customs Commissioners v Abbey National plc

A right of occupation was an essential element of a transaction of ‘leasing or letting’ for the purposes of Art 13B(b) of the Sixth Council Directive 77/388. Contractual arrangements entered into between the respondent and a third party relating to leasehold properties owned by the respondent that fell short of being a transaction of leasing or letting under domestic law did not fall within Art 13B(b), since there was no right of occupation.

7 July 2006

The appellant commissioners appealed against a decision ([2005] EWHC 831; [2006] STC 852) that a supply made to the respondent (X) by a third party (M) under the terms of contractual arrangements entered into between them relating to a number of leasehold properties owned by X was an exempt supply. X had a large portfolio of freehold and leasehold properties. It sold some of them to M, which leased them back to X. The leases of a number of the leasehold properties in X’s portfolio contained covenants against assigning or parting with possession of the demised property without the landlord’s consent. To overcome those difficulties, X made “virtual assignments” to M, under which all the economic benefits and burdens of the leases would be transferred to M but without any actual assignment of the leasehold interest, and with X continuing to occupy the properties. The judge below had held that the supply by M to X under those arrangements was exempt since it constituted “the l...

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