The Governor & Company of the Bank of Ireland v Her Majesty's Revenue & Customs, V 20824

JurisdictionUK Non-devolved
JudgeMiss J GORT
Judgment Date03 October 2008
RespondentHer Majesty's Revenue & Customs
AppellantThe Governor & Company of the Bank of Ireland
ReferenceV 20824
CourtFirst-tier Tribunal (Tax Chamber)
LONDON TRIBUNAL CENTRE


20824





EXEMPT SUPPLIES – Exempt agreement between the Bank and the Post Office to provide insurance via a panel – Whether subsequent agreement between the Bank and Norwich Union to ‘skew’ the panel also exempt – Whether intermediation – Article 13(B)(a) of 6th EC Directive – VAT Act 1994 Item 4 Group 2 Schedule 9 – Appeal allowed


LONDON TRIBUNAL CENTRE




THE GOVERNOR & COMPANY OF THE BANK OF IRELAND Appellant




  • and –



THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS Respondents






Tribunal: MISS J C GORT (Chairman)

MR K S GODDARD MBE



Sitting in public in London on 9, 12, 13 and 16-18 June 2008


Mr Roderick Cordara QC and Mr Edmund King of counsel, instructed by Herbert Smith LLP, for the Appellant


Mr Matthew Barnes of counsel, instructed by the Solicitor’s Office, for the Respondents




© CROWN COPYRIGHT 2008

DECISION


1. The appeal is against a decision of the Commissioners for Her Majesty’s Revenue and Customs (“the Commissioners”) contained in a letter dated 19 July 2006 ruling that the supplies made by the Appellant under the terms of a contract with Norwich Union Insurance Ltd (“Norwich”) are standard rated services for the purposes of VAT.


2. The grounds of appeal are that the supply of services by the Appellant (“the Bank”) under its contract with Norwich (“the Norwich Union contract”) constitutes exempt services of an insurance intermediary under Item 4 of Group 2, Schedule 9 of the Value Added Tax Act 1994 (“the Act”) and/or Article 13B(a) of the VAT Sixth Directive.


The Background


3. At all material times the Bank was a banking organisation based at 36 Queen Street, London. It was incorporated on 5 January 1972 and was registered for VAT on 1 April 1973. In 2003/2004, the Bank and the Post Office agreed to form a venture for the manufacture, among other things, of Post Office branded private car insurance, and insurance related products, which would be manufactured or procured by the Bank and sold to Post Office customers.


4. In pursuance of this venture a company called Midasgrange Ltd (also known as Post Office Financial Services which will be referred to as “POFS” throughout this decision) was established: it was owned by the Bank (through Bank of Ireland UK Holdings Plc) as to 50.01% and by the Post Office as to 49.99%. On 23 December 2003 the Bank, the Post Office, Bank of Ireland UK Holdings Plc and POFS entered into an agreement (the “Shareholders Agreement”) regulating the management of POFS, their relationship with each other and certain aspects of the affairs of, and their dealings with, POFS along with several other contracts regulating the terms of the venture.


5. On 21 May 2004 the Bank and Bristol & West Plc (which, for the purposes of this appeal, will not in future be referred to separately) entered into an agreement with an unconnected company called BISL Ltd (which is referred to as “Junction”) in connection with the provision of insurance intermediary services by the Bank to Junction (the “Bank-Junction contract”), which was amended on 31 March 2006. This contract was for the purpose of the referral by Bank to Junction of Post Office customers seeking insurance, in return for sales-based commission.


6. By various agreements, Junction supplied intermediary services to a panel of insurers (“the panel”), who competed with each other in quoting for the business provided by the Post Office customers: one member of the panel was Norwich. It was at all times accepted by the Commissioners that the intermediary services provided by Bank to Junction under the Bank-Junction contract are exempt from VAT as the services of insurance intermediaries pursuant to Item 4, Group 2, Schedule 9 of the VAT Act 1994.


7. The purpose for the Post Office of the arrangement was to expand its customer base through the provision of financial services products and the associated provision of intermediary services. It had an established customer base and network of branches, and the Bank agreed to pay commission to the Post Office via POFS in return for the Post Office and POFS introducing customers to the Bank. Under the terms of the contract, the Post Office was to act as an intermediary by providing access to, and introducing its customers to, POFS in consideration for commission from POFS (as set out in an agreement called the “Intermediary Agreement”). POFS in turn agreed to introduce the Post Office customers to the Bank, POFS acting as an intermediary between the Post Office and the Bank (documented in the “Manufacturing Support and Intermediation Agreement” (“MSIA”)). The Bank agreed to provide Post Office customers with a full range of financial services products. As the Bank is not a regulated insurer, it agreed to source insurance through Junction who acted as an intermediary between the panel and the Bank.


8. Initially the arrangement did not prove profitable for either Bank or POFS, the average premiums and volume of sales achieved under the arrangement with Junction were much lower than Junction had predicted during the tender process resulting in lower commission rates than had been anticipated. Junction’s costs, which were being paid by the Bank, exceeded the amount of commission Junction was due to pay to the Bank under the Bank-Junction contract and by August 2005 the Bank was losing money on every policy sold through Junction. It was therefore decided that the Bank-Junction contract should be renegotiated and ways of improving the arrangement had to be found.


9. It was decided that, in order to increase sales of motor policies, a “primary insurer" should be selected which would be the panel’s main recipient of intermediary services. Details of this arrangement and its consequences will be set out below. An arrangement was made whereby Norwich was selected (again the reason for this choice will be set out below) to have the opportunity, where it did not originally provide the lowest quote, to undercut the lowest quote offered by another panel member (a process known as “flexing”). There was an advantage conferred on Norwich by means of the arrangement which became known as a “skewed” panel, and it is believed that this was the first example of such a skewed panel (see the evidence of Mr Blundell referred to at paragraph 39 below).


10. The issue for the Tribunal is whether the arrangement entered into between Bank and Norwich whereby Norwich received an enhanced opportunity to quote for the motor insurance business is exempt from VAT, or whether, as the Commissioners say, Norwich’s enhanced opportunity to capture business is outside the proper scope of intermediation, and therefore is a standard rated service for the purposes of VAT.






The law


11. Article 13B(a) of the Sixth VAT Directive provides that the following shall be exempted from VAT by Member States under conditions which they shall lay down: “insurance and re-insurance transactions, including related services performed by insurance brokers and insurance agents.”


12. The Act at Item 4, Group 2, Schedule 9 provides that the following supplies are exempt from VAT:


“The provision by an insurance broker or insurance agent of any of the services of an insurance intermediary in a case in which those services –


(a) are related (whether or not a contract of insurance or re-insurance is finally...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT