HM Revenue and Customs v Isle of Wight Council and Others (Case C-288/07)
| Jurisdiction | England & Wales |
| Judge | THE HONOURABLE MR JUSTICE RIMER |
| Judgment Date | 11 March 2009 |
| Neutral Citation | [2009] EWHC 592 (Ch),[2007] EWHC 219 (Ch) |
| Docket Number | CH/2006/APP/0202,Case No: CH/2006/APP/0202 |
| Court | Chancery Division |
| Date | 11 March 2009 |
[2007] EWHC 219 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
ON APPEAL FROM THE
VAT AND DUTIES TRIBUNAL
Royal Courts of Justice
Strand, London, WC2A 2LL
the Honourable Mr Justice Rimer
Case No: CH/2006/APP/0202
Mr Christopher Vajda QC, Mr Paul Harris and Mr Ben Rayment (instructed by The Solicitor for the Commissioners) for the Appellants
Mr Julian Ghosh QC and Mr James Henderson (instructed by Rowel Genn) for the Respondents
Hearing dates: 27, 28 and 29 November 2006
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
MR JUSTICE RIMER:
Introduction
In paragraph 72 of its judgment in Halifax plc and Others v. Commissioners of Customs and Excise, Case C-255/02, 21 February 2006, the Court of Justice of the European Communities (“the ECJ”) observed as follows:
“… as the Court has held on numerous occasions, Community legislation must be certain and its application foreseeable by those subject to it (see, in particular, Case C-301/97 Netherlands v. Council [2001] ECR 1–8853, paragraph 43). That requirement of legal certainty must be observed all the more strictly in the case of rules liable to entail financial consequences, in order that those concerned may know precisely the extent of the obligations which they impose on them. ( Case 326/85 Netherlands v. Commission [1987] ECR 5091, paragraph 24, and Case C-17/01 Sudholz [2004] ECR 1–4243, paragraph 34).”
The wisdom of that observation is perhaps obvious, and so it is unfortunate that the ECJ has found it necessary to keep re-affirming it. The present appeal, against a decision dated 23 January 2006 of the VAT and Duties Tribunal (Stephen Oliver QC, Chairman, and Kenneth Goddard MBE), turns on certain provisions of a Community tax directive whose formulation appears to have eschewed any attempt to achieve foreseeable certainty. It is not surprising that it has led to the four cases under appeal.
The relevant provisions are the first two sub-paragraphs of article 4.5 of the Sixth Council Directive of 17 May 1977 (77/388/EEC), a directive aimed at harmonising the system of value added tax (“VAT”) and achieving a uniform basis of assessment. Article 4.5 is in a provision dealing with the identification of “Taxable Persons” for VAT purposes. The first sub-paragraph exempts certain public authorities (including local authorities) from the status of taxable persons in respect of certain activities in which they engage as such; and the second sub-paragraph cancels that exemption if its conferring “would lead to significant distortions of competition.” Absent agreement, it is inherent in the directive that a public authority's liability to account for VAT on its revenue from relevant activities will depend upon the outcome of an inquiry into the economic consequences of the conferring upon it of an exemption.
The appeal arises from the provision by four local authorities of off-street car-parking facilities. The private sector also provides like facilities. There is, therefore, the potential for competition between the public and private sectors; and, if the public sector is exempt from VAT on its car-parking revenue, it has the opportunity to undercut the private sector. Of course a local authority's provision of any such facilities will be within its own area, so that it is obvious that the market affected (if at all) by its exemption from VAT will be a local one falling within that area or at least not ranging materially beyond it. Consistently with that, the tribunal held that the economic investigation that the second sub-paragraph of article 4.5 intends is a local one. It conducted such an investigation in relation to each of the four local authorities and concluded in each case that their exemption from taxable status would not lead to significant distortions of competition. The result was that all were exempted from having to account for VAT on their off-street car-parking revenue.
By this appeal the Commissioners challenge the correctness of those decisions. Their main point is that the tribunal was in error in conducting an investigation of the impact of any tax exemption on the particular market in which each local authority was respectively operating. Their submission is that article 4.5 does not intend any “real world” investigation of that sort. They say that what it intends is a nationwide investigation extending across the United Kingdom directed at identifying an overall picture as to the impact upon the private sector generally of the exemption of local authorities generally from taxation in respect of off-street car-parking. If the outcome is that such exemption would lead to significant distortions of competition generally, then it is said to follow that every local authority providing off-street car-parking will be a taxable person even if it is plain in the case of any particular authority that its exemption from VAT would not significantly distort competition in the local market in which it is providing such facilities.
If the Commissioners are right on that, the appeal must be allowed since it would follow that the tribunal had misdirected itself as to the nature of the required investigation. The Commissioners also submit that the tribunal misdirected itself in its approach to the question of whether the non-taxable status of the local authorities “would lead to” significant distortion of competition. Their submission is that the Community learning shows that the quoted words mean “could lead to”, a phrase whose true sense is that “there is a real risk that etc”. That is a question of importance to the application of article 4.5 since, if the Commissioners are right, it probably means that a public authority's scope for avoiding classification as a taxable person is more limited than if the words of the directive are interpreted as meaning what they might appear to be saying; and the Commissioners say that in the present case the tribunal did not apply the right test. They further say that the tribunal misdirected itself in its interpretation of “significant distortions of competition”. Finally, if they are wrong in their criticisms of the tribunal's directions on the law, they complain that its fact-finding was in material respects either perverse or at least insufficiently reasoned for them to understand why they had lost.
Having considered the parties' submissions, I have decided against attempting to rule at this stage on the outcome of the Commissioners' appeal. As to the point on the nature of the economic investigation, Mr Christopher Vajda QC, for the Commissioners, satisfied me that it raises a question of general importance that only the ECJ can answer; and I am satisfied that the other two points raise like questions. Without answers to these questions, I regard it as impossible to embark on a reasoned assessment of whether the tribunal's decision was in any respect wanting. I propose to refer these questions to the ECJ. I should explain how I have arrived at that decision.
The directive
Article 2 (in Title II, headed “Scope”) provides:
“The following shall be subject to value added tax:
1. the supply of goods or services effected for consideration within the territory of the country by a taxable person acting as such;
2. the importation of goods.”
Article 4 (in Title IV, headed “Taxable Persons”) provides, so far as material:
“1. 'Taxable person' shall mean any person who independently carries out in any place any economic activity specified in paragraph 2, whatever the purpose or results of that activity.
2. The economic activities referred to in paragraph 1 shall comprise all activities of producers, traders and persons supplying services including mining and agricultural activities and activities of the professions. The exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis shall also be considered an economic activity. …
5. (1) States, regional and local government authorities and other bodies governed by public law shall not be considered taxable persons in respect of the activities or transactions in which they engage as public authorities, even where they collect dues, fees, contributions or payments in connection with these activities or transactions.
(2) However, when they engage in such activities or transactions, they shall be considered taxable persons in respect of these activities or transactions where treatment as non-taxable persons would lead to significant distortions of competition.
(3) In any case, these bodies shall be considered taxable persons in relation to the activities listed in Annex D, provided they are not carried out on such a small scale as to be negligible.
(4) Member States may consider activities of these bodies which are exempt under Article 13 or 28 as activities which they engage in as public authorities.”
The directive does not in fact number the four sub-paragraphs of article 4.5 but I have done so for ease of subsequent reference. As regards the “would” in article 4.5(2), the material before me suggests that the French, Danish, Italian, Dutch, German and Swedish versions may or do also support a “would” interpretation, whereas the Portuguese and Spanish versions may or do instead support a “could” interpretation. Annex D, referred to in article 4.5(3), lists 12 categories of activities, which do not include off-street parking.
Background
Historically, local authorities in the...
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