Whether operation of toll roads by NRA in competition with private toll roads

1. © 2017 Grant Thornton UK LLP. All rights reserved.
‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms
provide assurance, tax and advisory services to their clients and/or refers to one or
more member firms, as the context requires.
Grant Thornton UK LLP is a member firm of Grant Thornton International Ltd (GTIL).
GTIL and the member firms are not a worldwide partnership. GTIL and each member
firm is a separate legal entity. Services are delivered by the member firms. GTIL does
not provide services to clients. GTIL and its member firms are not agents of, and do not
obligate, one another and are not liable for one another’s acts or omissions.
This publication has been prepared only as a guide. No responsibility can be accepted
by us for loss occasioned to any person acting or refraining from acting as a result of
any material in this publication.
grant-thornton.co.uk
GRT100456
Summary
This is a case that was referred to
the Court of Justice by the Irish
courts. The issue was whether tolls
charged by the National Roads
Authority (NRA) in respect of
certain roads which it operated
should be subject to VAT.
The NRA is a public body. VAT law
generally provides that where goods
or services are supplied by such a
body they are outside the scope of
VAT. However, there is an
exception to that general rule where
the non charging of VAT by a
public body could lead to a
significant distortion of competition
between public and private
providers.
The CJEU considers that, in the
circumstances the NRA should not
be regarded as being in competition
with the private sector.
24 January 2017
Court of Justice of the European Union
Under VAT law, States, regional and local government authorities and other bodies
governed by public law are not regarded as "taxable persons" in respect of activities or
transactions in which they engage as public authorities. In the majority of cases, therefore, a
supply of goods or services made by a public body in its capacity as a public authority is
outside the scope of VAT. There is, however, an exception to that general rule. Where
treatment of the public body as a non-taxable person would lead to significant distortions
of competition, the rule is ignored and public bodies are treated for VAT purposes just like
ordinary traders.
In this case, the National Roads Authority (NRA) – a public body established to manage
the national public road network operated a toll road. The Irish Revenue considered that
treatment of the NRA as a non-taxable person would lead to a significant distortion of
competition between it and other road toll operators that were regular "taxable" persons
which charged and accounted for VAT. The Irish Revenue relied on the Court of Justice
ruling in the Isle of Wight car parking case. In that case, the CJEU ruled that distortion of
competition must be presumed to exist even if the activities concerned do not actually
compete with each other. It is sufficient for distortion of competition to exist if the
activities in question are simply of the same nature. Here, the activity (collecting tolls) was
clearly the same and, accordingly, the Revenue presumed that treating the NRA's tolls as
outside the scope of VAT would breach the principle of fiscal neutrality and lead to
significant distortions of competition.
In the circumstances, the CJEU considered in this case that no such distortion of
competition exists. The toll roads operated by the NRA are not in competition with the toll
roads operated by private operators – (ie customers can only ever be on one road at one
time). In addition, there is no real possibility of private operators entering the toll road
market. Consequently, the NRA is not to be regarded as being in competition with other
toll road operators and its treatment as a body governed by public law should be
maintained. The activity of operating the toll roads as a public authority should continue to
be treated as being outside the scope of VAT.
National Roads Authority
Case Alert
Contact
Stuart Brodie Scotland stuart.brodie@uk.gt.com (0)14 1223 0683
Karen Robb London & South East karen.robb@uk.gt.com (0)20 772 82556
Vinny
McCullagh
London & South East vinny.mccullagh@uk.gt.com (0)20 7383 5100