Sibcas Ltd v Commissioners for HM Revenue and Customs

JurisdictionScotland
Judgment Date13 July 2018
Neutral Citation[2018] CSIH 49
Date13 July 2018
Docket NumberNo 34
CourtCourt of Session (Inner House)

[2018] CSIH 49

First Division

Upper Tribunal (Tax and Chancery Chamber)

No 34
Sibcas Ltd
and
Commissioners for HM Revenue and Customs
Cases referred to:

Advocate General for Scotland v Murray Group Holdings Ltd [2015] CSIH 77; 2016 SC 201; 2015 SLT 765; 2016 SCLR 485; [2016] STC 468; [2015] BTC 36

Belgium v Temco Europe SA (C-284/03) EU:C:2004:730; [2004] ECR I-11237; [2005] STC 1451; [2005] 1 CMLR 23; [2005] CEC 20; [2007] BTC 5339; [2007] BVC 308; [2004] STI 2399

Brand's Trs v Brand's Trs (1876) 3 R (HL) 16; 1 App Cas 762

European Commission v France (C-60/96) EU:C:1997:340; [1997] ECR I-3827; [1999] STC 480

Fonden Marselisborg Lystbådehavn v Skatteministeriet (C-428/02) EU:C:2005:126; [2005] ECR I-1527; [2006] STC 1467; [2007] BTC 5839; [2007] BVC 808; [2005] STI 360

Kent (University of) v Customs and Excise Commissioners [2004] BVC 2215; [2004] V & DR 372; [2004] STI 1948

Leichenich v Peffekoven (C-532/11) EU:C:2012:720; [2013] STC 846; [2013] CEC 903; [2012] STI 3400

Maierhofer v Finanzamt Augsburg-Land (C-315/00) EU:C:2003:23; [2003] ECR I-563; [2003] STC 564; [2003] 2 CMLR 37; [2003] CEC 192; [2003] BTC 5269; [2003] BVC 325; [2003] STI 88

Procter and Gamble UK v Revenue and Customs Commissioners [2009] EWCA Civ 407; [2009] STC 1990; [2009] BTC 5462; [2009] BVC 461; [2009] STI 1722

Revenue and Customs Commissioners v Robert Gordon University [2008] CSIH 22; 2008 SC 419; 2008 SLT 476; 2008 SCLR 299; [2008] STC 1890; [2008] BTC 5348; [2008] BVC 469; [2008] STI 943

Schuler (L) AG v Wickman Machine Tool Sales Ltd [1974] AC 235; [1973] 2 WLR 683; [1973] 2 All ER 39; [1973] 2 Lloyd's Rep 53

Stichting Goed Wonen v Staatssecretaris van Financiën (C326/99) EU:C:2001:506; [2001] ECR I-6831; [2003] STC 1137; [2001] 3 CMLR 54; [2002] CEC 213; [2001] BTC 5583; [2002] BVC 46; [2003] STI 1068

UK Storage Co (SW) Ltd v Revenue and Customs Commissioners [2012] UKUT 359 (TCC); [2013] STC 361; [2012] BVC 1955; [2012] STI 3233

Textbooks etc referred to:

Gordon, WM, and Wortley, S, Scottish Land Law (3rd ed, W Green/Scottish Universities Law Institute, Edinburgh, 2011), vol 1, paras 5.12–5.14

Revenue — Value added tax — Taxable and exempt supplies — Whether prefabricated accommodation units provided as temporary school accommodation constituted the leasing or letting of immoveable property — Council Directive 2006/112/EC, Art 12 — Value Added Tax Act 1994 (cap 23), sch 9

SiBCAS ltd appealed against the decision of the Commissioners of Her Majesty's Revenue and Customs that its supply of temporary classroom accommodation was exempt from value added tax. On 15 July 2016 the First-tier Tribunal (Tax Chamber) (Judge Anne Scott) allowed the appeal ([2016] UKFTT 502 (TCC)).

The Commissioners appealed to the Upper Tribunal (Tax and Chancery Chamber). On 24 July 2017, the UT (Lord Doherty) allowed the appeal ([2017] UKUT 298 (TCC)). SiBCAS Ltd appealed to the Court of Session.

Item 1 of group 1 of Pt II of sch 9 to the Value Added Tax Act 1994 (cap 23) (‘the 1994 Act’) exempts from VAT “The grant of any interest in or right over land or any licence to occupy land”. That provision implements Art 135(l) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax ([2006] OJ 347/1) which requires Member States to exempt transactions involving “the leasing or letting of immoveable property”.

The appellants (‘SiBCAS’) supplied prefabricated accommodation units to a school for use as temporary classrooms. SiBCAS carried out foundation works, assembled the units and leased them to the school for over two years. The Commissioners for Her Majesty's Revenue and Customs (‘the Commissioners’) assessed the supply as being exempt from VAT under item 1 of group 1 of Pt II of sch 9 to the 1994 Act. SiBCAS appealed to the First-tier Tribunal (‘FTT’), which allowed the appeal. The FTT held that there was no supply of immoveable property as the units were not firmly fixed to the ground. The Commissioners appealed to the Upper Tribunal (‘UT’), which allowed the Commissioner's appeal. The UT held that, on an objective consideration of the building's relationship with the ground, the structure was fixed to or in the ground and was therefore immoveable property. SiBCAS appealed to the Court of Session.

It was argued on behalf of the appellants that the FTT did not err in law and its decision should not be interfered with. Resting on top of the ground was not enough to make a building immoveable, and for a prefabricated building to be immoveable its components required to be fixed to or in the ground so that they could not be easily dismantled.

It was argued on behalf of the respondents that the UT had been correct to hold that the FTT erred in law. The FTT wrongly considered whether the units were fixed to the ground rather than consider whether the structure as a whole, including the foundation works, was fixed to or in the ground.

Held that: (1) in the interests of commercial certainty it was important that the circumstances in which VAT was chargeable were as clear as was reasonably possible, and the trader or customer should not be required to make difficult judgments depending on the degree of physical connection between a unit and the ground (paras 36, 76); (2) the whole circumstances of the supply required to be considered in order to understand the substance of the commercial transaction undertaken, not just the physical properties of the product, as the exemption was intended to apply to passive leases and not transactions with active elements (such as design, construction, transportation, hire and removal) (paras 37, 62–64, 76, 90–94); (3) the ownership of the land to which the building attached was an important factor, as a lease normally involved a landlord who owned the relevant land and building leasing it to another person who was not the owner, whereas the land was owned by the school and SiBCAS supplied moveable property for use on the school's land (paras 38, 41, 70, 76); (4) the connection of individual components to the ground was not important, the structure as a whole had to be considered (paras 42, 68, 69, 76, 80, 81, 85); (5) applying a holistic approach it could not be said that the design, provision and removal of temporary school accommodation amounted to a lease of immoveable property, and the FTT reached the correct conclusion as the structure was inherently moveable (paras 42, 43, 71–73, 76, 108–110); and appeal allowed.

UK Storage Co (SW) Ltd v Revenue and Customs Commissioners [2013] STC 361 not followed.

The cause called before the First Division, comprising the Lord President (Carloway), Lord Drummond Young and Lord Bannatyne, for a hearing on the summar roll, on 17 May 2018.

At advising, on 13 July 2018—

Lord President (Carloway)

Introduction

[1] This appeal is about whether the appellants' supply of temporary school accommodation to an educational institution is exempt from value added tax (‘VAT’) as constituting ‘the grant of [an] interest in or right over land or of [a] licence to occupy land’, as interpreted to include ‘the leasing or letting of immovable property’. Unusually, it is the respondents who maintain that the supply is exempt. The issue is of some importance since there requires to be clarity, or at least firm guidance, for commercial enterprises on whether they ought to charge VAT to customers to whom they supply a variety of different types, shapes and sizes of accommodation modules which are, at least at the time of the initial supply, intended for temporary use.

Statutory background

[2] The Value Added Tax Act 1994 (cap 23) (‘the 1994 Act’) provides (sec 1) that VAT shall be charged ‘(a) on the supply of goods or services’; ‘supply’ including (sec 5) ‘all forms of supply’. The supply requires to be by a taxable (registered) person (sec 3) ‘in the course or furtherance of any business’ (sec 4). The 1994 Act has its source in the Sixth Directive (Council Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment ([1977] OJ L145/1)), which became the Principal Directive (Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax ([2006] OJ 347/1)). The Act's terms require to be construed in a manner compatible with the 2006 Directive. Article 9 of the 2006 Directive refers to a taxable person being someone carrying on ‘any economic activity’; meaning ‘[a]ny activity of producers, traders or persons supplying services' (see also the Sixth Directive, Art 4). There is, for other purposes, a definition of ‘a building’ in Art 12; being ‘any structure fixed to or in the ground.’

[3] The 1994 Act provides that ‘[t]he grant of any interest in or right over land or of any licence to occupy land’ is exempt from VAT (sec 31(1); sch 9, Pt II, group 1 (land), item 1(l)). This implements Art 135(1)(l) of the 2006 Directive, which requires Member States to exempt transactions involving ‘the leasing or letting of immovable property’ from the charge (see Sixth Directive, Art 13B(b)). Exceptions to the exemption in this group include the provision of hotel, catering or holiday accommodation, caravan park or camping facilities, and accommodation at a sports ground or other place of entertainment.

Facts found by the First-tier Tribunal

[4] The appellants' business is the manufacture, supply and hire of relocatable, modular prefabricated accommodation units. Single units are manufactured in different sizes, but they are generally 3.0 metres wide and between 6.8 and 9.2 metres long. They are rectangular boxes. The units are transported by lorry to the customers' sites by the appellants. The duration of hire is typically between 1 and 13 months for a single unit; averaging 7 months. Multiple unit hires will range from 4 to 36 months; averaging 20 months.

[5] Part of a secondary school in Stockton-on-Tees...

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