WH Payne & Company
| Jurisdiction | UK Non-devolved |
| Judgment Date | 27 October 1995 |
| Date | 27 October 1995 |
| Court | Value Added Tax Tribunal |
VAT Tribunal
The following cases were referred to in the decision:
Berkholz v Finanzamt Hamburg-Mitte-Altstadt VAT(Case 168/84) [1985] ECR 2251; (1985) 2 BVC 200,178
Binder Hamlyn VAT(1983) 1 BVC 1190
C & E Commrs v Johnson VAT(1980) 1 BVC 338
Chantrey Vellacott VAT(LON/91/1718) No. 7311; [1992] BVC 1442
DFDS A/S VAT(LON/93/2396) [1995] BVC 1184
Interbet Trading Ltd (No. 2) VAT(1978) VATTR 235; (1978) 1 BVC 1085
Kidd & Zigrino Ltd (1974) VATTR 173
Marleasing SA v La Comercial Internacional de Alimentación SA(Case C-106/89) [1990] ECR I-4135; [1991] 1 CEC 124
Okura & Co Ltd v Forsbacka Jernverks AktiebolagELR[1914] 1 KB 715
R v Bouchereau (Case 30/77) [1977] ECR 1999
Vincent Consultants Ltd VAT(LON/88/254) No. 3091; (1988) 3 BVC 808
Supply - Services - Place of supply - Where recipient belonged - Services of accountants supplied to customer established outside EU - Customer owned property in UK managed by agents there - Whether customer's business treated as established in UK - Whether customer had fixed establishment in UK - Person carrying on business through branch or agency - Whether provision in legislation deeming person carrying on business through an agency in the UK to have business establishment there was ultra vires Directive 77/388, the sixth VAT directive - Whether supply within scope of UK tax - Directive 77/388, the sixth VAT directive, eu-directive 77/388 article 9(2)art. 9(2)(e); Value Added Tax Act Value Added Tax Act 1994 section 4 subsec-or-para (1) section 7 subsec-or-para (1) section 7 subsec-or-para (10) section 7 subsec-or-para (11) section 91994, ss. 4(1), 7(1), (10) and (11) and 9; Value Added Tax Act 1994 schedule 5 subsec-or-para 3Sch. 5, para. 3; Value Added Tax (Place of Supply of Services) Order 1992, SI 1992/3121 section 16(SI 1992/3121), art. 16.
The issue was whether the Jersey-based recipient of accountancy services supplied by the appellant also had a business or fixed establishment in the UK with which the supplies were most directly concerned, with the effect that the supply was within the scope of UK tax.
The appellant was a firm of chartered accountants supplying book-keeping and taxation services to a number of overseas companies which owned land and buildings in the UK. Trafalgar Estates Ltd ("T"), the recipient of the supplies, was legally constituted in the British Virgin Islands with a registered office there. Its one shareholder was resident in Hong Kong. T was established and managed by F, a company corporated in Jersey providing offshore trust and company administration services. F was T's company secretary and provided its administrative office in Jersey.
In June 1991, T purchased a leasehold flat in London, instructing Messrs Savills as its letting agent. The agreement, to be interpreted in accordance with English law, set out the services the agents would provide to T, which included finding a tenant for the flat, taking up references, demanding the rent, arranging for an inventory and arranging for utility services to be in a tenant's name. However, the day-to-day management services were carried out by another UK firm, D. The decision to let the property to a specific tenant was made by T in Jersey. The appellant's services consisted only of agreeing T's income tax liability in connection with rental income and interest with the Revenue.
Following a visit by one of their officers, Customs issued an assessment dated 1 March 1995 on the basis that the services supplied by the appellant to T were within the scope of UK VAT and standard-rated.
Before the tribunal the only issue was whether T had "a business establishment or some other fixed establishment" in the UK such that caused it to be treated as belonging there for the purposes of s. 9 of the Value Added Tax Act 1994 or whether T had "established his business or has a fixed establishment to which the service is supplied" for the purposes of eu-directive 77/388 article 9(2)art. 9(2)of Directive 77/388, the sixth VAT directive.
The appellant contended that:
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(2) The phrase "has established his business" in art. 9 of the sixth directive referred to the headquarters of an entity's economic activity or the seat of its business. This was consistent with the corresponding expression in other language versions of the directive. Since the central management and control of T took place in Jersey and the relevant decisions were taken there, T had not established its business in the UK.
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(3) Value Added Tax Act 1994 section 9 subsec-or-para (5)Section 9(5)(a) of the Value Added Tax Act 1994 which deemed a person carrying on a business through a branch or agency in any country to have a business establishment there was inconsistent witheu-directive 77/388 article 9(2)art. 9(2)(e) of the sixth directive, since a taxable person could only have one headquarters. In any event, T was not carrying on a business through a branch or agency since Savills had no authority to conclude leasing arrangements on T's behalf.
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(4) The phrase "some other fixed establishment" in s. 9(2)(a) of the Value Added Tax Act 1994 implemented eu-directive 77/388 article 9(2)art. 9(2)(e) of the sixth directive which used the term "a fixed establishment". Following authority, this was to be taken as requiring "a permanent presence of a combination of human and technical resources" which could not be taken to describe whatever presence T may have had in the UK.
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(5) Even if T were to be treated as having a business establishment or a fixed establishment in the UK it also had such an establishment in Jersey and it could not be said that the services provided by the appellant were most directly used in the UK.
The commissioners contended that:
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(2) T had a "business establishment" in the UK, since that was where the relevant economic activity took place. The only direct involvement of Jersey was the initial consent to the tenancy agreement, the approval of major structural expenditure and the receipt of the net rents. The fact that T was registered in Jersey and had an administrative office there did not mean that Jersey was the seat of its business activity. The management of the flat took place in London so that T's business establishment was in the UK.
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(3) Value Added Tax Act 1994 section 9 subsec-or-para (5)Section 9(5)(b) of the Value Added Tax Act 1994 did not conflict with the provisions of eu-directive 77/388 article 9(2)art. 9(2)(e) of the sixth directive and the fact that an agent could not bind its principal in all matters did not preclude such a relationship. T carried on business through the agency of Savills, D and the appellant and all the day-to-day management of the property was conducted in the UK.
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(4) Even though T had no registered office in the UK or any employee contracted exclusively to it there, the fact that the property was in the UK, as were the three UK-based agents concerned in its management, resulted in T having "some other fixed establishment" in the UK.
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(5) The accountancy services provided by the appellant were to enable T to comply with the requirements of UK tax law relating to the administration of rental funds paid from the UK to an overseas company and it could therefore be said that the "most directly used" test was satisfied.
Held, allowing the taxpayer's appeal:
1. The use of the phrase "the place where the supplier has established his business" in eu-directive 77/388 article 9(2)art. 9(2)(e) of the sixth directive indicated the intention that there was to be only one business establishment, namely the place (and not a place) where the supplier had established his business, referring to the head office, headquarters or principal place of business, i.e. the physical place from where the business was run. The appellant had no such establishment in the UK. On the facts, the Jersey office was not a bare registered office but the only place where the decisions about the company's economic activities were taken.
2. There was no authority for member states treating a branch or agency as "the" business establishment, which was one objectively defined place. Value Added Tax Act 1994 section 9 subsec-or-para (5)Section 9(5)(a) of the Value Added Tax 1994 was not consistent with the provisions of the sixth directive, which were both mandatory and clear and upon which the appellant was entitled to rely. In any event, it could not be said that T was carrying on business through its UK agents. If D, in carrying out day-to-day maintenance of the flat, constituted a branch or agency of T in the UK, T also had a business establishment in Jersey and the services were most directly used in Jersey.
3. Following the test laid down of a "fixed establishment" requiring "an establishment of a certain minimum size where both human and technical resources necessary for the receipt of services were permanently present", it could not be said on the facts that T had such an establishment, whether one took into account the flat or the UK-based parties. The mere location of the flat in London did not make it a "fixed establishment" and even if it was, the appellant was not supplying its services to it but to T in Jersey.
4. If T had a "fixed establishment" in the UK and Jersey it was in Jersey alone that T received the relevant supplies, namely those necessary for its accounting and taxation requirements.
[The tribunal set out the facts summarised above and continued as follows.]
26. The relevant parts of eu-directive 77/388 article 9art. 9 of the Directive 77/388, the sixth VAT directive, provide:
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9 Supply of services
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9(1) The place where a service is supplied shall be deemed to be the place where the supplier has established his business or has a fixed establishment from which the service is supplied or, in the absence of such a place of business or fixed establishment, the place where he has...
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