Robert Gordon's College v Commissioners of Customs and Excise
| Jurisdiction | UK Non-devolved |
| Judgment Date | 02 March 1993 |
| Date | 02 March 1993 |
| Court | Value Added Tax Tribunal |
VAT Tribunal
The following cases were referred to in the decision:
EC Commission v France VAT(Case 50/87) (1990) 5 BVC 205
Friary Leasing Ltd VAT(LON/88/1026) No. 3893; (1989) 4 BVC 709
Morrison's Academy Boarding Houses Association; C & E Commrs v VAT(1977) 1 BVC 108
Pepper (HMIT) v Hart and related appeals TAX[1992] BTC 591
Rompelman & Anor v Minister van Financiën VAT(Case 268/83) (1985) 2 BVC 200,157
Royal Exchange Theatre Trust; C & E Commrs v VAT(1979) 1 BVC 308
Self-supply of land - Whether lease by appellant a supply in the course of business - Whether use of the land by the appellant activated the self-supply provisions - Use of Hansard in construing VAT provisions - Value Added Tax Act 1983,Value Added Tax Act 1983 section 2sec. 2-Value Added Tax Act 1983 section 14 schedule 6A subsec-or-para 5 section 614 and Sch. 6A, para. 5 and 6.
The issues were: (1) whether the grant of a lease by the appellant to Countesswells Playing Fields Limited (Countesswells) was a taxable supply made in the course or furtherance of the business of the appellant; and (2) whether or not, in any event, the use of the land by the appellant triggered the self-supply provisions of the Value Added Tax Act 1983.
The appellant is an independent fee-paying school providing exempt educational services. Sometime in 1990 the appellant decided to develop an area of undeveloped land as new playing fields and to build on the land a new pavilion and a house for a groundsman. The appellant decided that it would effect this development by incorporating a new company, Countesswells, to manage the new playing fields. The appellant completed and paid for the development and then granted a 12-year lease to Countesswells, both entities registering for VAT and electing to waive the exemption for supplies or property. A premium of £187,500 was paid by Countesswells for the lease together with an annual rent, payable in advance, of £30,000. Countesswells entered into a licence agreement of indeterminate length with the appellant whereby the appellant had the right to use such parts of the facilities and at such times as Countesswells determined. The consideration was an annual licence fee, initially at a rate of £187,500. A draft lease and licence agreement were prepared but remained unexecuted pending the decision in the appeal. As the appellant could not use the facilities all the year Countesswells made the new complex available to outside parties on a commercial basis, preparing a proper business plan and engaging outside marketing consultants.
The commissioners contended that the lease granted by the appellant to Countesswells was not a supply in the course of a business carried on by the appellant, whose sole business was providing exempt education, and, as far as the pavilion was concerned, the appellant, as developer, had constructed a new non-domestic building which it had itself occupied within ten years of completion. Thus the self-supply provisions were triggered. They argued that the financial arrangements in the lease and licence back were disadvantageous to the appellant, that the money involved had not changed hands, having gone round in a circle from the appellant to Countesswells and back again, and that, although it was accepted that the two bodies concerned were separate legal entities, the deal between them could not be described in any sense as an arm's length transaction.
The appellant contended that the prime motive for the arrangements was to obtain a better return on capital employed. The appellant could not act in the commercial way that Countesswells could without prejudicing its charitable status. It was clear from Friary Leasing LtdVAT(1989) 4 BVC 709, that something which is a tax advantage is in the furtherance of business. Value added tax is not a tax on profit and the financial advantages were, in any event, less crucial than they would have been had the two parties been at arm's length. With regard to the self-supply provisions the appellant contended that Value Added Tax Act 1983 schedule 6 subsec-or-para 5Sch. 6, para. 5(a) and (b) are alternatives. They accepted that para. 5(a) did not apply but contended that they were a fully taxable person under para. 5(b) so that the self-supply provisions did not apply. They contended further that, to make sense of para. 5(b) the words "the interest in" must be imported at the beginning of that provision. Thus it should be read as "the interest in the building or work is not used by him at any time during the period in, or in connection with, making any exempt supplies of goods or services." When the first boy ran onto the playing fields the appellant was not using its interest to provide exempt supplies. If the commissioners' contentions were accepted the result would be double taxation since the appellant would, in addition to the self-supply charges, have to pay VAT to Countesswells on the fee for the licence-back. If this was the interpretation to be placed on the bald wording of para. 5(4)(b) it was an absurdity and the tribunal was entitled, under the authority of the decision on Pepper [HMIT] v Hart and related appeals [1992] BTC 591, to look behind the legislation to what was the intention of parliament when the legislation was enacted.
The commissioners argued in reply that when the first boy ran onto the playing fields the self-supply regulations were triggered and that para. 5(4)(b) must be read and construed without the importation of any additional words. The words of the paragraph were clear and unambiguous and gave r ise to no absurdity nor did the effect of the self-supply provisions mean double taxation.
Held, allowing the appeal:
1. The series of transactions which took place between what were two legal entities were not, in any sense, a subterfuge. In the view of the tribunal they were made in the course of a business carried on by the appellant and, even if there was any doubt that the lease was such a supply, it was undoubtedly in the furtherance of the business of the appellant.
2. There was agreement between the parties that the appellant was not only the developer but also a taxable person. When the first pupil occupied the playing fields he was doing so pursuant to a licence-back agreement and not because it was a part of the college's educational provision. For that right, which accorded only limited use of the facilities during restricted periods, a consideration was paid on which the appellant paid VAT.
3. It followed that at no time was there a situation in which the college was using either the whole, or even a part, of the facilities for the making of exempt supplies. It was not, therefore, necessary to import further words into para. 5(4)(b). The appellant was a fully taxable person for the purposes of para. 5(1) and the self-supply provisions did not apply in the circumstances.
4. The tribunal did not consider that the legislation was either ambiguous, obscure or absurd and so it was not necessary to resort to Hansard for assistance in construing the relevant provisions.
[The tribunal set out the facts summarised above and continued as follows.]
Turning to the first matter which we are required to determine, the relevant statutory provisions are contained in Value Added Tax Act 1983 section 2 section 14sec. 2 and 14 of the Value Added Tax Act 1983 [not reproduced here].
The respondents concede that the appellants are a "taxable person" in terms of these provisions. What they contest is that the lease by the College to Countesswells was "a taxable supply made … in the course or furtherance of any business carried on". While they do not suggest that the management arrangements come to were a sham their basic attitude is that the lease and licence back was a subterfuge the only purpose of which was the reclaiming of input tax on the construction costs of the development. They base this view partly on the evidence of Mr Leggate and partly on the terms of extracts submitted in evidence from the minutes of the College's finance committee dated 31 October 1991 and 23 January 1992. These minutes state as follows:
VAT
Minutes of Finance Committee of 31st October, 1991.
1. Value Added Tax - The College Secretary referred to the report prepared by the College Auditors in connection with the VAT costs being incurred by the College with regard to the development of the new sportsfield facilities at Slopefield (Countesswells). Proposal 1 of the report proposed a lease and leaseback structure which would allow a cash flow ad vantage to the College arising from deferral of...
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