HM Revenue and Customs v IDT Card Services Ireland Ltd
| Jurisdiction | England & Wales |
| Judge | Lady Justice Arden,Lord Justice Latham,Lord Justice Pill |
| Judgment Date | 27 January 2006 |
| Neutral Citation | [2006] EWCA Civ 29 |
| Docket Number | Case No: C1/2005/0183 |
| Court | Court of Appeal (Civil Division) |
| Date | 27 January 2006 |
[2006] EWCA Civ 29
Lord Justice Pill
Lord Justice Latham and
Lady Justice Arden
Case No: C1/2005/0183
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
MR JUSTICE MOSES
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Nigel Pleming QC & Mr Paul Harris (instructed by Solicitor's Office, VAT & Duties Tribunal Division) for the Appellant
Mr K.P.E. Lasok QC & Miss Philippa Whipple (instructed by Messrs Deloitte & Touche LLP) for the Respondent
This appeal raises a point of novelty and difficulty about the interpretation of domestic implementing legislation in accordance with the purposes of the Sixth EC VAT Directive (77/338/EC) ("the Sixth Directive"). It arises from the order dated 21 December 2004 of Moses J (as he then was) whereby he allowed the claim of the respondent, which I will call ICSIL, for judicial review of the decision described below dated 13 and 14 July 2004 of the appellants, whom I shall call Customs & Excise.
The nature of the issue
The dispute between the parties arises out of the issue of phonecards and about whether value added tax ("VAT") should be charged in the United Kingdom on the supply of those cards where they are redeemed in another member state which does not adopt the same rule as the United Kingdom, namely that the supply of services on redemption and not the issue of the card should be subjected to VAT. If the redemption of the card is not subject to VAT in this situation, the supply of telecommunications service on the redemption of cards acquired in the United Kingdom is VAT-free. This situation may be uncommon. Member states of the European Union charge VAT on taxable supplies in accordance with uniform rules and this avoids the risk of double taxation or non-taxation of taxable supplies. Where, however, there is a prepayment for the service, member states can legitimately take different views as to whether to treat the issue of a voucher in exchange for a prepayment as the taxable supply, and when they do there is a potential for double taxation or non-taxation especially in the case of cross-border supplies.
The treatment of phonecards for VAT purposes varies as between the United Kingdom and the Republic of Ireland. Under Irish law, the rule in the Sixth Directive as to the place of supply is applied to the issue of phonecards and not to the provision of services on redemption. Accordingly, the consideration paid for phonecards is treated as a prepayment for telecommunication services. When phonecards are supplied to end-users for their private use, in Ireland or another member state, or to persons in Ireland for the purposes of their business ("traders"), they attract VAT on that supply in Ireland, but no VAT is payable in Ireland when they are supplied to traders outside Ireland. Correspondingly, no VAT is payable under Irish law when phonecards are redeemed and access is obtained to telecommunications services and this is so even if the telecommunications services are supplied in Ireland and the phonecards in question were supplied to the end-user by a retailer who is a trader established outside Ireland and who in turn receives his supply of phonecards from an issuer in Ireland. There is therefore the potential for the supply of services in that situation to be free of VAT. The question at the heart of the issue of interpretation on this appeal will resolve the question whether that is the position in the United Kingdom. The treatment for VAT purposes of the issue of phonecards in the United Kingdom is different from that in Ireland. In the present case the phonecard is a 'credit voucher', because the issuer of the voucher is not the person by whom the voucher is to be redeemed, the United Kingdom does not treat the sum paid for the issue of such vouchers as a prepayment for services. The supply of a phonecard is thus subject to VAT only when the end-user gains access to the telecommunications services and, following the decision of the judge in this case, the supplier fails to pay VAT which is levied in the United Kingdom. On that basis the question posed earlier in this paragraph (viz whether VAT is payable in the circumstances in the present case) is answered in the negative. This is because on the judge's ruling the United Kingdom cannot impose VAT on the intermediate supply of phonecards in the United Kingdom by reference to the non-imposition of VAT on the supply by Interdirect of services whose place of supply is Ireland. As I have explained, as a matter of Irish law, VAT is not imposed either on the issue of phonecards to distributors outside Ireland (because they are traders) or on the supply of telecommunications services obtained by the redemption of those phonecards. The supply of services on that issue and redemption are VAT-free. Hence this appeal.
It may seem surprising that there are different rules for the incidence of VAT in different member states given the history of the harmonisation of VAT. It would appear that when the harmonisation directives were adopted, of which the most notable is the Sixth Directive, the member states did not anticipate the problems that would arise from the issue of face value vouchers, that is vouchers issued representing a promise to provide goods or services on redemption to the value of the nominal amount of the voucher. Such vouchers could be issued in the first instance at a discount. In Argos Distribution Ltd v Customs & Excise [1996] STC 1359, the Court of Justice held that the consideration for the supply of goods by means of the voucher was the amount paid on issue and not the value of the goods or services for which it was redeemed. So goods supplied by Argos on the redemption of face value vouchers were treated as supplied not for the amount stated in the voucher but for the lower amount at which Argos had issued the voucher to an intermediary (often an employer who distributed the vouchers to his employees as a bonus). This produced some difficult policy options for Customs & Excise and their counterparts in other member states. To tax the voucher on the ultimate sale would risk the loss of tax where the voucher was issued at a discount. To tax the ultimate supply risked the complete loss of tax if the party making the supply did not account for the VAT (if any) due on that supply. To tax both the supply of the voucher and the ultimate supply risked double taxation. Member states might also take the view that the risks were different according to whether the vouchers were credit vouchers (see para 3 above) or other face value vouchers (which I will call "non-credit vouchers") and accordingly it was open to them to impose VAT on credit vouchers in a different way from the way VAT was imposed on non-credit vouchers. Member states took different approaches to the solution of these problems. Although there has been some expression of wish among the member states to harmonise the rules for charging VAT on the issue of face-value vouchers, as yet this harmonisation has not been achieved. This lack of coordination, however, need not create an insoluble problem for a harmonised system of turnover taxes within the European Union provided the systems adopted by the member states dovetail with each other, i.e. in the present case, if the supply of phonecards or telecommunications services is not subjected to VAT in Ireland, that intermediate supply of the relevant cards or services in the United Kingdom is subjected to VAT here. In other words, the coherence of the system can be maintained provided that, if tax is not paid on the issue of the voucher in one member state, it is paid on the supply of the voucher or on the services for which it is redeemed in another member state. The question then is whether this is what Community law requires.
The background
ICSIL, which is based in Ireland, issues "multi-functional" "cards. Its cards are issued to distributors in the United Kingdom and sold by them to members of the public in the United Kingdom. Purchasers of the cards can use them either to obtain sports information from a company based in the United Kingdom called Teamtalk.com Ltd ("Teamtalk") or to obtain telecommunications services from a company in Ireland called Interdirect Tel Ltd, ("Interdirect"). They do this by dialling specified access numbers and ten inserting the PIN (Personal Identification Number) shown on their card. ICSIL'S contention is that Interdirect is not liable to account for VAT in the United Kingdom. It accepts that Teamtalk must account for VAT because that is a company in the United Kingdom. ICSIL and Interdirect are part of the same group of companies and the parent company is IDT Corp., established in the USA. Teamtalk is an independent company, which provides its services for reward under an agreement between it and ICSIL. Crucially for the purposes of this appeal, Interdirect is not the issuer of the voucher and the voucher is therefore a credit voucher. In the post- Argos world, the United Kingdom took the policy option of imposing VAT on credit vouchers in a different way from the way VAT was imposed on non-credit vouchers (see schedule 10A below), and it is the different charging provisions for credit vouchers which have given rise to the problems to which this appeal is directed.
As a result of the judge's order, ICSIL were successful in its challenge by way of judicial review to the decision by Customs & Excise in its Business...
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