BMW (GB) Ltd v Commissioners of Customs and Excise
| Jurisdiction | England & Wales |
| Judgment Date | 24 April 1997 |
| Date | 24 April 1997 |
| Court | Queen's Bench Division |
Queen's Bench Division (Crown Office List).
Keene J.
Kevin Prosser QC (instructed by Clarks, Reading) for GB.
Alison Foster (instructed by the Solicitor for Customs and Excise) for the Crown.
The following cases were referred to in the judgment:
BMW (GB) Ltd VAT(LON/95/2469) No. 14,034; [1996] BVC 4278
British Railways Board v C & E Commrs VAT(1977) 1 BVC 116
C & E Commrs v Professional Footballers' Association (Enterprises) Ltd VATVAT[1992] BVC 35; [1993] BVC 38
C & E Commrs v Shaklee International VAT(1981) 1 BVC 444
Celtic Football and Athletic Co Ltd v C & E Commrs VAT(1983) 1 BVC 554
Value added tax - Business entertainment - Inputs irrecoverable in respect of tax attributable to supplies used for business entertainment - Promotional events organised by motor distributor - Dealers contributed to cost of events but no charge made to customers invited to the events - Whether business entertainment - SI 1992/3222Value Added Tax (Input Tax) Order 1992 (SI 1992/3222), art. 5(1) and (3).
This was an appeal by the taxpayer ("GB") from a decision of the VAT and duties tribunal that promotional events provided by a motor distributor to which its dealers invited their customers constituted "business entertainment".
GB sold motor cars and motor cycles throughout the UK through independent dealers. It arranged promotional events, "track days", at which customers and potential customers of dealers could try out the GB products. GB would hire a race track such as Brands Hatch where professional drivers would be on hand to demonstrate and advise.
The dealers would order guest tickets in multiples of ten, paying £85 for a BMW owner-driver, £65 for a non-owner driver and £25 for a non-driver.
The total amount spent by GB on track days in 1994 was £266,000 of which £42,000 was on food, drink and sideshows. The total amount contributed by dealers, £76,000, did not cover the cost of the events.
GB also arranged "golf days" and "curling days" where there was no vehicle demonstration but sport and food and sideshows were offered on similar terms to the track days.
GB appealed against an assessment to recover input tax which it had deducted in relation to supplies of food, drink and other facilities made to GB for the purpose of promotional events organised in 1994. Customs maintained that the supplies fell within the SI 1992/3222Value Added Tax (Input Tax) Order 1992 (SI 1992/3222) (the 1992 Order), art. 5 which disallowed the deduction of input tax referable to "business entertainment".
The tribunal dismissed GB's appeal against the assessment to the extent that the input tax was referable to the food, drink and other attractions, but held that input tax referable to the promotional element in the track days was deductible in so far as GB products were demonstrated.
GB accepted that whether there had been a gratuitous supply to the invited customers was a matter of fact, but claimed that the tribunal's decision was perverse because substantial payment, although less than the cost of the events to GB, was made by the dealers. To amount to business entertainment within art. 5 of the 1992 Order, the facilities provided had to be free of charge and payment made by a third party constituted payment for the facilities. Nor did it matter if the consideration paid did not cover the cost of the event. The supply of the events to the dealers for a fee was comparable to a person buying two tickets for a football match and taking guest. It could not be said that the vendor supplied a free ticket to the guest.
Held, dismissing GB's appeal;
1. If facilities were provided without charge, the recipient by definition would pay no VAT for that supply. If the supplier were entitled to credit for the input tax paid in connection with those supplies, then the result would be that he did not pay VAT on them either. To avoid that situation, provision of free entertainment was classified as "business entertainment". On that basis alone the tribunal was entitled to decide that the facilities provided at the events were business entertainment.
2. The tribunal was entitled to hold that the dealers were paying for the right to invite customers to the events rather than paying for or on behalf of their customers with the result that there was a gratuitous provision of goods and services to those customers. There was nothing artificial about splitting the single event into the supply of a right to invite guests and the provision of the facilities in a case where there were three parties and three relationships: between GB and the dealer; GB and the customer; and the dealer and the customer. That analysis was supported by the fact that the amount paid by the dealers was not related to the cost of the event.
Keene J: This is an appeal from a decision of the London VAT tribunal, whereby it dismissed in part the present appellant's appeal against a VAT assessment.
The case turns upon SI 1992/3222 section 5art. 5 of the Value Added Tax (Input Tax) Order 1992 (SI 1992/3222) ["the 1992 Order"]. Article 5(1) of that order reads as follows.
Tax charged on any goods or services supplied to a taxable person, or on any goods acquired by a taxable person, or on any goods imported by a taxable person, is to be excluded from any credit under section 25 of the Act, where the goods or services in question are used or to be used by the taxable person for the purposes of business entertainment.
It is agreed that, but for that provision, certain input tax incurred by the appellant would have been deductible as a credit underValue Added Tax Act 1994 section 25 section 26ss. 25 and 26 of the Value Added Tax Act 1994. "Business entertainment" for the purposes of art. 5 [of the 1992 Order] is defined in para. (3) of that article as:
… entertainment including hospitality of any kind provided by a taxable person in connection with a business carried on by him …
The appellant ("GB"), imports and distributes BMW motor vehicles, which it sells to independent dealers throughout the UK. The dealers then sell them to the public. A brief summary of the basic facts was given by the tribunal [BMW (GB) Ltd VAT(LON/95/2469) No. 14,034; [1996] BVC 4278] at para. 1 of its decision as follows:
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