Telewest Communications Plc and another v Commissioners of Customs and Excise
| Jurisdiction | UK Non-devolved |
| Judgment Date | 29 January 2003 |
| Date | 29 January 2003 |
| Court | Value Added Tax & Duties Tribunal |
VAT Tribunal
The following cases were referred to in the decision:
Blackqueen Ltd VATNo. 17,680; [2002] BVC 2221
British Sky Broadcasting plc VATNo. 16,220; [2000] BVC 2067
BUPA Hospitals Ltd VATNo. 17,588; [2002] BVC 2155
C & E Commrs v Cantor Fitzgerald InternationalVAT[1998] BVC 384
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 Plantiflor Ltd VAT[2002] BVC 572
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
C & E Commrs v Thorn Materials Supply Ltd VAT[1998] BVC 270
C & E Commrs v Wellington Private Hospital LtdVAT[1997] BVC 251
Card Protection Plan Ltd v C & E Commrs VAT(Case C-349/96) [1999] BVC 155
Eastbourne Town Radio Cars Association v C & E CommrsVAT[2001] BVC 271
EC Commission v France (Case C-76/99) [2001] ECR I-249
First National Bank of Chicago v C & E Commrs VAT(Case C-172/96) [1998] BVC 389
Halifax plc v C & E Commrs VAT[2002] BVC 370
Hill (t/a JK Hill & Co) v C & E Commrs VAT (1988) 3 BVC 297
RBS Property Developments Ltd VATNo. 17,789; [2003] BVC 2074
Skatteministeriet v Henriksen VAT(Case 173/88) (1990) 5 BVC 140
Staatssecretaris van Financiën v Heerma (Case C-23/98) [2000] ECR I-419
Staatssecretaris van Financiën v Shipping and Forwarding Enterprise Safe BV VAT(Case C-320/88) [1991] BVC 119
Thorn EMI plc VATNo. 9782; [1993] BVC 792
Tolhurst v Associated Portland Cement Manufacturers LtdELR[1902] 2 KB 660
Town and County Factors Ltd v C & E Commrs VAT(Case C-498/99) [2002] BVC 645
Trustees of the Nell Gwynn House Maintenance Fund v C & E CommrsVAT[1999] BVC 83
Supply - Composite or multiple - Zero-rating - Journals and periodicals - First appellant supplied cable television services and listings magazine, treating magazine as zero-rated - Second appellant incorporated to take over supply of magazine to customers of first appellant - Whether the supply of magazines was by the second appellant - If so, whether the supply was ancillary to the supply of cable television services made by the first appellant - Value Added Tax Act 1994, Sch. 8, Grp. 3, item 2.
The issue was whether the supply of programme listings magazines was part of a single, standard-rated supply of cable television services or a separate, zero-rated supply of printed matter. The issue raised three questions for determination by the tribunal: (1) whether, having regard to the contracts with the customers and all other relevant facts, the supply of magazines was made by the first or the second appellant; (2) whether, if the supply was made by the second appellant, the economic substance of the transactions was that the supply was made by the first appellant; and (3) whether, if the supply was made by the second appellant, it was ancillary to the supply of cable television services made by the first appellant.
The first appellant, Telewest Communications plc ("Group") was the representative member of a VAT group which included 28 regional cable television companies. It produced, through a subsidiary company, "Cable Guide" magazine. This contained programme listings and was both provided to cable television subscribers and sold through newsagents and other retail outlets at a cover price of £3.25. There was no argument that the retail sales were zero-rated supplies of printed matter. Before July 1999, residential subscribers were provided with Cable Guide magazine by the regional company, which supplied their cable broadcasting service. The commissioners accepted that the magazine was zero-rated. On 2 July 1999, the tribunal released its decision in British Sky Broadcasting Group plc (BskyB) [2000] BVC 2067, in which it applied the principles established by the European Court of Justice in Card Protection Plan Ltd v C & E Commrs (Case C-349/96) [1999] BVC 155, finding that the supply by BskyB of a listings magazine was ancillary to the supply of broadcasting services and was part of a single, standard-rated supply. A scheme was introduced by the first appellant to avoid a potential additional VAT liability. This involved the incorporation and registration for VAT of Telewest Communications (Publications) Ltd ("Publications"), the second appellant, in order for it to supply Cable Guide to subscribers with effect from 1 January 2000. Thereafter, Publications rather than the regional companies was invoiced for production of the magazine and the regional companies were designated as agents for Publications in distributing Cable Guide. In May 2000, Publications formalised the oral agreement through a written agency agreement with 27 of the 28 regional companies. With effect from September 2000, residential subscribers to digital cable television received a different magazine called "Zap". The supply of Zap was subject to a similar agency arrangement, but this was not put into writing.
The case for the appellants was that supplies of Cable Guide and Zap magazines were zero-rated under Value Added Tax Act 1994, Sch. 8, Grp. 3, item 2. The commissioners argued that the magazines formed part of a single, composite supply of standard-rated cable television services.
The first issue was whether, under the contractual arrangements, the supply was made by Group or Publications. The appellant submitted that the supply was by Publications. The contractual position was that Publications supplied the magazines to subscribers and the money was collected by the regional companies in their capacity as agents. The commissioners conceded that the regional companies might have had power under the contracts with their existing subscribers to change the terms of those contracts, but submitted that those companies had no power to create new contracts between Publications and the existing subscribers. In any event, claimed the commissioners, the obligations under the existing contracts could not be assigned without the consent of the subscribers and this had not been obtained.
The second issue was whether, if the obligation to supply the magazines was that of Publications, then, as a matter of economic substance, the supply was by Group. The appellant relied on Directive 77/388, the sixth VAT directive, in support of the principle that the identity of the taxable person was crucial to the concept of a supply. Apart from certain specified provisions, there was no general provision that all companies within a group of companies had to be treated as a single, taxable person. The commissioners argued firstly, that domestic VAT legislation had to be construed in accordance with the European Directives; secondly, that the concept of supply was an autonomous concept of Community law which had an economic, rather than a legal, meaning and which looked to the economic substance of a transaction rather than the legal relationship created under national law; and thirdly, that in determining whether there was consideration for a supply, it was necessary to consider whether a direct link existed between the consideration and the supply. The passing on of a payment by the supplier to another person did not mean there was no direct link.
The final issue was whether, if made by Publications, the supply was ancillary to the main supply of services by Group. The appellant submitted that there was no authority for the view that supplies made by different taxable persons could be part of the same supply. The commissioners disagreed, citing the decision in BskyB in support of the principle that the supply of broadcasting services and the magazine was a single supply. A subscriber was forced to receive the magazine and could not reduce his monthly payment by declining to receive it. Further, the magazine was a means of better enjoying the main supply of cable television broadcasts. In the commissioners' view, there was a single, integrated service and any attempted separation of the elements of this service would be artificial.
Held, dismissing the companies' appeal:
1. Having regard to the contractual arrangements and all the surrounding facts, the supply of the magazines was made by Group and not by Publications. This finding was sufficient to decide the appeal in favour of the commissioners.
2. Had the supply been made by Publications, the economic substance of the transactions would not have resulted in the supply being made by Group.
3. Had the supply been made by Publications, it could not have been ancillary to the supply of cable television services made by Group since it was made by a separate taxable person.
[The tribunal set out the facts summarised above and continued as follows.]
1. Before mid-1999 Telewest Communications Plc (Group) supplied cable television services and listing magazines to its customers. In 1999 Telewest Communications (Publications) Ltd (Publications) was incorporated with the intention that it should make separate supplies of the listing magazines to the customers of Group. After January 2000 Group and Publications accounted separately for value added tax on the basis that the supplies of cable television services were made by Group and were standard-rated, and that the supplies of the listing magazines were made by Publications and were zero-rated.
2. Group appeals against a decision of Customs contained in a letter dated 24 May 2001 that Group should account for value added tax at the standard rate on the full amount paid by its customers both for the cable television services and for the listing magazines.
3. Publications appeals against an alternative decision of Customs, also contained in the letter of 24 May 2001, that Publications should account for value added tax at the standard rate on the amounts paid by the customers for the listing magazines.
4. We were informed that the tax at issue in the appeal was about £6m each...
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