Isle of Wight Council and Others v Revenue and Customs Commissioners
| Jurisdiction | England & Wales |
| Judge | Sir Terence Etherton,Lord Justice Underhill:,Lord Justice David Richards: |
| Judgment Date | 16 December 2015 |
| Neutral Citation | [2015] EWCA Civ 1303 |
| Docket Number | Case No: A3/2014/4104 |
| Date | 16 December 2015 |
| Court | Court of Appeal (Civil Division) |
[2015] EWCA Civ 1303
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE UPPER TRIBUNAL (TAX)
The Honourable Mrs Justice Proudman, Judge Bishopp
Royal Courts of Justice
Strand, London, WC2A 2LL
THE CHANCELLOR OF THE HIGH COURT
Lord Justice Underhill
and
Lord Justice David Richards
Case No: A3/2014/4104
Julian Ghosh QC, Jonathan Bremner and Katherine Apps (instructed by Rowel Genn Solicitors) for the Appellant
Alison Foster QC, Ben Rayment, Brendan McGurk (instructed by HMRC) for the Respondent
Hearing dates: 3 rd December 2015
The Chancellor ( Sir Terence Etherton):
These proceedings raise the issue of principle whether a local authority which charges members of the public for off-street car parking ("OSCP") is a non-taxable person for Value Added Tax ("VAT") purposes. This turns on whether treating the authority as a non-taxable person "would lead to significant distortions of competition" within the meaning of Article 4.5(2) of the Sixth Council Directive of 17 May 1977 (77/388/EEC).
The appeal is by four local authorities from a decision of the Upper Tribunal (Tax and Chancery Chamber) (Mrs Justice Proudman and Judge Colin Bishopp) ("the UT") released on 15 October 2014 dismissing the appellants' appeals from the decision of the First-Tier Tribunal (Sir Stephen Oliver QC, Nicholas Paines QC and Philip Gillette FCA) ("the FTT") released on 12 October 2012. By its decision the FTT had itself dismissed the appeals of the appellants from the rejection by HMRC of their claims under section 80 of the Value Added Tax Act 1994 (" VATA 1994") for repayment of VAT which had been paid between 1997 and 2001.
The proceedings are in the nature of test cases. Many other local authorities have sought the repayment of VAT, and their requests cover the entire period since January 1978, which is the date by which the United Kingdom was required to comply with the Sixth Directive.
The VAT legislation
Article 4.5 of the Sixth Directive has been replaced in substantially similar form by Article 13 of the Principal VAT Directive (2006/112/EC). The Sixth Directive was, however, in force during the relevant period 1978 to 2001 and so, like the FTT and the UT, I shall refer only to its terms. The provisions of Article 4.5 are as follows (adding numbering to the subparagraphs):
"(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."
The legal framework surrounding local authorities' provision of OSCP
There is extensive legislation on traffic management. In England and Wales local traffic authorities are, in London, Transport for London and the Borough Councils, and, outside London, the County or Metropolitan District Councils. District Councils, other than Metropolitan District Councils, are not local traffic authorities but they are empowered to regulate on-street and provide off-street car parking by the Road Traffic Regulation Act 1984 ("the RTRA").
Section 32 of the RTRA provides as follows, so far as relevant:
"(1) Where for the purpose of relieving or preventing congestion of traffic it appears to a local authority to be necessary to provide within their area suitable parking places for vehicles, the local authority, subject to Parts I to III of Schedule 9 to this Act—
(a) may provide off-street parking places (whether above or below ground and whether or not consisting of or including buildings) together with means of entrance to and egress from them, …"
Section 35 provides for the local authority to impose charges for OSCP, and section 35C provides for the variation of such charges.
Section 122 provides as follows:
"(1) It shall be the duty of every local authority upon whom functions are conferred by or under this Act, so to exercise the functions conferred on them by this Act as (so far as practicable having regard to the matters specified in subsection (2) below) to secure the expeditious, convenient and safe movement of vehicular and other traffic (including pedestrians) and the provision of suitable and adequate parking facilities on and off the highway or, in Scotland, the road.
(2) The matters referred to in subsection (1) above as being specified in this subsection are—
(a) the desirability of securing and maintaining reasonable access to premises;
(b) the effect on the amenities of any locality affected and (without prejudice to the generality of this paragraph) the importance of regulating and restricting the use of roads by heavy commercial vehicles, so as to preserve or improve the amenities of the areas through which the roads run;
(bb) the strategy prepared under section 80 of the Environment Act 1995 (national air quality strategy);
(c) the importance of facilitating the passage of public service vehicles and of securing the safety and convenience of persons using or desiring to use such vehicles; and
(d) any other matters appearing to the local authority to be relevant."
Any surplus of income over expenditure in respect of OSCP falls into the local authority's general fund established under section 91 of the Local Government Finance Act 1988 ("the LGFA 1988"). That is the fund from which most of a local authority's activities are financed.
Background
The procedural history is long and complex. It is set out in paragraphs [4] to [11] of the FTT's decision and paragraphs [1] to [9] of the UT's decision.
It is sufficient for the purposes of this appeal to summarise that history as follows. Following earlier proceedings by the present appellants before the then VAT and Duties Tribunal pursuant to VATA 1994 section 80 for repayment of the VAT included in charges made by them to members of the public for OSCP, on an appeal by HMRC to the Chancery Division of the High Court Rimer J (at [2007] EWHC 219 (Ch), [2008] STC 614) referred the following three questions on Article 4.5 to the European Court of Justice ("the ECJ"):
"1. Is the expression 'distortions of competition' to be ascertained on a public body by public body basis such that, in the context of the present case, it should be determined by reference to the area or areas where the particular body in question provides off-street parking or by reference to the totality of the national territory of the Member State?
2. What is meant by the expression 'would lead to'? In particular, what degree of probability or level of certainty is required for that condition to be satisfied?
3. What is meant by the word 'significant'? In particular, does 'significant' mean an effect on competition that is more than trivial or de minimis, a 'material' effect or an 'exceptional' effect?"
The ECJ gave its answers in Revenue and Customs Commissioners v Isle of Wight Council ( Case C-28/07), [2008] STC 2964, [2009] STC 1096, as follows, so far as relevant:
"1. … the significant distortions of competition … must be evaluated by reference to the activity in question, as such, without such evaluation relating to any local market in particular.
2. The expression 'would lead to' is, for the purposes of the second paragraph of art 4.5 of the Sixth Directive, to be interpreted as encompassing not only actual competition, but also potential competition, provided that the possibility of a private operator entering the relevant market is real, and not purely hypothetical.
3. The word 'significant' is … to be understood as meaning that the actual or potential distortions of competition must be more than negligible."
When the matter came back before the Chancery Division, HMRC's appeal was allowed, the order of the tribunal was set aside and the matter was remitted to the FTT for a re-hearing in the light of the guidance of the ECJ.
Decision of the FTT
The hearing before the FTT lasted seven days. Oral evidence was given by nine witnesses, some of whom were witnesses of fact and some of whom gave expert evidence. In its reported version ( [2013] SFTD 442, to which all references in this judgment are made), the decision runs to 65 closely printed pages and 268 paragraphs. It contains a meticulous and detailed account of the evidence, including, in particular, evidence relating to the factors relevant to the setting of charges by providers of OSCP. The following is a sufficient account of the FTT's findings and reasoning for the purposes of this appeal.
The FTT rejected (at [31]) the submission of HMRC that there is a presumption of law that differential tax treatment of competing suppliers will distort competition in the OSCP market. The FTT said that it is all a question of fact (a point no longer challenged by HMRC).
The FTT said (at [37]) that the question is not how local authorities might respond to a change in the VAT treatment but rather it had to make a comparison between, on the one hand, a world where local authorities are treated as taxable persons in...
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