Commissioners of Customs and Excise v Chinese Channel (HK) Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 28 January 1998 |
| Date | 28 January 1998 |
| Court | Queen's Bench Division |
Queen's Bench Division.
Moses J.
Michael Kent QC (instructed by the Solicitor for Customs and Excise) for the Crown.
Roderick Cordara QC and Perdita Cargill-Thompson (instructed by Deloitte & Touche) for the taxpayer.
The following cases were referred to in the judgment:
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] ECR 2251; (1985) 2 BVC 200,178
C & E Commrs v DFDS A/S VAT(Case C-260/95) [1997] ECR I-1005; [1997] BVC 279
Marleasing SA v La Comercial Internacional de Alimentación SA(Case C-106/89) [1990] ECR I-4153
Value added tax - Supply - Place of supply - Hong Kong company provided programmes to be broadcast for Chinese community in Europe, principally in the UK - UK company carried out accounting and administrative functions in UK and also provided some news and editorial material - Whether broadcasting services carried on through medium of UK company or whether provided by Hong Kong company - Value Added Tax Act 1994 section 9 subsec-or-para (2) section 9 subsec-or-para (5)Value Added Tax Act 1994, ss. 9(2)(a) and (5)(a); sixth VAT directive (Directive 77/388) of 17 May 1977 (OJ 1977 L145/1), eu-directive 77/388 article 9(1)art. 9(1).
This was an appeal by Customs from a decision of the VAT and duties tribunal ((LON/94/3396) No. 14,003; [1996] BVC 2750) that broadcasting services were supplied by the taxpayer in Hong Kong, not by an associated company in the UK.
The taxpayer was a Hong Kong based company. It had no UK office. It operated a satellite television station under licence from the ITC, broadcasting programmes in Chinese throughout Europe, but mainly to the Chinese community in the UK. The taxpayer was a wholly owned subsidiary of Chinese Channel (Holdings) Ltd which was a subsidiary of TVB, a Chinese commercial station producing Cantonese programmes and news. The taxpayer had no editorial or production activities and only three or four employees in Hong Kong. The taxpayer bought programmes from TVB which it transmitted by satellite to a UK company ("CCUK") for editing and scheduling for the European service. Most of the programmes broadcast in Europe were obtained in that way, but CCUK provided some programmes obtained through news agencies.
CCUK, which had premises in London and employed 40 staff, was owned by a consortium whose majority shareholder was HK's parent. Pursuant to an agreement governed by Hong Kong law CCUK agreed to provide administrative and editorial services in the UK to the taxpayer.
Customs took the view that CCUK was a "fixed establishment" of the taxpayer in the UK. The taxpayer therefore had two establishments, one in Hong Kong and one in the UK, within the Value Added Tax Act 1994,Value Added Tax Act 1994 section 9 subsec-or-para (2)s. 9(2)(c). Since the establishment most concerned with the supply of the relevant services was CCUK, the taxpayer was to be regarded as supplying the broadcasting services from the UK and was subject to VAT at the standard rate. Alternatively, the taxpayer carried on a business through an agency in the UK and was thus deemed pursuant toValue Added Tax Act 1994 section 9 subsec-or-para (5)s. 9(5)(a) of the 1994 Act to have a business establishment in the UK.
The tribunal held that the supplies of broadcasting were made from Hong Kong, the taxpayer's main place of business; that the taxpayer did not have a branch or agency in the UK through which it carried on its business because CCUK was a separate legal entity; and that even if the taxpayer had a business establishment in Hong Kong and a fixed establishment in the UK, the establishment in Hong Kong was most directly concerned with the supply of broadcasting.
Customs contended that the tribunal should have found that CCUK was a fixed establishment of the taxpayer in the UK. Even if CCUK was a separate legal entity, that did not necessarily mean that it was not a fixed establishment of the taxpayer. Moreover, the tribunal ignored the important editorial functions of CCUK and the large number of staff in London compared to the number employed by the taxpayer in Hong Kong.
The taxpayer contended that in order to determine where a supplier "belonged" for the purposes of VAT within eu-directive 77/388 article 9art. 9 of the sixth VAT directive, it was necessary only to determine where the taxpayer established its business. If the business was established in Hong Kong, that would be the place of the supply of broadcasting services.
Held, dismissing Customs' appeal:
Whether the broadcasting services were provided by the taxpayer in Hong Kong was a matter of fact for the tribunal to determine. The tribunal found that the taxpayer had no fixed establishment in the UK and, in spite of CCUK's larger staff and facilities, the main contribution to the supply of broadcasting services, consisting of making contracts, arrangements for transmission and selecting programmes, was made by the taxpayer in Hong Kong. The primary facts supported the tribunal's conclusion that the services were supplied from Hong Kong. Therefore, assuming that the "fixed establishment test" was the appropriate test, the tribunal was entitled to hold that the broadcasting service was supplied from Hong Kong.
Per curiam: The issue whether it was appropriate to apply the fixed establishment test at all therefore did not arise. The cases decided by the Court of Justice indicated that it was for the taxing authorities in each member state to choose the most appropriate test unless the primary test of main establishment did not lead to a rational result or created conflict with other member states. That might raise the question whether the fixed establishment test as applied by Value Added Tax Act 1994 section 9s. 9 of the 1994 Act might lead to distortion of competition, create conflict between member states as to where the tax should be charged and constitute a derogation from the directive.
Moses J: This appeal from the VAT tribunal raises questions as to the place where a service is supplied. The respondent, Chinese Channel Ltd (Hong Kong) ("CCHK"), supplies a satellite broadcasting service to Chinese speakers in Europe, particularly in the UK. CCHK has its main place of business in Hong Kong. CCUK contribute office, editorial and production services from its offices in London. The question is, whether the tribunal was right to conclude that the service was supplied from Hong Kong or whether they erred in law in so concluding.
If I conclude that the tribunal was wrong, then this case also raises the question as to the appropriate test for the place where service is to be supplied under eu-directive 77/388 article 9art. 9 of the sixth VAT directive, the relevant legislation.eu-directive 77/388 article 9(1)Article 9(1) of the sixth VAT directive (Directive 77/388) states:
The place where a service is supplied shall be deemed to be the place where the supplier has established his business or has a fixed establishment from which the service is supplied or, in the absence of such a place of business or fixed establishment, the place where he has his permanent address or usually resides.
Value Added Tax Act 1994 section 9 subsec-or-para (1)Section 9(1) of the Value Added Tax Act 1994 states:
Subsection (2) below shall apply for determining, in relation to any supply of services, whether the supplier belongs in one country or another and subsections (3) and (4) below shall apply (subject to any provision made under section 8(6)) for determining, in relation to any supply of services, whether the recipient belongs in one country or another.
(2) The supplier of services shall be treated as belonging in a country if-
(a) he has there a business establishment or some other fixed establishment and no such establishment elsewhere; or
(b) he has no such establishment (there or elsewhere) but his usual place of residence is there; or
(c) he has such establishments both in that...
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