The Commissioners for HM Revenue and Customs v Fortyseven Park Street Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice Newey,Lord Justice Henderson,Lord Justice Longmore |
| Judgment Date | 17 May 2019 |
| Neutral Citation | [2019] EWCA Civ 849 |
| Docket Number | Case No: A3/2018/0984 |
| Court | Court of Appeal (Civil Division) |
| Date | 17 May 2019 |
[2019] EWCA Civ 849
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE UPPER TRIBUNAL
(TAX AND CHANCERY CHAMBER)
Judge Berner and Judge Poole
[2018] UKUT 41 (TCC)
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Longmore
Lord Justice Henderson
and
Lord Justice Newey
Case No: A3/2018/0984
Miss Hui Ling McCarthy QC (instructed by the General Counsel and Solicitor to HM Revenue and Customs) for the Appellants
Miss Melanie Hall QC (instructed by KPMG LLP) for the Respondent
Hearing dates: 10–11 April 2019
Approved Judgment
This case concerns the treatment for value added tax (“VAT”) purposes of sums that the respondent, Fortyseven Park Street Limited (“FPSL”), has received from selling “Fractional Interests” relating to a property at 47 Park Street in London's Mayfair. The Upper Tribunal (“the UT”) (Judge Berner and Judge Poole) concluded that the relevant supplies were exempt as the leasing or letting of immovable property, but HM Revenue and Customs (“HMRC”) challenge that decision.
Basic facts
FPSL, the ultimate parent of which is Marriott Vacations Worldwide Corporation (“MVWC”), holds a long lease of 47 Park Street. In 2002, it refurbished the property to create 49 “residences” divided into five categories. With the benefit of both a site visit and evidence from Mr Lee Dowling, a director of FPSL and the senior vice president for Europe and Middle East at MVWC, the First-tier Tribunal (“the FTT”) (Judge Morgan and Mr Coles) described the building in these terms:
“[14] The building has a [pillared] entrance with no signage indicating that the Property is anything other than residential premises. In the entrance hall, there is a concierge desk and a 24 hour reception desk. The concierge is uniformed and occasionally may stand on the steps outside the building. Mr Dowling stated that the concierge provides services in a manner consistent with other high end residential developments in the area. There are limited public areas. There is a small guest lounge to the right of the entrance, an internet room on the first floor and there are cloakrooms for ladies and gentlemen. Mr Dowling said that the facilities could be described as comparable with those of a small boutique hotel but not in his view with those of a larger style of hotel where, for example, a bar and restaurant would typically be provided.
[15] The residences are laid out over seven floors. On floors 1, 2 and 3 and in the basement there are a number of storage areas for members' property. Prior to a member's arrival these personal effects may be left in the residence for the member to unpack or may be unpacked by the housekeeping service as the member chooses. Each residence is accessed by a private door operated with a key card. Members report to reception to collect their key card on arrival; they hold key cards for a residence only during the period of occupancy. Mr Dowling stated that the arrival and departure process for members reflects those that would be experienced in any of the timeshare resorts operated under the Marriott brand.
[16] Each residence has a living space with sofas and chairs, a dining area, one or two bedrooms and bathrooms and a small kitchen. The kitchen is equipped with crockery, glasses, cutlery and pans. The housekeeping service stock the kitchen with specified groceries on the request and at the cost of the member. Mr Dowling said that only about 30% of members use the kitchen facilities. Most of the members who eat at the premises use the in-room dining facilities. The decor of the residences is uniform (although the Members Committee has rights to approve changes …). Inside each residence there is information about the facilities and services available for ease of reference by the members and also for the information of any non-members staying at the Property. There are complimentary toiletries in the residences as well as dressing gowns and slippers.”
When the hearing before the FTT took place, Fractional Interests cost between £93,000 and £243,000. Mr Dowling explained that the pricing gave purchasers (or “Members”) around a 35% discount overall on the commercial rate which non-Members pay for occupying the residences (taking into account the time value of money on a net present value calculation basis) (see paragraph 11 of the FTT decision).
At the date of the FTT hearing, FPSL had effected sales of 617 Fractional Interests out of a total of 631. By the time the matter was before the UT, the last remaining Fractional Interest had been sold.
Marketing material explained what FPSL was offering in, for example, these terms:
“Discover your home in Mayfair: the discreet and luxurious comfort of a private residence, with uncompromising levels of service that quietly anticipate, even exceed your expectations. Because you can store your clothing and personal items with us in between visits, your arrival is very much like coming home; letters waiting to be opened on the hall table, your wardrobe pressed and hanging in the closet, your favourite foods and wine stocked in the refrigerator and your family photos arranged on the night stand. Home at last.
The property's concept of fractional ownership allows you to own a share of a residence at 47 Park Street, to be used at your convenience, while providing the amenities and service of a five-star hotel. Fractional ownership, under stewardship of the world renowned Marriott brand, eliminates the burden of managing your second home, provides compelling financial options, gives you flexibility and extends your lifestyle.”
Someone wishing to buy a Fractional Interest would enter into a membership agreement (“the Agreement”) comprising “Particular Terms” and “General Terms”. There has been more than one version of the Agreement, but it was common ground that that dated December 2010 was representative.
“Fractional Interest” is defined in the December 2010 General Terms as “the right to occupy twenty-one (21) nights of Primary Use Time and up to a maximum of fourteen (14) nights of Extended Occupancy Time and all the rights and obligations deriving therefrom under this Agreement”. Section I(A) states that a purchaser “acquires personal contractual rights and obligations relating to the use of the Residences and the enjoyment of the Additional Plan Benefits during the term of the Plan”. The “Plan” means “the rights and obligations described in the Agreement relating to the use and enjoyment of the Residences and the Additional Plan Benefits”. The “Additional Plan Benefits” are:
“as available, each of the Membership Marriott Rewards Points Programme, the Resale Programme, the Rental Programme and the Interval Exchange Programme affiliation”.
The FTT summarised what a Member would receive on paying the purchase price as follows in paragraph 150 of its decision:
“(1) Access to occupancy rights whereby, for each fractional interest purchased, a member may occupy a fully furnished and operational residence of a specified category:
(a) for 21 nights (of Primary Use Time) during each year until the expiry of the term on 31 October 2050 for no additional payment; and
(b) where such nights have been used in full, a further 14 nights (of Extended Occupancy Time) in each such year on paying an additional Per Diem Rate (to cover certain housekeeping charges)
in each case, subject to making an advance reservation (in accordance with the reservation rules …).
(2) Access (as available) to a Rental Programme operated by the Manager of the Property. This enables a member in effect [to] turn the Primary Use Time rights to monetary value by opting to rent out nights reserved in a residence under those rights at the commercial daily rate. The Manager acts as the exclusive rental agent for members who join this programme in return for a fee.
(3) Access to a Space Available Programme, whereby a member who has signed up to the Rental Programme and who has reserved all of his 21 nights of Primary Use Time, may (at the Manager's discretion) obtain further nights in any residence at a Per Diem Rate to cover certain housekeeping costs and subject to the reservation rules …. We note that this will not be available to members once all of the fractional interests have been sold.
(4) Access (where available) to any Resale Programme which the Manager may set up to assist members in selling their interests should they wish to do so.
(5) Under arrangements with third parties, access to all exchange programmes that are available or may become available under the Plan, including the Interval Programme [i.e. the ‘Interval Exchange Programme’] and the Marriott Programme [i.e. the ‘Membership Marriott Rewards Points Programme’]. Under the Interval Programme a member can exchange one or more weeks of Primary Use Time for stays of an equivalent time in other properties. Under the Marriott Programme a member can exchange up to two weeks of Primary Use Time for points which entitle him amongst other things to stays in Marriott hotels. [FPSL] is not involved in the provision of the relevant benefits except that it bears the cost of each member's initial 12 months of membership of the Interval Programme. After that it is for members to choose whether to stay in the programme on paying the required fee to Interval.”
The FTT gave this description of the reservation rules in paragraph 55 of its decision:
“Members who want to occupy a residence must make a reservation request designating the desired date of occupancy and must receive confirmation from the Manager prior to occupancy. Requests are processed in the order of receipt:
(1) Reservations can only be made for the purchased residence type as regards both Primary Use Time and Extended Occupancy...
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