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Secret Hotels2 Ltd (Formerly Med Hotels Ltd) v The Commissioners for HM Revenue and Customs

CCH British VAT Cases Cited authorities 39 Cited in 5 Precedent Map Related
Vincent
JurisdictionUK Non-devolved
Judgment Date29 July 2011
Neutral Citation[2011] UKUT 308 (TCC)
Date29 July 2011
CourtUpper Tribunal (Tax and Chancery Chamber)

[2011] UKUT 308 (TCC).

Upper Tribunal (Tax and Chancery Chamber).

Morgan J.

Secret Hotels2 Ltd (formerly Med Hotels Ltd)
and
Revenue and Customs Commissioners

David Milne QC and Nicola Shaw (instructed by McGrigors LLP) for the appellant.

Sam Grodzinski QC and Eleni Mitrophanous (instructed by the Solicitor for HM Revenue and Customs) for the respondents.

The following cases were referred to in the judgment:

Ali v Lane [2007] 1 P & CR 26

Amalgamated Investment & Property Co Ltd v Texas Commerce International Bank Ltd ELR[1982] QB 84

Antoniades v Villiers ELR[1990] 1 AC 417

A1 Lofts Ltd v R & C Commrs VAT[2009] BVC 924

Chartbrook Ltd v Persimmon Homes Ltd ELR[2009] 1 AC 1101

C & E Commrs v Music and Video Exchange Ltd VAT[1992] BVC 30

C & E Commrs v Reed Personnel Services Ltd VAT[1995] BVC 222

Halifax plc v C & E Commrs ECASVAT(Case C-255/02) [2006] BVC 377; [2006] ECR I-1609

Hill (t/a JK Hill & Co) v C & E Commrs VAT(1988) 3 BVC 297

International Life Leisure VATNo. 19,649; [2006] BVC 2,803

Investors Compensation Scheme Ltd v West Bromwich Building SocietyWLR[1998] 1 WLR 896

Kennedy v De Trafford ELR[1897] AC 180

Maggs v Marsh UNK[2006] BLR 395

Mercantile International Group plc v Chuan Soon Huat Industrial Group Ltd UNK[2002] 1 All ER (Comm) 788

Nevill, Re, ex parte White ELR(1871) LR 6 Ch App 397

Potter v C & E Commrs VAT(1984) 2 BVC 200,049

R & C Commrs v Loyalty Management UK Ltd ECASECASVAT(Cases C-53/09 and C-55/09) [2011] BVC 1

Schuler AG v Wickman Machine Tools Sales Ltd ELR[1974] AC 235

Smith, Re, ex parte Bright ELR(1879) 10 Ch D 566

Spearmint Rhino Ventures (UK) Ltd v R & C Commrs VAT[2007] BVC 437

Street v Mountford ELRTAX[1985] AC 809; [2008] BTC 7,094

Value added tax - Tour operators' margin scheme (TOMS) - Principal or agent - Provision of hotel accommodation to holidaymakers - Identity of supplier - Interpreting terms of relevant agreements - Whether supplies of hotel and other holiday accommodation made by taxpayer as agent for accommodation suppliers or as principal - Whether supplies made where hotels situated - Council Directive 77/388, eu-directive 77/388 subsec-or-para 4 article 6 subsec-or-para A article 11 subsec-or-para B article 13 article 26art. 6(4), 11(A), 13(B), 26 - Value Added Tax Act 1994, Value Added Tax Act 1994 section 53s. 53 - Value Added Tax (Tour Operators) Order 1987 (SI 1987/1806).

This was an appeal by the taxpayer against a decision of the First-tier Tribunal (FTT) ([2010] UKFTT 120 (TC); [2010] TC 00431) dismissing its appeal against assessments to VAT under the Tour Operators' Margin Scheme.

The taxpayer was part of a group of travel-related businesses. At all material times it operated a website through which it marketed hotel accommodation. The website featured approximately 2,500 resort hotels, villas and apartments in a variety of destinations throughout the Mediterranean and the Caribbean. The appeal was concerned with the supply of hotel accommodation, via the website, made directly or indirectly to holidaymakers in the period from 12/04 to 06/07. It was the taxpayer's case that for the majority of the period in question (from 12/04 to 31 May 2007) the supply of hotel accommodation was by the hotel operator acting through the agency of the taxpayer to the holidaymaker. Approximately 94 per cent of hotel sales which were made via the taxpayer's website were made to travel agents acting on behalf of individual holidaymakers. The remaining six per cent of sales were made direct to holidaymakers. The taxpayer relied upon the express terms of the contracts entered into by the holidaymaker and on the express written agreements made by it with the hotel operators and, so far as material, with the express written agreements made by the taxpayer with travel agents. HMRC's case was that those documents should be looked at against the background of other contractual documents and the entirety of the taxpayer's commercial arrangements. The taxpayer appealed against two assessments raised by HMRC relating to output tax which was calculated under the Tour Operators' Margin Scheme (TOMS) in respect of the supplies of hotel accommodation on the basis that the taxpayer had at all times been acting as principal in the supply of the accommodation, and accordingly was liable to account for VAT in the UK.

The FTT dismissed the taxpayer's appeal. It decided that the evidence pointed to the taxpayer being a principal in the relevant transactions. It was not simply supplying agency services to the hotels, but was itself supplying the holiday. There was no merit in the taxpayer's alternative argument that the third-party travel agents were dealing with it as principal and that the taxpayer was, therefore, making wholesale supplies which fell outside the TOMS. Accordingly, the taxpayer was liable to account for VAT in the UK under TOMS ([2010] UKFTT 120 (TC); [2010] TC 00431). The taxpayer appealed. The issue was whether it acted as a principal, as HMRC alleged, or as an agent, as it contended, in relation to the supplies of hotel accommodation. It was common ground that if HMRC were correct then the taxpayer was in principle required to account for output tax under the TOMS and that if the taxpayer was correct then the supplies were treated as taking place in the overseas jurisdiction in which the hotel was situated and were, therefore, outside the scope of UK VAT.

Held, allowing the taxpayer's appeal:

1.The question as to the identity of the supplier of holiday accommodation was to be answered by considering the contracts entered into between the relevant parties and determining their effect as a matter of contract. Once the supplier under the contract was identified in that way, that party would be the supplier for the purpose of the VAT provisions. In the present case, it was unnecessary to engage in any further classification or assessment of the nature of the relevant supply. The FTT had erred in considering the terms of the written agreements and evidence as to how they were implemented in some cases, in holding that the written agreements were not consistent with the way that they were implemented and, finally, concluding that the terms of the written agreements could not be relied upon as setting out the governing terms of therelevant arrangements. If the hotel operator and the holidaymaker adopted a legal structure where the hotel accommodation was provided to the holidaymaker through an intermediary, that legal structure could not be regarded as lacking economic reality so that for the purposes of VAT it had to be analysed as if it were a different legal structure which the parties had not chosen to use. (C & E Commrs v Reed Personnel Services Ltd [1995] BVC 222 and A1 Lofts Ltd v R & C Commrs [2009] BVC 924 applied; R & C Commrs v Loyalty Management UK Ltd (Cases C-53/09 and C-55/09) [2011] BVC 1 considered.)

2.The express terms as a whole clearly and unambiguously stated that the contract for the provision of hotel accommodation was to be between the hotel operator and the holidaymaker. It did not matter whether the holidaymaker contracts were made as a result of a direct contact with the taxpayer or by means of indirect contact with the taxpayer through a travel agent. The taxpayer had authority to make contracts on behalf of the hotel operators to provide hotel accommodation to holidaymakers under the terms of the agreements between the taxpayer and the hotel operators. None of the matters relied upon by the FTT, nor the other circumstances of the case, allowed thetribunal to ignore the express grant of authority to the taxpayer. It was not alleged that the express terms of the agreements were a sham. It followed that the contracts which were made for the supply of hotel accommodation to holidaymakers were made by the hotel operators acting through the agency of the taxpayer. The hotel operators were thesuppliers of that accommodation both for the purposes of the law of contract and for the application of the VAT provisions.

DECISION

Morgan J: Introduction

1.This is an appeal by Secret Hotels2 Limited (formerly Med Hotels Limited). Although the appellant has changed its name, it remains convenient to refer to it as "Med". Med appeals to the Upper Tribunal against the decision of the First-tier Tribunal (Tax Chamber) ("the FTT") dismissing its appeal against two assessments by the Commissioners for Her Majesty's Revenue and Customs ("the Commissioners"). The judges of the FTT were MissJCGort and Mr A McLoughlin. The decision of the FTT was released on 24 March 2010 ([2010] UKFTT 120 (TC); [2010] TC 00431).

2.The assessments related to output tax which was calculated under the Tour Operators' Margin Scheme ("TOMS") in respect of supplies of hotel accommodation. I will refer to TOMS in a little more detail later in this decision.

3.The essential point made by Med before the FTT, and on appeal to the Upper Tribunal, was that it was not the supplier of the hotel accommodation in question and accordingly it was not liable to account for output tax as assessed by the Commissioners. Med contended that the relevant accommodation was supplied to holidaymakers by the hotel operators and that Med's role was to act as agent for the hotel operators. The FTT rejected Med's contention, hence this appeal.

4.Mr David Milne QC and Miss Nicola Shaw appeared for Med both before the FTT and on this appeal. Mr Sam Grodzinski QC and Ms Eleni Mitrophanous appeared for the Commissioners both before the FTT and on this appeal.

Background matters

5.At all material times, Med operated a website (www.medhotels.com) through which it marketed hotel accommodation. The website featured approximately 2,500 resort hotels, villas and apartments in a variety of destinations throughout the Mediterranean and the Caribbean. Approximately 94% of all hotel sales which were made via Med's website were made to travel agents acting on behalf of individual...

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