The Chinese Channel Ltd (HK)
| Jurisdiction | UK Non-devolved |
| Judgment Date | 08 March 1996 |
| Date | 08 March 1996 |
| Court | Value Added Tax Tribunal |
VAT Tribunal
The following cases were referred to in the decision:
Berkholz v Finanzamt [Tax Office] Hamburg-Mitte-AltstadtVAT(Case 168/84) [1985] ECR 2251; (1985) 2 BVC 200,178
British Railways Board v C & E Commrs VAT(1977) 1 BVC 116
British Sky Broadcasting Ltd VAT(LON/94/78) No. 12,394; [1995] BVC 1107
DFDS A/S VAT(LON/93/2396) No 12,588; [1995] BVC 1184
Dori v Recreb Srl (Case C-91/92) [1994] ECR I-3325
Interbet Trading Ltd (No. 2) VAT(1978) 1 BVC 1085
Marleasing SA v La Comercial Internacional de Alimentación SA(Case C-106/89) [1990] ECR I-4135[1993] 1 CEC 124
Murphy v Bord Telecom Eireann (Case 157/86) [1988] ECR 673
Van Munster v Rijksdienst voor Pensioenen (Case C-165/91) [1994] ECR I-4661
WH Payne & Co VAT(LON/95/1436) No 13,668; [1996] BVC 2551
Supply - Place where supplier belonged - Hong Kong based company buying in programmes from Chinese commercial station - Programmes transferred to video tapes and passed on to associated UK company - UK company carried out accounting and administrative functions in UK - Meaning of "carrying on a business through a branch or agency" - Whether phrase compatible with sixth VAT directive - Whether UK company appellant's "branch or agent" - Whether broadcasting services supplied through medium of UK company - Value Added Tax Act Value Added Tax Act 1994 section 9 subsec-or-para (2)1994, ss. 9(2)(a) and (5)(a);Directive 77/388, the sixth VAT directive, eu-directive 77/388 article 9(1)art. 9(1).
The issue was whether the appellant was carrying on the business of broadcasting in the UK through the agency of a UK company which, although associated with the appellant, was an independent legal entity.
The appellant, a Hong Kong based company without a UK office, operated a satellite television station under a licence from the ITC, broadcasting news, current affairs and family entertainment seven days a week to the Chinese community in Western Europe. An associated company, CC (UK), was registered for VAT and provided support services in the UK in the form of studio and production facilities and operational and general administrative services.
The appellant bought in programmes, including news services, from TVB in Hong Kong, prepared the scheduling and sent the recorded tapes to CC (UK) for editing. News services were sent down the Hong Kong Telecom line onto a British Telecom facility to London for editing by CC (UK) staff. There was some input of local news items of interest to European Chinese by CC (UK).
CC (UK), which owned four floors of a six-floor building in London with 40 employees, delivered the tapes and magnetic disks to A for transmission. The signal was then sent to British Telecom and transmitted to M in Winchester where the signal was up-linked to the satellite where it was down-loaded to subscribers.
CC (UK) collected subscribers' revenues through L and provided accounting services to the appellant. It also carried out marketing on its behalf.
A contract between the appellant and CC (UK) was put in evidence to the tribunal, according to which the appellant's business was described as "the provision of satellite television services to the Chinese communities in Europe under the name of "The Chinese Channel" and all related operations", with CC (UK) appointed "to provide certain specified services together with such other operational and general administrative services as might be requested". Also in evidence was a subscription contract which was between a subscriber and the appellant.
On 16 November 1994, Customs ruled that CC (UK) was a UK establishment of the appellant, the supply of broadcasting being carried out by CC (UK) in the UK and subject to tax at the standard rate.
The appellant contended that the supplies in issue, which were supplies of broadcasting, were supplies which it performed in Hong Kong, where it belonged. This was so both under the domestic legislation and art. 9 of Directive 77/388, the sixth VAT directive. According to the former, which had to be interpreted in the light of EC law, the appellant's business establishment, meaning where it had its seat, was in Hong Kong. The alternative test, under Value Added Tax Act 1994 section 9 subsec-or-para (5)s. 9(5) of the Value Added Tax Act1994, of whether it had "some other fixed establishment" in the UK, did not apply because it had no establishment in the UK. Even if it had, the establishment which was "most directly concerned with the supply" was in Hong Kong. It was impermissible to invoke Value Added Tax Act 1994 section 9 subsec-or-para (5)s. 9(5)(a) of the Value Added Tax Act 1994, whereby "a person carrying on a business through a branch or agency in any country shall be treated as having a business establishment there", since the application of that test did not accord with art. 9 of the sixth directive. In any event, the appellant did not have a branch in the UK and the word "agency" did not bear the meaning of a legal relationship but was synonymous with "branch". CC (UK) was not the appellant's agent. The two entities dealt at arm's length as principals.
The commissioners contended that the appellant was supplying services of broadcasting under its licence from the ITC and through the intermediary of CC (UK) in the UK. The words "fixed establishment from which the service is supplied" in eu-directive 77/388 article 9art. 9 of the sixth directive did not require it to amount to a property interest but included agencies owned or manned by others who made supplies on the supplier's behalf. The word "agency" did not necessarily mean an "agent" in the narrow sense but covered the case where a third party was the medium through which the business was carried on and the supply effected. CC (UK) was the appellant's agent and it acted on the appellant's behalf in supplying broadcasting. In that respect, the appellant had no production facilities in Hong Kong and carried out no creative work there. It bought in everything and transferred it on tape to London. CC (UK) then performed the production and editorial services and arranged for the broadcast signal to be transmitted.
Held, allowing the company's appeal:
1. It was accepted that the two companies acted on a principal to principal basis with CC (UK) providing administrative and accounting facilities and having a purposely reduced involvement in the creative broadcasting work.
2. The appellant had its business in Hong Kong, where it had its registered office and where the control of its operation was exercised. Following authority, the words "where the supplier has established his business" in eu-directive 77/388 article 9(1)art. 9(1) of the sixth directive meant the "seat" and on this test the appellant belonged in Hong Kong.
3. As to whether CC (UK) was a "branch or agency" of the appellant, consideration had first to be given to whether the appellant was "carrying on a business" through such a medium. Its business was that of broadcasting to subscribers. The greater part of the business, i.e. selection of the programmes and timetables, drawing up contracts with intermediaries and subscribers etc., took place in Hong Kong. The subscribers contracted with the appellant and CC (UK) had no power to intervene in the provision of these services. Neither in its relations with subscribers nor with the other companies through which it operated could it be said that the appellant was "a person carrying on a business through a branch or agency".
4. Even if the appellant could be said to have had an establishment in the UK and in Hong Kong, it was the latter establishment which was most directly concerned with the supply made under contract to the person entitled to receive it.
[The tribunal set out the facts summarised above and continued as follows.]
The matter was governed by Value Added Tax Act 1994 section 7 subsec-or-para (1) section 7 subsec-or-para (10)ss. 7(1) and (10) of the Value Added Tax Act 1994. These provisions state:
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7(1) This section shall apply (subject to sections 14 and 18) for determining, for the purposes of this Act, whether goods or services are supplied in the United Kingdom.
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7(10) A supply of services shall be treated as made-
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(a) in the United Kingdom if the supplier belongs in the United Kingdom; and
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(b) in another country (and not in the United Kingdom) if the supplier belongs in that other country.
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It was thus a simple test of the place where the supplier "belongs". There was no reference to the place of making the supply or to the person receiving the supply or where the component elements of the act were done. Section 9 of the same enactment provided:
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9(1) Subsection (2) below shall apply for determining, in relation to any supply of services, whether the supplier belongs in one country or another and subsections (3) and (4) below shall apply (subject to any provision made under section 8(6)) for determining, in relation to any supply of services, whether the recipient belongs in one country or another.
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9(2) The supplier of services shall be treated as belonging in a country if-
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(a) he has there a business establishment or some other fixed establishment and no such establishment elsewhere; or
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(b) he has no such establishment (there or elsewhere) but his usual place of residence is there; or
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(c) he has such establishments both in that country and elsewhere and the establishment of his which is most directly concerned with the supply is there.
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9(5) For the purposes of this section (but not for any other purposes)-
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(a) a person carrying on a business through a branch or agency in any country shall be treated as having a business establishment there; and
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(b) "usual place of residence", in relation to a body corporate, means the place where it is legally constituted.
The commissioners relied on the concept of "branch or agency" inValue Added Tax Act 1994 section 9...
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Commissioners of Customs and Excise v Chinese Channel (HK) Ltd
...77/388 article 9(1)art. 9(1). This was an appeal by Customs from a decision of the VAT and duties tribunal ((LON/94/3396) No. 14,003; [1996] BVC 2750) that broadcasting services were supplied by the taxpayer in Hong Kong, not by an associated company in the The taxpayer was a Hong Kong base......