Hotels4u.com Ltd

JurisdictionUK Non-devolved
Judgment Date24 October 2016
Neutral Citation[2016] UKFTT 718 (TC)
Date24 October 2016
CourtFirst Tier Tribunal (Tax Chamber)
[2016] UKFTT 0718 (TC)

Judge Marilyn Mckeever

Hotels4u.com Ltd

Ms Valentina Sloane, instructed by Deloitte LLP, appeared for the appellant

Ms Eleni Mitrophanous, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents

Value added tax – Tours Operators' Margin Scheme – Hotels and other services provided to travellers through website – Whether hotel/transfers provided by company operating website as disclosed agent for hotelier/transfer provider or as principal – Whether VAT should be accounted for in UK.

The First-tier Tribunal (FTT) considered the single question of whether the appellant was acting as principal or as agent in respect of supplies to travellers of hotel accommodation and other services. The FTT followed the ruling of the Supreme Court in R & C Commrs v Secret Hotels2 Ltd (formerly Med Hotels Ltd) VAT[2014] BVC 9 in finding that the appellant acted as agent in respect of standard contracts, but it was not satisfied that the company had discharged the burden of proving agency status in respect of missing contracts and those governed by foreign law. The appeal was allowed subject to these exclusions.

Summary

Despite the complexity of the underlying issues, the simple question for the FTT in these consolidated appeals was whether the appellant, Hotels4U.com Ltd (H4U), was supplying its services to travellers as the agent of a disclosed principal or, as HMRC contended, as the principal. If the appellant was correct, its supplies would not be liable for VAT in the UK, but if HMRC were correct, H4U should be accounting for VAT in the UK in accordance with the Tour Operator's Margin Scheme (TOMS). The FTT was aware that the principle in issue had already been considered in the case of Secret Hotels2 Ltd (the SH2 case). That company had been sold to H4U and so was involved in both the SH2 case and the present appeal, but in relation to different accounting periods.

The TOMS applies where a travel agent acting as principal, acquires travel services from another taxable person and supplies those services to travellers. The place of supply is the EU member state in which the travel agent has its business. VAT is to be charged only on the travel agent's margin, that is the difference between the amount it pays for the services and the amount it charges travellers. However, the TOMS does not apply where the travel agent does not act as principal but as a disclosed agent. In this case, VAT is chargeable by the hotelier, or other supplier of travel services, in the member state where the provider operates and the agent is not liable for VAT on the travel services as it is not making the supply. It was accepted by the Supreme Court in the SH2 case that the TOMS has the same effect as art. 306 to 310 of EC Directive 2006/112, the 2006 VAT directive, so that if the FTT were to find that H4U had provided hotels, transfers and other services to its customers as a disclosed agent, it would not be liable for VAT and its appeal must be allowed.

H4U contended that its case was indistinguishable from the SH2 case and must, therefore, succeed. At the time of the hearing, there were several ongoing unrelated appeals before the tribunal where the appellants were arguing that their facts were identical to those in SH2. HMRC was seeking a reference to the European Court of Justice (ECJ) for clarification of the meaning of “intermediary” in art. 306 of the 2006 VAT directive. However, the FTT in this appeal would consider only the categorisation of the appellant as disclosed agent or as principal under English law and would not consider the further issue of whether the appellant was acting “solely as an intermediary”.

The FTT heard details of the appellant's business, which was described as a shop window for hotels and apartments in various countries. H4U entered into contracts with suppliers of hotel rooms and displayed details of the accommodation on its website. Travellers booking rooms were sent accommodation vouchers to be presented to the hotel or other provider on arrival. Where bookings were made through a travel agent, the same terms and conditions applied to the traveller. There were, accordingly, two sides to the arrangement: the contract between the hotel and H4U (the buy side) and the contract between H4U and the traveller or travel agent (the sell side).

It was not practicable for the FTT to examine all of H4U's individual contracts pertinent to the appeal, which numbered tens of thousands. It, therefore, considered the standard form agreements with hotels and samples of other contracts falling into various categories. The FTT concluded that, in respect of the signed and unsigned standard allocation contracts and the unsigned standard allotment contracts, H4U acted as the disclosed agent of the hotel or accommodation provider. The contracts for the provision of accommodation were between the hotelier, as principal, and the guest. In the case of missing contracts, the FTT considered that H4U had not discharged the burden of proving agency, although they considered it possible for the company to establish agency where available contracts could be produced on similar terms.

The FTT was unable to make a decision on contracts governed by foreign law. H4U did not provide any evidence as to foreign law and so, in these cases, had failed to discharge the burden of proof. Non-standard contracts where H4U was not explicitly appointed as agent had to be construed according to their individual terms and in accordance with their governing law, which was foreign law in any event. Of the other contracts, the FTT considered “bedbanks”, where H4U entered into contracts under which the bedbank would pass available rooms to H4U at an agreed price and it, in turn, would makes those rooms available to travellers via its own website. The FTT held that bedbank contracts were capable of appointing H4U as agent and that those governed by English law did, in fact, do so. The remaining contracts governed by foreign law had to be construed in accordance with their terms and in accordance with the relevant law.

Another type of contract was with local agents, known as “ground handlers”. These provided airport transfers as well as hotel accommodation and, where these operated in a destination resort, H4U would deal with them instead of the hotels. The FTT held that the standard form contracts in place before 2012 were governed by foreign law and must be construed in accordance with their terms and the relevant law. H4U had not made out its case in relation to those contracts. Finally, the FTT held that the airport transfer supply contract with Airport to Hotel (UK) Ltd, trading as HolidayTaxis.com, in place from September 2012 constituted an agent/sub-agent arrangement in relation to the transfers.

Accordingly, the appeal by H4U was allowed in relation to signed and unsigned standard contracts, bedbank agreements governed by English law and transfers provided under the 2012 transfer supply contract with HolidayTaxis.com.

Comment

The decision in this appeal follows a seven years long dispute in R & C Commrs v Secret Hotels2 Ltd leading to the Supreme Court judgment in favour of the appellant company. Both cases concerned the question of whether the company was acting as a principal in dealing with customers in its own name or as an intermediary and in both cases the decisions were based on the wording of the written agreements. In view of the facts in this appeal being materially identical to those considered by the Supreme Court it was inevitable that the outcome would be similar. Not resolved in this appeal, however, was the categorisation of the appellant as agent or principal in respect of contracts governed by foreign law. It is now likely that a referral to the ECJ will be required to determine the meaning of “acting solely as an intermediary” in art. 306 of the 2006 VAT directive and whether that is different from “agent” in English law.

DECISION
1. Preliminary matter

[2] The Tribunal at the hearing consisted of Judge McKeever and Ms Gill Hunter. After the hearing, but before the decision was released to the parties, Ms Hunter was offered, and accepted, employment with the Appellant's representative. The parties and their representatives were given the opportunity to make representations on the issue of apparent bias. Whilst no-one questioned Ms Hunter's integrity or alleged that there was any actual bias, Ms Hunter considered that the proper course of action was to recuse herself. Accordingly, this decision has been made by the judge alone.

3. Background

[4] The issue in this case may be simply stated: was Hotels4U.com Limited (H4U) supplying travel services to travellers as the agent of a disclosed principal, as H4U contends, or was it selling those services as principal, as HMRC contends. If the Appellant is right, its supplies were not liable for VAT in the UK. If the Respondents are right, the Appellant should be accounting for VAT to HMRC in accordance with the Tour Operator's Margin Scheme (TOMS).

[5] The consolidated appeals cover the period from 1 August 2006 to 31 March 2014.

[6] Appeal TC/2009/15599 is an appeal against HMRC's decision of 25 August 2009 (upheld on review on 26 October 2009) that the Appellant should have been accounting for VAT under TOMS.

[7] Appeal TC/2010/00680 is an appeal against the assessment dated 23 November 2009 for £2,619,952.77 VAT resulting from the August decision. The Appellant subsequently accepted that £279,128.66 was due from it under the TOMS in this period.

[8] From 1 September 2009, H4U began to account for VAT under the TOMS. The remaining appeals relate to Error Correction Notifications given by H4U reclaiming VAT which it says was overpaid, because it should not be within the TOMS. The Appellant later accepted that some of these supplies should properly have been accounted for under the TOMS as it had...

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    • United Kingdom
    • First Tier Tribunal (Tax Chamber)
    • 22 Noviembre 2017
    ...any conclusion is vitiated by the facts relied on by either party. [46] Lord Neuberger's approach was summarised in Hotels4u.com Ltd [2016] TC 05447 in the following terms: The important points I take from Lord Neuberger's comments are: One must start with the agreements themselves and iden......
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    • First Tier Tribunal (Tax Chamber)
    • 27 Octubre 2017
    ...Supreme Court in Secret Hotels2, which made HMRC's original pleaded case untenable, and the tribunal's decision in the Hotels4u.com Ltd [2016] TC 05447, where HMRC's attempts to re-argue the points that they had argued in Secret Hotels2 were unsuccessful. These decisions were released in Ma......
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    ...blocks on the front sheets.[51] The question of foreign law was considered in another of the associated hotel cases, Hotels4u.com Ltd TAX[2016] TC 05447. In that case Judge McKeever concluded that since the matter of foreign law had not been pleaded in evidence then she could not make a dec......

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