News Corporation UK & Ireland Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 08 March 2018 |
| Neutral Citation | [2018] UKFTT 129 (TC) |
| Date | 08 March 2018 |
| Court | First Tier Tribunal (Tax Chamber) |
[2018] UKFTT 0129 (TC)
Judge Guy Brannan
Jonathan Peacock QC and Edward Brown, instructed by Deloitte LLP, appeared for the appellant
Nigel Pleming QC instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
Value added tax – Whether digital versions of The Times, The Sunday Times, The Sun and The Sun on Sunday zero-rated as newspapers within item VATA 1994, Sch. 8, Grp. 3, item 2 – Appeal dismissed.
The First-tier Tribunal (FTT) upheld HMRC's ruling that digital newspapers do not qualify for zero-rating.
The issue in this appeal was whether digital versions of The Times, The Sunday Times, The Sun and The Sun on Sunday were “newspapers” within the meaning of VATA 1994, Sch. 8, Grp. 3, item 2 and were, therefore, zero-rated for Value added tax (VAT) purposes.
The appellant, News Corp UK & Ireland Ltd, which was the representative member of the VAT group that published the titles, contended that digital editions of the titles were newspapers on the basis that they were the digital equivalent of the newsprint editions. Moreover, the appellant claimed that even if the digital editions were not newspapers the principle of fiscal neutrality nevertheless required zero-rating on the basis that, viewed from the perspective of the customer, they satisfied the same customer needs as conventional printed editions.
HMRC argued that the digital editions did not fall within the definition of “newspaper”, which was confined to hard copy newsprint. Further, they were not sufficiently similar to the newsprint editions to breach the principle of fiscal neutrality and, in any event, the principle could not be used to expand the borders of zero-rating from the limits applied in 1991 under art. 110 of the EC Directive 2006/112, the 2006 VAT directive.
The appellant submitted that Sch. 8, Grp. 3, item 2 should be interpreted purposively. The purpose of the provision was to promote literacy, the dissemination of information and democratic accountability. Moreover, it pointed to the principle of statutory interpretation, whereby legislation, once enacted, had to be kept up to date with technological advances, which the appellant considered to be relevant because of the development of digital technology in newspaper production. It was necessary to identify the purpose of the relevant provision and then consider whether that new item, new technology or new state of affairs shared the same inherent characteristics as those covered by the wording.
HMRC submitted that all the items eligible for zero-rating in Sch. 8, Grp. 3 consisted of goods, not services. In other words, item 2 applied only to newsprint newspapers. The supply of digital editions of the titles constituted one of services, which was not zero-rated. HMRC claimed that treating digital editions as zero-rated newspapers was contrary to the applicable UK legislation and to the derogation requirements of art. 110 of the 2006 VAT directive. In the opinion of HMRC, the newsprint and digital editions were not comparable and, even if they were, excluding the digital editions from zero-rating was not a breach of the principle of fiscal neutrality.
The FTT considered the appellant's argument in favour of a purposive approach and was minded to accept its submission that the digital editions of the titles served the same general purpose as the newsprint editions. It did not, however, agree that such a finding permitted the interpretation of item 2 sought by the appellant. Parliament's purpose in zero-rating newspapers may well have been to promote literacy and informed public debate, but purposive construction could not be used to give effect to a perceived wider policy in cases where the words used by Parliament did not bear that meaning.
The FTT agreed with HMRC's contention that the digital editions of the titles, when supplied to readers, constituted a supply of services. It found this to be fatal to the appellant's argument that the digital editions fell within item 2, because this dealt only with supplies of goods, that is “newspapers, journals and periodicals” in physical form. The text of items 1 to 5 and the Notes to Grp. 3 supported the view that the whole of that Group was confined to the supply of goods and did not include the supply of services.
Addressing the appellant's arguments on the principle of fiscal neutrality, the FTT held that applying a different VAT treatment (standard-rating) to the digital editions of the titles from that applicable to the newsprint editions (zero-rating) did not offend the principle of fiscal neutrality. Although the digital editions were similar to the newsprint editions from the point of view of the consumer, the principle could not operate to extend the scope of zero-rating from its original application to goods rather than to services. In the judgment of the FTT, the word “newspapers” when read in context could not be given the liberal interpretation which the appellant sought to apply. The appeal was duly dismissed.
Following recent cases in the European Court of Justice and a clear EU policy of excluding electronic services from the application of a reduced rate of VAT, the outcome of this appeal was predictable. UK and EU legislation does not recognise digital publications in the same way as printed matter, although consultations continue to end this apparent anomaly.
[1] The appellant, News Corp UK & Ireland Limited (“News UK” or “the appellant”), appeals against decisions of the respondents (“HMRC”) dated 18 March 2015 and 28 April 2017 (“the Decisions”). The appellant is the representative member of a VAT group that publishes, principally, The Times, The Sunday Times, The Sun and The Sun on Sunday (together “the titles”).
[2] Essentially, the main issue in this appeal is whether the daily digital versions of the titles are “newspapers” within the meaning of item 2 Group 3 of Schedule 8 Value Added Tax Act 1994 (“VATA”) (“item 2”) and are therefore zero-rated for VAT purposes.
[3] The appellant argues that the digital editions of the titles are “newspapers” on the basis that they are the digital equivalent of the daily editions produced on ordinary newspaper printing paper (“newsprint”). HMRC argues that they do not fall within the definition of “newspapers” which is confined to newsprint newspapers
[4] Secondly, even if the digital editions of the above titles are not “newspapers”, the appellant contends that the principle of fiscal neutrality nevertheless requires zero-rating on the basis that, viewed from the perspective of the customer, they satisfy the same customer needs as conventional printed editions. HMRC argues the digital editions are not similar to the newsprint editions and, in any event, the principle of fiscal neutrality could not be used to expand the borders of zero rating from their 1991 limits.
[5] The appeal relates to the periods September 2010–June 2014 and 28 January 2013–4 December 2016. The appeals in respect of these two periods were consolidated by directions of this Tribunal of 29 August 2017.
[6] I was supplied with Apple iPad and iPhone devices containing digital editions of the titles for sample dates, viz Friday 2 December, Saturday 3 December and Sunday 4 December 2016. I was also supplied with newsprint editions of the titles for the same dates. In addition, there were three hearing bundles.
[7] For the appellant, the following witnesses gave evidence and were cross-examined:
- Mr John Witherow, Editor of The Times and former Editor of The Sunday Times;
- Mr Chris Duncan, Managing Director of Times Newspapers Limited; and
- Mr Alan Hunter, Head of Digital, The Times and The Sunday Times.
[8] For HMRC the following HMRC officers gave evidence and were cross-examined:
- Mr Mark Flanagan – an officer on HMRC's Large Business Tax team that has specific responsibility for the appellant; and
- Mr Andrew Higgins – an officer in HMRC's Large Businesses in the Media Sector.
[9] We were also given a tour of The Times newsroom by the deputy editor of The Times.
[10] Between October 1940 and 1973 the UK had an indirect tax, levied on the wholesale price of goods, called Purchase Tax. Newspapers and books were exempt from Purchase Tax. On 1 January 1973 the UK joined the European Economic Community and, with effect from 1 April 1973, Purchase Tax was replaced by VAT.
[11] Newspapers and books continued to be subject to an exemption from tax known as zero rating. Zero rating continues to be authorised by (what is now) article 110 of the Principal VAT Directive (“PVD”) 2006/112/EC. In fact, the PVD does not refer to zero-rating but, rather, refers to “exemptions with deductibility”. Article 110 provides:
Member States which, at 1 January 1991, were granting exemptions with deductibility of the VAT paid at the preceding stage or applying reduced rates lower than the minimum laid down in article 99 may continue to grant those exemptions or apply those reduced rates.
The exemptions and reduced rates referred to in the first paragraph must be in accordance with Community law and must have been adopted for clearly defined social reasons and for the benefit of the final consumer.
[12] In section 30 Value Added Tax Act 1994, (“VATA”) the UK has taken advantage of article 110 by zero rating the supply of those goods or services which fall within Schedule 8 VATA.
[13] Group 3 of Schedule 8 of VATA 1994 zero rates, amongst other things, “newspapers” (item 2). Group 3 is sandwiched between the zero rating provision of Group 2“Sewerage services and water” and Group 4“Talking books for the blind and [disabled] and wireless sets for the blind”. Group 3 provides as follows:
1 Books, booklets, brochures, pamphlets and leaflets.
2 Newspapers, journals and periodicals.
3 Children's picture books and...
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