DECISION
1. This
appeal concerns supplies made by the appellant, Colaingrove Limited
(“Colaingrove”) and/or other companies within the Bourne Leisure Group Limited
VAT group, of or including power (gas and/or electricity) at holiday parks
owned or operated by Colaingrove in the UK. Colaingrove is the representative
member of the Bourne Leisure Group Limited VAT group and we refer in this
Decision to Colaingrove, without distinguishing between it and other companies
in that VAT group. There are, in fact, 3 appeals, which have been
consolidated. The first relates to the refusal by the Respondents (“HMRC”) to
repay VAT of £129,743 claimed pursuant to a voluntary disclosure by Colaingrove
dated 23 December 2002. The second appeal relates to an assessment in the sum of
£941,650 in respect of output tax made on 4 January 2007 in respect of the
periods 12/03 to 09/08. The third appeal relates the refusal by HMRC of a
claim for repayment of VAT of £691,891.38 made by Colaingrove on 7 December
2010. All 3 appeals raise the same issues.
2. Colaingrove
makes a claim for compound interest if successful. The parties agreed,
however, that consideration of that issue should be deferred and, accordingly,
we make no further mention of it in this Decision.
3. Colaingrove
argues that the supplies, insofar as they are supplies of power, or ‘concrete
and specific’ elements of supplies which include the provision of power, should
properly be subject to VAT at the reduced rate (currently 5 per cent.) under
the provisions of section 29A of and Schedule 7A to the VAT Act 1994 (“VATA”).
4. HMRC, on
the other hand, contend that the power concerned is being provided by
Colaingrove as part of supplies of fully serviced holiday accommodation and
such supplies are standard-rated in their entirety.
5. We received
Witness Statements from two witnesses – Dermot Francis King, the Company
Secretary of Colaingrove, and Peter John Bennett, an Officer of HMRC. We were
also provided with a bundle of documents. Mr Cordara QC, for Colaingrove, did
not require to cross-examine Mr Bennett. Mr Hyam’s cross-examination of Mr King
did not take up much time. From the evidence, we find the basic facts as
follows (there are some additional findings made later in this Decision under
the heading “Discussion”):
The
facts
6. The relevant
provision of power was by Colaingrove to holiday makers who stayed at
Colaingrove’s chalets and static caravans while taking holidays which had been
advertised as promotional offers by the News of the World or The Sun
newspapers.
7. Colaingrove
has 37 holiday parks and resorts trading under the names ‘British Holidays’,
‘Haven’ and ‘Butlins’. At these holiday parks and resorts, Colaingrove provides
accommodation to customers in the form of static caravans, chalets and pitches
for static caravans and touring caravans not owned by Colaingrove. Each pitch
(which includes pitches where static caravans and chalets are located) has its
own electric meter and gas meter.
8. Since the
early 1990s, Colaingrove has had a contractual relationship with News International
Limited, the owner of The Sun newspaper. Pursuant thereto, The Sun publishes,
from time to time, promotional ‘offers’ of holidays in static caravans and/or
chalets to be taken (at heavily discounted rates) at places including
Colaingrove’s holiday parks. We refer to these holidays as ‘Sun Holidays’.
Touring caravans are not included within the scope of this promotion. The
contract between Colaingrove and the entity acting for News International
Limited (GFM Services) provides for the promotional offers to be published, for
the discounted prices to be charged in the promotional offers as ‘holiday
prices’, and for any supplementary charges for, inter alia, gas and
electricity to be clearly indicated in the promotional offer and to be in
accordance with Colaingrove’s standard programme of charges, to be collected by
Colaingrove either in advance or upon arrival. The terms of the contract
between Colaingrove and a Sun Holiday customer provides for power charges to be
made at a ‘per night’ rate and for them to be payable at least 56 days before
arrival (or if the holiday is booked less than 56 days in advance, on
booking). The attention of potential Sun Holiday customers is drawn to this
and other points in a column in The Sun headed ’20 things every Sun
holiday-taker must know’.
9. Customers
taking a Sun Holiday at one of Colaingrove’s holiday parks can stay in a static
caravan or chalet at one of a number of the parks operated by Colaingrove.
Separate amounts are charged to Sun Holiday customers in respect of (1) accommodation
and (2) power. The charge for accommodation (typically in the region of £60) is
collected by The Sun and held by The Sun until the holiday has taken place. It
is then remitted (less a commission) to Colaingrove. The charge for power (typically
in the region of £12) is a fixed charge, which is collected separately by
Colaingrove from the customer at the time when the customer makes a holiday
reservation (i.e. before the holiday starts). In 2008 the fixed charge was at
a rate of £5.75 per day – at the time of the hearing of the appeal it was (Mr
King thought) £6. The charge for power is not optional – if the Sun Holiday
customer does not pay it to Colaingrove by the specified date before the
holiday is taken, the holiday booking ‘is treated as a cancellation’ according
to the terms of the contract between Colaingrove and the Sun Holiday customer. Power
supplied to static caravans and chalets at Colaingrove’s parks is metered, but the
Tribunal accepts (and finds) that in the periods in issue it would have been
disproportionately burdensome and expensive to read the meter for each fixed
caravan and chalet at the start and at the end of every holiday period and that
is why Colaingrove charged a fixed daily fee for fuel and power. Mr King
accepted in evidence that there was no correlation between the actual
consumption of power by a Sun Holiday customer and the charge made to the
customer for the provision of power. The Tribunal accepts that electricity has
been supplied to any Sun Holiday customer using a fixed caravan or chalet at a
rate not exceeding 1000 kilowatt hours a month (see: below, item 5(g) of Group
1, Schedule 7A, VATA). Similarly, piped gas has been supplied to any Sun
Holiday customer using a fixed caravan or chalet at a rate not exceeding 150
therms or 4397 kilowatt hours a month (see: below, item 5(c) of Group 1,
Schedule 7A, VATA). The actual amounts of electricity and gas supplied were
not established, but the Tribunal accepts (and finds) that they were well below
these limits.
10. Before 1995, Colaingrove
accounted for output VAT in respect of the supply of power in relation to
touring caravans at the standard rate (then 17.5 per cent.). On 10 May 1995
PricewaterhouseCoopers LLP (“PwC”) submitted a voluntary disclosure to HMRC
claiming repayment of wrongly paid output tax in relation to the VAT periods
03/89 to 12/94, on the basis that the supplies of power concerned were supplies
for ‘domestic use’ within Group 7, Schedule 5, VAT Act 1983, as being supplies
‘for use in self-catering accommodation’. As supplies of power for domestic
use, Colaingrove claimed that they should have been zero-rated until 31 March
1994 and charged at the reduced rate (then 8 per cent.) thereafter. It appears
from PwC’s letter of 10 May 1995 that the charge for power (in 1994) was a
fixed charge of £3.50 per night, which was charged over and above the ‘touring
fee’, and that the charge was optional, in the sense that a customer was not
required to ‘hook up’ for electricity and the booking form required a customer
to indicate whether he/she required the electricity ‘hook up’ facility. Mr
King’s evidence (which the Tribunal accepts) was that most touring caravans are
designed to be connected to an electricity ‘hook-up’ at a caravan site (such as
the parks operated by Colaingrove) and nearly every touring caravan using
Colaingrove’s parks takes advantage of the electricity ‘hook-up’ where
Colaingrove has it available.
11. Subject to a minor amendment
to the quantum of the claim, this claim was accepted by HMRC and a VAT
repayment was made in 1995. Colaingrove has continued to apply the reduced rate
to the output VAT due in respect of the supply of power to touring caravans,
and this has not been opposed by HMRC.
12. Colaingrove submitted a
voluntary disclosure on 21 March 1996 in relation to the supply of power to Sun
Holiday customers on the same basis. By this disclosure, Colaingrove sought
repayment of £63,762 in respect of the periods 03/94 to 12/95. This claim was
paid (with an addition of £2,900) by HMRC.
13. Colaingrove made manual
adjustments in the periods 03/96 to 12/98 to their VAT accounts in order to
treat supplies of power to Sun Holiday customers as being reduced rate
supplies. In the periods 03/99 to 03/02, this process of manual adjustment became
(in Mr King’s words) ‘unduly onerous’ and Colaingrove accounted for output VAT
on the supplies at the standard rate with the intention of making voluntary
disclosures from time to time in order to recover the overpaid VAT. Such a
voluntary disclosure was made on 23 December 2002 (in the amount of £129,743
relating to power supplied to Sun Holiday customers) but was refused by HMRC on
the grounds that there was no separate supply of power to Sun Holiday
customers. With effect from the period 06/02, Colaingrove resumed accounting
for output VAT on these supplies at the reduced rate.
The
relevant legislation
14. With effect from 1 November
2001, section 29A VATA has relevantly provided as follows:
‘(1)
VAT charged on-
(a) any supply that is of a description for the time being
specified in Schedule 7A …
shall
be charged at the rate of 5 per cent.
…
(3) The Treasury may by order vary Schedule 7A by adding
to or deleting from it any description of supply or by varying any description
of supply for the time being specified in it.
(4) The power to vary Schedule 7A conferred by subsection
(3) above may be exercised so as to describe a supply of goods or services by
reference to matters unrelated to the characteristics of the goods or services
themselves.
In the case of a supply of
goods [and by paragraph 3 of Schedule 4, VATA, the supply of any form of power,
heat, refrigeration or ventilation is a supply of goods], those matters
include, in particular, the use that has been made of the goods.’
15. Also with effect from 1
November 2001, Schedule 7A VATA has relevantly provided as follows:
‘Group
1: Supplies of domestic fuel or power
Item
1: Supplies for qualifying use of-
(a) Coal, coke or other solid substances held out for sale
solely as fuel;
(b) Coal gas, water gas, producer gases or similar gases;
(c) Petroleum gases, or other gaseous hydrocarbons,
whether in a gaseous or liquid state;
(d) Fuel oil, gas oil or kerosene; or
(e) Electricity, heat or air-conditioning.
…
Note 3: Meaning of ‘qualifying use’
In
this Group “qualifying use” means-
(a)
Domestic use; or
(b)
use by a charity otherwise that in the course of furtherance of a business.
…
Note 4: Supplies only partly for qualifying use
For
the purposes of this Group, where there is a supply of goods partly for
qualifying use and partly not-
(a)
if at least 60 per cent. of the goods are supplied for a qualifying use, the
whole supply shall be treated as a supply for a qualifying use; and
(b)
in any other case, an apportionment shall be made to determine the extent to
which the supply is a supply for a qualifying use.
Note 5: Supplies deemed to be for domestic use
For
the purposes of this Group the following supplies are always for domestic use-
…
(c)
a supply to a person at any premises of piped gas (that is, gas within item
1(b), or petroleum gas in a gaseous state, provided through pipes) where the
gas (together with any other piped gas provided to him at the premises by the
same supplier) was not provided at a rate exceeding 150 therms a month or, if
the supplier charges for the gas by reference to the number of kilowatt hours
supplied, 4397 kilowatt hours a month;
…
(g)
a supply of electricity to a person at any premises where the electricity
(together with any other electricity provided to him at the premises by the
same supplier) was not provided at a rate exceeding 1000 kilowatt hours a
month.
Note 6: Other supplies that are for domestic use
For
the purposes of this Group supplies not within paragraph 5 are for domestic use
if and only if the goods supplied are for use in-
(a)
a building, or part of a building, that consists of a dwelling or number of
dwellings;
(b)
a building, or part of a building, used for a relevant residential purpose
[item 7 contains a definition of ‘use for a relevant residential purpose’ which
is not directly relevant to the appeal];
(c)
self-catering holiday accommodation;
(d)
a caravan; or
(e)
a houseboat.’
16. The Community law
authorising these provisions (as at 1999) was contained in article 12.3(b) of
the Sixth VAT Directive, as follows:
‘Member
States may apply a reduced rate to supplies of natural gas, electricity and district
heating provided that no risk of distortion of competition arises. A Member State intending to apply such a rate must inform the Commission before doing so.
The Commission shall give a decision on the existence of a risk of distortion
of competition. If the Commission has not taken that decision within three
months of the receipt of the information a risk of distortion of competition is
deemed not to exist.’
17. With effect from 15 January
2010, the applicable Community law provision has been article 102 of the
Principal VAT Directive, which provide as follows:
‘Article
102: After consultation of the VAT Committee, each Member State may apply a reduced rate to the supply of natural gas, electricity or district
heating.’
The
parties’ submissions
18. Mr Cordara’s first
submission is that the jurisprudence n the line of cases flowing from the
judgment of the Court of Justice (“ECJ”) in Card Protection Plan Ltd v
Customs and Excise Commissioners (Case C-349/96) [1999] STC 270 (“CPP”)
concerning the discernment of single or multiple supplies for VAT purposes
where a transaction comprises several elements, is not applicable in a case,
such as this, where the application of a reduced rate is at issue. In such
cases, he submitted, the ECJ has recognised that a single supply can be taxed
at two separate rates, citing Talacre Beach Caravan Sales Ltd v Customs and
Excise Commissioners (Case C-251/05) [2006] STC 1671 (“Talacre Beach”).
He also cited European Commission v France (Case C-94/09), which
concerned services by undertakers (“French Undertakers”), a case where
the ECJ confirmed that French legislation applying a reduced rate of VAT to the
transportation of a body by vehicle, as a concrete and specific element of the
supply of services by undertakers, fulfilled the conditions required by the
relevant European Union legislation providing for the application of reduced
rates to supplies of services including, inter alia, supplies of
services by undertakers (article 98(1) and (2) and Annex III of the Principal
VAT Directive, corresponding to article 12(3)(a) and Annex H of the Sixth VAT
Directive).
19. His second submission was
that even if the CPP jurisdiction applied to this case (which in his
submission it did not), then the Tribunal should hold that Colaingrove made two
supplies, one of holiday accommodation, and one of power (gas and electricity)
for separate contractual considerations, and the supply of power attracted VAT
at the reduced rate, not the standard rate. To support this submission he cited
RLRE Tellmer Property sro v Finančni ředitelství v Ústí nad Labem (Case
C-572/07) (“Tellmer”), where the ECJ held that there had been two
supplies by the same person, a landlord of premises, to the tenant, namely the
passive letting of property, and also a supply of services of cleaning the
common parts of the apartment block where the property was situated. He also
cited the First-tier Tribunal’s decision in Honourable Society of Middle
Temple v Revenue and Customs Commissioners [2011] UKFTT 390 (TC) (“Middle
Temple”) and Suffolk Heritage Housing Association Ltd v Customs and
Excise Commissioners (a 1995 VAT Tribunal Decision, No. 13713) in which the
earlier VAT Tribunal decision in Adams, Woskett and Partners v Customs and
Excise Commissioners (Decision 9647) on very similar facts to the present
appeal was cited and followed.
20. Mr Hyam, for HMRC, submitted
that the facts of this appeal demonstrated a single supply for VAT purposes by
Colaingrove of fully serviced holiday accommodation, subject to VAT at the
standard rate. It is significant, in his submission, that the charge for power
made to a Sun Holiday customer of Colaingrove is not related to a consumption
of any specific quantity of power by the customer, ascertained by metering,
which HMRC accept would (if that were the fact) amount to a supply of power
attracting the reduced rate, separate from the standard rated supply of holiday
accommodation. He explained the rationale for that distinction (which was
forcefully attacked by Mr Cordara as being a manifest distortion of competition
and in breach of the principle of fiscal neutrality) as follows. Where a
customer is charged for the power actually consumed by him/her, it must follow
that there is an element of choice for the customer as to how much, if any,
power he/she will consume, which serves to demonstrate that the supply of power
is in reality separate from the supply of holiday accommodation.
21. Mr Hyam submitted that the
question of the nature of the supply or supplies made must be ascertained from
the point of view of the typical consumer, and from that point of view there is
only one basic economic supply – viz: a supply of serviced holiday
accommodation, which it would be artificial to split, because both elements
(holiday accommodation and power) are essential and fully integrated. He cited
Levob Verzekeringen BV v Staatssecretaris van Financiën (Case C-41/04)
[2006] STC 766, CPP, Revenue and Customs Commissioners v Weight Watchers UK
Ltd [2008] EWCA Civ 715; [2008] STC 2313, Revenue and Customs
Commissioners v David Baxendale Limited [2009] EWHC 162 (Ch); [2009] STC 825, Commissioners for Revenue and Customs v Diana Bryce trading as The Barn
[2010] UKUT 26 (TCC), Don Bosco Onroerend Goed BV v Staatssecretaris van
Financiën (Case C-461/08) [2010] STC 476 and College of Estate Management
v Customs and Excise Commissioners [2005] UKHL 62; [2005] STC 1597.
22. He sought to distinguish the
First-tier Tribunal’s Decision in Middle Temple on the basis that
whereas in that case (as in Tellmer) there had been no ‘particular
economic purpose’ underlying the link between the two supplies (of premises and
water). He submitted that in this case the charges for holiday accommodation
and power are ‘economically indivisible both contractually and economically’
from the point of view of the typical consumer.
23. Mr Hyam also submitted that
the Tribunal should reject Colaingrove’s argument that on the basis that it
makes a single supply, the charges for power should nonetheless attract VAT at
the reduced rate for the following reasons.
24. First, such an approach
would involve artificially splitting a single supply and distortion of the
functioning of the VAT system (CPP, paragraph 29).
25. Secondly, reliance on note 5
of Group 1, Schedule 7A, VATA – which provides, for example, that a supply of
electricity to a person at any premises where the electricity (together with
any other electricity provided to him at the premises by the same supplier) was
not provided at a rate exceeding 1000 kilowatt hours a month is deemed to be a
supply for domestic use, and thus for a qualifying use rendering the supply
taxable at the reduced rate – to override the CPP jurisprudence on the
taxation of supplies with more than one element would rob the CPP principles
of much of their force.
26. Thirdly, he submitted that
Colaingrove’s reliance on Talacre Beach was misconceived.
That case showed that national legislation providing for zero-rating (exemption
with refund) pursuant to a transitional derogation could not be extended to
cover elements of a single supply to which the derogation did not apply, and,
to that end, the supply required to be split for VAT purposes to ensure that
those elements were taxed at the standard rate. In this case the single supply
is taxable at the standard rate on broad principles (not zero-rated by reason
of a derogation) and there is no reason to construe the broad principle of
taxability narrowly. He cited the First-tier Tribunal’s Decision in Queen
Mary v HMRC [2011] UKFTT 229 (TC).
27. Fourthly, he made a general
submission that it would be distortive of competition and contrary to the
principle of fiscal neutrality to permit Colaingrove to benefit from the
reduced rate of output VAT in relation to a flat rate charge for power which is
raised regardless of a customer’s usage of power.
28. Fifthly, he submitted that French
Undertakers did not assist Colaingrove because that case was concerned with
the extent of a Member State’s discretion to legislate, in particular whether
French legislation providing for the application of a reduced rate of VAT to a
particular service undermined the principle of fiscal neutrality.
29. Sixthly, he urged the
Tribunal not to have regard to decisions on the question of the ascertainment
of single or multiple supplies, or the application of VAT to such supplies,
which pre-date CPP (for example Adams, Woskett and Partners and Suffolk
Heritage Housing Association), having regard to the dictum of Lord Hoffmann
in Dr Beynon and Partners v Customs and Excise Commissioners [2005] STC 55 to the effect that citation of such earlier cases should be discouraged
because CPP was a restatement of principle (ibid. at [19]).
30. After the hearing had
concluded, on 23 May 2012, Mr Hyam made a further written submission to bring
to the Tribunal’s attention the ECJ’s decision in Purple Parking Ltd. v HMRC
(Case C-117/11), which was handed down on 19 January 2012. His submission
was that the ECJ in Purple Parking had in effect provided reinforcement
to the arguments already made by him on behalf of HMRC.
31. The Tribunal invited a
written response from Colaingrove, which was made by Mr Cordara on 7 June
2012. Mr Cordara submitted that the facts of Purple Parking were far
removed from those in Colaingrove’s appeal in that in Purple Parking a
single charge was made for ‘parking services’, with no separate and distinct
charge being made for transport to and from the airport terminal.
Discussion
32. We address, first, the
debate about the extent of the application of the jurisprudence in the line of
cases following the judgment of the ECJ in CPP. Our starting point is the
speech of Lord Walker in College of Estate Management with
which the others of their Lordships agreed and in which he discussed the
principles in CPP (ibid. at [28] to [30]). We set out the
relevant parts of this passage:
33. Lord Walker said:
‘[29]
In CPP [when it returned to the House of Lords, see: [2001] STC 174;
[2002] 1 AC 202] Lord Slynn [at [22] and [25]] emphasised the need to take an
overall view, without ‘over-zealous dissection’, and to look for the essential
purpose (objectively assessed) of a transaction. In Customs and Excise
Commissioners v British Telecommunications plc [1999] STC 758 at 766,
[1999] 1 WLR 1376 at 1384 he referred to the need to look at the commercial
reality. In the same case Lord Hope of Craighead said ([1999] STC 758 at 768,
[1999] 1 WLR 1376 at 1386) that a supply which comprises a single service from
an economic point of view should not be artificially split. In Beynon …
at [20] Lord Hoffmann explained:
‘The
Court of Justice observed [in CPP at paras. 27-29] that the diversity of
commercial operations made it impossible to give exhaustive guidance as to how
to approach the problem correctly in all cases. Regard should always be had to
the circumstances in which the transaction took place. Every supply of “a
service” is by definition distinct and independent but a supply which “from an
economic point of view” comprises a single service should not be
artificially split into separate “services”. What matters is “the essential
features of the transaction”.’
Lord
Hoffmann then went on to quote para 30 of the ECJ’s judgment in [CPP]:
‘There
is a single supply in particular in cases where one or more elements are to be
regarded as constituting the principal service, whilst one or more elements are
to be regarded, by contrast, as ancillary services which share the tax
treatment of the principal service. As service must be regarded as ancillary
to a principal service if it does not constitute for customers an aim in
itself, but a means of better enjoying the principal service supplied (see Customs
and Excuse Commissioners v Madgett and Baldwin (trading as Howden Court Hotel) (Joined
cases C-308/96 and C-94/97) [1998] STC 1189 at 1206, para. 24).’
[30]
In the course of this appeal there has been much discussion of para. 30 of the ECJ’s
judgment. In my opinion it is clear that this paragraph (which uses the
introductory words ‘in particular’) is dealing with a particular case
exemplified by Madgett and Baldwin. It is not asserting that every
distinct element of a supply must be a separate supply for VAT purposes unless
it is ‘ancillary’. ‘Ancillary’ means .. subservient, subordinate and
ministering to something else. It was an entirely apposite term in the
discussion in British Telecommunications (where the delivery of a car
was subordinate to its sale) and in [CPP] itself (where some peripheral
parts of a package of services, and some goods of trivial value such as labels,
key tabs and a medical card, were subordinate to the main package of insurance services).
But there are other cases (including [Faaborg-Gelting Linien A/S v Finanzamt
Flensburg (C-231/94) [1996] STC 774; [1996] ECR I-2395], Beynon and
the present case) in which it is inappropriate to analyse the transaction in
terms of what is ‘principal’ and ‘ancillary’, and it is unhelpful to strain the
natural meaning of ‘ancillary’ in an attempt to do so. Food is not ancillary
to restaurant services; it is of central and indispensable importance to them;
nevertheless there is a single supply of service (Faaborg). Pharmaceuticals
are not ancillary to medical care which requires the use of medication; again,
they are of central and indispensable importance; nevertheless there is a
single supply of services (Beynon).’
34. In his speech in College of Estate Management, agreeing with Lord Walker, Lord Rodger of
Earlsferry said (ibid at [12]):
‘But
the mere fact that the supply of the printed materials [in the context of the
provision of distance learning courses consisting of printed materials,
face-to-face teaching sessions and materials on the College’s website] cannot
be described as ancillary does not mean that it is to be regarded as a separate
supply for tax purposes. One has still to decide whether, as a matter of
statutory interpretation, the College should properly be regarded as making a
separate supply of the printed materials or, rather, a single supply of
education, of which the provision of the printed materials is merely one
element. … The answer to that question is not to be found simply by looking at
what the taxable person actually did, since ex hypothesi, in any case
where this kind of question arises, on the physical plane the taxable person
will have made a number of supplies. The question is whether, for tax
purposes, these are to be treated as separate supplies or merely as elements in
some over-arching single supply. According to the [ECJ] in [CPP] (at
para 29) for the purposes of the directive the criterion to be applied is
whether there is a single supply “from an economic point of view”. If so, that
supply should not be artificially split, so as not to distort (altérer) the
functioning of the VAT system. The answer will accordingly be found by
ascertaining the essential features of the transaction under which the taxable
person is operating when supplying the consumer, regarded as a typical
consumer. Since the 1994 Act has not adopted any different mechanism to give
effect to this aspect of the directive, the same approach must be applied in
interpreting the provisions of the Act. The key lies in analysing the
transaction.’
35. This passage was cited by
Sir Andrew Morritt C in his judgment (with which Hooper and Lloyd LJJ agreed)
in Weight Watchers (UK) Ltd. He also cited the formulation adopted by
the ECJ in Levob in its ruling (delivered 5 days after the decision of
the House of Lords in College of Estate Management) as follows (see: Levob
at [30]):
‘Article
2(1) of the Sixth Directive must be interpreted as meaning that where two or
more elements or acts supplied by a taxable person to a customer, being a
typical customer, are so closely linked that they form objectively, from an
economic point of view, a whole transaction, which it would be artificial to
split, all those elements or acts constitute a single supply for purposes of
the application of VAT …’
36. Sir Andrew Morritt C said (Weight
Watchers (UK) Ltd. ibid at [17]):
‘In
summary, therefore, the court must have regard to all the circumstances. It
must apply the test on an objective basis. There are various formulations of
what the relevant test is in [CPP] (para 29) and Levob .. Common
to all of them are the requirements that the court must look at the
transactions from the view point of the typical consumer rather than the
supplier. The extent of the linkage between the relevant transactions must be
considered from an economic point of view, rather than, say, a physical,
temporal or other standpoint. So regarded, the question then is whether it
would be artificial to split them into separate supplies. The fact that the
supplier has charged a single price for the aggregate of the transactions is a
relevant circumstance but is not conclusive because that price may be
apportioned.’
37. The Court of Appeal’s
decision in Weight Watchers (UK) Ltd. (which concerned the provision of
services – weight-loss and weight-management classes and printed material –in
the context of a weight-loss programme, the issue being whether there was one
supply of a weight-loss programme, or separate supplies of classes and printed
material) was that there was a single standard-rated supply of a weight-loss
programme. Sir Andrew Morritt C said (ibid at [46]):
‘I
reach that conclusion for the following reasons. First, the typical consumer …
is or is about to become a member of WW. Second, the purpose of such a
consumer being or becoming a member is to obtain the benefit of the weight-loss
programme … Third, one of the cardinal features of that programme … is the
reinforcing combination of the diets as taught in the Handbook and the
group therapy to be derived from the meetings. Fourth, if it is the
combination which the meeting member is buying, then it makes no sense from an
economic point of view to pay (be charged) separately for the meetings and the
publications … [Sir Andrew Morritt’s fifth and sixth reasons relate to the particular
facts relating to the different meetings of the programme]’
38. Weight Watchers (UK) Ltd was
followed by Morgan J in David Baxendale, which also concerned the
provision of a weight-loss programme. This time, the unsuccessful taxpayer’s argument
(before Morgan J) was that the operation of the programme gave rise to separate
supplies of special food (falling to be zero-rated) and support services
(standard-rated). In rejecting this argument, Morgan J said (ibid at
[66]):
‘…
my own conclusion … applying the correct legal principles to the facts as found
by the tribunal, is that it is artificial to split the transaction in the
present case into the separate elements of a supply of food packs and a supply
of support services. On my reading of the primary facts found by the tribunal,
what the typical customer is buying is the combination of food packs and
support services. The two elements reinforce each other. From an economic
point of view, it does not make sense for the supplier to charge, or for the customer
to pay, separately for the elements of food packs and support services. I do
not reach this decision merely because the two elements have been placed in a
single ‘package’. The links between the two elements go well beyond mere
packaging.’
39. Mr Cordara’s submission is
that the principles outlined and applied in the authorities referred to above
are not determinative in cases where the application of a reduced rate of VAT
is in issue, at any rate where no abuse is alleged. His argument is based in part
on inferences which he draws from the form of UK domestic statutory provisions
in section 29A(4) VATA and in Notes 4, 5 and 6 to Group 1, Schedule 7A, VATA
and in part from the ECJ’s case law, in particular French Undertakers,
which he describes as his ‘best case’, though he also relies on Talacre
Beach.
40. With regard to the UK
domestic statutory provisions mentioned, his point is that they do not sit well
with the CPP jurisprudence, and indicate that the reduced rate is to be
applicable to the provision of domestic fuel or power, even if such provision
is not the subject of a supply for VAT purposes (whether or not determined by
the application of the CPP jurisprudence).
41. Section 29A(4) VATA gives
power to the Treasury to vary Schedule 7A (the descriptions of supplies which
for the time being are to be charged at the reduced rate) ‘so as to describe a
supply of goods or services by reference to matters unrelated to the
characteristics of the goods or services themselves’. Mr Cordara’s point is
that the CPP jurisprudence would not permit a supply to be described by
reference to matters unrelated to the characteristics of the goods or services
themselves. He suggests that section 29A(4) indicates that power is being
taken to describe supplies to be charged at the reduced rate by reference, for
example, to use for a beneficial social purpose.
42. Note 4 to Group 1, Schedule
7A provides for the application of the reduced rate to supplies of goods partly
for qualifying use (which gives general eligibility for the reduced rate) and
partly not, on the basis of deeming a supply, which is in fact supplied at
least as to 60 per cent. for a qualifying use, as if it were entirely for a
qualifying use, and requiring an apportionment between qualifying use and other
use, in a case where less that 60 per cent. is supplied for a qualifying use.
Mr Cordara’s point is that it would not be lawful under the CPP jurisprudence
for a Member State to impose a 60 per cent. ‘cut-off’ in this way. The
ascertainment of the substance of the supply has no regard to its objective
nature from the customer’s point of view, having regard to all the
circumstances of the transaction. Also, he submits that the provision for an
apportionment of a supply where the qualifying use is less that 60 per cent.
‘to determine the extent to which a supply is a supply for qualifying use’ is
wholly contrary to the CPP jurisprudence, because it provides for
splitting a single supply and, moreover, it is directly indicative of the
proposition that a single supply can be taxed at more than one rate, i.e. as to
part at the standard rate and as to part at the reduced rate.
43. Note 5 to Group 1, Schedule
7A deems supplies of a very low quantity to be ‘always for domestic use’, and
therefore eligible to be charged at the reduced rate. Mr Cordara’s point is
that supplies which may in fact not be for domestic use can pursuant to this
Note be deemed to be for domestic use. That again is a provision which would
not be lawful under the CPP jurisprudence.
44. Mr Cordara submits that
these are examples of the UK, as a Member State, exercising its discretion
relative to the charge of the reduced rate in ways which ‘go well beyond’ CPP
principles. They demonstrate that ‘we are in an area where all of those
principles are in suspension’.
45. Note 6 to Group 1, Schedule
7A expands the concept of supplies for domestic use to supplies not within Note
5 but which are (whatever the quantity) supplied for use in, inter alia,
self-catering holiday accommodation and caravans. This, Mr Cordara submits,
shows the intention of Parliament that people who get electricity in
self-catering accommodation or caravans should benefit, even if the quantities
supplied are high, and even if they are not actually making domestic use of
them. He hastens to add that the power supplied in this case is in small
quantities and is used for domestic purposes. He submits that Note 6
demonstrates ‘the intensity of Parliamentary intent’ that electricity supplied
to a caravan or self-catering accommodation should attract the reduced rate.
46. French Undertakers is
relied on by Mr Cordara for the ECJ’s acceptance of the proposition that there
is nothing in the text of the Community legislation enabling Member States to
apply reduced rates (article 12(3)(a), third sub-paragraph of the Sixth VAT
Directive, but for the purposes of the present appeal, article 12.3(b) of the
Sixth VAT Directive and its legislative successor, article 102 of the Principal
VAT Directive) which requires that it be interpreted as meaning that the
reduced rate can be charged only if it is applied to all aspects of a category
of supply specified in the legislation, so that a selective application of the
reduced rate cannot be excluded provided that no risk of distortion of
competition results (ibid. paragraph 25).
47. French Undertakers is
also relied on by Mr Cordara for the ECJ’s recognition that ‘subject to
compliance with the principle of fiscal neutrality inherent in the common
system of VAT, Member States may apply a reduced rate of VAT to concrete and
specific aspects of a category of supply’ specified in the legislation (ibid.
paragraph 26).
48. The ECJ dealt specifically
with the Commission’s case based on the application of the CPP jurisprudence
as follows:
‘31.
The Commission maintains that the Member States, when they make use of the
possibility available to them under article 98 of [the Principal VAT Directive,
which is a parallel provision to article 102 which is in issue in this appeal]
to apply a reduced rate of VAT, must comply with the criteria identified by
case law in order to determine whether a transaction including several elements
must be considered to be a single supply, subject to the same tax treatment, or
to be two or more separate supplies, which may be treated differently.
32.
In this connection, it must be recalled that those criteria, such as the
expectations of a typical consumer, to which the Commission refers, are
intended to protect the functioning of the VAT system in the light of the
diversity of commercial operations. However, the court itself has acknowledged
that it is impossible to give exhaustive guidance on that issue (CPP (para
27)) and pointed out that it is necessary to take into account all the
circumstances in which the transaction at issue takes place (CPP (para
28), [Levob] (para 19), and Ministero dell’Economia e delle Finanze v
Part Service Srl (Case C-425/06) [2008] STC 3132, [2008] ECR I-897, para
54).
33.
It follows that, while those criteria may be applied on a case-by-case basis,
in order to prevent, inter alia, the contractual structure put in place
by the taxable person and the consumer from leading to an artificial splitting
into a number of fiscal transactions of a transaction which, from an economic
point of view, must be regarded as a single transaction, they cannot be
regarded as decisive for the purpose of the exercise by the Member States of
the discretion left to them by [the Principal VAT Directive] as regards the
application of the reduced rate of VAT. The exercise of such discretion
requires general and objective criteria, such as those identified in EC
Commission v France [Case C-384/01; [2003] ECR I-4416] and Finanzamt
Oschatz v Zweckverband zur Trinkwasserversorgung und Abwasserbeseitigung
Torgau-Westelbien [Case C-443/05; [2009] STC 1] and reiterated in paras 26,
28 and 30 of this judgment.
34.
Accordingly, in order to rule on the merits of this action, it is not necessary
to examine whether, as the Commission maintains, the supply of services by undertakers
must be regarded as a single transaction from the point of view of the
expectations of a typical consumer. On the other hand, it is necessary to
ascertain whether the transportation of a body by vehicle, in respect of which
the French legislation provides for the application of a reduced rate of VAT,
constitutes a concrete and specific aspect of that category of supply, as set
out in Annex III, point 16, to [the Principal VAT Directive - a parallel
provision to article 102 which is in issue in this appeal], and, if so, to
examine whether or not the application of that rate undermines the principle of
fiscal neutrality.’
49. Mr Cordara’s submission on Talacre
Beach is that in that case also the ECJ stated that the CPP jurisprudence
provides ‘no set rule for determining the scope of a supply from the VAT point
of view and therefore all the circumstances, including the specific legal
framework, must be taken into account’ (ibid. [25]) with the result that
a single supply of goods (including a principal item – the caravan – the supply
of which was properly subject to the zero-rate, and other items, the supply of
which the applicable legislation excluded from the zero-rate) is taxable in
part at the zero-rate and in part at the standard rate. The decision of the
ECJ was that the Member State (the UK) was permitted to levy VAT at the
standard rate on the supply of the other items even though they were elements
of a supply which would be recognised under the CPP jurisprudence as a
single supply of a caravan.
50. Mr Hyam’s response to Mr
Cordara’s submissions on this aspect of his case was that the CPP jurisprudence
requires the Tribunal to ascertain in the first place, having considered the
essential features of the transaction under which the taxable person is
operating when supplying the consumer, regarded as a typical consumer (College
of Estate Management) or, if one likes, ‘all the circumstances, including
the specific legal framework’ (Talacre Beach) what the supply in issue
is. In his submission, one reaches the conclusion that Colaingrove makes
single composite supplies of serviced holiday accommodation before one
considers French Undertakers or Talacre Beach.
51. Mr Hyam contends that one
cannot derive the wide-ranging propositions, which Mr Cordara seeks to derive,
from French Undertakers or Talacre Beach. To do so, in his
submission would ‘completely rob the CPP line of authority of its force
and undermine the principle which lies behind the rule in CPP’, which
was there to prevent over-complication of VAT and the need to separate out, in
relation to every transaction, each concrete and specific element which could
be identified in order to decide what rate of tax was to be applied to it.
52. Talacre Beach is, in
Mr Hyam’s submission, only of relevance if the conclusion in any particular
case, applying the CPP jurisprudence, is that there is a single
composite supply, and the proposition that the entire supply should be taxed at
the rate indicated by that conclusion raises a conflict with another principle
of VAT, which should be given priority over the objectives pursued by the CPP
jurisprudence – in Talacre Beach, the principle that article 28 of
the Sixth VAT Directive prevented the extension of the zero-rate to supplies
for which it was not authorised (the removable contents of caravans).
53. Mr Hyam submitted that all
the ECJ was saying in French Undertakers was that when a Member State
decides to exercise its discretion to introduce a reduced rate of VAT, it must
do so in relation to matters that are capable of being distinct and dealt with
separately, provided that the principle of fiscal neutrality is not infringed.
He submitted that French Undertakers does not impact on the problem
raised by this case – which is solved once the conclusion is reached by
application of the CPP jurisprudence that there is here a single
composite supply of serviced holiday accommodation. He contended that Mr
Cordara was seeking to draw parallels which were not properly to be drawn
between the situations in French Undertakers and Talacre Beach and the situation in the present case.
54. Mr Hyam’s first point on Purple
Parking is that where the pricing of a supply comprising two (or more)
elements is exclusively calculated by reference to one of those elements (in Purple
Parking, the period for which the vehicle is parked) and without any regard
to the extent to which the other element(s) is used (the number of passengers
using the airport parking transport is irrelevant to the pricing of the
supply), that is another matter pointing to a complex single supply in which
the first element (the period of parking) is predominant (ibid. [33] to
[35]).
55. In Mr Hyam’s submission,
this translates directly to the facts of this case, where the charge made for
power is calculated by reference to the period for which the Sun Holiday
customer takes the chalet or static caravan.
56. Mr Hyam also submits that
the ECJ in Purple Parking has made clear that the principle of fiscal
neutrality is not infringed by the mere fact that the treatment of the supply
of several services as a single supply is different from what the treatment
would have been if separate supplies of those services had been made. It is
for the national court to make the determination whether or not for the
purposes of the principle of fiscal neutrality two supplies which are taxed
differently are similar from the point of view of the average consumer (ibid.
[38] and [39]).
57. He also submits that Purple
Parking reinforces his submissions (outlined above) on French
Undertakers, namely that that case concerns a different question from the
question of whether two services constitute a single supply (ibid. [40]).
58. Mr Cordara replies on Purple
Parking as follows. First, he says that Purple Parking can be
distinguished from the present case because there was no separate and distinct
charge made for transport to and from the airport terminal, whereas there was
of course a distinct charge made for power by Colaingrove. Secondly, he says
that there was, from the point of view of the average consumer, clearly an
expectation that transport would be included in the price he/she paid for
parking. By contrast, in this case, the average consumer was aware from the
outset that a separate charge for power would be made by Colaingrove.
59. He also makes the point that
the statutory position was relevantly quite different in Purple Parking,
as compared with the present case. Note 4A(b), Group 8, Schedule 8, VATA
specifically excludes the transport of passengers between a car park and an
airport terminal from the scope of the general zero-rating provision for the
transport of passengers contained in Item 4, Group 8, Schedule 8, VATA. By
contrast, the domestic legislation relied on by Colaingrove (Item 1 of Group 1,
Schedule 7A VATA and Notes 5 and 6 thereto) specifically provides that supplies
of power under specified limits and to self-catering holiday accommodation and
caravans should benefit from the reduced rate of VAT.
60. Mr Cordara points out that
the text paragraph 39 of the Reasoned Order in Purple Parking makes
clear that, for the purposes of applying the principle of fiscal neutrality, ‘a
complex supply of services consisting of several elements is not
automatically similar to a supply of those elements separately’ (emphasis
added).
61. With regard to French
Undertakers, Mr Cordara submits that the ECJ in Purple Parking (ibid.
[40]) stated that French Undertakers concerned a different question
from the first and second questions referred in Purple Parking, namely
whether the airport parking and transport in that case were to be regarded as a
single or as separate supplies for VAT purposes. Mr Cordara submits that if
the Tribunal finds that Colaingrove has made a single supply the ‘concrete and
specific’ element constituted by the supply of power should still be eligible
to be taxed at the reduced rate, which would be wholly consistent with the
ECJ’s decision in French Undertakers.
62. We accept Mr Cordara’s
submission that in French Undertakers, the ECJ recognised and accepted
that the CPP jurisprudence did not give ‘exhaustive guidance’ on the
extent of a transaction, an issue which is of particular importance for VAT
purposes for, inter alia, applying the rate of tax (see ibid. [32]
and CPP at [27]).
63. We further accept his
submission that the result of French Undertakers was to rule compatible
with ‘the relevant European Union legislation’ (ibid. [46]) the French
legislation applying the reduced rate only to the transportation of a body by
undertakers (and also the transport of passengers in cars following the hearse
or in cars of the clergy) but not to other operations carried out by
undertakers.
64. We also accept his
submission that the practical application of the ECJ’s decision is that a
single supply of ‘undertaker’s services’ provided by a supplier in France (at
any rate, where such a supply includes transport as described) is subject to
two different VAT rates. We further accept that there is a relevant similarity
with the practical application of the ECJ’s decision in Talacre Beach.
65. In consequence, it seems to
us that the issue for our decision on this aspect of the case is whether the
United Kingdom legislation has in fact provided for the reduced rate of VAT to
apply to the ‘concrete and specific’ element (which consists of domestic fuel
or power within Group 1 of Schedule 7A VATA) of a larger supply which falls to
be characterised as something else – in this case, serviced holiday
accommodation.
66. This issue is not as clear
cut as it was in French Undertakers. In that case, the Ministerial
Instruction No 68 of 14 April 2005 (Bulletin official des impôts 3
C-3-05) provided for the split VAT treatment of ‘the external services for
funerals’ in terms – see: ibid. [6] and [7].
67. We accept Mr Hyam’s point
that we should not contemplate an analysis which would rob the CPP jurisprudence
of its force or undermine the principle lying behind it. However we note that
there is no indication in French Undertakers that the ECJ was suggesting
any such thing. On the contrary, in French Undertakers at [32] and
[33], the ECJ reaffirmed CPP in general terms while recognising that it
did not give exhaustive guidance on the question of the extent of a transaction
(and see: CPP at [27]).
68. It seems to us, that
applying French Undertakers in the way that we propose would not open
the floodgates and wash away the CPP jurisprudence, because French Undertakers
can, as we see it, only apply in the very limited class of case where a reduced
rate of VAT is in issue and the domestic legislation imposing it indicates an
intention that the CPP jurisprudence should not apply. Thus it would
not apply in the situation considered in Purple Parking – see:
Note4A(b), Group 8, Schedule 8, VATA
69. In examining Group 1 of
Schedule 7A VATA (and section 29A VATA) to ascertain whether they disclose such
an intention, we start off by presuming that the references to ‘supply’,
‘supplies’ and ‘any description of supply’ carry the meaning that the supplies
concerned, and their description, are to be ascertained by reference to and
application of the CPP jurisprudence. This approach follows the
guidance to be derived from Lord Rodger’s speech in College of Estate Management – ibid. [12] : the final 3 sentences, set out above, which
we repeat here –
‘The
answer will accordingly be found by ascertaining the essential features of the
transaction under which the taxable person is operating when supplying the
consumer, regarded as a typical consumer. Since the 1994 Act has not adopted
any different mechanism to give effect to this aspect of the directive, the
same approach must be applied in interpreting the provisions of the Act. The
key lies in analysing the transaction.’
70. Mr Cordara has suggested
(see: above) that section 29A(4) VATA and in Notes 4, 5 and 6 to Group 1,
Schedule 7A, VATA all contain indications that Parliament intended the reduced
rate of VAT to apply to the ‘concrete and specific’ element (consisting of
domestic fuel or power within Group 1 of Schedule 7A VATA) of a larger supply
which (if the CPP jurisdiction were applicable to it) would fall to be
characterised as something else.
71. We agree with this submission,
for the reasons which Mr Cordara gives. Mr Hyam did not in his submissions
give any reason why we should not infer from these provisions the legislative
intention for which Mr Cordara contends (apart from the ‘floodgates’ argument
about the undermining of the CPP jurisprudence, which we have referred
to). Put shortly, these provisions seem to us to indicate that, quite apart
from the expectations of a typical consumer of the supply as to what he/she was
enjoying by receiving the supply, Parliament has provided for other criteria to
apply in determining the nature of a supply of domestic fuel and power which is
chargeable at the reduced rate. We agree with Mr Cordara that these provisions
indicate Parliament’s intention that a supply of fuel or power may qualify to
be taxed at the reduced rate by reference not only to the nature of what is
supplied (the ‘characteristics of the goods or services themselves’ – see:
section 29A(4) VATA) but also by reference to the beneficial social purpose to
be achieved by the supply – for example, the supply of gas or electricity in
whatever quantity for use in self-catering holiday accommodation or a caravan
(see: Note 6, Group 1, Schedule 7A, VATA).
72. For these reasons we
conclude that the presumption that the references to ‘supply’, ‘supplies’ and
‘any description of supply’ in section 29 and Group 1, Schedule 7A, VATA refer
to supplies as ascertained by application of the CPP jurisprudence must
give way to the conclusion that that the United Kingdom legislation has provided
for the reduced rate of VAT to apply to the ‘concrete and specific’ element
(which consists of domestic fuel or power within Group 1 of Schedule 7A VATA)
of a larger supply which (if the CPP jurisdiction were applicable to it)
would fall to be characterised as something else – in this case, serviced
holiday accommodation.
73. We also agree with Mr
Cordara that the supply of power relation to which a reduced rate is authorised
by Group 1 of Schedule 7A VATA is, if it is an element of a transaction which
would be analysed as a larger single complex supply not being a supply of power
(were the CPP jurisdiction to be applicable to it), capable of being a
concrete and specific aspect of the larger single complex supply and is, on the
facts of this case, a concrete and specific aspect of the transactions entered
into by Colaingrove with Sun Holiday customers.
74. We also agree with Mr
Cordara that, on the evidence before us, the principle of fiscal neutrality is
observed if the reduced rate is applied to the supplies of power in issue and that
no distortion of competition results. This is the aspect of the case where it
is relevant to consider Mr Cordara’s submissions about ‘three caravans on a
cliff-top’. The occupants of Caravan 1 have a contract with an electricity
supplier for supplies of electricity, separate from their contract for the
provision of holiday accommodation. HMRC agree that the resultant supplies of
electricity attract the reduced rate of VAT. The occupants of Caravan 2 have a
contract for supplies of electricity with the same person who provides the
holiday accommodation, but the supplies of electricity are metered, the meter
is read, and the occupants of Caravan 2 are charged a price for electricity
which is directly related to the amount of electricity supplied. HMRC agree
that the resultant supplies of electricity also attract the reduced rate of
VAT. The occupants of Caravan 3 (Sun Holiday customers) have similar contractual
arrangements as the occupants of Caravan 2, but the meter is not read and they
are charged a price for electricity which is a per diem rate not
directly related to the amount of electricity supplied (which is unknown) but
‘exclusively calculated on the basis of the period for which [the holiday
accommodation is rented]’ (cf. Purple Parking, ibid. [34]). HMRC
submit that the resultant supplies of electricity do not attract the standard
rate (on CPP principles). We find that HMRC’s submission, if correct,
would undermine the principle of fiscal neutrality inherent in the common
system of VAT in that it would not treat similar supplies of electricity, which
are this in competition with each other, in the same way for VAT purposes –
see: French Undertakers, ibid. [40].
75. Mr Hyam argued at various
points that there either was, or might be, an element of shifting of value
between the elements of power and accommodation inherent in the pricing,
arguing that there was a clear enticement to customers who were drawn in by the
heavily discounted rates applicable to Sun Holidays, and the per diem
rates chargeable for power involved an artificial split between the price of
accommodation and the price of power, so that relatively more was paid for
power and less for accommodation. We find that this suggestion was not made
out on the evidence. Mr King frankly acknowledged that the charge for power
was ‘assessed against what we think the customer would be prepared to pay’ and
that it was not ‘calculated off on actual consumption’, but he also said that,
in the context of rising wholesale prices for gas and electricity, the
increasing consumption of electricity by the occupants of caravans resulting
from there being more and more electrical goods in them, and the building and
maintenance of an extensive electrical infrastructure at holiday parks,
Colaingrove thought that the price charged for utilities was fair. Colaingrove
was obliged by the terms of its agreement for the publication of the
promotional offer in The Sun to make its charges for power in accordance with
its standard programme of charges.
76. We conclude, therefore, (and
find) that no abuse arising from artificial splitting has been proved and so no
distortion of competition would result from the charges made for power
attracting the reduced rate of VAT.
77. On this basis the appeal
succeeds. However, if we are wrong in our decision so far, and the CPP
jurisprudence ought to be applied to determine the nature of the supplies in
issue, it would follow that we ought to address the question (fully argued
before us) whether, by the application of the CPP jurisprudence, there
are here two supplies, one of holiday accommodation and one of power, or one
supply, of serviced holiday accommodation.
78. We now turn to address this
(second) issue.
79. Mr Cordara’s argument was
based in effect on Tellmer and Middle Temple. We accept
Mr Hyam’s submission that we ought not to make reference back to Tribunal
decisions made before the ECJ’s seminal decision in CPP.
80. In Tellmer, services
of cleaning the common parts of a buildings in which dwellings are let (apartment
blocks) were supplied by the landlord in addition to the supplies of the
dwellings in consideration of rent. A separate service charge for the cleaning
services was made by the landlord to the tenants. The national (Czech) court
referred to the ECJ the question of whether the letting of an apartment (and
possibly of non-residential premises) on the one hand and the related cleaning
of common parts on the other hand can be regarded as independent, mutually
divisible, taxable transactions.
81. The ECJ, following the
Advocate General, decided that they could and should be regarded as separate
supplies for VAT purposes, citing Part Service (in which, in turn, CPP
and Levob were cited and which therefore is a part of the CPP jurisprudence).
82. The reasoning adopted was
that cleaning services ‘do not necessarily fall within the concept of letting’
for the purposes of the exemption provided for the leasing or letting of
immovable property by article 13B(b) of the Sixth VAT Directive (see now:
article 135(1)(l) of the Principal VAT Directive). Further, cleaning services
could, on the facts, be supplied in various ways, including by a third party
(not the landlord). The cleaning services could, on the facts, be separated
from the letting of the apartments, and the charges for cleaning services were
invoiced separately from the rents. (See: ibid. [21] to [24])
83. An important aspect of Tellmer
was that the ECJ was evidently unwilling to extend the benefit of exemption
from VAT, which was specifically referable to the leasing of property, to a
supply (of cleaning services) which was not of that nature (ibid. [20]).
84. In this case, the supply of
accommodation in holiday camps, which would be the predominant supply
indicating the nature of a single complex supply, if one is to be discerned
applying the CPP jurisprudence, is not exempt, but is specifically
excepted from the exemption for the leasing or letting of immoveable property
by article 125(2)(a) of the Principal VAT Directive. That is a factor
distinguishing this case from Tellmer.
85. We find, on the evidence,
that Sun Holiday customers realistically had no choice but to take supplies of
power from Colaingrove. The holidays taken were of short duration and the
possibility in practice of Sun Holiday customers making any other arrangements
for the supply of power ought to be given minimal weight. Mr King said in
evidence that there was a theoretical, technical, possibility that a customer
would not take supplies of gas and electricity to a caravan, but he added that
‘in the 20 years that we’ve been running this I have not come across one
customer that has ever done that’.
86. We accept that the charges
for power were invoiced separately by Colaingrove from the charges for
accommodation, but we do not regard this factor as determinative of the issue –
compare, for example, Levob [25], which is in the following terms:
‘The
fact, highlighted in the question, that separate prices were contractually
stipulated for the supply of the basic software, on the one hand, and for its
customisation, on the other, is not if itself decisive. Such a fact cannot
affect the objective close link which has just been shown with regard to that
supply and that customisation nor the fact that they form part of a single
economic transaction (see, to that effect, [CPP at [31]).’
87. Middle Temple concerned the grant of a lease by the Middle Temple to its tenant, and the provision
of an unmetered supply of cold water (as a term of the lease) by the Middle Temple to the premises leased to the tenant. Importance was attached by the
First-tier Tribunal to the fact that the Middle Temple technically made the
supplies of water simply because ‘by reason of historical antecedents’ the
system of pipes, to which the ‘wholesale’ supply of water by Thames Water was
introduced, had been laid under the Middle Temple many years ago. Importance
was also attached to the facts that the supply of water to tenants by the Middle Temple (as opposed to another supplier) conferred no economic advantage on the
tenants. The Tribunal held that there had been separate supplies of premises
and water (the supply of water being zero-rated). We were told that the
decision is under appeal.
88. The main feature which
distinguishes this case from Middle Temple is that the fact that there
is no practical possibility of Sun Holiday customers taking supplies of power
from anyone other than Colaingrove is not a historical or geographical anomaly
but inherent in the transaction taking place, namely the purchase of power for
use in a static caravan or chalet taken at one of Colaingrove’s holiday parks
for a few days at most.
89. We consider, on the
evidence, that what the typical Sun Holiday customer is buying from Colaingrove
is the combination of holiday accommodation and power. Therefore, following Weight
Watchers (UK) Ltd and David Baxendale, we conclude that, applying
the CPP jurisprudence, it would be artificial to split the transaction
entered into by a Sun Holiday customer with Colaingrove into the separate
elements of a supply of holiday accommodation and a supply of power.
90. We find therefore, in
agreement with Mr Hyam, that applying the CPP jurisprudence, there are
in this case single complex supplies of serviced holiday accommodation.
91. We also consider that it
would not be a correct application of the fiscal neutrality principle to split
a single complex supply discerned on the application of the CPP jurisprudence
into separate supplies of accommodation and power because the tax treatment of
a single complex supply (taxation at the standard rate) is different from what
the tax treatment would have been (taxation at the reduced rate) if the power
had been supplied separately from the accommodation. The ‘fiscal neutrality’
argument raised at this stage is not confined to cases where the reduced rate is
in issue, and we consider that it would undermine the efficacy of the CPP jurisprudence
if single complex supplies were generally required to be disaggregated because
the taxation consequences would have been different if the parties had chosen
or been able to make their transaction on a different basis. On this point we
are following Purple Parking (ibid. at [39]) and the cases
therein cited. The correct treatment on the application of the CPP jurisprudence
must be discerned from the transaction actually entered into and not from
equivalent transactions that might have been, but were not, entered in to.
Conclusions
92. Our conclusions are as
follows:
93. We accept that French
Undertakers is authority for the entitlement of a Member State to legislate
that a reduced rate of VAT will apply to a supply of goods or services in
relation to which a reduced rate is authorised under the relevant European
Union legislation (including natural gas, electricity or district heating),
notwithstanding that the application of the CPP jurisprudence would lead
to the conclusion that such supply was merely an element in a larger single
complex supply which receives the tax treatment appropriate to the nature of
the larger single complex supply taken as a whole. This is so, provided (a)
that the supply of goods or services in relation to which a reduced rate is
authorised is a concrete and specific aspect of the larger single complex
supply which an application of the CPP jurisprudence would identify, and
(b) the principle of fiscal neutrality is observed if the reduced rate is
applied to that supply of goods or services and no distortion of competition
results.
94. Cases where a Member State
has legislated that a reduced rate of VAT will apply to a supply of goods or
services which would be merely an element in a larger single complex supply (if
the CPP jurisprudence were to be applied) are cases where the CPP jurisprudence
is inappropriate to determine the scope and substance of the supplies made for
VAT purposes and the rate(s) of VAT which they respectively attract.
95. Section 29A and Group 1, Schedule
7A, VATA constitute a case within the immediately preceding paragraph. Therefore,
the appeal succeeds on this basis.
96. If this conclusion is wrong,
then the CPP jurisprudence must be applied to the supplies made by
Colaingrove. Applying the CPP jurisprudence, we conclude that there is a
single complex supply of serviced holiday accommodation.
97. We further conclude
that that single complex supply would not fall to be artificially split for VAT
purposes to recognise any supposed principle of fiscal neutrality.
98. In the result, the appeal is
allowed.
99. We were not addressed on the
quantum of the subject matter of the appeal. Our decision is a decision in
principle. If the parties are unable to agree how the appeal should be
disposed of in the light of this Decision they have general liberty to apply to
the Tribunal to determine any outstanding issues.
100. This document
contains full findings of fact and reasons for the decision. Any party dissatisfied
with this decision has a right to apply for permission to appeal against it pursuant
to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules
2009. The application must be received by this Tribunal not later than 56
days after this decision is sent to that party. The parties are referred to
“Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)”
which accompanies and forms part of this decision notice.
JOHN WALTERS QC
TRIBUNAL JUDGE
RELEASE DATE: 29 January 2013
