TOGC treatment depends on activities of a VAT group as a whole, not just that of the transferee. 

The UK Upper Tribunal has ruled that VAT TOGC relief can apply to acquisitions by VAT group members of businesses which are used to serve only other VAT group entities post-acquisition.


In Intelligent Managed Services, a transaction-processing business (IMSL) was transferred to an entity (VMMSL) which only provided intra-VAT group transaction processing services to another VAT-grouped entity (VMBL), that latter entity being the provider of retail banking services to end-consumers.  The UK tax authorities (HMRC) denied TOGC relief to the transfer, contending that, because the transferee's supplies were made only to its VAT group members (i.e., disregarded for VAT purposes), the transferee was not actually carrying on a business. The "same kind of business" test, required for TOGC treatment, had therefore not been met. The First-tier Tribunal (FTT) found in favor of HMRC.


Between the FTT ruling and the hearing of the appeal in the Upper Tribunal, the CJEU's decision in Skandia was released (which found that a VAT group constitutes a single taxable person for VAT purposes). Based on Skandia, the court found that the TOGC tests should be applied in the context of the VAT group as a whole rather than in the context of the recipient entity only. On this basis, the activities of all the group members had to be taken into account, so the "same kind of business" test was satisfied. The Upper Tribunal also ruled that the test, as set out in UK law, was not incompatible with EU law, following the Zita Modes case.

Further appeal?

It is possible that HMRC might appeal against the Upper Tribunal's decision. If so, the Court of Appeal might need to consider the question of fiscal neutrality, namely, can business transfers to VAT groups be treated differently from transfers to single companies?