Neutral Citation Number: [2012] EWHC 9 (Ch)
Case No: CH/2008/APP/0858 & CH/2010/0260
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 17/01/2012

Before :

MR JUSTICE MANN
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Between :

	Royal Bank of Scotland	Appellant	
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	Commissioners for Her Majesty’s Revenue and Customs	Respondent	

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David Milne QC and Greg Sinfield (instructed by Hogan Lovells International LLP) for the Appellant
Sam Grodzinski QC and Eleni Mitrophanous (instructed by General Counsel & Solicitor to HM Revenue & Customs) for the Respondent

Hearing dates: 1st & 2nd November 2011
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Judgment

Mr Justice Mann :
Introduction
1.	This is an appeal from the VAT and Duties Tribunal given on 16th September 2008 (Tribunal members:  Dr John F Avery Jones and Mr John Brown).  The delay between that date and the hearing of the appeal in this Court is because the appeal was stayed for a time while other related appeals were dealt with.  The appeal concerns the chargeability to VAT of various sums payable by a company in the group of the appellant (“RBS”) to Prudential Assurance Company (“Prudential”) which I shall, for the purposes of this appeal, call commissions without intending thereby to pre-judge any of the questions that arise on this appeal.
Factual background
2.	At the beginning of the millennium Prudential decided to transfer its general insurance business.  To that end in December 2001 and January 2002 it entered into a series of agreements with companies in the Winterthur group with the effect that thereafter the Winterthur group essentially took over the business.  All renewals of existing general business policies were done by the Winterthur group; new general business which came in under the Prudential brand was effected by Winterthur; the existing general business book was reinsured with the Winterthur group; and various assets used to administer the business were transferred to a Winterthur company.  Winterthur had the benefit of all Prudential branding and intellectual property in connection with this business.
3.	Two principal heads of money flowed, or were to flow, from Winterthur to Prudential under these arrangements.  First, a capital sum of just over £350 million was payable on completion under one of the agreements.  Second, another of the agreements provided for a sum described as commission on renewals of Prudential policies and on other policies resulting from leads generated by the use of the Prudential name, though in the case of some of them they were not payable until their amounts reached an aggregate of £350m.  I shall have to come to some of the detail of this in due course.  This appeal turns on the chargeability to VAT of those later commission payments.
4.	The complexity does not stop there.  Apparently it more or less immediately became apparent that the Winterthur company involved (a Swiss-registered company (“Winterthur Swiss”)) could not satisfactorily carry on the business for regulatory reasons.  Accordingly there was a prompt novation of the arrangements in favour of what I will call Winterthur Bermuda.  This novation took place on 28th February 2002.  In due course Winterthur itself sought to remove itself from the business and a further novation took place in favour of UK Insurance Limited (“UKI”) on 11th June 2003.  For the purposes of this appeal I can generally use their abbreviations interchangeably.  On 24th November 2005 an officer of HMRC wrote to Prudential setting out HMRC’s position which was that the commissions did not attract exemption from VAT under any of the bases referred to below.   Prudential appealed that decision to the Tribunal.  UKI is part of the VAT group of the Royal Bank of Scotland, and given that the financial impact of the present appeal is apparently borne by RBS (as the person liable to pay the relevant VAT), RBS was substituted as the appellant in the present appeal.    The Tribunal upheld the position of HMRC to the effect that the commissions did not attract any exemption, and RBS appeals to this Court from that decision.
The exemptions relied on
5.	RBS relies on two exemptions (I shall use that word for the sake of convenience though it might be said to be not quite technically correct).  The first applies to payments for sales of a business as a going concern.  The second applies to payments for insurance brokerage and insurance agency services.  I shall deal with them in that order.
The going concern exemption
6.	RBS’s first claim to exemption comes under Article 5 of the Value Added Tax (Special Provisions) Order 1995 (SI 1995/1268).  So far as material that reads as follows:
“5. Subject to paragraph (2) below, there should be treated as neither a supply of goods nor a supply of services the following supplies by a person of assets of his business – 
…(b) their supply to a person to whom he transfers part of his business as a going concern where –
i.	that part is capable of separate operation,
ii.	the assets are to be used by the transferee in carrying on the same kind of business, whether or not as part of any existing business, as that carried on by the transferor in relation to that part, and
iii.	in a case where the transferor is a taxable person, the transferee is already, or immediately becomes as a result of the transfer, a taxable person…”
7.	It is said by RBS that the commission payments were part of the consideration for a transfer which falls within the provision.  It is common ground that, on the facts, Prudential transferred part of its business as a going concern and that that part was capable of separate operation.  The opening words of paragraph (b) are therefore treated as fulfilled, as is the condition in sub-paragraph (i).  The first dispute comes in relation to the fulfilment or otherwise of sub-paragraphs (ii) and (iii).  
8.	The second dispute under this claim to exemption comes in relation to whether the commission payments were in fact consideration for the transfer of the part business as a going concern.  It is common ground that they can only escape VAT under this exemption if they were.  HMRC says that they do not fall to be so treated; RBS says that they do.
9.	The Tribunal decided that the only consideration for the sale was the £350m initial payment (see paragraph 8 of the decision below).  They decided that the commission payments were in fact for the continued use of data under the relevant agreement, and the fact that the commission was not payable until a notional sum of £350m had accrued did not make it part of the relevant consideration.  The conclusion is shortly stated, without much reasoning.  Having thus decided, the Tribunal did not reach a conclusion on whether the qualification in paragraphs (ii) and (iii) was fulfilled because it was not necessary to do so.  Its decision on the other point was enough to rule out the exemption.  It did, however, express doubts as to whether RBS could succeed on the point.
10.	Thus on the appeal Mr Milne QC, for RBS, argued that the Tribunal was wrong in its decision on the consideration point, and that it ought to have had no doubts on the other point and decided it in RBS’s favour.  

The applicability of Article 5
11.	Mr Milne is correct in saying that he has to win on both contested points in order to be able to establish the Article 5 exemption.  RBS have to show that they come within sub-paragraphs (ii) and (iii), and then establish that the commission payments were consideration for the transfer of a going concern.  If he fails on one of those, he fails completely.
12.	For my part I prefer to tackle the sub-paragraphs (ii) and (iii) point first, and decide the other point only if it matters.
13.	In order to understand the arguments on the point it is necessary to describe the relevant agreements a little more.  Much of the detail does not matter at this stage (though I will have to set some of it out in relation to a later point), and for present purposes the following description suffices.
14.	There were 5 principal agreements between Prudential and Winterthur:
(i)	The Reinsurance and Administration Agreement.  Under this agreement Prudential ceded its liabilities under its general insurance policies to Winterthur, and another company in the Winterthur group took over the administration of the policies.   
(ii)	The Marketing Agreement.  Under this agreement, which lasts for 15 years, Prudential supply data about various leads (people who have indicated to Prudential an interest in general insurance) to Winterthur.  Winterthur has the right to host its own website, promoting the general business.  Commission is payable on business resulting from leads from these sources on various scales depending on the business.  About 20% of the commission which is the subject of the this appeal results from these activities.  It also provides for commission on renewals of general insurance policies already in existence, the right to renew which is provided by the next agreement.
(iii)	The Renewal Rights Agreement.  This is where most of the value of the commissions lies (about 80%, apparently).  Under it Prudential agreed to sell the “Business Goodwill” and the “Business Intellectual Property) for £350,011,008 and £1 respectively.  The Business Goodwill is the right to renew general business as an insurer.  Its value depends on the brand loyalty of Prudential and probably the inertia of Prudential customers.   All renewals would in fact be renewals with Winterthur.  The Business Intellectual Property was all intellectual property owned by Prudential (other than its brand name, which was dealt with separately).  Commissions payable on such renewals (both the first renewal and renewals thereafter) are provided for in the Marketing Agreement.
(iv)	The Prudential Brand Licence.  This agreement allowed Winterthur to use Prudential trade marks (including its name) in relation to the general business which was (in substance) being transferred.  Again, this agreement lasts for 15 years.  
(v)	The Business Purchase Agreement.  This was an agreement between Prudential and a Winterthur subsidiary (Churchill Management Ltd), under which Prudential assigned the rest of its goodwill (so far as not assigned), the physical means of carrying on the business (premises, goods, existing contracts) so that the general business could be continued in the hands of the Winterthur group.
15.	Shortly after these agreements came the first novation.  On 28th February 2002 Prudential entered into an “Agreement Novating and Amending Marketing Agreement of 4 January 2002”, with the original Winterthur company (Winterthur Swiss) and a Bermuda company (Winterthur Bermuda).   The amendments do not matter.  Under this agreement Prudential discharged Winterthur Swiss from its outstanding obligations under the Marketing Agreement, and Winterthur Bermuda undertook those obligations so far as not performed hitherto and agreed to be bound as if named as a party in the original agreement.  Prudential’s obligations under the Marketing Agreement were, after the date of the novation agreement, owed to Winterthur Bermuda.  Prudential released Winterthur Swiss from the date of the agreement, and accepted the liability of Winterthur Bermuda to perform from that date.  Under clause 6 Prudential confirmed Winterthur Bermuda as a sub-licensee under the Brand Licence.
16.	Another novation agreement of the same date novated the rights and obligations under the Renewal Rights Agreement.  As with the other novation agreement, the Prudential accepted future performance under the Renewal Rights Agreement from Winterthur Bermuda, and Winterthur Bermuda undertook performance for the future.
17.	Winterthur remained in the picture until UKI took its place under a further novation agreement dated 11th June 2003.  UKI undertook to perform the Renewal Rights Agreement as and from completion.  There were associated discharges for the Winterthur companies as and from that time, and UKI assumed liability under the Renewals Agreement whether the liability arose before or after the completion date.  Similar novations took place, in the same agreement, in relation to the Marketing Agreement, the Reinsurance and Administration Agreement and the Brand Licence.
18.	In that manner the Prudential general business got into the hands of UKI.  There was no transfer of the insurance business as such, but the benefit of future contracts, including renewals, was placed in the hands of first the Winterthur group and then UKI.  
19.	Under the provisions of Article 5, there has to be a transferee of the whole or part of a business as a going concern, and then certain conditions have to be fulfilled in respect of the “transferee”.  Ostensibly the transferee was Winterthur Swiss - the company in favour of whom most of the benefit was conveyed.  However, that company could not fulfil the requirements of sub-paragraph (iii) because, being Swiss, it was not a taxable person.  Mr Milne did not seek to contend otherwise.  His answer was that as a result of the novation agreements UKI is now the transferee, and UKI is a taxable person.  He reinforced his submissions by relying on Article 90 of the VAT Regulations (SI1995/2518) which provides that:
“… where services … are supplied for a period for a consideration the whole or part of which is determined or payable periodically or from time to time, they shall be treated as separately and successively supplied at the earlier of the following times - 
(a)  each time that a payment in respect of the supplies is received by the supplier, or
(b)  each time that the supplier issues a VAT invoice relating to the supplies”.

That, he said, threw the time of inquiry to the time of each payment of commission, and at that time UKI was a transferee under Article 5.

20.	In my view Mr Milne’s argument is plainly wrong.  There was only ever one transferee in respect of the transfer as a going concern, and that was Winterthur Swiss.  Even if the commission was consideration for that transfer for the purposes of Article 5, it was only consideration for that transfer in favour of that transferee.  The novation agreements did not substitute Winterthur Bermuda and UKI as transferees under the original transfer.  It might be thought that, in the round, they were further transfers of the business (though that is questionable for the first novation, which did not clearly novate everything) but insofar as they were transfers they stood in their own right with their own transferees.  There was no purported retrospective element in them, and even if there had been it could not have affected the true effect of the original transfer for tax purposes.  Accordingly, there is no warrant for treating the transferee as being anyone other than Winterthur Swiss, and certainly none for treating it as UKI.
21.	The time of supply provisions do not help Mr Milne.  They determine when the services in question are treated as having been supplied but do not unscramble what has happened historically.  Furthermore, there is a logical problem with their application.  Article 90 applies where services are supplied.   Article 5 operates by treating no services as having been supplied (see its opening words).  So they cannot interact in the way suggested by Mr Milne.  
22.	Accordingly, the condition in sub-paragraph (iii) cannot be fulfilled.  In fact, in earlier litigation this has already been held.  In Winterthur Swiss Insurance Company v Commissioners for Her Majesty’s Revenue and Customs [2006] V&DR 375 the Tribunal was called on to decide whether Article 5 applied in relation to other VAT aspects of these arrangements.  The Tribunal held that condition (iii) could not be fulfilled, though the debate was rather different there.  It concluded:
“22.  Accordingly, though we find that there is in this case the transfer of part of a business and not merely assets, and that is capable of separate operation, the transfer fails to satisfy paragraphs (ii) and (iii).”
23.	Nothing has changed since that decision.  Whether or not it already determines the Article 5 point against the appellant, for my own reasons I find that the conditions of sub-paragraph (iii) were not fulfilled, and for that reason alone the appeal on that point fails.
24.	That being the case, it is unnecessary for me to consider the other main point under this head, namely whether the commission payments were part of the consideration for the transfer back in 2002.  I shall not embark on that consideration, and will merely say that there is much to be said for the conclusion reached by the Tribunal in the decision appealed from.

The broker/agent point
25.	If the appellant cannot rely on Article 5 (which it cannot) it then relies (and relied below) on an alternative exemption, namely one which applies to insurance brokers and agents.  The source of this exemption is Article 13 of the Sixth Directive (Sixth Council Directive 77/388/EEC).  Paragraph B provides:
“Without prejudice to other Community provisions, Member States shall exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of the exemptions and of preventing any possible evasion, avoidance or abuse:
(a)  insurance and reinsurance transactions, including related services performed by insurance brokers and insurance agents …”.

26.	In the UK legislation the exemption is provided by section 31 of the VAT Act 1994, which provides for the exemptions in Schedule 9.  Schedule 9 Group 2 refers to:
“4.  The provision by an insurance broker or insurance agent of any of the services of an insurance intermediary in a case in which those services – 
(a)  are related (whether or not a contract of insurance or reinsurance is finally concluded) to an insurance transaction or a reinsurance transaction; and
(b)  are provided by that broker or agent in the course of his acting in an intermediary capacity.
Notes
(1)  For the purposes of item 4 services are services of an insurance intermediary if they fall within any of the following paragraphs - 
(a)  the bringing together, with a view to the insurance or reinsurance of risks, of - 
(i)  persons who are of may be seeking insurance or reinsurance, and
(ii) persons who provide insurance or reinsurance;
(b)  the carrying out of work preparatory to the conclusion of contracts of insurance or reinsurance;
(c)  the provision of assistance in the administration and performance of such contracts, including the handling of claims;
(d)  the collection of premiums.
(2)  For the purposes of item 4 an insurance broker or insurance agent is acting ‘in an intermediary capacity’ wherever he is acting as an intermediary, or one of the intermediaries, between - 
(a)  a person who provides insurance or reinsurance, and
(b)  a person who is or may be seeking insurance or reinsurance or is an insured person.”
27.	Putting the matter shortly, the appellant says that Prudential’s activities fall within this exemption because the activities of Prudential under the transfer arrangements fall within the description “related services performed by insurance brokers and insurance agents”.  The activities amounted to the sort of referrals which brokers or agents did, and Prudential received commission just as brokers or agents do.  

The decision below on the broker/agent point
28.	The Tribunal decided this point against the appellant.  It considered (with the aid of authority) that what a broker did was:
“bring together, with a view to the insurance or reinsurance of risks, persons seeking insurance or reinsurance and insurance or reinsurance undertakings”
(in the wording of one of the authorities).  Insurance agents were different, in that they introduced insured and insurer, but also had power to create legal relations going beyond the mere introduction.  Having thus analysed the matter in a way mostly not challenged by Mr Milne, they concluded that the exemption did not apply.  Their reasoning is set out in paragraphs 15 and 16 of the decision.  
29.	Their reasoning started thus in paragraph 15:
“First, and most importantly, in relation to bringing the parties together (or introducing them), Prudential did not do this. Any bringing together (or introduction) of Prudential and the insured has happened in the past and may have been performed by a broker at the time.”
Mr Milne particularly criticised that finding, which he said was simply wrong, and argued that that error underpinned the rest of the reasoning which was thereby rendered inaccurate.  
30.	The Tribunal then considered whether Prudential carried out work preparatory to the conclusion of contracts of insurance, and concluded that it did not.  Thirdly, it considered whether it assisted in the administration and performance of such contracts, particularly in the event of a claim.  Again, it found it did not.
31.	It then went on:
“16.  Bearing in mind that it is the first requirement that is essential, we find that Prudential does not qualify in this respect as either an insurance broker or an insurance agent.  It was before the sale of the Business the insurer, it has sold the Business ultimately to the Appellant, which on renewal of the policies current at the time of the sale invites the insureds to enter into a new contract with the Appellant using the Prudential brand name (we understand that if one reads the contract carefully the Appellant is named as insurer but a casual reader will believe it is still Prudential.)”
It did not think that it could stretch the meaning of insurance broker to cover this activity.
32.	As well as criticising the particular finding in paragraph 15 (which was taken up in paragraph 16), Mr Milne also said that the overall decision was wrong.  If one looked at the facts of this case, one could see, he said, that Prudential was doing what brokers did and were being paid what brokers were paid.  Furthermore the principal of fiscal neutrality strengthened the conclusion that the exemption should apply because the transactions were economically similar to transactions which undoubtedly attracted the exemption, so they should be taxed in the same way.

The approach to an exemption
33.	It was common ground that, since an exemption was in play, a strict approach was required.  The Tribunal applied what Chadwick LJ said in Expert Witness Institute v Customs and Excise Commissioners [2002] STC 42 at [17], and neither side said this was a wrong approach:
“It does not follow, however, that the court is required to give the phrase ‘aims of a civil nature’ the most restricted, or most narrow, meaning that can be given to those words.  A ‘strict’ construction is not to be equated, in this context, with a restricted construction.”
34.	The proper construction is the proper construction, but since an exemption is in issue it is for the person claiming it to demonstrate that he falls within it.  I think, with respect, that that is a strict application, rather than a strict construction.  

The activities of Prudential
35.	The starting point must be to set out what Prudential was obliged to do and what it did. What it was required to do appeared from the Marketing Agreement, and is summarized by the decision below in paragraphs 3(6) to 3(8).  Since Mr Milne did not challenge this part of the Tribunal’s decision I can adopt it and make just one or two additions:

“(6) Under the terms of the Marketing Agreement Prudential provided Winterthur with exclusive rights to the details of Prudential’s general insurance customers for a period of 15 years.  The Marketing Agreement provided that Winterthur would market Prudential branded general insurance policies and it set out the way in which Winterthur would conduct itself in relation to the renewals of general insurance policies.  Prudential was to redirect enquiries for general insurance policies to Winterthur and Winterthur was required to seek the prior approval for any new products to bear the Prudential brand.  The Marketing Agreement also required Winterthur to maintain a website within Prudential’s website so that customers who intended to find out about or buy general insurance products could do so by clicking on links on Prudential’s website to connect to sites owned by Winterthur.

(7) Clause 10 and Parts B to D of Schedule III to the Marketing Agreement deals with the payment of commission to Prudential in respect of each Prudential branded general insurance product purchased from the Appellant.  The amount of commission payable under the Marketing Agreement is determined by:

(1)	the type of general insurance product sold (i.e. either household, motor, creditor or travel);
(2)	the means by which the policyholder was introduced (which consisted of four types of product lead categories); and
(3)	whether the insurance policy is written for the first time or renewed.

However, the major part of the commission payable by the Appellant to Prudential is as a result of renewals of general insurance policies which were in place prior to 4 January 2002 when Prudential sold its general insurance business to Winterthur and Churchill.

(8)  The product lead categories are:

Lead A: No lead provided by Prudential;
Lead B: Name and address of a Prudential Group Non-GI customer who has expressed an interest in a Prudential-branded General Insurance Product;
Lead C: Name and address of Prudential Group Non-GI customer who has expressed an interest in a Prudential-branded General Insurance Product with policy renewal details.
Lead D: Name and address of a Prudential Group Non-GI customer who wishes to purchase a Prudential-branded General Insurance Product.”
36.	So far as Lead A is concerned, this would be just from a click-through on a link on Prudential’s website.  This is the activity described in paragraph (6) of the Tribunal decision set out above.  A click leads to a series of “Prudential” pages which are in fact maintained by UKI, and when the customer clicks the “Buy” button he then enters into UKI’s own website.  But the important thing to note is that before he gets there, all the other relevant general insurance pages are maintained by UKI, not by Prudential.  Leads B, C and D are activities where the query originates with the customer in some form, unprompted by Prudential, but Prudential itself passes the detail on (such as it is). There is also commission payable in respect of renewals of general insurance policies that existed in 2002.  Details of these were essentially passed over at the time or from time to time, and commission is payable in relation to each renewal thereafter.  Renewal activity was by far the biggest proportion of business which flowed from the various forms of lead.  In 2008 it accounted for 80% of the commissions paid to Prudential under these arrangements, as referred to above.
37.	The evidence in the case gave some detail of what sort of activities were (and were not) carried out by Prudential. Mr Milne invited me to read it (as I understand it, it was not contested).  It can be summarized as follows:
(i) It participates in a joint management committee, whose activities are provided for in Schedule II of the Marketing Agreement.  The activities of this committee can be summarized as approving marketing and allied material, approving potential new Prudential-branded products, considering amendments to the terms of the Prudential-branded products and reviewing pricing, and reviewing the operation of the purchaser under the Agreement.  
(ii) There is cooperation between the parties outside the joint management committee on other marketing issues and the maintenance of the service provided to customers by RBS.  RBS contributes to a consideration of marketing tactics and techniques.
(iii) Prudential provides some training for RBS staff to boost sales and instil the values of the Prudential brand.
(iv) Prudential has input into the development of new products to enhance the products and make sure that they are aligned with the needs of Prudential customers.
(v)  Prudential has the right to control some pricing in that it has the right to control the application of some discounts.
(vi) Prudential does not get involved in the renewal or issue activity once the lead is passed on.  That is all done by RBS.  Nor does Prudential get involved in claims.  Once the names and data are passed to RBS, RBS takes over completely.
The law on the exemption
38.	There is significant elaboration in the authorities on what is meant by “insurance broker” and “insurance agent” and it will be useful to set out that legal framework first.  I have already set out the statutory provisions above.
39.	The point was most recently considered in InsuranceWide.com Services Ltd v Revenue and Customers Commissioners [2010] STC 1572.  The case involved insurance products sold via websites whose main purpose was to advertise cars for sale.  In the InsuranceWide element there was an “insurance centre” on the website through which, through certain mechanisms, customers could also get insurance quotes which might result in an insurance contract for the car.  The website owner claimed the insurance broker exemption and the Court of Appeal allowed it.  Etherton LJ pointed out that the Sixth Directive did not define insurance broker or insurance agent, but relied on Article 2 of the Insurance Directive which in Article 2 sought to achieve:
“  the abolition of restrictions on freedom of establishment : 
(a)	professional activities of persons who, acting with complete freedom as to their choice of undertaking, bring together, with a view to the insurance or reinsurance of risks, persons seeking insurance or reinsurance and insurance or reinsurance undertakings, carry out work preparatory to the conclusion of contracts of insurance or reinsurance and, where appropriate, assist in the administration and performance of such contracts, particularly in the event of a claim;
(b)	professional activities of persons instructed under one or more contracts or empowered to act in the name and on behalf of, or solely on behalf of, one or more insurance undertakings in introducing, proposing and carrying out work preparatory to the conclusion of, or in concluding, contracts of insurance, or in assisting in the administration and performance of such contracts, in particular in the event of a claim;
(c)	activities of persons other than those referred to in (a) and (b) who, acting on behalf of such persons, among other things carry out introductory work, introduce insurance contracts or collect premiums, provided that no insurance commitments towards or on the part of the public are given as part of these operations.

40.	Etherton LJ then carried out a review of various authorities (some of which I refer to below), and in relation to one of them (JCM Beheer BV v Staatssecretaris van Financiën (Case C-124/07). [2008] STC 3360) he referred to the nature of the connection required for it to be said that a person was acting as an insurance broker or agent.
“80 …  I agree with Ms Sloane that Beheer shows that, while there is a need to exercise the characteristic functions of an agent or broker, what is not required is a direct legal relationship with both or either of the ultimate parties, namely the insurers and those seeking insurance.  It is sufficient that the insurance agent or broker is carrying out a vital intermediary role in a chain of intermediaries.”
Then at paragraph 85 he summarized the principles as he saw them:
“85. In the light of that case law and the domestic and EU legislation, the following principles apply, in my judgment, to the interpretation and application of [the relevant legislation]:

(1) The insurance intermediary exemption should be interpreted so far as possible, consistently with its terms, in a way that reflects the jurisprudence of the ECJ and the United Kingdom’s obligations under the Sixth Directive and the 2006 VAT Directive.  To do otherwise would, as Ms Foster pointed out, risk infraction of EU legislation by the United Kingdom.
(2)  The exemption in Art. 13B(a) must be interpreted strictly since it constitutes an exception to the general principle that VAT is to be levied on all services supplied by a taxable person.  This does not mean, however, that the words and expression in Art. 13B(a) and the insurance intermediary exemption are to be given a particularly narrow or restricted interpretation.  It is for the supplier to establish that it and its activities come within a fair interpretation of the words of the exemption.
(3) The exemption for “related services” under Art. 13B(a) only applies to services performed by persons acting as an insurance broker or insurance agent.  Although those expressions are not defined by EU legislation, they are independent concepts of Community law which have to be placed in the general context of the common system of VAT.
(4) Whether or not a person is an insurance broker or an insurance agent, within Art. 13B, depends on what they do.  How they choose to describe themselves or their activities is not determinative.
(5) The definitions of “insurance broker” and “insurance agent” in the Insurance Directive are relevant to the meaning of the same expressions in Art. 13B(a) to the extent, but only to the extent, that they should be taken into consideration as reflecting legal reality and practice in the area of insurance law.  It is not necessary, in order to invoke the exemption in Art. 13B(a) for the taxpayer to perform precisely the description of activities in Art. 2(1)(a) or (b) of the Insurance Directive.
(6) On the other hand, the mere fact that a person is performing one of the activities described in Art. 2(1)(a) or (b) of the Insurance Directive or the definition of “insurance mediation” in the Insurance Mediation Directive does not automatically characterise that person as an insurance agent or an insurance broker for the purposes of Art. 13B(a).
(7) It is an essential characteristic of an insurance broker or an insurance agent, within Art. 13B(a), that they are engaged in the business of putting insurance companies in touch with potential clients or, more generally, acting as intermediaries between insurance companies and clients or potential clients.
(8) It is not necessary, in order to claim the benefit of the exemption in Art. 13B(a), for a person to be carrying out all the functions of an insurance agent or broker.  It is sufficient if any person is one of a chain of persons bringing together an insurance company and a potential insured and carrying out intermediary functions, provided that the services which that person is rendering are in themselves characteristic of the services of an insurance agent or broker.
(9) All the above principles are capable of being applied, and must be applied, to the insurance intermediary exemption in Schedule 9 to VATA 1994.”

41.	Etherton LJ then went on to consider the application of those principles to the facts of the case before him, and he applied those criteria in a manner which Mr Grodzinski QC contrasted with the facts of the present case, so I will set them out.

“86.  In my judgment those principles, applied to the facts found by the tribunal, inevitably lead to a dismissal of these appeals.  Although HMRC’s case is that the relevant functions performed by InsuranceWide and Trader Media were nothing more than the provision of a “click-through” facility to a broker, agent or insurer, it is plain that both taxpayers were doing much more than that.  They identified and provided those looking for insurance with access to insurers who provided a range of competitive insurance products.  In both cases the evidence indicated that the insurers were appraised and selected bearing in mind the competitiveness of their pricing and products and their level of consumer service.  In the post-Wizard phases, InsuranceWide provided those seeking insurance with a means of directing them most effectively and efficiently to the most appropriate insurers, whether directly or through another intermediary, to match their requirements.  In the case of Trader Media the evidence was that it not only had an input into the questions to be answered by those seeking insurance, but, importantly, it made suggestions for the composition of the insurance panel based on its understanding of the experience and demographics of the consumers and with a view to providing customers with insurers who would quote competitive prices.  Neither of them were, as Ms Sloane emphasised, a mere “conduit”.  The relevant activities can fairly be described as the business of bringing together insurers and those seeking insurance, by contrast with the taxpayers in Scandia Taksatorringen v Arthur Anderson who were subcontractors.

87… It is sufficient that they were providing services characteristic of an insurance broker or agent, and which were vital to the process of introducing those seeking insurance with insurers, even if they were only part of a chain of such persons.  In any event, they did have direct relations with the customers who used their website, … and they did have collaborative arrangements with intermediaries who did have legal relations with insurers.”

Longmore LJ agreed with Etherton LJ’s analysis of the authorities and his conclusion that:

“…activities of an insurance broker or agent can fairly be described as the business of bringing together insurers and those seeking insurance.”
42.	Other relevant principles appear from Staatssecretaris van Financiën v Arthur Andersen & Co [2005] STC  508.  The facts in that case were very different.  Arthur Andersen were carrying on a whole lot of activities which looked like a very substantial proportion of the back office activities of an insurance company, and it was held that they were not insurance brokers or insurance agents for the purposes of the exemption.  The ECJ held that one of the features of an insurance broker was absent in that case:
“29….  Therefore it does not have complete freedom as to choice of insurer, a characteristic of the professional activity described in art 2(1)(a) of EC Council Directive 77/92 corresponding to that of an insurance broker.”
Nor did the activities of Arthur Andersen, looked at as a whole, “constitute the services that typify an insurance agent either.” (paragraph 34)
43.	The Advocate-General emphasised the intermediary nature of the activities of a broker.  He referred to the notion that a broker has a relationship with both the insurer and insured, and said the definition in the Sixth Directive:
“places the emphasis … on the external action of the insurance agent, that is his position as a mediator between the policyholder and the insurance company, necessarily implying the existence of relations with both of these parties.” (paragraph 24).
44.	In paragraph 33 he dealt with the activity of an insurance agent which:
“has an independent substance distinct from the business of the insurer”. 
And in paragraph 28 he set out the most important characteristics of an insurance agent:
“28 …  The decisive aspect, in my view, lies in the fact that a relationship between an insurance agent and a policyholder necessarily implies the existence of the agent’s own declarations, adopted as such¸ and addressed to the policyholder before whom he presents himself as an insurance agent acting on behalf of and possibly in the name of an insurer.”

45.	There is no real suggestion in the present case that Prudential acts as an insurance agent, so the concept of broker is the important one.  In the light of that the following important features emerge from these authorities so far as the facts of this case are concerned:
(i)  For a person to qualify as a broker there must be more than some mechanical or quasi-mechanical act of reference as between the would-be insured and the insurer.  In paragraph 86 of his judgment Etherton LJ contrasted the situation in his case with that of a “mere conduit”.  The latter would not be broker – not enough is done.  The reference to a “click through” facility is to the same effect – if all that happened was that the website owner provided a button to click, as a result of which the viewer was transferred to the insurer, and there was no greater input than that, then the owner would not (it seems) have done enough to be a broker.
(ii)  So something else is required.  One of those things is that it is the business, or part of the business, of the person in question to provide services of an intermediary – in the words of Etherton LJ, they are “engaged in the business of putting insurance companies in touch with potential clients”; and “providing services … vital to the process of introducing those seeking insurance with insurers…”.  Thus the mechanical routing of inquiries does not count; and there has to be an element of conducting business about the services or facilities provided.  To the same effect is the judgment of Longmore LJ – “the activities of an insurance broker or agent can fairly be described as the business of bringing together insurers and those seeking insurance” (para. 99).  
(iii)  Those services have to have the quality of being those of an intermediary.  Again, this is why mechanical conduit-like behaviour does not count.  A mere conduit is not an intermediary.  He does not do enough to qualify.  It is not possible to identify a universal test for being an intermediary, but it is at least possible to identify what is not sufficient.  
(iv)  Although it is probably only putting the same point in a different way, a person claiming the exemption must perform services which are characteristic of the services of a broker.  Those acts include “work preparatory to the conclusion of contracts of insurance” and assisting in the administration and performance of such contracts (see the legislation identified above).
(v)  In making referrals, the broker should have freedom of choice as to the insurer to whom referrals are made.
46.	In the light of those authorities and the points to be extracted from them I turn to Mr Milne’s criticisms of the decision below.
47.	The validity of his first criticism depends on how literally one views the finding of the Tribunal.  If passing on a name, address and type of policy requirement, without more, is sufficient to amount to “bringing parties together (or introducing them)”, then Prudential has, literally, done that, and the Tribunal would be wrong to find that it did not because it had already happened when the customer was originally introduced to Prudential (if introduced by a broker).  However, it seems to me to be unlikely that the Tribunal intended such a literal meaning.  It would be odd if it did.   The Tribunal had just summarised, accurately, the nature of the relationships arising out of the original transaction and what Prudential did.  The Tribunal members clearly knew that Prudential passed customer details to Winterthur (and subsequently UKI).  So they cannot be taken to have denied the “passing on” connection between the two sides.  They must be taken to mean something other than a literal view of the words “bringing together (or introduction)”.  I think that the Tribunal probably meant “bringing together (or introduction) like a broker does”.  That makes sense, and is supported by the wording of paragraph 16 which focuses on the renewal of policies existing at the date of the original sale.  It describes what happened in that situation, and then says that the concept of a broker cannot be stretched so far as to make it describe what happened in the past. 

48.	Such a conclusion makes sense, and is entirely consistent with the rest of the Tribunal's reasoning.  On the facts it seems to me to be not only a conclusion which the Tribunal was entitled to reach; it was probably the only conclusion it was entitled to reach.  When seeing if Prudential was doing the same sort of thing that a broker does one starts with a key distinction.  A customer engaging with, or dealing through, a broker (or other intermediary) is likely to know that that person is an intermediary, or at least likely to know that that person is not the end insurer.  Even the customers in InsuranceWide will have known that somehow they moved on from the website providers and had gone on to deal with someone else.  Contrast the apparent position in this case.  So far as the original renewals of Prudential general insurance policies were concerned, there is no relevant dealing at all between customer and Prudential.  Prudential merely passes on the renewal information to UKI, who take it from there.  There is nothing at all akin to the sort of approach that a customer makes to a broker.  So far as Lead A customers are concerned, Prudential does nothing in relation to the individual customers in question except to provide a click-through facility on its website so that the customer is in fact looking at pages maintained on the Prudential website by UKI, until he clicks the “Buy” button when he enters UKI's own website.  The parties did not fall over themselves to make sure that it was suddenly made apparent that the customer was not dealing with Prudential as soon as he clicked on to the first general insurance page.  Nor is it apparent that he would suddenly have the realisation when he “Buys”.  That would have gone completely against the whole purpose of using the Prudential branding.  So far as Leads B to D are concerned, there is no suggestion that Prudential made it clear to the customer that it was no more than an intermediary, and again it would seem to go against the purpose of the exploitation of the brand that it should do so.  The customer has not approached Prudential as an intermediary.  All this does not, in my view, amount to bringing the parties together, or amount to introducing them, as a broker does.  

49.	The matter can be put in various ways, deploying the factors that I have identified above.

i)	It would not be an inaccurate metaphor to describe Prudential as a mere conduit.  That is particularly clear in relation to Lead A customers, and is apparent in relation to the other categories of lead as well.  In all cases Prudential hands over customer details, apparently without more, and then lets UKI get on with it.  UKI undertakes all subsequent activity in relation to that customer, whether or not a contract of insurance results.
ii)	Prudential has no freedom of choice as to whom the customer should be referred to.  Every inquiry is passed to UKI, and to UKI alone.  
iii)	If one contrasts Prudential's  activities with the activities of referring companies in InsuranceWide, one can plainly see that Prudential’s activities fall far short of the sort of activities which made the relevant companies “brokers” in InsuranceWide.  Of course, it would not be an acceptable way of deciding this point to say that Prudential did not behave like those other companies, therefore they cannot be brokers, without more.  But it is instructive to see what it was that made those other companies something other than conduits, and those factors do not exist in this case.
iv)	Again, one can look at it in terms of whether Prudential is supplying the services of a broker in the course of carrying on the business of a broker.  From its own point of view it does not really conduct a separate business, or supply services.  So far as the customer is concerned, this takes up the point made above.  A pure renewals customer does not really know that anything material has happened at all.  A Lead A customer clicks away on the website, with no-one telling him that he is, in substance, now dealing with another insurance company, and he certainly does not know that Prudential has done anything useful.  From the point of view of the customer in relation to Leads B to D, it will not be apparent that Prudential is providing any services at all.  Although I was not shown the sort of material that passed between Prudential and those approaching it, as I have already observed it would undermine the whole point of maintaining the Prudential brand were the customer to be clearly told that Prudential would not be providing insurance, and some other completely different company would.  The customer doubtless thinks it is approaching an insurance company for insurance, not a broker for broking purposes.  The customer will not believe that he/she is receiving broking services, and in truth he/she is not.  His/her inquiry is being passed on to another company which provides insurance that Prudential no longer provides.  That is all.  There is only the business of an insurer; there is no business of broking.
50.	The other positive activities of Prudential, described above, do not stand in the way of that conclusion.  Most of those activities have nothing to do with the introductions or the individual policies.  An analysis of them reveals that they help to refine policy terms, to refine the marketing necessary to sell policies and to maintain the Prudential brand when it is applied to non-Prudential policies.  If anything, they fall on the same side of the line as the activities in Arthur Andersen – they are the sort of activities that insurance companies do, not insurance brokers. 
51.	The Tribunal was also correct in the second and third points of distinction (no acts preparatory to the conclusion of an insurance contract, and no assistance in the administration and performance of such contracts respectively).  Prudential performed no acts preparatory to the conclusion of an insurance contract other than at most to pass on customer details and type of insurance required, without more, and there was no relevant assistance in the administration and performance of the insurance contracts once granted.
52.	Accordingly, not only does Mr Milne's first point of criticism fail, his overall criticism fails too.  
53.	It follows that, thus far in the reasoning, Prudential fails to establish that the Tribunal was wrong.  Mr Milne’s position is not improved by invoking the principle of fiscal neutrality.  He relied on what was said in JP Morgan Fleming Claverhouse Investment Trust plc v HMRC  [2008] STC 1180 at paragraph 46:
“46.   Second, the principle of fiscal neutrality, on which the common system of VAT established by the Sixth Directive is based, precludes economic operators carrying out the same transactions from being treated differently in relation to the levying of VAT.  That principle does not require the transactions to be identical.  According to settled case law that principle precludes, in particular, treating similar goods and supplies of services, which are thus in competition with each other, differently for VAT purposes …”.
54.	For this principle to be invoked it must be shown that Prudential was carrying out the same transactions as brokers.  For the reasons given above, it was not.  It was not providing intermediary services; it was not acting like a broker; and it was not in competition, in any relevant sense, with brokers.  Mr Milne says it is obvious that it was in competition with brokers; Mr Grodzinski said that such submissions required evidence, of which there was none.  In my view, if anything is obvious, it is that there is no such competition.
55.	Last, Mr Milne urged on me a purposive approach to construction which avoided “sticking VAT”.   He said that if the Tribunal was correct then the VAT payable would be passed on to customers in the form of higher prices – UKI would have to recover the cost from somewhere and could not pass it on as VAT as such.  I am unimpressed by that argument.  If Prudential and Winterthur have created a structure with that tax consequence, then so be it.  That is a matter for them (and their successors).  I am not required to adopt a benevolent application of the legislation to avoid that analysis.  I also note that it was a consequence of the decision in Arthur Andersen, yet it did not militate against a refusal of the exemption there either.
Decision
56.	In the circumstances I dismiss this appeal.