British United Provident Association Ltd v Commissioners of Customs and Excise
| Jurisdiction | UK Non-devolved |
| Judgment Date | 11 June 2001 |
| Date | 11 June 2001 |
| Court | Value Added Tax Tribunal |
VAT Tribunal
The following cases were referred to in the decision:
ARO Lease BV v Inspecteur der Belastingdienst Grote Ondernemingen, Amsterdam VAT(Case C-190/95) [1997] BVC 547
Berkholz v Finanzamt Hamburg-Mitte-Altstadt VAT(Case 168/84) (1985) 2 BVC 200,178
Binder Hamlyn VAT(1983) 1 BVC 1190
C & E Commrs v Chinese Channel (HK) Ltd VAT[1998] BVC 91
C & E Commrs v DFDS A/S VAT(Case C-260/95) [1997] BVC 279
C & E Commrs v Faith Construction Ltd VAT(1989) 4 BVC 111
C & E Commrs v Redrow Group plc VAT[1999] BVC 96
Goldsmith Foundation for European Affairs VATNo. 16,544; [2000] BVC 2273
IR Commrs v Duke of Westminster ELR[1936] AC 1
Marleasing SA v La Comercial Internacional de Alimentación SA(Case C-106/89) [1990] ECR I-4135
Polysar Investments Netherlands BV v Inspecteur der Invoerrechten en Accijnzen, Arnhem VAT (Case C-60/90) [1993] BVC 88
R v HM Treasury and IR Commrs ex parte Daily Mail and General Trust plc (Case 81/87) [1988] ECR 5483
Shamrock Leasing Ltd VATNo. 15,719; [1999] BVC 2032
Singer & Friedlander Ltd VATNo. 3274; (1989) 4 BVC 512
Vincent Consultants Ltd VATNo. 3091; (1988) 3 BVC 808
WT Ramsay Ltd v IR Commrs ELR[1982] AC 300
Place of supply of services - Whether company established in Guernsey was a "customer" for supplies made to it, which were for the benefit of a group established in the UK - Directive 77/388, the sixth VAT directive, eu-directive 77/388 article 9art. 9; Value Added Tax Act 1994, Value Added Tax Act 1994 section 43s. 43.
British United Provident Association Ltd (BUPA) was the representative member of a VAT group and was partially exempt for VAT purposes. The commissioners assessed BUPA for VAT in the sum of £2,009,722 on the basis that the group had received advertising services at a UK establishment called BUPA Worldwide Media Advertising Ltd (Worldwide) from a company which the group had set up in Guernsey, named BUPA Media Purchasing Ltd (Purchasing) and that BUPA was, therefore, obliged to account for VAT on such services using the reverse charge procedure.
In July 1996, BUPA prepaid £70m to Worldwide in respect of advertising services to be supplied. Worldwide then contracted to buy those services from Purchasing. Purchasing obtained the services from other suppliers, including from a UK advertising company (O & M). Worldwide subsequently supplied advertising services to BUPA under these arrangements. There was no dispute that Purchasing was established in the Channel Islands, but the place of belonging of Worldwide was a central issue in the appeal.
BUPA maintained that because it and Worldwide were members of the same VAT group, there was no VAT payable on the prepayment in accordance with the legislation then in force. This would not be the case today because of the amendment to s. 43(2A)-(2E) of the Value Added Tax Act 1994 (VATA 1994). Article 9(2)(e) of Directive 77/388, the sixth VAT directive, provides that the place of supply of advertising services is the place where the customer has established his business or has a fixed establishment to which the service is supplied. It was the case for BUPA that as Worldwide was the customer established in Guernsey, and therefore outside the EC, such supplies fell outside the scope of UK VAT.
The commissioners said that the BUPA group originally received advertising services from O & M and was forced to pay VAT which it could not wholly reclaim, being partially exempt. It, therefore, set up arrangements to avoid VAT by routing the services through companies ostensibly based in Guernsey. O & M supplied advertising services to Purchasing and Purchasing supplied them on to Worldwide, the supply being treated as outside the scope of VAT as it was between two parties said to be based in Guernsey. Worldwide then supplied the services to BUPA and this supply was disregarded for VAT purposes since the two companies were members of the same VAT group. In the commissioners' view, the advertising services were received at a UK establishment, namely Worldwide, and BUPA was, therefore, required to account for VAT using the reverse charge procedure.
The commissioners accepted that the supply from O & M to Purchasing was outside the scope of VAT, but contended that the scheme was one of tax avoidance and failed because, for the purpose of applying the place of supply rules, the representative member of the VAT group must be treated as the customer and, consequently, the supply of advertising between Purchasing and Worldwide must be treated as supplied to the BUPA VAT group, which was established solely in the UK. The commissioners claimed that BUPA did not have a fixed establishment in Guernsey since Worldwide did not have sufficiently substantial resources there to meet the definition of such an establishment. Accordingly, BUPA must account for VAT on the supply from Purchasing.
An alternative view of the commissioners was that, if the group had a fixed establishment in Guernsey, then that was not the point of referral for VAT purposes, the primary point being the business establishment unless this achieves an irrational result. The services related to BUPA's advertising campaigns in the UK, which was where the decisions about advertising were made. Thus, the supply by Purchasing to Worldwide was to a recipient belonging in the UK because Worldwide was part of the BUPA VAT group.
Held, allowing the company's appeal:
1. The first question to be answered was whether the facts before the tribunal amounted to a sham so that the activities of Worldwide were to be disregarded for the purposes of VAT. The evidence did not support such a conclusion. Worldwide was carrying on genuine business activities and what the company did in Guernsey was a commercial reality.
2. The next issue was to determine where Worldwide, the recipient of the services from Purchasing, had "established its business", that being the primary point of reference undereu-directive 77/388 article 9(1)art. 9(1) of the sixth VAT directive. Worldwide's presence in Guernsey was an economic and legal reality; it did not carry on business elsewhere. Worldwide had established its business in Guernsey and, therefore, satisfied both conditions of eu-directive 77/388 article 9(2)art. 9(2)(e) of the directive in that it was a customer "established outside the Community" having "established its business" outside the Community.
3. The supply of advertising services from Purchasing to Worldwide was outside the scope of VAT as it was a supply between two companies based in Guernsey and the onward supply to BUPA was not a supply for VAT purposes, being between members of a VAT group. Accordingly, the assessment was discharged.
[The tribunal set out the facts summarised above and continued as follows.]
31. The appellant says that the case turns on the application of the community law concepts set out in eu-directive 77/388 article 9art. 9 [of Directive 77/388]. According to the appellant the following facts are relevant. The contract is made by Purchasing with Worldwide and with no one else. Worldwide is not acting as an agent of anyone else. Purchasing makes real supplies under the contract, otherwise there would be no basis for the commissioners suggesting that value added tax was due. Worldwide pays Purchasing for the supplies.
There is no contract between Purchasing and BUPA. There is no foundation for passing from the contract between Purchasing and Worldwide to any other customer. Worldwide does not belong in the UK as defined byeu-directive 77/388 article 9(2)art. 9(2)(e). It has no establishment or presence in the UK. Its centre of control and place of business are in Guernsey. Its only staff is there. Its board meets there. It is in Guernsey and nowhere else. The arrangements for the establishment of Worldwide are similar to those of Purchasing which is accepted by the commissioners as being established outside the UK.
32. The appellant relies on the judgment in the appeal of C& E Commrs v Chinese Channel (HK) Ltd VAT[1998] BVC 91 at p. 95, on Shamrock Leasing Ltd VATNo. 15,719; [1999] BVC 2032, and Goldsmith Foundation for European Affairs VATNo. 16,544; [2000] BVC 2273.
33. The commissioners on the other hand say that a reverse charge is due from the BUPA VAT Group on Purchasing's supplies under s. 8 of VATA 1994 which provides:
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8(1) Subject to subsection (3) below, where relevant services are-
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(a) supplied by a person who belongs in a country other than the United Kingdom, and
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(b) received by a person ("the recipient") who belongs in the United Kingdom for the purposes of any business carried on by him,
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then all the same consequences shall follow under this Act (and particularly so much as charges VAT on a supply and entitles a taxable person to credit for input tax) as if the recipient had himself supplied the services in the United Kingdom in the course or furtherance of his business, and that supply were a taxable supply.
"Relevant services" include "advertising services".
Purchasing falls within s. 8(1)(a), as belonging in the country other than in the UK, but is supplying a recipient who belongs in the UK, because Worldwide which receives the supplies is to be treated as part of the BUPA VAT group, which belongs in the UK. Moreover, the VAT group is the customer for the purposes of eu-directive 77/388 article 9art. 9 and the supplies by Purchasing are received directly into the UK so that the reverse charge provisions apply.
34. To this latter argument the appellant replies thateu-directive 77/388 article 4(4)art. 4(4) second paragraph of the sixth directive only allows member states to "treat as a single taxable person/persons established in the territory of the country". Worldwide is not established in the UK or in any member state. Thus in any event the critical point is still the establishment of Worldwide in Guernsey.
35. The parties accept that the...
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