The Commissioners For Hm Revenue And Customs V. Empowerment Enterprises Ltd
| Jurisdiction | Scotland |
| Judge | Lord Macfadyen,Lord Abernethy,Lord Marnoch |
| Judgment Date | 11 October 2006 |
| Neutral Citation | [2006] CSIH 46 |
| Court | Court of Session |
| Published date | 11 October 2006 |
| Date | 11 October 2006 |
| Docket Number | XA30/05 |
| EXTRA DIVISION, INNER HOUSE, COURT OF SESSION [2006] CSIH 46 XA30/05 | |
| Lord Macfadyen Lord Abernethy Lord Marnoch | OPINION OF THE COURT delivered by LORD MACFADYEN in APPEAL under section 11 of the Tribunals and Inquiries Act 1992 by THE COMMISSIONERS FOR HER MAJESTY'S REVENUE AND CUSTOMS Appellants; against EMPOWERMENT ENTERPRISES LIMITED Respondents: in respect of a decision of the Edinburgh VAT and Duties Tribunal dated 19 January 2005 and communicated to the appellants on 22 February 2005 _______ |
Act: Young; Shepherd & Wedderburn
Alt: Ghosh; Burness LLP
11 October 2006.
Introduction[1] The issue in this appeal is whether Value Added Tax (VAT) is chargeable on tuition provided by the respondents to students, where the tuition is carried out by teachers who are employees of the respondents. In the circumstances which we shall explain, that turns on the proper construction, not of the domestic legislation (the Value Added Tax Act 1994, schedule 9, group 6, item 2) but of the Directive 77/388/EEC (the Sixth Directive) Article 13A.1(j). The Commissioners of Customs and Excise decided that VAT was chargeable on the tuition in question and issued an assessment. The respondents appealed against the decision and the assessment, and the Edinburgh VAT and Duties Tribunal (the Tribunal) allowed the appeal. The Commissioners of Revenue and Customs (the Commissioners) have in turn appealed to this Court.
The facts
[2] The parties presented to the Tribunal a Statement of Agreed Facts, which is set out at pages 3 to 6 of the Tribunal's decision. For present purposes it is sufficient to record only certain facts drawn from that Statement.
[3] The respondents, Empowerment Enterprises Limited, are a company incorporated under the Companies Acts, which was incorporated in about October 2002. The respondent company is, and has been since 1 February 2003, registered for VAT purposes. It has since that date traded as the Upledger Institute, and is engaged in the provision of training courses in Craniosacral Therapy.
[4] Prior to 1 February 2003 Mr John Page, who is a director of the respondent company, was registered for VAT purposes as a sole trader. He had been so registered since 1 June 1994. During that period he carried on a business of the same nature under the same trading name.
[5] The following details about the way in which the respondents operate are agreed.
(i) Mr Page is a director and employee of the respondent company.
(ii) There is no written agreement between Mr Page and the respondent company.
(iii) Mr Page is the only permanent member of the teaching staff of the respondent company.
(iv) Occasionally additional teaching staff are required to provide tuition, and are engaged as employees of the respondent company to do so.
(v) The tuition supplied by the respondent company is provided by Mr Page and other members of the teaching staff.
(vi) Students who receive tuition are invoiced by the respondent company.
(vii) Mr Page does not invoice the respondent company.
(viii) Payments made by students in settlement of the respondent company's invoices are deposited in the respondent company's bank account, and the money is treated as income of the respondent company.
(ix) All overheads and running costs are incurred by the respondent company and recorded through its books and records.
The domestic legislation
[6] Section 31 of the Value Added Tax Act 1994 provides inter alia that:
"(1) A supply of goods or services is an exempt supply if it is of a description for the time being specified in Schedule 9 ...".
Schedule 9, group 6, item 2 is in the following terms:
"The supply of private tuition, in a subject ordinarily taught in a school or university, by an individual teacher acting independently of an employer."
[7] It is common ground that, if the matter fell to be judged by the application of the domestic legislation, the tuition supplied by the respondent company through Mr Page and other teachers employed by the company would not constitute an exempt supply, because he and they are not "acting independently of an employer".
The Sixth Directive
[8] The respondent company maintains, however, (1) that the domestic legislation does not accurately transpose the corresponding provision of the Sixth Directive, namely Article 13A.1(j), and (2) that on a proper construction of that provision of the Directive the tuition supplied by it is an exempt supply. The Commissioners dispute those propositions, but do not dispute that, if the respondents are right on those matters, the Directive has direct effect, and the tuition in question is therefore an exempt supply.
[9] Article 13A of the Sixth Directive is headed "Exemptions for certain activities in the public interest." Paragraph 1 then begins:
"Without prejudice to other Community provisions, Member States shall exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of such exemptions and of preventing any possible evasion, avoidance or abuse".
There then follow a number of sub-paragraphs describing exempt activities. The one which is of direct relevance to the present case is sub-paragraph (j), which is in the following terms:
"tuition given privately by teachers and covering school or university education".
[10] It is not suggested that there is any difference in meaning between the phrase "in a subject ordinarily taught in a school or university" in Schedule 9, group 6, item 2, and the phrase "and covering school or university education" in Article 13A.1(j). It is common ground that the tuition in question in this appeal falls into that category. The issue in the appeal is therefore confined to the proper construction of the phrase "tuition given privately by teachers".
Submissions for the appellants
[11] For the Commissioners, as appellants before this court, it was submitted that, although there was no jurisprudence of the European Court of Justice (ECJ) on the meaning of Article 13A.1(j), there was guidance on the proper approach to the construction of Community provisions in general, and exemptions in particular. First, it was settled law that the wording used in one language version of a Community provision cannot serve as the sole basis for the interpretation of that provision, or be made to override the other language versions in that regard; in the event of divergence between versions the provision in question must be interpreted by reference to the purpose and general scheme of the rules of which it forms part (Institute of the Motor Industry v Customs and Excise Commissioners [1998] STC 1219 at paragraph 16). Secondly, exemptions fall to be construed strictly, since they form exceptions to the general principle that turnover tax is levied on all services supplied for consideration by a taxable person (Institute of the Motor Industry, paragraph 17; Gregg v Commissioners of Customs and Excise [1999] STC 934 at paragraph 12; Hoffmann [2004] STC 740, per Advocate General at paragraph 28). The concepts used in Article 13 are independent concepts of Community law designed to promote harmonisation; however, they provide exemption not for every activity performed in the public interest but only for those listed and described in great detail in the Article, mostly for organisations whose activities are directed to non-commercial purposes (Hoffmann, paragraph 30).
[12] Turning to the wording of sub-paragraph (j), counsel for the Commissioners submitted that it was the most restrictively expressed exemption contained in Article 13A. It was concerned with "tuition", which had to be given "by teachers" and "privately". It thus defined by whom the tuition must be given, and how it must be given, to fall within the scope of the exemption. Unlike some other sub-paragraphs (e.g. (c)), sub-paragraph (j) conferred no discretion on the Member State as to how the scope of the exemption was to be defined. Unlike certain other sub-paragraphs (e.g. (m) and (q)), it was not confined to non-profit-making or non-commercial entities. Comparison with sub-paragraph (i) was instructive. That paragraph also dealt with education, indeed was the main education exemption. It was of broader scope, encompassing education other than education of the same sort as school or university education. It covered education provided by public law bodies, and also education provided by other organisations defined by the Member State as having similar objects. The power conferred by Article 13A.2(a) on Member States in granting exemption to non-public law bodies to impose conditions prohibiting the making of profit, the distortion of competition and the like applied to the sub-paragraph (i) exemption, but not to the sub-paragraph (j) exemption.
[13] Counsel submitted that there were three possible views of the content of the word "privately" in sub-paragraph (j). First, it might be intended to contrast the tuition to which the exemption applied with tuition supplied in the public sector. Secondly, it might be intended to denote tuition given by means of direct contact between the student and the teacher, in contrast with distance learning. That had been the meaning accepted by the Tribunal (decision, page 13). Thirdly, it might be intended to connote that the tuition was given by the teacher in a personal capacity, and not on behalf of any other body or organisation.
[14] Counsel submitted that the first possibility should be rejected. It had a superficial attraction. Public sector bodies were specifically mentioned in sub-paragraph (i). But, sub-paragraph (i) also covered private sector bodies in so far as the Member State exercised its discretion to include them. It would be odd if sub-paragraph (j) then exempted all private sector tuition (in the restricted school/university category) without reference to the exercise of any discretion by the Member State. It would also be odd if...
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