Harley-Davidson Europe Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 14 December 2017 |
| Neutral Citation | [2017] UKFTT 873 (TC) |
| Date | 14 December 2017 |
| Court | First Tier Tribunal (Tax Chamber) |
[2017] UKFTT 873 (TC)
Judge Sarah Falk
Andrew Hitchmough QC and Edward Waldegrave, instructed by RSM UK Tax and Accounting Limited, appeared for the appellant
Raymond Hill, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
Value added tax – Single or multiple supplies – Whether subscriptions paid by members of the Harley Owners Group are consideration for a supply of membership or for multiple supplies comprised of the individual benefits conferred – Held – Multiple, not single, supplies.
The First-tier Tribunal (FTT) allowed an appeal by Harley-Davidson Europe Ltd (HDE) that subscriptions by members were not single standard-rated supplies but multiple supplies.
HDE, a subsidiary of the well known motorcycle producer Harley-Davidson Inc in the U.S, includes the Harley-Davidson Owners Group (HOG) within its business activities. HDE accounted for Value added tax (VAT) on HOG subscriptions until recently when it submitted a claim for overpaid VAT as per VATA 1994, s. 80 on members based outside the EU which HMRC paid. HDE then submitted a further claim for EU member subscriptions which was refused and furthermore HMRC sought repayment of the first s. 80 claim having been paid in error.
The parties agreed that the matter before the FTT was whether in principle membership subscriptions formed a single supply of membership services with various ancillary services, or multiple supplies.
HOG membership benefits included, a quarterly magazine, patches and pins, a touring map, access to a members website plus various other items including discounts and access to events. New owners were automatically enrolled free for the first year. There was no reduced membership, for example by foregoing certain benefits. Associate membership was available for “pillion riders” sponsored by a member. The FTT accepted evidence by HDE that membership benefits were viewed as distinct tangible components with particular value placed on the magazine, patches and pins, touring map, membership card and guide, concluding that ownership of a Harley-Davidson motorcycle linked members to each other rather than simply HOG membership.
The FTT outlined the principles established by the leading case of Card Protection Plan v C & E Commrs (Case C-349/96) [1999] BVC 155 (CPP) with every supply being distinct and elements being ancillary and a better way of enjoying the principal supply. CPP also looked at artificiality where elements form a single indivisible economic supply, see also Levob Verzekeringen BV v Staatssecretaris van Financiën (Case C-41/04) [2007] BVC 155 (Levob). The FTT referred to R & C Commrs v Honourable Society of Middle Temple [2013] BVC 1,690 (Middle Temple) in which the Upper Tribunal (UT) set out a detailed analysis plus various case law including a recent case Stock '94 Szolgáltató Zrt v Nemzeti Adó- és Vámhivatal Dél-dunántúli Regionális Adó Főigazgatósága (Case C-208/15) [2016] BVC 45. (Stock 94).
HMRC saw a single principal supply of membership services with various benefits as ancillary reflected in a single price, see Tumble Tots (UK) Ltd v R & C Commrs [2007] BVC 179 (Tumble Tots). It was irrelevant that HOG members valued certain benefits more than others. HOG membership was the “key to the door” of the iconic Harley-Davidson brand including accessing other like-minded owners and inter-acting within the community. In addition following Levob if any components of membership were found to be distinct they were still part of a single supply. In the alternative there were a number of principal standard-rated elements, see College of Estate Management v C & E Commrs [2005] BVC 704 (COEM). The appellant HDE maintained there were several distinct independent supplies that formed the membership package and each required individual analysis to establish the VAT treatment, see C & E Commrs v Automobile Association (1974) 1 BVC 8 (AA).
The FTT in dismissing HMRC's case preferred Bophuthatswana National Commercial Corporation Ltd v C & E Commrs [1993] BVC 194 where Nolan LJ had said it was necessary to analyse the individual supplies to see if they were incidental or ancillary and that a blanket label could not be attached to a bundle of services simply to show a single supply took place. In Tumble Tots membership was essential to parents gaining access to classes for their children and other benefits were clearly ancillary, here evidence showed that HOG members valued the benefits available as opposed to just the status of association with the Harley-Davidson brand, see para. 103 of the decision. The meaning of ancillary that benefits were subservient, subordinate and ministering to something else, was set out by Ward LJ and approved by Lord Walker in COEM, which was not the case here, see para. 105. Individual elements were capable of being enjoyed separately and were not indivisible or incapable of being artificially split as in Levob, see para. 110. Finally a single price was relevant and in HMRC's favour but it was not sufficient to change the outcome. see para. 111. The appeal was therefore allowed.
HDE will presumably now seek to lay value on the zero-rated magazine which in evidence appeared to be a popular benefit. It remains to be seen whether HMRC will appeal this decision seeking to challenge the emphasis of the FTT on tangible benefits as opposed to the singular value of membership within the Harley-Davidson community.
[1] The appellant (“HDE”) is a UK subsidiary of Harley-Davidson, Inc., a US corporation which is the holding company of the Harley-Davidson group. Harley-Davidson is a well-known US motorcycle manufacturer. HDE sells new Harley-Davidson motorcycles in Europe through a network of distributors and dealers.
[2] These appeals relate to the Harley Owners Group (“HOG”). HOG is not a distinct legal entity, club or society in the conventional sense. Instead, HOG's activities in Europe, Middle East and Africa (“EMEA”) are run as a business unit of HDE. Other companies within the Harley Davidson group operate HOG in other parts of the world.
[3] As described further below, owners of Harley-Davidson motorcycles and individuals sponsored by them may subscribe to HOG. They are generally referred to as “members” of HOG and I will use that expression in this decision.
[4] These appeals relate to the VAT treatment of supplies made by HDE to members of HOG in consideration for membership subscriptions. HMRC's position is that HDE makes a single standard rated supply of membership, and that the range of benefits provided are the means by which the members enjoy, or better enjoy, that membership. HDE's position is that it makes a number of distinct supplies to each member, the tax treatment of each of which must be determined separately.
[5] The difference is potentially significant. Under HMRC's approach VAT is chargeable at the standard rate on all membership subscriptions, whether paid by members in or outside the EU. HDE contends that no VAT is chargeable on subscriptions by non-EU members, on the basis that those supplies should be treated as zero rated supplies of goods and/or supplies of services that are outside the scope of VAT (with a right of recovery of input tax). For EU members HDE claims that a substantial proportion of the fee should be regarded as being paid for zero rated supplies, in the form of printed matter, with the remainder being consideration for standard rated supplies.
[6] There are two appeals before the Tribunal. The first (appeal number TC/2015/06826) relates to supplies made by HDE to members of HOG who are based in the EU. The second (appeal number TC/2016/02833) relates to supplies made by HDE to members of HOG who are based outside the EU.
[7] The parties have agreed that this decision should be a decision in principle only, and that the only question I should decide is whether there is a single supply on the basis that HMRC contend or multiple supplies. Accordingly, any question of allocation of consideration between different supplies does not arise at this stage, and nor does the question of how any single supply should be taxed. The parties also framed their arguments before me largely on the basis that the sole issue to determine is whether there is a single supply on HMRC's approach, namely on the grounds that the supply of membership constitutes the “principal” service and other elements are “ancillary”, rather than on any other basis.
[8] Historically, HDE accounted for VAT on all its memberships subscriptions, both in respect of members located in the UK and those elsewhere in the EU and the rest of EMEA. In January 2014 HDE made a claim to HMRC under s 80 Value Added Tax Act 1994 (“VATA”) for overpaid output tax in respect of membership fees paid by non-EU members of HOG, on the basis that it makes multiple supplies which are not chargeable to VAT, rather than single standard rated supplies. This claim was for about £330,000, and covered the period from 1 January 2010 to 31 December 2013. HMRC agreed to this claim in May 2014.
[9] In January 2015 HDE made a further claim, this time that it had overpaid output tax of around £540,000 in respect of membership fees paid by EU members of HOG during the period 1 January 2011 to 30 November 2014, again on the basis that it had made multiple rather than single supplies, and on the basis that the supply of printed matter should be zero rated. This claim was refused and HMRC's decision was confirmed following a review. HDE appealed to the Tribunal in November 2015.
[10] In February 2016 HMRC informed HDE that in their view the VAT repaid in respect of non-EU members should not have been repaid. An assessment was issued in respect of this VAT in April 2016, which led to the second appeal to the Tribunal in May 2016. The two appeals were subsequently...
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...me to be an application of the principles discussed at paragraph 45. [49] Mr Grodzinski also referred me to Harley-Davidson Europe Ltd [2018] TC 06268 where the question was whether members of the Harleys Owners Group paid their subscriptions for a single supply of membership, or a mixed su......