HM Revenue and Customs v Zurich Insurance Company
| Jurisdiction | England & Wales |
| Judge | Lord Justice Longmore,Lord Justice Lawrence Collins |
| Judgment Date | 15 March 2007 |
| Neutral Citation | [2007] EWCA Civ 218 |
| Date | 15 March 2007 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: C3/2006/1012/CHRVF |
[2007] EWCA Civ 218
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CHANCERY DIVISION
MR JUSTICE PARK
CH/2005/APP/0592
Royal Courts of Justice
Strand, London, WC2A 2LL
the Chancellor of the High Court
Lord Justice Longmore and
Lord Justice Lawrence Collins
Case No: C3/2006/1012/CHRVF
Mr Nigel Pleming QC and Mr Adam Robb (instructed by HM Revenue & Customs) for the Respondents
Mr Kevin Prosser QC, Ms Penny Hamilton and Mr Richard Vallat (instructed by Zurich Insurance Services) for the Appellants
Hearing dates : 28th February and 1st March 2007
The Chancellor:
Introduction
The appellant, Zurich Insurance Company (“ZIC”), is an insurance company established under the laws of Switzerland and having its head office there. It also has local branches established in many countries in the world, including the United Kingdom, but not, at least in the United Kingdom, as separate bodies corporate. I shall refer to the Head Office and the United Kingdom branch as “HO” and “UK” respectively. ZIC was concerned to introduce into its world-wide business a new financial accounting and reporting system (“the SAP-WW Programme”). This involved the installation of software called SAP and a particular configuration or template called Z-Core. For the purposes of such installation ZIC required the services of consultants. Accordingly it entered into a framework agreement, with effect from November 1997, with Price Waterhouse Management Consultants AG (“PwCAG”), a company registered in Switzerland, to provide those consultancy services.
The services of PwCAG for the purposes of the installation at the premises of UK were supplied pursuant to a series of work orders dated 27th and 28th August 1999. The relevant work was carried out at the premises of UK between January 1999 and August 2000. The consultancy services were supplied by PwCUK as the sub-contractor of PwCAG. The cost was invoiced by PwCUK to PwCAG, by PwCAG to Zurich Leben for HO and by HO to UK.
On 6th November 2002 the respondent, Her Majesty's Commissioners for Revenue and Customs (“HMRC”), assessed ZIC to VAT at the standard rate on the supplies of services by PwCAG to ZIC under work orders 2 to 10 (both inclusive) in the sum of £2,085,153 on the footing that the place of such supply was the United Kingdom. The validity of that assessment depends on the proper interpretation and application of Article 9(2)(e) Sixth Council Directive on the harmonisation of the laws of Member States relating to turnover taxes (77/388/EEC) (“the Sixth Directive”). That article provides:
“the place where [services of consultants] are supplied when performed for customers established outside the Community…, shall be the place where the customer has established his business or has a fixed establishment to which the service is supplied or, in the absence of such a place, the place where he has his permanent address or usually resides.”
On 30th June 2005 the VAT and Duties Tribunal (Dr John Avery-Jones and Mr Cyril Shaw) set aside the assessment. For the reasons given in their decision of that date they considered that the place of supply was Zurich. HMRC appealed to the High Court, as permitted by s.11 Tribunals and Enquiries Act 1992. Park J, by whom the appeal was heard in February 2006, disagreed with the Tribunal. For the reasons given in his judgment handed down on 23rd March 2006 he considered that the place of supply was the United Kingdom. Accordingly he set aside the order of the Tribunal. This is the appeal of ZIC from the order of Park J.
The contentions of ZIC may be shortly summarised. ZIC points out that the right to appeal from the Tribunal to the High Court under s.11 Tribunals and Enquiries Act 1992 is conferred on a party “dissatisfied in point of law”. ZIC submits that Park J did not respect the limitation of the right of appeal to points of law but substituted his own findings of fact for those of the Tribunal and applied the provisions of Article 9(2)(e) to his findings rather than to theirs. ZIC submits that the Tribunal made no error of law and their decision should have been allowed to stand. Accordingly there are three issues for our determination: (1) whether Park J wrongly substituted his own view of the facts for that of the Tribunal, (2) whether the Tribunal erred in law so as to entitle Park J to reconsider their conclusion and (3) whether the conclusion of Park J is correct in point of law.
The Findings and Conclusions of the Tribunal
In those circumstances the starting point for the consideration of ZIC's submissions must be the findings of fact made by the Tribunal. By their notice of appeal dated 5th December 2002 ZIC claimed that the place of supply of the services of PwCAG was Switzerland. Their grounds of appeal were further particularised on 12th January 2004 to submit that in the light of the decision of the ECJ in Berkholz v Finanzamt Hamburg-Mitte-Allstadt [1985] ECR 2251 (“Berkholz”), as applicable to questions arising under Article 9(2)(e), the place of supply was Switzerland because that is where the business of ZIC was established and a decision to that effect would not lead to an irrational result. The appeal of ZIC was supported by witness statements of Mr Bottome, the SAP-WW Programme manager between 1st January 1999 and 31st December 2000, Ms Stringer, the Project Director for both the five projects into which SAP-WW Programme was divided and the first of them which dealt specifically with UK Non-Life and Group Services and Mr Warner who had been the VAT manager of ZIC until his retirement in October 1999. Each of them produced voluminous exhibits, amounting in all to 7 lever arch files, and gave oral evidence to the Tribunal. No further evidence was adduced in behalf of HMRC. The appeal occupied the time of the Tribunal from 16th to 19th May 2005. The Tribunal's decision was released on 30th June 2006.
In paragraphs 1 to 4 the Tribunal set out the issue they had to determine and other preliminary matters. Paragraph 5 contains the Tribunal's findings of fact. It is divided into sub-paragraphs (1) to (23). In sub-paragraph (1) the Tribunal records that it was common ground that Zurich is the place where ZIC had established its business and the UK is a place where it has a fixed establishment, in each case, for the purposes of Article 9(2)(e).
In sub-paragraphs (2) to (4) the Tribunal set out the nature of the SAP project generally. I should quote parts of them for the explanations they provide. Thus in sub-paragraph (2) the Tribunal explained what SAP was, namely:
“…a set of software tools used by many international businesses to keep business records, prepare accounts, monitor budgets, control costs and handle many other business process needs. Certain core modules were made compulsory throughout the Group. These are known as FI/CO [FI for financial records (comprising general ledger, accounts payable, accounts receivable, fixed assets and special ledger; CO for controlling (which tracks costs and works out profits for management reporting purposes, and comprises costs centre accounting, internal orders and profitability analysis)]. The output from SAP provided management reporting, regulatory reporting (such as insurance company regulation, direct tax and VAT) in sterling and based on UK GAAP [Generally Accepted Accounting Principles] for Zurich (UK), local reporting based on IAS [International Accounting Standards], and also information required by Zurich (HO) for Group reporting in other currencies and based on IAS with an addition for insurance company reporting known as NewZAP. Consolidation worldwide was performed by the output from SAP being passed through another system, Cormis.”
In sub-paragraph (4) they explained Z-Core in the following terms:
“Consistent management information requires common definitions of such things as premiums which is achieved by the use of modules common throughout the group. A standard template, known as Z-Core, was developed in Switzerland for this purpose. The framework agreement (see para 5(6) below) explained it as “…a set of definitions and rules in order to allow the required central consolidation, visibility and overall benefits to be achieved.” The SAP “starter kit” prepared for staff stated: “Z-Core is a SAP design that is intended to deliver group financial and management accounting reports prepared on a consistent basis, from individual business units to the group whilst retaining maximum flexibility for individual business units to add additional local configuration to meet their own local requirements.” Z-Core was the starting point for local implementation and enabled local units efficiently to configure their own SAP systems. Preparation of Z-Core was one of the most costly elements of the entire project.”
As the Tribunal recorded in sub-paragraph (3) the world-wide requirement for software was to be supplied by SAP and the hardware by IBM, in each case pursuant to contracts concluded in Switzerland. In sub-paragraphs (5) to (7) the Tribunal considered the world-wide implementation of the SAP-WW Project in 70 business units in 50 countries over a period of 2.5 years starting in October 1997. They described the chain of supervisory committees based in Switzerland ultimately responsible to the Executive Board of ZIC and the engagement of PwCAG. In respect of the services of PwCAG the Tribunal recorded that PwCAG had been engaged as consultants to the worldwide project under a framework agreement effective from 24 November 1997 (when they...
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