Commissioners of Customs and Excise v Century Life Plc
| Jurisdiction | UK Non-devolved |
| Judgment Date | 19 December 2000 |
| Date | 19 December 2000 |
| Court | Value Added Tax Tribunal |
Court of Appeal (Civil Division).
Dame Elizabeth Butler-Sloss P and Kennedy LJ.
A Foster (instructed by the Solicitor for the Commissioners of Customs and Excise) for the Crown.
David Milne QC and J Henderson (instructed by Landwell of London) for the respondants.
The following cases were referred to in the judgment:
Beloit Technologies v Valmet Paper UNK[1995] RPC 705
British Sugar plc v James Robertson & Sons LtdUNK[1996] RPC 281
Card Protection Plan Ltd v C & E Commrs VAT(Case C-349/96) [1999] BVC 155
Philips Electronics v Remington Consumer ProductsUNK[1998] RPC 283
Sparekassernes Datacenter (SDC) v Skatteministeriet VAT(Case C-2/95) [1997] BVC 509
Stichting Uitvoering Financiële Acties (SUFA) v Staatssecretaris van Financiën VAT(Case 348/87) [1991] BVC 102; [1989] ECR 1737
Value added tax - Insurance transactions - Enquiry into pensions misselling - Work out-sourced to insurance agent - Council Directive 77/388, eu-directive 77/388 article 13(B)art. 13(B) - Value Added Tax Act 1994 schedule 9 group 2Value Added Tax Act 1994, Sch. 9, Grp 2, item 4.
During the 1980s and early 1990s there was misselling of pension policies on a considerable scale. As a result, the Securities Investment Board and Personal Investment Authority required all pension companies to review all the personal pensions they had sold between 1988 and 1994 to identify those entitled to redress and to provide it. Lincoln Assurance Ltd outsourced this work to Century Life. Century Life, an insurance agent, reviewed the pension policies and assisted in the provision of redress.
Whether Century Life was exempt from VAT in respect of these services as falling within art. eu-directive 77/388 article 13(B)13(B) of Council Directive 77/388.
Held, dismissing Customs' appeal:
Century Life was exempt. eu-directive 77/388 article 13(B)Article 13(B) exempted inter alia "insurance and reinsurance transactions, including related services performed by insurance brokers and insurance agents". Century Life was an insurance agent performing services related to insurance transactions within the meaning of eu-directive 77/388 article 13(B)art. 13(B).
Jacob J:
1. This appeal is by the Commissioners of Customs and Excise from a decision of Moses J given on 6 March this year [2000] ([2000] BVC 142). He reversed the decision of the VAT tribunal (Dr Avery Jones CBE) of 14 December 1998 in favour of the commissioners ([1999] BVC 2129). The question at issue is whether the respondents, Century Life plc, are exempt from VAT in respect of certain services they performed for a pension policy provider called Lincoln Assurance Ltd. Century Life says the services fall withineu-directive 77/388 article 13(B)art. 13(B) of the sixth Council directive (Directive 77/388) ("the sixth directive"). This was implemented in the UK by item 4 of Value Added Tax Act 1994 schedule 9 group 2Grp. 2 of Sch. 9 to the Value Added Tax Act 1994 as amended. These read:
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13. Without prejudice to other Community provisions, member states shall exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of the exemptions and of preventing any possible evasion, avoidance or abuse:
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(a) insurance and reinsurance transactions, including related services performed by insurance brokers and insurance agents;
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The provision by an insurance broker or insurance agent of any of the services of an insurance intermediary in a case in which those services-
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(a) are related (whether or not a contract of insurance or reinsurance is finally concluded) to any such provision of insurance or reinsurance as falls, or would fall, within item 1, 2 or 3; and
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(b) are provided by that broker or agent in the course of his acting in an intermediary capacity.
2. Item 1 consists of the "provision of insurance or reinsurance in the course of business", subject to qualifications not material to the present case. There are lengthy "notes" to item 4 included as part of the legislation. So far as is material they read:
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(1) For the purposes of item 4 services are services of an insurance intermediary if they fall within any of the following paragraphs-
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(a) the bringing together, with a view to the insurance or reinsurance of risks, of-
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(i) persons who are or may be seeking insurance or reinsurance, and
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(ii) persons who provide insurance or reinsurance;
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(b) the carrying out of work preparatory to the conclusion of contracts of insurance or reinsurance;
(c) the provision of assistance in the administration and performance of such contracts, including the handling of claims;
(d) the collection of premiums.
(2) For the purposes of item 4 an insurance broker or insurance agent is acting "in an intermediary capacity" wherever he is acting as an intermediary, or one of the intermediaries, between-
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(a) a person who provides any insurance or reinsurance the provision of which falls within item 1, 2 or 3, and
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(b) a person who is or may be seeking insurance or reinsurance or is an insured person.
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(7) Item 4 does not include-
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(a) the supply of any market research, product design, advertising, promotional or similar services; or
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(b) the collection, collation and provision of information for use in connection with market research, product design, advertising, promotional or similar activities.
(8) Item 4 does not include the supply of any valuation or inspection services.
(9) Item 4 does not include the supply of any services by loss adjusters, average adjusters, motor assessors, surveyors or other experts except where-
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(a) the services consist in the handling of a claim under a contract of insurance or reinsurance;
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(b) the person handling the claim is authorised when doing so to act on behalf of the insurer or reinsurer; and
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(c) that person's authority so to act includes written authority to determine whether to accept or reject the claim and, where accepting it in whole or in part, to settle the amount to be paid on the claim.
3. Notoriously, during the late 1980s and early 1990s there was misselling of pension policies on a considerable scale. As a result, the Securities Investment Board and Personal Investment Authority required all pension companies to review all the personal pensions they had sold during the period 29 April 1988 to 30 June 1994 to identify those entitled to redress and to provide it. Redress could consist of reinstatement of the old policy, an augmented new policy or simply the payment of a lump sum. Lincoln had sold pension policies and so was subject to these requirements. It found itself under time pressure to get the work done. So it outsourced the work to Century Life, which was in a position to perform it faster. The work outsourced was to review the pension policies concerned and to assist in the provision of redress in cases identified by that review. The tribunal summarised the position as follows:
[Century Life] acts in Lincoln's name and corresponds on Lincoln's headed paper using a PO box number used only for this purpose. Century Life issues questionnaires to policyholders with requests for benefit statements if appropriate, and scheme booklets are requested from scheme trustees, independent financial advisers and other insurance companies. Scheme trustees may invoice Century Life for supplying this information and Century Life will pay for this and invoice Lincoln on a monthly basis. Century Life chases up replies either by telephone or by visits. Century Life then checks that the case is one requiring review, that all the relevant information has been provided, that the correct scheme information is available, and that Lincoln's procedures have been followed.
The case is then analysed. If there is no misselling the case is referred back to Lincoln and if they agree with Century Life's view, the investor is informed. If there has been misselling the correct type of offer is identified. The data is then input into the loss calculator and a reliability check is made on reinstatement costs if that is the type of offer. Calculations are checked by actuaries contracted to Century Life. Where the redress exceeds £10,000, Lincoln has to approve it. Century Life prepares an offer letter and carries out the mechanics of the settlement either requesting a cheque from Lincoln and sending it to the policyholder, or instructing Lincoln to augment the policy. Century Life audit cases during the various stages of the review to ensure that the correct procedures have been followed. Weekly and monthly reports are provided to Lincoln to enable it to make returns to the Personal Investment Authority.
4. Century Life also had its own business. Miss Foster, who appeared for the commissioners, accepted that that business is properly characterised as that of "insurance agent". She says, however, that in relation to the work for Lincoln, Century Life were not acting qua insurance agents, a point to which I will return.
5. Now, if Lincoln had itself done the work internally, it is common ground that VAT would not have been chargeable. Its "service" to itself would carry no charge to tax and its overall service to the public would plainly be within the exemption. But this consideration is irrelevant. The provider of a service cannot rely upon the exemption of the recipient. If the provider is to be exempt he must fall within his own exemption, see e.g. per AG Ruiz-Jarabo Colomer in Sparekassernes Datacenter (SDC) v Skatteministeriet VAT(Case C-2/95) [1997] BVC 509.
6. The question is simply, therefore, whether the exemption applies to the service supplied by Century Life. I say "the exemption" because there is common ground that the effect of the UK domestic legislation is the same as that of the...
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