RAL (Channel Islands) Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 13 November 2002 |
| Date | 13 November 2002 |
| Court | Value Added Tax Tribunal |
VAT Tribunal
The following cases were referred to in the decision:
ARO Lease BV v Inspecteur der Belastingdienst Grote Ondernemingen, Amsterdam VAT(Case C-190/95) [1997] BVC 547
Berkholz v Finanzamt Hamburg-Mitte-Alstadt VAT(Case 168/84) (1985) 2 BVC 200,178
Blackqueen Ltd VATNo. 17,680; [2002] BVC 2221
BUPA Hospitals Ltd VATNo. 17,588; [2002] BVC 2155
Card Protection Plan Ltd v C & E Commrs VAT(Case C-349/96) [1999] BVC 155
C & E Commrs v British Telecommunications plcVAT[1999] BVC 306
C & E Commrs v Chinese Channel (Hong Kong) LtdVAT[1998] BVC 91
C & E Commrs v Church Schools Foundation LtdVAT[2002] BVC 114
C & E Commrs v DFDS A/S VAT(Case C-260/95) [1997] BVC 279
C & E Commrs v Primback Ltd VAT(Case C-34/99) [2001] BVC 315
C & E Commrs v Reed Personnel Services Ltd VAT[1995] BVC 222
Diamantis v Elliniko Dimosio (Greek State) and Organismos Ikonomikis Anasygkrotisis Epicheiriseon AE (OAE) (Case C-373/97) [2000] ECR I-1705
Direct Cosmetics Ltd v C & E Commrs VAT(Case 5/84) (1985) 2 BVC 200,069; [1985] ECR 617
Dudda v Finanzamt Bergisch Gladbach VAT(Case C-327/94) [1997] BVC 3; [1996] ECR I-4595
Eastbourne Town Radio Cars Association v C & E CommrsVAT[2001] BVC 271
Emsland-Stärke v Hauptzollamt Hamburg-Jonas (Case C-110/99) [2000] ECR I-11569
EC Commission v France VAT(Case C-429/97) [2001] BVC 140
Elida Gibbs Ltd v C & E Commrs VAT(Case C-317/94) [1997] BVC 80
Faaborg-Gelting Linien A/S v Finanzamt Flensburg VAT(Case C-231/94) [1996] BVC 436
Faccini Dori v Recreb Srl (Case C-91/92) [1994] ECR I-3325
First National Bank of Chicago v C & E Commrs VAT(Case C-172/96) [1998] BVC 389
Fischer v Finanzamt Donaueschingen VAT(Case C-283/95) [1998] BVC 431
Halifax plc v C & E Commrs VATVAT[2002] BVC 370; No. 17,124; [2001] BVC 2240
HJ Glawe Spiel- und Unterhaltungsgeräte Aufstellungsgesellschaft GmbH & Co KG v Finanzamt Hamburg-Barmbek-Ulhenhorst VAT(Case C-38/93) [1994] BVC 242
Lease Plan Luxembourg SA v Belgian State VAT(Case C-390/96) [1998] BVC 412
Marks & Spencer plc v C & E Commrs VAT(Case C-62/00) [2002] BVC 622
Naturally Yours Cosmetics Ltd v C & E Commrs (No. 2) VAT(Case 230/87) (1988) 3 BVC 428; [1988] ECR 6365
RBS Property Developments Ltd VATNo. 17,789; [2003] BVC 2074
Staatssecretaris van Financiën v Shipping and Forwarding Enterprise Safe BV VAT(Case 320/88) [1991] BVC 119; [1990] ECR I-285
Town & County Factors Ltd v C & E Commrs VAT(Case C-498/99) [2002] BVC 645
WHA Ltd VATNo. 17,605; [2002] BVC 4061
Place of supply - Fixed establishment - Gaming supplies in UK by Channel Islands subsidiary of UK company - Machines leased to Channel Islands company by another UK subsidiary - Services provided by a further UK subsidiary - Contracts between Channel Islands company and other subsidiaries - Whether arcades fixed establishments of Channel Islands company in UK - Whether place of supply UK - Avoidance - Scheme to make place of supply abroad - Purpose to avoid VAT - Whether "Halifax" principle applies to make the supply one by UK company - Whether abuse of rights - Whether result of place of supply rules contrary to purpose of directive - Directive 77/388, the sixth VAT directive, art. 9(1); Directive 86/560, the thirteenth directive, art. 2(1); Value Added Tax Act 1994, s. 7(10), 9(2) and 39.
The main issue concerned the provisions on the place of supply and whether RAL (Channel Islands) Ltd (CI) had a fixed establishment in the UK, from which its services were supplied. More specifically, the issue was whether CI had fixed establishments at the 127 arcades where gaming machines were situated and, if so, whether those establishments were the places of supply under art. 9(1) of Directive 77/388, the sixth VAT directive. If the commissioners were incorrect in contending that CI had fixed establishments in the UK and was liable to VAT in the UK, two alternative issues arose: (1) whether, because the sole purpose of the transactions was to avoid VAT, the supplies made through the gaming machines continued to be made by RAL Holdings Ltd's VAT group; and (2) whether the restructuring, although not a sham, constituted an abuse of rights.
The appeals arose from an avoidance scheme operated by companies in the RAL Holdings Ltd corporate group. Under the scheme, gaming machines in 127 amusement arcades in the UK were leased to a newly formed subsidiary company in the Channel Islands (CI) which was granted licences to use the arcades by a group company in the UK. Another UK subsidiary contracted with CI to provide staff to operate the arcades. The object of the scheme was that the place of supply of gaming machine services to customers would be Guernsey and that CI would be able to recover VAT on supplies made to it without being liable to output tax on the supplies made.
The appellants submitted that there were no fixed establishments in the UK and that, even if the commissioners succeeded on the issue concerning fixed establishments, they faced the problem that the sixth directive had not been properly implemented in s. 9 of the Value Added Tax Act 1994; there was no basis for s. 9(2)(c). The place where the supplier had established his business was the point of reference, unless it did not lead to a rational result or created a conflict with other member states. Non-taxation, otherwise than from a conflict between member states, was avoided only in the specific situations defined in art. 9(3) of the sixth directive. In the appellants' view, it was not irrational for the place of supply of services to be outside the EC even though the place of consumption was within the EC.
The commissioners relied on the test as to fixed establishments summarised in C & E Commrs v Chinese Channel (Hong Kong) Ltd [1998] BVC 91: it must be of a certain minimum size with the permanent human and technical resources necessary for the provision of the services; where the company operating the fixed establishment is a different legal entity from the supplier, the company operating the premises on behalf of the supplier must not operate independently, this being a matter of function and substance, not merely legal form; and the service must be supplied from the fixed establishment. In the commissioners' opinion, all 127 arcades fulfilled the three conditions. The commissioners submitted that the direct tax law position must be relevant: CI made returns on the footing that it had a UK branch or branches. They further submitted that each amusement arcade had the necessary permanence with staff permanently present and permanently employed on behalf of CI to perform a number of tasks essential to the gaming machine supplies. It could not be said that the operation of the machines was carried on independently of CI. None of the companies was acting independently of the others. In the view of the commissioners, taxation of the gaming machine supplies by reference to the Guernsey establishment would not produce a rational result: the services were marketed in the UK and were physically delivered and enjoyed here; and it would distort competition since other operators were taxable in the UK.
The first of the commissioners' alternative submissions was that the supplies of gaming machine services were made by RAL Holdings Ltd as representative member of the VAT group of which RAL Ltd was the other member. It made the supplies directly to customers in the UK through its licensed premises. This argument arose only if the tribunal rejected the commissioners' view about fixed establishment. The commissioners said that the appellants' case depended on the effect of the contracts, but contended that the contractual position was not decisive. They referred the tribunal to Halifax plc v C & E Commrs [2002] BVC 370 in support of the proposition that transactions for the avoidance of VAT with no business purpose are not economic activities giving rise to supplies. Such transactions are alien to the purposes of the sixth directive. The commissioners' second alternative submission was that the appellants' arrangements constituted an abuse of VAT law. They said that the principle of abuse of rights was well established in Community law and claimed that two elements were needed for a finding of abuse: first, objective circumstances in which the purpose of Community rules was not achieved despite formal observance of the conditions; and second, a subjective element, being an intention to obtain an advantage from the rules by creating artificially the conditions laid down.
The appellants said that the commissioners' alternative arguments based on Halifax and on abuse of rights only arose if the tribunal were to hold that the place of supply was the Channel Islands by reason of the operation of the law on place of supply. The commissioners were seeking to circumvent the law. The appellants submitted that the evidence did not support the commissioners' contention that the transactions had no purpose other than the VAT avoidance. The commercial benefits of establishing a company in the Channel Islands had been identified before CI was incorporated. The fact was that the transactions were not wholly artificial. In any event, even if Halifax had been correctly decided, and the appellants did not accept that the tribunal had reached the correct decision in that case, it did not support the conclusion that supplies made in the context of a continuing business could be disregarded. Halifax was about a grouping arrangement whereby supplies by a third party were directed to the actual consumer, Halifax plc, without diversion through inserted intermediaries. In the present case, two of the companies had made supplies to third parties; it was CI that made the supplies to customers even if intervening transactions were disregarded. With regard to abuse of rights, the appellants stated that the commissioners' case was that, although CI did not have a UK establishment, but made taxable supplies, a...
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RAL (Channel Islands) Ltd;RAL Ltd;RAL Services Ltd;RAL Machines Ltd
...Tribunal *RAL (Channel Islands) Ltd RAL Ltd RAL Services Ltd RAL Machines Ltd See headnote and extract from decision at [2003] BVC 2228 ...