Revenue and Customs Commissioners v News Corporation UK & Ireland Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 28 January 2021 |
| Neutral Citation | [2021] EWCA Civ 91 |
| Year | 2021 |
| Court | Court of Appeal (Civil Division) |
[2021] EWCA Civ 91
Geoffrey Vos, Master Of The Rolls, Lady Justice Rose and Lady Justice Simler
Court of Appeal (Civil Division)
Value added tax – Zero rating – Definition of newspapers – EC Directive 2006/112, art. 110 – VATA 1994, Sch. 8, Grp. 3, item 2 – Always speaking principle – Whether includes digital news services – No – Whether principle of fiscal neutrality has effect – No – Appeal allowed.
The Court of Appeal (EWCA) have overturned the previous UT decision and ruled in favour of HMRC the supply of digital news services in the claim period were not liable to zero rating, as they were not “newspapers”.
The Court of Appeal (EWCA) overturned the Upper Tribunal (UT) decision of News Corp UK & Ireland Ltd v R & C Commrs [2020] BVC 522 and ruled in favour of HMRC the supply of digital news services between 2010 and 2016 were not liable to zero rating.
News UK was the representative member of a VAT group that published, principally, The Times, The Sunday Times, The Sun and The Sun on Sunday. They argued VATA 1994, Sch. 8, Grp. 3, item 2 which zero rates “newspapers, journals and periodicals” could apply to newspapers in digital form, and these digital news services shared the necessary characteristics of a newspaper, the two being fundamentally the same.
In News Corp UK & Ireland Ltd [2018] TC 06318 the FTT disagreed. Notwithstanding the fact the FTT accepted that the digital news services (with one exception) had similar characteristics to those of the newsprint editions – they were periodic, edition based, curated and the content was essentially the same or very similar – they held that the digital news services were not “newspapers” for VAT purposes, because VATA 1994, Sch. 8, Grp. 3, item 2 only dealt with supplies of goods in physical form. That decision was reversed by the UT who applied the 'always speaking' principle of statutory interpretation and held, on the basis of the FTT's findings of fact, that these items were indeed “newspapers” and liable to zero rate VAT.
HMRC challenged the conclusion of the UT and argued it was wrong in law because they had misapplied the “always speaking” principle and/or misapplied the relevant principles of EU law that governed zero rating in this field. Relying on the fact the zero rating provision should be strictly construed, and the effect of EC Directive 2006/112, art. 110 as a “standstill” provision, they argued the word “newspapers” in item 2 was limited to tangible goods and did not extend to cover digital news services. The interpretation by the UT was an impermissible extension of the zero-rating regime.
The EWCA therefore had to determine whether there was an error of law by the UT in its application of the “always speaking” principle and/or the relevant principles of EU law and, if so, whether the principle of fiscal neutrality was properly applied by the FTT.
Article 17 of the Second Directive permitted member states discretion to provide for reduced rates or even exemptions with refund if they had been adopted for clearly defined social reasons and for the benefit of the final consumer. The UK took advantage to preserve the tax-free treatment of newspapers in place under the Purchase Tax regime. The Sixth Directive continued the standstill provision which was also later preserved by art. 110.
The FTT had held that since art. 110 contained a standstill date of 1 January 1991, the scope of the zero-rating provisions could not be extended beyond their 1991 limits and must be interpreted strictly. To extend item 2 beyond the supply of goods to cover the supply of services would have been an impermissible expansion of the provisions. This was, in their view, supported by the conclusion of the ECJ in Talacre Beach Caravan Sales v C & E Commrs (Case C-251/05) [2007] BVC 366 that national exceptions had to interpreted strictly and particular care had to be taken to ensure their scope was not extended beyond the limits set in January 1991.
The UT found that although the items were in fact all goods at the time of enactment nothing in the statutory wording of group 3 or item 2 suggested an intention to exclude items that were not in the form of goods. The correct question was whether, as a matter of the UK principles of statutory interpretation including the “always speaking” principle, the term newspapers was to be construed as including the digital versions that had come into existence since 1991. The UT found no relevant distinction in the legislative purpose of the print and digital editions and no legislative purpose for excluding the digital news services which, they considered, were precisely the sort of technological innovation the “always speaking” principle was designed to address.
The EWCA found the objective of art. 110 was to recognise and respect the national choices made by member states to maintain prior tax treatments provided they were within permissible limits. A category of supply that was not zero rated by 31 December 1975, because it did not exist, could not later become zero rated unless it could properly be viewed as falling within an existing category having regard to the statutory words used in their proper context.
As a matter of principle the requirement of strict interpretation did not exclude the “always speaking” principle from operation, but there could be no doubt the ordinary meaning of the words in item 2, as understood between 1972 and 1991, would have been of a printed newspaper, journal or periodical.
The words used by parliament also led to the inference the clear legislative intent was to include tangible physical items only;
- Item 6 refers to covers, therefore items 1–5 must be capable of being put into covers
- Item 4 refers to music and envisages music in paper form rather than music provide in any other way
- Note 1 (b) stated in respect of goods comprised in items 1–6, and
- the wording of Note 2 assumes items 1–6 included supplies of tangible goods only and not intangible items
and indicated a narrow intention rather than a broad, permissive one.
The EWCA therefore did not consider the word “newspaper” could be construed as including intangible digital news services. It agreed with the FTT to include digital news services would be an impermissible expansion of the zero-rating provisions.
On the question of fiscal neutrality, this could not have the effect of extending the scope of zero rating beyond its expressed limits.
Appeal allowed
This decision obviously relates to a period prior to the introduction of zero rating for electronic publications (e-publications) which took effect from 1 May 2020.
It will be a disappointing loss for the taxpayer but with the very significant sums likely to be involved across the industry it was inevitable HMRC would robustly defend their position.
Mr Nigel Pleming QC and Ms Eleni Mitrophanous QC (instructed by Ms Philippa Harvey of HMRC Solicitors) appeared for the appellant
Mr Jonathan Peacock QC and Mr Edward Brown (instructed by Mr Glen Harling of Deloitte LLP) appeared for the respondent
[1] Supplies of (printed) newspapers are zero-rated for value added tax (“VAT”) pursuant to section 30 and Item 2, Group 3 of Schedule 8 to the Value Added Tax Act 1994 (“the VAT Act”). The question that arises on this appeal is whether the word used to describe this zero-rated item, “newspapers”, can be properly interpreted (applying the relevant canons of construction including the “always speaking” principle) for VAT purposes in the period from September 2010 to December 2016, to apply also to what I have termed “the digital news services” in the form of digital editions of certain newspaper titles (The Times, The Sunday Times and The Sun, including The Sun on Sunday1), published and supplied by News Corp UK & Ireland Limited (referred to below as “News UK”). Although the appeal is confined to “newspapers” the logic of the reasoning may also extend to other items in Group 3, and elsewhere – in particular to “books”, “journals” and “periodicals”.
[2] By a judgment dated 8 March 2018, the First-tier Tribunal (Tax) (Judge Brannan) (“the FTT”) held that the digital news services are not “newspapers” for VAT purposes. That decision was challenged on appeal by News UK. By a judgment dated 24 December 2019, the Upper Tribunal (Tax and Chancery Chamber) (Zacaroli J and UT Judge Greg Sinfield) (“the UT”) reversed the FTT decision, holding, on the basis of the FTT's findings of fact, that these items are indeed “newspapers” and liable to zero-rate VAT.
[3] In fact, since this appeal was heard by the UT, by the Budget Statement dated 11 March 2020, the Government has announced the extension of zero-rating for (printed) newspapers to all electronic newspaper publications with effect from 1 May 2020. However, this announcement does not affect the issues on this appeal which, as indicated, relate back to the VAT periods September 2010 to June 2014 and 28 January 2013 to 4 December 2016.
[4] On this appeal, the Commissioners for Her Majesty's Revenue and Customs (“HMRC”) challenge the conclusion reached by the UT as wrong in law because the UT misapplied the “always speaking” principle of statutory interpretation (ground 1) and/or misapplied the relevant principles of EU law that govern zero-rating in this field (ground 2). Their essential case is that the word “newspapers” in Item 2 of Group 3, Schedule 8 to the VAT Act, properly interpreted, is limited to tangible goods and does not extend to cover the digital news services. The interpretation of this term by the UT as covering such services is an impermissible extension of the zero-rating regime and therefore contrary to both domestic and EU law. HMRC rely on the requirement that zero-rating provisions are strictly construed, and the effect of article 110 as a “standstill” provision, which requires even greater care to avoid an extension of...
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