Hutchison 3G UK Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 01 June 2018 |
| Neutral Citation | [2018] UKFTT 289 (TC) |
| Date | 01 June 2018 |
| Court | First Tier Tribunal (Tax Chamber) |
[2018] UKFTT 0289 (TC)
Judge Barbara Mosedale
Mr J Peacock QC, Mr M Ripley, counsel, instructed by Baker & McKensie LLP, appeared for the appellant
Mr N Pleming QC and Ms E Mitrophanous, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
Value added tax – Whether time of supply could occur before there was use and enjoyment of telecoms services – Yes – Whether pay monthly customers exchanged units for telecoms services such that the time of supply was only when there was use and enjoyment – No – Whether pay monthly customers were supplied with electronic vouchers which were only taxable when telecoms services used – No – Appeal dismissed.
The First-tier Tribunal (FTT) considered whether a mobile phone provider was required to account for VAT on monthly payments received from customers when there as a possibility that the services provided would not be subject to UK VAT because they were used and enjoyed outside the UK.
Hutchison 3G UK Ltd (H3G) submitted a large (over £400m) claim for VAT overpaid on income received from UK consumers.
It was common ground that, although the normal rule is that UK VAT is due on telecoms services supplied to UK consumers, when the telecoms services are used and enjoyed outside the EU they are not subject to UK VAT. HMRC's view was that UK VAT was due on the entire amount paid by consumers at the time they paid H3G. H3G argued that consumers paid for their telecoms services in advance and that, therefore, at the point payments were made it did not know what the place of supply of the services would be. This created uncertainty and as a result it was not required to account for VAT until the services were actually used and the uncertainty resolved.
Only 1% of airtime was used outside the EU, but many consumers did not use up the full amount of the telecoms services to which they were entitled. Under H3G's interpretation of the time of supply rules, it did not have to account for VAT on payments from this latter group. This was the reason the VAT claim was so large.
The appeal concerned pay as you go plans, where consumers bought a specified amount of telcoms service which could be topped up after it was consumed and monthly contracts where consumers were entitled to a fixed service per month. The service comprised, telephone calls, texts and data. Both types of plan were available on a sim-only basis or with a handset. H3G allowed consumers to use the service in many countries (both EU and non-EU) other than the UK without an extra charge.
As a secondary argument, H3G argued that when payments were made consumers received a form of electronic face value voucher. When payments were made they received an electronic summary of the amount of calls, texts and data to which they were entitled.
The Tribunal considered four issues:
- Whether the supplies made by H3G were single or multiple;
- When the tax point for supplies was;
- Nature of the supplies made; and
- Whether H3G was supplying a form of face value voucher.
In regard to the first issue, H3G supplied handsets, sim cards, telephone calls, texts and data. If supplied on their own the handsets were subject to VAT in the UK wherever the consumer took them after they had been obtained whereas the VAT liability of the telecoms service depended upon where it was consumed. The FTT considered the way in which the various plans provided by H3G were structured and noted that a handset was not part of all plans provided and that plan price was influenced by the type of handset obtained by the consumer. The FTT concluded that H3G was making a mixed supply and that, therefore, the consideration paid by consumers should be apportioned. The FTT stopped short of providing guidance on how this should be done.
Regarding the tax point for supplies, H3G argued that, because there was uncertainty over the place of supply of the telecoms services at the point of payment, a tax point was not triggered. A tax point was only triggered when the services were used, i.e consumers made a call or sent a text etc. H3G relied on the BUPA and MacDonald Resorts cases in support of this position. However, the FTT stated that while in both of these cases, there was considerable uncertainty over what would be supplied, in H3G's case the only uncertainty was the place of supply. The BUPA case involved a large prepayment for drugs and prostheses (made before a change in the liability of these products) under a contract which did not specify exactly what would be supplied. The MacDonald Resorts case involved the purchase of points which could be swapped for stays in accommodation. When purchased the customer did not know where the accommodation would be, what it would cost or what quality of it would be. In contrast, H3G's customers purchased a specific amount of each service for a set price. The only point of uncertainty was whether those services would be consumed inside or outside the EU. This level of uncertainty was not sufficient for the payments not to create a tax point.
On the third issue, H3G argued that customers purchased “units” which they then converted into calls, texts and data use when they used their phones. This argument was related to the uncertainty principle discussed in connection with the time of supply. The FTT expanded upon its rejection of this point and concluded that the “units” described in H3G documentation were simply an alternative way to describe minutes of calls, numbers of texts and amounts of data. The FTT also rejected the argument that if no supplies of telecoms were made – because a consumer's entitlement was not consumed that no supplies had been made.
Finally, the FTT rejected H3G's argument that it sold a form of electronic voucher. It concluded that the electronic summary received by consumers was, effectively, confirmation of what had been purchased in the same way that a theatre ticket or airline ticket confirmed the services purchased.
The FTT comprehensively rebutted every one of H3G's principle arguments. The reasoning given is firmly based on the case law of the ECJ, presumably the FTT was aware that with a claim of this size an appeal from the losing side is likely. Although a win for H3G would obviously be relevant to many telecoms suppliers, the VAT which was subject of this appeal was overpaid at a time when H3G was almost alone in including overseas calls in its plans. Therefore, similarly large back claims from other suppliers would be unlikely. The arguments regarding the uncertainty principle and face value vouchers will be of wider interest.
| Index | ||
| paragraph |
||
| Glossary |
2 |
|
| Outline of dispute |
3 |
|
| The Facts |
||
| The witnesses |
14 |
|
| H3G's contracts for telecommunications services |
21 |
|
| PM contracts |
23 |
|
| Exceeding the MRC |
27 |
|
| AYCE |
30 |
|
| Cancellation charges |
33 |
|
| Material detriment |
35 |
|
| PAYG contracts |
37 |
|
| Differences between PM and PAYG contracts |
40 |
|
| Reasons why F@H introduced |
48 |
|
| The device |
57 |
|
| One contract or two? |
61 |
|
| Units and PPUs |
76 |
|
| How were PPUs calculated |
80 |
|
| Did PPUs have a commercial purpose? |
83 |
|
| Did PPUs result in clearer invoices? |
89 |
|
| Did PPUs enhance marketing? |
96 |
|
| The congratulatory marketing text |
98 |
|
| Were PPUs introduced for regulatory reasons? |
103 |
|
| The legal issues in dispute |
114 |
|
| (1) Single or multiple supplies? |
117 |
|
| The case law on whether there is a single complex supply |
127 |
|
| Transactions with SIM-only PM customers |
144 |
|
| Transactions with PM customers which include a handset |
149 |
|
| Implications of Tribunal's conclusion on multiple supply issue |
161 |
|
| (2) The tax point issue |
169 |
|
| The law on place of supply |
169 |
|
| When VAT falls due |
178 |
|
| No tax point without certain place of supply? |
180 |
|
| The uncertainty principle? |
187 |
|
| Conclusion on tax point issue |
203 |
|
| (3) Nature of supply issue |
205 |
|
| Economic reality |
207 |
|
| Uncertainty over whether allowances will be used |
218 |
|
| Is it possible to adjust place of supply after tax point? |
240 |
|
| Non taxation is possible under EU law? |
247 |
|
| Distortions of competition should be avoided? |
250 |
|
| Can a single supply have more than one place of supply? |
254 |
|
| Can the taxable status of a supply change after the tax point? |
255 |
|
| Conclusion on nature of supply issue |
257 |
|
| (4) Face Value Voucher issue |
265 |
|
| The legislation |
266 |
|
| The conditions for a FVV |
268 |
|
| Does a PM contract represent the right to a supply of services |
274 |
|
| Value stated in or on voucher? |
296 |
|
| Findmypast |
297 |
|
| PAYG contracts are FVV? |
304 |
|
| What is the relevance of PPUs, F@H and handsets to FVV issue? |
312 |
|
| Conclusion |
317 |
[1] The appellant appeals against decisions of HMRC relating to 12 VAT accounting periods falling between 1 June 2013 and 30 June 2016. The total amount of VAT in dispute is £414,757,878.40.
[2] Perhaps as is befitting an appeal relating to the mobile phone industry, the parties' submissions and this decision are littered with acronyms and jargon. I use them as they are a convenient shorthand but to make the decision easier to follow I include the following glossary:
| AYCE |
“all you can eat”; in other words, an unlimited allowance of specified telecoms services within a specified period |
| F@H |
“feel at home”: the contractual rights described at paragraphs 4–6. |
| FVV |
Face value voucher, as described in Sch 10A of VATA 1994 and paragraphs 266–273 of this decision |
| Handset |
Device or mobile phone |
| MRC |
“monthly recurring charge”; in other words, a fixed charge per month for PM contracts |
| MNO |
Mobile network operation: a business with the capacity and licence to carry wireless data from mobile phones on the airwaves. |
| OOA |
“out of allowance” – this... |
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