Trafalgar Tours Ltd v Commissioners of Customs and Excise
| Jurisdiction | England & Wales |
| Judgment Date | 14 December 1990 |
| Date | 14 December 1990 |
| Court | Court of Appeal (Civil Division) |
Court of Appeal (Civil Division).
Slade, Balcombe and Farquharson LJJ.
Mr Frederic Reynold QC and Mr Roderick Cordara (instructed by H H Mainprice) for the taxpayer.
Mr Guy Sankey (instructed by the Solicitor for Customs and Excise) for the Crown.
The following cases were referred to in the judgment of the court:
Apple and Pear Development Council v C & E Commrs (Case 102/86)VAT(1988) 3 BVC 274
C & E Commrs v Apple and Pear Development Council VAT(1986) 2 BVC 200,198
Value added tax - Supply for consideration - Taxpayer organised coach tours in UK - Parent company marketed tours overseas through other subsidiaries and travel agents - Taxpayer received 80 per cent of advertised price - Whether consideration received by taxpayer was amount paid by passengers, amount received by parent company or net amount received by taxpayer - Second EC Directive (67/228), eu-directive 67/228 article 8(a)art. 8(a), annex A, para. 13; Sixth EC Directive (77/388),eu-directive 77/388 article 11(A)(1) article 11(A)(2)art. 11A(1)(a), (2)(b).
This was an appeal by the taxpayer, a tour operator, against the decision of Popplewell J ((1989) 4 BVC 44) upholding a decision of the VAT Tribunal ((1987) 3 BVC 617) that VAT was chargeable on the full amount paid by the tourists who travelled on the tours.
The taxpayer company ("the operator"), which organised coach tours in the UK, was a subsidiary of Trafalgar Tours International Ltd based in Bermuda. The parent company arranged for brochures describing the tours to be published in the countries where other members of the group operated and determined the price. The overseas companies distributed brochures to local travel agents who obtained bookings from the customers. At the end of a tour the parent company paid the sterling equivalent of an agreed percentage of the advertised price, usually 80 per cent.
From 1973 the operator accounted for VAT by reference to the amount received from the parent company ("the net price") but in August 1985 the Commissioners of Customs and Excise wrote to the taxpayer stating that from March 1986 tax should be accounted for by reference to the advertised price.
In November 1985 an agreement headed "Purchase Agreement" was made between the operator and the parent company describing the operator as "vendor" and the parent company as "purchaser" of the tours, but the brochures published for 1986 set out the terms on which the tours were sold and included a statement that the operator was to be responsible to the tourists for the conduct of the tours and for the services and accommodation supplied.
The tribunal found that the difference between the amount paid by the tourists and the percentage of the brochure price received by the operator from the parent company was commission for the services supplied by the parent company, the overseas subsidiaries and the travel agents in marketing the tours and that the "purchase agreement" was merely a facade designed to conceal the true nature of the arrangements with a view to the avoidance of tax.
The VAT tribunal and the High Court decided that the tours were supplied by the operator to the passengers who took the tour and the consideration for that supply was the total amount paid by the passengers to the travel agents with whom they booked a tour. The consideration was therefore the advertised price (or possibly a smaller amount if a discount was offered) and the value of the supply of the services provided by the operator was to be taken to be that amount by virtue of the Value Added Tax Act 1983, Value Added Tax Act 1983 section 10 subsec-or-para (2)sec. 10(2).
Before the Court of Appeal the operator contended that, since there was no statutory definition of "consideration" in the Value Added Tax Act 1983, the expression fell to be construed in the light ofeu-directive 67/228 article 8(a) article annex A, para. 13art. 8(a) and annex A, para. 13, of the Second EC Directive and eu-directive 77/388 article 11(A)(1)art. 11A(1)(a)of the Sixth EC Directive: i.e. everything which a taxpayer "received" or "obtained" including incidental expenses. All that had to be decided was, what did the operator receive? What the operator received was the net price. The contractual relationship between the operator and the parent company and the misleading form of the "purchase agreement" were irrelevant.
Held, dismissing the operator's appeal:
1. The brochure stated that the operator was the principal responsible to the tourists for supplying the services and accommodation. The operator was the person with whom the passengers contracted and any sums paid by the tourists to the travel agents or overseas subsidiaries were accordingly received for and on behalf of the operator through a chain of agency arrangements.
2. eu-directive 77/388 article 11(A)(2)Article 11A (2)(b) made it clear that sums charged by a supplier to a purchaser or customer in respect of commission were to be treated as part of the consideration received or obtained by the supplier for the supplies. But even without para. (2)(b), the words ofeu-directive 77/388 article 11(A)(1)art. 11A(1)(a)would be wide enough to include commission. The concept of receipt was not to be confined to mere physical receipt. Anything received by an agent or nominee for and on behalf of a supplier of goods or services must be treated as received by the supplier himself.
3. It followed that for the purpose of determining the amount of VAT payable by the operator, the consideration was to be treated as the total amount paid by the passengers who travelled on the tour.
Trafalgar Tours Ltd ("the operator") appealed against a decision ofPopplewell J (VAT(1989) 4 BVC 44) given on 23 January 1989 dismissing the operator's appeal from a decision of the VAT tribunal. The grounds of the appeal were:
1. The judge erred in law in concluding that for the purposes of theValue Added Tax Act 1983, Value Added Tax Act 1983 section 10sec. 10 the consideration for the supply of the operator's services was the price paid by each prospective passenger on purchasing a ticket for the "British Highlights" tour in March 1986.
2. The judge erred in law in treating the questions of to whom the supply of services was made and whether a contractual relationship existed between the customer and the operator as determinative of the issue raised on appeal before him.
3. The judge either misdirected himself as to, or simply misunderstood, the clear effect of the Second EC Directive (67/228),eu-directive 67/228 article 8(a) article para. 13 annex Aart. 8(a), annex A para. 13 and the Sixth EC Directive (77/388), eu-directive 77/388 article 11(A)(1)art. 11A(1)(a).
This is a judgment of the court on an appeal by Trafalgar Tours Ltd ("the operator") brought with the leave of the judge from a judgment ofPopplewell J given on 23 January 1989 ((1989) 4 BVC 44) whereby the operator's appeal from the decision of a VAT Tribunal dated 15 July 1987 ((1987) 3 BVC 617) was dismissed.
The operator carries on a business of providing motor coach tours in Europe. It does so from 15 Grosvenor Place in London. It is a subsidiary of Trafalgar Tours International Ltd ("the parent company") of 73 Front Street, Hamilton in Bermuda. Other subsidiaries of the parent company ("the overseas subsidiaries") carry on business in Canada, New Zealand, Australia and the USA.
The way in which the tours are organised within the group is briefly as follows. The operator organises the tours for a coming season and provides the costings to the parent company. The parent company arranges for brochures describing such tours to be published in the countries in which the overseas subsidiaries operate and determines the prices in the local currencies at which the tours are to be so advertised. The overseas subsidiaries distribute copies of the brochures to travel agents who obtain the customers for the tours and notify their names to the overseas subsidiary concerned for transmission to the operator. The operator itself provides the tours for such customers.
Following a tour the parent company pays to the operator the sterling equivalent of an agreed percentage of the prices at which that tour was advertised in the brochures published in the countries in which the customers were obtained. In this judgment, following the terminology used by the tribunal and the judge, we will use the phrase "brochure prices" to refer to the advertised prices for the operator's tours as appearing in the relevant brochures for the season and the...
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