Capital One Bank (Europe) Plc v Her Majesty's Revenue & Customs

Facts

Capital One Bank (Europe) plc ("COBE"), a monoline credit card issuer incorporated in the United Kingdom and a wholly-owned subsidiary of the United States corporation Capital One Bank ("COBUS"), took over COBUS's United Kingdom business as a going concern from 1 September 2000 and succeeded to its position as representative member of a VAT group. COBE is a partially exempt trader whose core business is the making of exempt supplies of credit falling within Group 5 of Schedule 9 to the Value Added Tax Act 1994, and it had used an agreed special method, approved by the Commissioners by letter of 18 November 1997 under regulation 102(1) of the Value Added Tax Regulations 1995, for its partial exemption calculation. In order to raise working capital more cheaply than its parent's BBB credit rating would allow, COBE securitised its credit card receivables, assigning them in equity to Castle Receivables Trust Limited, a Jersey special purpose vehicle holding them on a bare trust for three Jersey Investor Beneficiaries, of which Carlisle issued loan notes with a face value of £350 million on each of two occasions. COBE claimed a refund of input tax of £11,147,728.72 in its return for the period ended 30 June 2002, bringing what it said was the consideration for the assignments into the annual adjustment for its longer period from 1 April 2001 to 31 March 2002. The Commissioners rejected the claim by letter of 1 April 2003, and COBE appealed.