Isle of Wight Council Mid - Suffolk District Council South Tyneside Metropolitan Borough Council West Berkshire Council v Her Majesty's Revenue and Customs, V 19427
| Jurisdiction | UK Non-devolved |
| Judge | His Honour Stephen OLIVER QC |
| Judgment Date | 23 January 2006 |
| Respondent | Her Majesty's Revenue and Customs |
| Appellant | Isle of Wight Council Mid - Suffolk District Council South Tyneside Metropolitan Borough Council West Berkshire Council |
| Reference | V 19427 |
| Court | First-tier Tribunal (Tax Chamber) |
19427
LOCAL AUTHORITIES – Off-street parking – Taxable person – Whether treatment as non-taxable person in relation to off-street parking activities would result in significant distortions of competition – No – Sixth VAT Directive (77/388/EEC) Act 4.5
ISLE OF WIGHT COUNCIL
MID-SUFFOLK DISTRICT COUNCIL
SOUTH TYNESIDE METROPOLITAN BOROUGH COUNCIL
WEST BERKSHIRE COUNCIL Appellants
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and –
(Competition Issue)
Tribunal: STEPHEN OLIVER QC (Chairman)
KENNETH GODDARD MBE
Sitting in public in London on 18-22 July and on 3 and 4 November 2005
Gerald Barling QC and Julie Anderson, counsel, instructed by W J B Chiltern Ltd, tax consultants, for the Appellants
Christopher Vajda QC, Paul Harris and Ben Rayment, counsel, instructed by the general counsel and acting solicitor to The Commissioners for HMRC, for the Respondents
© CROWN COPYRIGHT 2006
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These joined appeals concern the application of Article 4.5 of the Sixth VAT Directive in relation to the provision by local authorities of off-street parking services. We refer to the four appellant local authorities collectively as “the Four Local Authorities”; when dealing with particular features of any one of them, we refer to it by its geographical area, e.g. Isle of Wight. The appeals have been split into four issues. The issue in this part of the proceedings is whether treatment of the Four Local Authorities in relation to the off-street parking activities as non-taxable persons would lead to significant distortions of competition for the purposes of Article 4.5.2.
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The background to the proceedings is found in the Tribunal’s decisions on the “Special Legal Regime Issue” and the “Implementation Issue”. These are reported in [2004] V&DR 68 and (2004) VAT Dec. 18557.
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The Special Legal Regime Issue arose from the principle in Article 4.5 which excludes bodies governed by public law from the scope of VAT in connection with activities carried out “as” public authorities; HMRC (“the Customs”) had contended each of the Four Local Authorities were not carrying out their provision of off-street parking as public authorities under a special legal regime. The Tribunal decided that they were. The Customs did not appeal the decision on that issue.
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The Implementation Issue arose because the Four Local Authorities had contended that Article 4.5 had not been implemented into UK law. The Tribunal agreed. The Customs appealed to the High Court which confirmed that Article 4.5 had not been implemented in to national law. See the decision of Pumfrey J in Customs and Excise Commissioners v Isle of Wight Council [2005] STC 257. To the extent that the parties to the present appeal were to rely on Article 4.5, the Judge added, at 267b, that reliance could not be placed on Article 4.5.1 “without assuming the burden of Article 4.5.2”; hence the present issue.
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In relation to the present issue, “the significant distortions of competition issue”, the Customs have, as indicated at the start of this decision, submitted that the treatment of the Four Local Authorities as non taxable persons in connection with the provision of off-street parking would lead to significant distortions of competition.
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There remains “the overpayment issue”. This may arise in two of the appeals. The issue is whether any overpayment of off-street parking services provided by those Local authorities would fall within the charge to VAT. Typically, it could arise where a parking machine was unable to give change and the period for which parking was permitted was restricted. The last issue only arises if Article 4.5.2 applies so as to bring the provision of off-street parking within the scope of VAT.
Legislation
7. Because the UK has chosen not to implement Article 4.5 of the EC Sixth Directive the argument in the present case has turned on the proper construction and application of that provision and not on any domestic provisions. By Article 4.1, “taxable person” is defined to 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”. Paragraph 2 provides that:
“The economic activities referred to in paragraph 1 shall comprise all activities of producers, traders and persons supplying services including mining and agriculture activities and activities of the professions. The exploitation of tangible or intangible property for the purpose of obtaining income therefrom on a continuing basis shall also be considered an economic activity.”
By Article 4.5:
“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.
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 a non-taxable person would lead to significant distortions of competition.
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.
Member States may consider activities of these bodies which are exempt under article 13 or 28 as activities in which they engage in as public authorities.”
For ease of reference, in this decision the first, second, third and fourth paragraphs of Article 4.5 are referred to as Article 4.5.1, 4.5.2, 4.5.3 and 4.5.4 respectively.
Introduction to arguments of the parties
8. The Customs see Article 4.5.2 as a legislative tool designed to ensure fiscal neutrality. It aims, they say, to prevent economic operators carrying on the same activities from being treated differently for VAT purposes. Thus where, as here, local authorities and private operators engage in the same activities on a significant scale, the non-application of VAT becomes the very factor that causes distortions and a lack of neutrality.
9. The Customs contend that Article 4.5 as a whole derogates from Article 4.1 and 4.2 and consequently is to be construed narrowly with the burden of proof falling on the Local authorities as the persons claiming to be entitled to the benefit of Article 4.5.1.
10. The non-imposition of VAT, the Customs argue, gives the local authority an artificial advantage over its private operator competitors in that, viewed prospectively, that factor could lead to a change in market share in favour of the local authorities. That, they say, amounts to a distortion of competition that is not insignificant or de minimis. The significance of the distortion is evidenced by the fact that in the UK 70 per cent of off-street parking is provided by local authorities (providing them with a gross revenue of £440 million in 2002/3) and 30 per cent of off-street parking is provided by private operators whose estimated gross revenue for the same period was £500 million.
11. The Customs argue that a broad-brush approach is required. On this approach a 17½ per cent differential is great enough to create...
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