The Commissioners for HM Revenue and Customs v News Corporation UK & Ireland Ltd

Hearing dates: 1 & 2 December 2020

Approved Judgment

In accordance with the Covid-19 protocol for handing down judgments, I attach the judgment in this case by way of hand-down, which will be deemed to have occurred at 10.30 am on 28 January 2021

Introduction

Supplies of (printed) newspapers are zero-rated for value added tax (“VAT”) pursuant to section 30 and Item 2, Group 3 of Schedule 8 to the Value Added Tax Act 1994 (“the VAT Act”). The question that arises on this appeal is whether the word used to describe this zero-rated item, “newspapers”, can be properly interpreted (applying the relevant canons of construction including the “always speaking” principle) for VAT purposes in the period from September 2010 to December 2016, to apply also to what I have termed “the digital news services” in the form of digital editions of certain newspaper titles ( The Times, The Sunday Times and The Sun, including The Sun on Sunday 1), published and supplied by News Corp UK & Ireland Limited (referred to below as “News UK”). Although the appeal is confined to “newspapers” the logic of the reasoning may also extend to other items in Group 3, and elsewhere – in particular to “books”, “journals” and “periodicals”.

By a judgment dated 8 March 2018, the First-tier Tribunal (Tax) (Judge Brannan) (“the FTT”) held that the digital news services are not “newspapers” for VAT purposes. That decision was challenged on appeal by News UK. By a judgment dated 24 December 2019, the Upper Tribunal (Tax and Chancery Chamber) (Zacaroli J and UT Judge Greg Sinfield) (“the UT”) reversed the FTT decision, holding, on the basis of the FTT's findings of fact, that these items are indeed “newspapers” and liable to zero-rate VAT.

In fact, since this appeal was heard by the UT, by the Budget Statement dated 11 March 2020, the Government has announced the extension of zero-rating for (printed) newspapers to all electronic newspaper publications with effect from 1 May 2020. However, this announcement does not affect the issues on this appeal which, as indicated, relate back to the VAT periods September 2010 to June 2014 and 28 January 2013 to 4 December 2016.

On this appeal, the Commissioners for Her Majesty's Revenue and Customs (“HMRC”) challenge the conclusion reached by the UT as wrong in law because the UT misapplied the “always speaking” principle of statutory interpretation (ground 1) and/or misapplied the relevant principles of EU law that govern zero-rating in this field (ground 2). Their essential case is that the word “newspapers” in Item 2 of Group 3, Schedule 8 to the VAT Act, properly interpreted, is limited to tangible goods and does not extend to cover the digital news services. The interpretation of this term by the UT as covering such services is an impermissible extension of the zero-rating regime and therefore contrary to both domestic and EU law. HMRC rely on the requirement that zero-rating provisions are strictly construed, and the effect of article 110 as a ‘standstill’ provision, which requires even greater care to avoid an extension of the zero-rate regime.

News UK's case is that Item 2 of Group 3 can apply to “newspapers” in digital form, and that the digital news services share the necessary characteristics (per the findings of fact of the FTT and the decision of the UT) of a newspaper, the two being

The following issues arise for determination accordingly: first, whether there was an error of law by the UT in its application of the “always speaking” principle of statutory construction and/or the relevant principles of EU law (including the requirement for a strict interpretation of the zero-rate provision); and secondly, if so, whether the principle of fiscal neutrality was properly applied by the FTT.

HMRC have been represented on this appeal, as below, by Mr Nigel Pleming QC who appeared with Ms Eleni Mitrophanous QC. For News UK, Mr Jonathan Peacock QC and Mr Edward Brown appeared, again as they did below. I am grateful to all counsel and those instructing them, for the clarity and care with which their cases were presented.

The EU context

The ability to zero-rate certain supplies for VAT purposes originated in EC Council Directive 67/228 (‘the Second Directive’). It was introduced, notwithstanding the recognition in the fifth recital that the introduction of zero-rates of tax gave rise to difficulties and it was highly desirable to limit strictly the number of such exemptions, but as part of a process initiated in 1967 directed at the harmonisation of VAT legislation. The last indent of article 17 of the Second Directive permitted member states discretion, on what was described as a transitional basis, to “provide for reduced rates or even exemptions with refund, if appropriate, of the tax paid at the preceding stage, where the total incidence of such measures does not exceed that of the reliefs applied under the present system”. These measures were authorised only where two cumulative conditions were met: the measure must have been adopted for clearly defined social reasons and for the benefit of the final consumer. The UK's zero-rating regime does not, in domestic terms, operate as an exemption, but it operates as an exemption with a right of refund in EU law and derogates from the general principle that all supplies of goods and services should be subject to VAT.

The UK took advantage of the authorisation conferred by article 17 of the Second Directive to preserve the tax-free treatment of newspapers (in place since 1940 under the Purchase Tax regime which levied an indirect tax on the wholesale price of goods but exempted newspapers and books) by enacting section 12 of the Finance Act 1972 before joining the European Economic Community on 1 January 1973. Section 12 provided for the zero-rating of supplies listed in Group 3 of Schedule 4 to the 1972 Act as follows:

“GROUP 3 – BOOKS, ETC

Item No.

1. Books, booklets, brochures, pamphlets and leaflets.

2. Newspapers, journals and periodicals.

3. Children's picture books and painting books.

4. Music (printed, duplicated or manuscript).

5. Maps, charts and topographical plans.

6. Covers, cases and other articles supplied with items 1 to 5 and not separately accounted for.

Note: This Group does not include plans or drawings for industrial, architectural, engineering, commercial or similar purposes.”

The Sixth Council Directive 77/388 (“the Sixth Directive”) adopted ten years later, continued the standstill provision in materially the same terms as that found in article 17. By article 28(2) the Sixth Directive permitted member states to retain, (still on a purportedly transitional basis) the reduced rates and exemptions (with refund) that were in force on 31 December 1975 and that satisfied the cumulative conditions set out in the last indent of article 17 of the Second Directive.

The Sixth Directive was recast by Council Directive 2006/112/EC on the common system of value added tax (“the Principal VAT Directive”). Its objective was to harmonise legislation on turnover taxes by means of a system of VAT that would eliminate, so far as possible, factors which may distort competition whether at national or community level. Thus Title VIII Rates, set out, at Chapter 2 (headed “Structure and level of rates”) article 96, the requirement on member states to apply “a standard rate of VAT … as a percentage of the taxable amount and which shall be the same for the supply of goods and for the supply of services” although the actual rates fixed may differ. Article 97 provided for a minimum standard rate of 15%. Article 98 permitted member states to apply either one or two reduced rates but only to supplies of goods or services in the categories set out in Annex III; and article 99 provided for a floor of no less than 5% for any such reduced rates.

However, the discretion previously permitted to member states by the Second and Sixth Directives, as an exception to the harmonised arrangements, was preserved by the Principal VAT Directive. Chapter 4 (headed “Special provisions applying until the adoption of definitive arrangements”) created a series of special exceptions to the harmonised system “pending introduction of the definitive arrangements referred to in article 402”, the intention being that the special provisions were intended to be temporary, and to be replaced in due course by definitive (or harmonised) arrangements but this has not yet occurred and there has, as yet, not been the universal harmonisation anticipated.

Article 110 was...