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Banking practices affected as UK tax loophole closed

22nd February 2006
By Staff Writer

The UK government has won a battle to close a tax loophole that enabled banks, hospitals and higher education institutes to reclaim VAT in tax avoidance schemes.

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The European Court of Justice found in favor of HM Revenue and Customs in the three test cases brought to court against Halifax (part of banking group HBOS), Bupa and the University of Huddersfield.

Institutions that do not charge VAT to their customers are not allowed to reclaim any VAT incurred through building their infrastructure, but several schemes exist which allow theses groups to do so. Halifax tried to reclaim VAT on building three new call centers in the UK.

The ruling found that the schemes allowing for VAT to be reclaimed were "abusive" closing them to businesses. The judge said: "No one is entitled to exploit (European) Community provisions fraudulently or abusively. That principle of the prohibition of abusive practices extends to the sphere of VAT."

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