Berkshire Golf Club; Glen Golf Club; Wilmslow Golf Club

JurisdictionUK Non-devolved
Judgment Date07 December 2015
Neutral Citation[2015] UKFTT 627 (TC)
Date07 December 2015
CourtFirst Tier Tribunal (Tax Chamber)
[2015] UKFTT 0627 (TC)

Judge John Brooks, Sandi O'Neill

Berkshire Golf Club
Glen Golf Club
Wilmslow Golf Club

Amanda Brown and Victor Cramer of KPMG LLP appeared for the Appellants

Raymond Hill, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the Respondents

Value added tax – Unjust enrichment – Whether appellant golf clubs would be unjustly enriched if their claims for VAT repayment on visitor's green fees were repaid, and if so, the extent of the unjust enrichment – Held: the clubs would be unjustly enriched, to the extent of 10% – Whether course maintenance costs have a “direct and immediate” link to tee advertising and/or buggy hire, such that the VAT on those costs is residual – Held: there is a direct and immediate link and VAT on course maintenance costs is residual – Liability of supply of green fees to corporate bodies and to tour operators under the Tour Operators Margin Scheme – Held: standard-rated.

This was the lead case in respect of the unjust enrichment and other aspects of claims for repayment of VAT on visitor's green fees to golf clubs following the decision of the Court of Justice of the European Union (ECJ) in Bridport and West Dorset Golf Club Ltd TAX[2011] TC 01214 that visitor's green fees charged by non-profit making members clubs were exempt.

Summary

Following appeal by the Bridport & West Dorset Golf Club (a non-profit making members club) the ECJ held that green fees charged to non-members for the right to play golf were exempt (Case C-495/12) [2014] BVC 1. HMRC repaid the VAT claimed by Bridport & West Dorset Golf Club, but many other clubs had also lodged claims and HMRC wished to consider whether to raise a defence of unjust enrichment and in October 2014 the Tribunal issued directions under which four clubs were selected as broadly representative of all claims made by similar clubs. In fact three clubs were selected which were the appellants in the lead case. Evidence was also obtained from Bridport & West Dorset Golf Club.

HMRC instructed an expert economist to gather evidence from the four clubs. The expert's report was served at the end of 2014 and HMRC decided to plead unjust enrichment as a defence to the claims of the golf clubs. Following discussions with representatives for the clubs, the final version of HMRC's expert's report was served on the Tribunal on 20 March 2015.

In a direction issued on 16 May 2015 the Tribunal identified six common issues of fact and law:

  1. 1) whether the economic evidence provided by HMRC's expert demonstrates that on the balance of probabilities the clubs would be unjustly enriched if the whole or part of the VAT claimed is repaid;

  2. 2) if HMRC's evidence does establish unjust enrichment, what percentage restriction should be applied to the claims;

  3. 3) whether supplies in return for visitors green fees which are on-supplied to individuals by tour operators are exempt or standard-rated;

  4. 4) whether, if the customer is a body corporate, there is a distinction between a corporate day package (which all parties accept is taxable) and the supply of access to play golf;

  5. 5) which course maintenance costs are residual in the following circumstances:

    The club:

    1. a) provides advertising services on the golf course but has no corporate day income;

    2. b) has neither corporate day income nor course advertising income; and

    3. c) has taxable income from the hire of golfing equipment, e.g. buggies, trollies.

  6. d) whether there is a direct and immediate link between course maintenance costs and taxable tee advertising, corporate day or rental income, such that the VAT is partly recoverable.

For (1) and (2) the burden of proof lay with HMRC and it was common ground that the Clubs had suffered an economic loss comprising:

  1. i) the VAT absorbed by the club which could not or was not passed on to the visitor by the club; and

  2. ii) lost net profit on rounds of golf that would have been played had VAT not been payable and the resultant higher price had not deterred some golfers from playing.

The issue before the Tribunal was not whether the clubs suffered an economic loss, but the extent of that loss.

HMRC's view was that the economic loss suffered by the clubs was:

  1. • Wilmslow & The Glen 53%–54% of the VAT paid

  2. • Berkshire 35% of the VAT paid.

The Clubs argued that the economic loss was, at the very least, 95% of the VAT paid.

As regards (3) to (6), there was no common ground between the parties other than the burden of proof lay with the clubs.

Unjust Enrichment

The FTT set out the EU law as supported by case law, as follows: Under EU law member states are required in principle to repay tax levied in breach of EU law. Although member states may deny repayment of unlawfully levied tax in circumstances which would involve unjust enrichment of the claimant, the extent of a member state's right to refuse repayment on the grounds of unjust enrichment is to be interpreted restrictively. In order to establish whether a repayment would constitute unjust enrichment it is appropriate for the court to take account of damage suffered by the trader as a consequence of the imposition of the unlawful charge. However, it is incompatible with the principles of EU law for the member state to impose requirements which render it virtually impossible or excessively difficult to secure the repayment, whether this is by way of presumption or rules of evidence. It is also clear from the decisions of the ECJ that it is for the national courts to determine, in the light of the facts of each case, whether the burden of the charge has been transferred in whole or in part by the trader to other persons and if so whether reimbursement to the trader would amount to unjust enrichment.

The EU law principles have been implemented into domestic law by VATA 1994, s. 80.

The FTT heard evidence from the expert witnesses for HMRC and the Clubs. HMRC's expert was of the opinion that the Club information was sufficiently close to the market of perfect competition to adopt that economic model. Whereas the Club's expert was of the opinion that the Clubs operated in an imperfectly competitive market.

The parties argued it was necessary for the FTT to consider five points:

  1. 1) which economic model should be applied;

  2. 2) price elasticity of demand;

  3. 3) the nature of completion;

  4. 4) the marginal cost of supply; and

  5. 5) the calculation of pass through of VAT and economic loss.

Having considered all the evidence before it, the FTT applied the observations of Moses J in Marks & Spencer v C & E Commrs VAT[1999] BVC 107 that:

… If after considering all the evidence, there is uncertainty or absence of detail, that should not be held against the trader.

On balance, the FTT was not persuaded that the theoretical model of perfect competition was the appropriate economic model to use. The FTT preferred the Club's expert's argument that the green fee market, while competitive, was not perfectly competitive but an oligopolistic market. As such, the FTT had to consider the actual costs incurred by the Clubs in supplying additional rounds of golf to visitors to the number of visitors that would have played had they not been deterred by the imposition of VAT increasing the green fee.

The FTT concluded that a restriction of 10% should be applied to each of the Club's claims.

Other Issues

The FTT held that:

  1. 1) Other than in the case of tour operators or travel agents acting as agents and invoicing green fees directly to a golfer, supplies of green fees golf by the Clubs which are on-supplied to individuals by tour operators are standard-rated because the tour operator and not the golfer is the true recipient of the supply by the Club.

  2. 2) Where the customer of the Clubs is a body corporate, there is no distinction between a “corporate day” package, a supply to the body corporate, and the supply through a corporate body of access to play golf, with such a supply being standard-rated, because the true beneficiary of the access to the golf course was the corporate body, rather than the golfers who actually play.

  3. 3) Course maintenance costs are properly treated as residual where the Club has corporate day income, provides advertising services from locations on the golf course and has taxable income from the hire of golf buggies.

Either party has a right to apply for permission to appeal against the decision within 56 days.

Comment

This is an important decision for the many golf clubs whose appeals in respect of VAT claims on visitor's green fees are stood over pending the outcome of this lead case. The case confirms that the burden of proof for unjust enrichment lies with HMRC and it provides considerable information on the approach to be taken in respect of unjust enrichment.

DECISION

[1] Prior to the appeal by the Bridport and West Dorset Golf Club (“Bridport”) HM Revenue and Customs (“HMRC”) considered that green fees, the charges made by non-profit making members' golf clubs to non-members to play at and use their facilities, were subject to VAT under Schedule 9, Group 10, item 3 of the Value Added Tax Act 1994 (“VATA”). However, in an appeal to the First-tier Tribunal (Bridport and West Dorset Golf Club Ltd TAX[2011] TC 01214) Bridport, a non-profit making members' golf club, which sought to recover output tax of £140,358.16 for which it claimed it was not liable to account, successfully argued that green fees should have been exempt, pursuant to the sporting exemption contained in article 132(1)(m) of the Principal VAT Directive (and previously article 13(A)(1)(m) of the Sixth VAT Directive).

[2] HMRC, which had contended before the First-tier Tribunal that they were entitled to exclude the supply of green fee rounds of golf to non-members (“green fee golf”) by such clubs from the exemption under articles 133(d) or 134(b) of the Principal VAT Directive, appealed to the Upper Tribunal which referred the question to the Court of Justice of the...

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