Marriott Rewards LLC and Another v Revenue and Customs Commissioners
| Jurisdiction | UK Non-devolved |
| Judgment Date | 30 April 2018 |
| Date | 30 April 2018 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2018] UKUT 0129
Upper Tribunal (Tax and Chancery Chamber)
Mr Justice Henry Carr, Julian Ghosh QC
Amanda Brown of KPMG LLP appeared for Whitbread Group plc
Nigel Pleming QC and Andrew Macnab, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
Value added tax – Points based rewards scheme – Whether payments made to redeemers third-party consideration for supply of rewards – No – Whether redeemers made separate supplies to operator of scheme – Yes – Whether those separate supplies relate to immovable property or constitute advertising services – No – Appeals dismissed.
The Upper Tribunal (UT) found that supplies under a loyalty reward scheme by redeeming hotels were neither advertising services or immovable property but were for acceptance of points allowing scheme members a free or discounted hotel room.
MR a US company operated a worldwide customer loyalty reward scheme. Whitbread owned hotels operated under an international franchise agreement with Marriott. Marriott customers (Members) earned points at sponsoring hotels redeemable for stays at hotels (Redeemers) on presentation of a certificate from MR.
MR appealed against HMRC's refusal to repay VAT against payments to Redeemers under VATA 1994, s. 39 allowing persons belonging outside the EU to claim a refund of VAT paid in the UK for periods after January 2010. MR considered this payment to be consideration for services of immovable property and/or hotel accommodation, Directive 2006/112 (the Principal VAT Directive), art. 47.
Whitbread appealed against HMRC's refusal to repay overpaid VAT output tax under VATA, 1994, s. 80 on the grounds that its services as a Redeemer to MR were of advertising and the place of supply prior to 1 January, 2010 was in the United States (US) where MR belonged, Directive 77/388 (the Sixth Directive), art. 9(2)(e).
HMRC claimed that payments by MR to Redeemers, including Whitbread, were third-party consideration for hotel rooms offered to members. If MR and Whitbread were successful on that point then the second issue was establishing the nature of the supply. Regarding MR HMRC argued that services after January 2010 were a kind of redemption service with a place of supply in the US and no UK VAT due so there was no repayment claim. Regarding Whitbread HMRC argued that such supplies were properly chargeable to UK VAT allowing MR to make a refund claim under the 13th Directive.
The parties agreed that if HMRC succeeded on third-party consideration then the whole appeal failed, this would be issue 1, otherwise the matter would proceed to issue 2.
For issue 1 MR's case, adopted by Whitbread, was that this case was indistinguishable from R & C Commrs v Aimia Coalition Loyalty UK Ltd (formerly Loyalty Management UK Ltd) [2013] BVC 67 where the Supreme Court ruled that payments made by the promoters of the Nectar reward scheme were consideration for services received from Redeemers. HMRC disagreed, the SC had highlighted certain elements in LMUK that were not present in the MR scheme. The UT disagreed with HMRC over sticking tax if it found against HMRC on this issue, indeed it observed that should HMRC succeed on issue 1 then it would most likely result in more VAT being paid than was due. The UT referred to the MR scheme as a complex separate operator model, against other loyalty card schemes. The UT concluded that payments from MR to Redeemers were consideration for a supply by the Redeemer of accepting points. Having set out the main principles of VAT the UT identified the transactions as part of MR's economic activities with clear reciprocity in that Redeemers accepted the members points certificate in return for payment from MR, see para. 54 of the decision.
Having dismissed HMRC's third-party consideration point the UT moved on to issue 2.
The UT rejected MR's argument agreeing with the FTT's explanation that services by Redeemers were the generic service of agreeing to provide reward stays generally and not a specific hotel room. The test laid down for a supply of immovable property is that it must relate to a specific property, see Minister Finansów v RR Donnelley Global Turnkey Solutions Poland sp zoo (Case C-155/12) [2013] BVC 342, see para. 57.
The UT also rejected Whitbread's case that it supplied advertising services, although it agreed that the loyalty scheme as a whole advertised the Marriot brand and that giving away goods can be a form of advertising. However, the UT decided that as the FTT had reached a decision on the evidence, had not misdirected itself, and had considered guidance in EC Commission v France (Case C-68/92) [1993] ECR I-5881, there was no reason to disturb its findings see para. 65.
The UT therefore dismissed the appeals.
The UT confirmed the potential complexity of rewards schemes, especially where parties reside in different jurisdictions. In this case the UT followed LMUK in dismissing HMRC's third-party consideration argument. The place of supply rules can be complex especially where the nature of a supply is unclear. In the case of Whitbread the issues pre-date the current rules stemming from January 2010.
[1] These appeals concern a customer loyalty scheme (“the Program”) operated by Marriott Rewards LLC (“MR”) and its predecessor Marriott Rewards Inc. in connection with hotels (“Participating Hotels”) operated under the Marriott, and other, brands. A summary of the Program was provided by the First Tier Tribunal (“the FTT”) at paragraphs [2] and [14] of the decision under appeal (“the FTT Decision”).1 The FTT made detailed findings of fact in Part 1 of the Decision at paragraphs [8]–[96].
[2] There are two appeals made respectively by MR and Whitbread Group Plc (“Whitbread”). There is an issue as to whether payments made by MR to Participating Hotels under the Program were payments made in consideration for supplies made to MR or, alternatively, “third party consideration” paid by MR, for supplies made by the Participating Hotels to customers who redeemed points under the Program (“Issue 1”); we shall refer to such customers as “Members”. If MR's payments to Participating Hotels under the Program were paid as consideration for services supplied to MR, a further issue arises concerning whether those supplies made by the Participating Hotels to MR are aptly categorised, for VAT purposes, as either (a) services which were “connected with immovable property”, within article 47 of the Council Directive 2006/112/EC (“the Principal VAT Directive”)2, or (b) “advertising services”, within article 9(2)(e) of the Sixth Council VAT Directive 77/388 (“the Sixth Directive”)3, or neither (“Issue 2”).
[3] The Program operated in a materially similar way for all of the Participating Hotels4 and we therefore refer (at least in relation to Issue 1) only to MR and not to Whitbread. MR and Whitbread made separate submissions on Issue 2 with which we deal below.
[4] Marriott International Inc, a company incorporated in the United States, is the ultimate parent of the Marriott Group which owns, operates, franchises or licenses hotels under (amongst other brands) the Marriott brand. MR is a company incorporated in the United States which is a wholly-owned indirect subsidiary of Marriott International Inc. The Marriott Group does not typically own Marriott branded hotels. It either manages hotels owned by third parties or grants a Marriott franchise to third party hotel owners. Whitbread is the representative member of a VAT group which operates in the retail, hospitality and leisure sectors. During the relevant VAT periods,5 Whitbread owned and operated Participating Hotels under the Marriott brand in the UK, pursuant to “International Franchise Agreements” between Whitbread and International Hotel Licensing Company Sarl (“IHLC”), a Marriott company. IHLC was the predecessor of a company now called Global Hospitality Licensing Sarl (“GHL”).
[5] MR, based in the United States, set the terms of the Program. It is common ground that MR, despite having no profit motive in operating the Program, and despite the involvement of GHL, conducts a taxable activity in relation to operating the Program, for the purposes of VAT: see FTT Decision [16]. The Program required Participating Hotels to make certain payments and enabled them to receive certain payments. MR, as operator of the Program thus had an economic activity of securing (through GHL) payments by Participating Hotels and making payments to Participating Hotels. It was no part of the case of the Respondents' (“HMRC”) case that MR was any form of “cipher”, or that the involvement of GHL affected the nature of MR's economic activity in operating the Program. Further, the FTT (at FTT Decision [184]) observed that “the services from Redeemers [Participating Hotels which received payments from MR] … enable MR to perform obligations associated with its business, not to promote or advertise it.” The FTT made this observation in the context of whether there were supplies of advertising made by Redeemers to MR. Thus the FTT must, we consider, be taken to have concluded that the payments by MR were not payments to advertise MR's business and (inevitably) that promotion of the Marriott brand was not part of MR's business. We discuss this further below.
[6] Customers of Participating Hotels were entitled to join the Program and it is these customers that we refer to as “Members”. When a Member purchased a qualifying stay at a Participating Hotel, that Participating Hotel would pay monies to MR, so as to acquire points for Members. We refer to Participating Hotels in this capacity as “Sponsors”. UK Sponsors accounted for VAT on that payment pursuant to the reverse charge provisions in section 8 of the Value Added Tax Act 1994 (“VATA 1994”). MR issued reward points to the Member. Reward points could also...
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