Trinity Mirror Plc (formerly Mirror Group Newspapers Ltd) v Commissioners of Customs and Excise
| Jurisdiction | England & Wales |
| Judge | CHADWICK LJ,MR JUSTICE WRIGHT,LORD JUSTICE PILL |
| Judgment Date | 25 January 2001 |
| Neutral Citation | [2001] EWCA Civ 65 |
| Docket Number | Case No: QBCOF/00/0374/C |
| Court | Court of Appeal (Civil Division) |
| Date | 25 January 2001 |
[2001] EWCA Civ 65
Lord Justice Pill
Lord Justice Chadwick
Mr Justice Wright
Case No: QBCOF/00/0374/C
IN THE SUPREME COURT OF JUDICATURE COURT OF APPEAL (CIVIL) DIVISION)
ON APPEAL FROM MR JUSTICE LIGHTMAN
Royal Courts of Justice
Strand, London, WC2A 2LL
MR DAVID MILNE QC & MR G SINFIELD (instructed by Messrs Lovells for the Appellant)
MRS M HALL (instructed by the Solicitor of Customs and Excise for the Respondents)
This is an appeal from the order made on 8 February 2000 by Mr Justice Lightman dismissing an appeal from the decision, released on 24 September 1998, of a Value Added Tax Tribunal (Mr Theodore Wallace) on an appeal by Trinity Mirror Plc (formerly Mirror Group Newspapers Limited) under section 83 of the Value Added Tax Act 1994.
The underlying fact
The facts have not been in dispute. They are conveniently set out in an agreed statement which was before the Tribunal:
"1. In May 1991 Mirror Group Newspapers Limited ('Mirror') which at that time was a wholly owned subsidiary of RM Holdings Limited, carried out an issue of shares under which the public was invited to subscribe for shares in Mirror under an arrangement with Salomon Brothers International Limited, Nat West Bank plc and Lloyds Bank plc. A total of 196,392,000 ordinary shares were issued, of which 72,332,300 were issued to non-EU residents and 124,059,700 were issued to EU residents.
2. Mirror incurred VAT of £1,530,997.88 in respect of fees of legal advisers, financial advisers etc. in connection with the issue of shares. HM Customs & Excise ruled that £871,300 [of] that VAT was irrecoverable. The purpose of the issue of shares was to raise finance for the expansion of the business. The funds were actually used for this purpose.
3. Mirror recovers 100% of input tax on its overheads.
4. Input tax attributable to exempt supplies is not recoverable.
5. The VAT treatment of the issue of shares is not consistent throughout the EU member states. Some member states allow full or partial recovery of input tax attributable to the issue of shares in a similar way to the recovery of input tax attributable to general overheads, while other member states (including the UK) disallow any input tax recovery on the basis that the issue of shares is an exempt supply."
The issue for determination
The question for the Tribunal was whether the Commissioners of Customs and Excise ("C&E") were correct in their view that the issue in the United Kingdom by a taxable person of its own shares for the purpose of financing the expansion of its business constitutes a supply of services for the purposes of the Value Added Tax Act 1994. The Tribunal answered that question in the affirmative. The judge upheld that decision. Permission to appeal to this Court was given on the ground that that question was of some general importance.
The answer to that question is determinative of the appeal. It is not in dispute that the appellant is a taxable person for the purposes of the Act. Nor is it in dispute that, if the issue of shares does not constitute a supply of services for the purposes of the Act, then the fees charged by legal and financial advisers can be treated as part of the appellant's general expenses; with the consequence that the input tax in respect of those fees will be allowable under section 26 of the 1994 Act as being attributable to taxable supplies (or to supplies outside the United Kingdom which would be taxable supplies if made in the United Kingdom) made by the appellant in the course or furtherance of its business.
If, on the other hand, the issue of shares does constitute a supply of services for the purposes of the 1994 Act, then the input tax in respect of fees charged by legal and financial advisers in connection with the issue are, plainly, attributable to that supply. The fees cannot be treated, for the purposes of value added tax, as part of the appellant's general expenses. It is not in dispute that, if the issue of shares does constitute a supply of services, then that supply is an exempt supply – see section 31 of, and item 6 of group 5 in schedule 9 to, the 1994 Act. Accordingly, that supply is not a taxable supply – see section 4(2) of the 1994 Act. It follows that input tax attributable to that supply is not allowable as a credit, save in so far as the supply is made to a person outside the European Union ("the EU") – see section 26(2)(a) and (c) of the 1994 Act.
The matters to which I have just referred lead to the conclusion – which, again, is not in dispute that, if the issue by the appellant of its own shares does constitute a supply of services for the purposes of the 1994 Act, then the input tax attributable to that share issue (£1,530,997.88) is not allowable as a credit, save to the extent that the input tax can be attributed to the issue of shares to non-EU residents. It appears from the agreed statement of facts that the amount of the input tax attributable to the share issue which was then to be allowed (on the ground that it is the amount attributable to the issue of shares to non-EU residents) was £659,697 or thereabouts. The judge refers to a different figure (£689,130); and it may be that this reflects some change in the computation between the hearing before the Tribunal and the hearing before him. It has not been suggested to us that the difference is of any significance. We are required to determine only the question of principle: whether the issue in the United Kingdom by a taxable person of its own shares for the purpose of financing the expansion of its business constitutes a supply of services for the purposes of the 1994 Act. We have not been asked to address any consequential question of computation.
Value Added Tax: the legislative history
Value Added Tax first became chargeable in the United Kingdom upon the coming into force of Part I of the Finance Act 1972. It has been common ground that Part I of the Finance Act 1972 was enacted in order to implement the First and Second Directives of the Council of the European Economic Community, issued on 11 April 1967, relating to "the harmonisation of legislation of Member States concerning turnover taxes". The fourth recital to the First Council Directive (67/227/EEC) explained that:
"… in the light of the studies made, it has become clear that such harmonisation must result in the abolition of cumulative multi-stage taxes and in the adoption by all Member States of a common system of value added tax."
Article 1 of the First Directive required that Member States should replace their present system of turnover taxes "by the common system of value added tax defined in Article 2." Article 2 was in these terms:
"The principle of the common system of value added tax involves the application to goods and services of a general tax on consumption exactly proportional to the price of the goods and services, whatever the number of transactions which take place in the production and distribution process before the stage at which tax is charged.
On each transaction, value added tax, calculated on the price of the goods and services at the rate applicable to such goods and services, shall be chargeable after deduction of the amount of value added tax borne directly by the various cost components.
The common system of value added tax shall be applied up to
and including the retail trade stage.
…"
Article 3 provided for the Council to issue a second directive concerning the structure of, and the procedure for applying, the common system of value added tax. The Second Council Directive (67/228/EC), issued on the same day, contained the following (amongst other) provisions:
"Article 2
The following shall be subject to the value added tax:
a)
The supply of goods and the provision of services within the territory of the country by a taxable person against payment;
b)
the importation of goods.
Article 3
'Territory of the country' means the territory in which the State concerned applies the value added tax; this territory shall, as a general rule, include the whole of the national territory, including territorial waters.
Article 4
'Taxable person' means any person who independently and habitually engages in transactions pertaining to the activities of producers, traders or persons providing services, whether or not for gain.
Article 5
1 'Supply of goods' means the transfer of the right to dispose of tangible property as owner.
2 The following shall also be considered a supply within the meaning
of paragraph 1: [particulars not material]
Article 6
1 'Provision of services' means any transaction which does not constitute a supply of goods within the meaning of Article 5. 2
The rules laid down in this Directive as regards the provision of services shall be compulsorily applicable only to services listed in Annex B.
3 The place of the provision of service shall, as a general rule, be regarded as being the place where the services provided, the right transferred or granted, or the object hired, is used and enjoyed.
"4 Annex B to the Second Council Directive – which prescribed those services in relation to the provision of which Member States were required to make provision for the payment of value added tax did not include the transfer, assignment or issue of shares, debentures or other securities. That reflected the conclusion, expressed in the sixth recital to the Directive, that "it has proved possible to leave Member States themselves to make rules concerning the numerous services whose cost has no influence on the price of goods, …"
As I have indicated, the First and Second Council Directives of...
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