[2009] UKFTT 121 (TC)

TC00089
Appeal Number: LON/2007/1321 

FIRST TIER TRIBUNAL TAX

VAT – SERVICES – PLACE OF SUPPLY – Appellant supplied management and corporate services to parent company under service level agreement – were the services principally and habitually those of a  consultant and consultancy bureaux – No – place of supply of services United Kingdom – Appeal dismissed – position reserved on costs. 

DECISION NOTICE (WITH FULL REASONS)
Rule 35(2) The Tribunal Procedure (First Tier Tribunal) (Tax Chamber) Rules 2009 

	SUMITOMO MITSUI BANKING CORPORATION EUROPE	Appellant
LIMITED
	- and -
THE COMMISSIONERS FOR
	HER MAJESTY’S REVENUE and CUSTOMS	Respondents

			Tribunal: MICHAEL TILDESLEY OBE	 (Chairman)
				      DIANA WILSON                          (Member)	  

Sitting in public at London on 10 & 11 March 2009

Andrew Hitchmough and James Rivett counsel instructed by PricewaterhouseCoopers LLP  for the Appellant

Sam Grodzinski counsel instructed by the Solicitor’s office of HM Revenue & Customs, for the Respondents

© CROWN COPYRIGHT 2009

DECISION
The Appeal
1.	The Appeal concerned whether certain services supplied by the Appellant to its parent company, Sumitomo Mitsui Banking Corporation, (hereinafter known as SMBC), in Japan should for VAT purposes be treated as being supplied in the United Kingdom where the Appellant was established, or in Japan where SMBC was established.
2.	The resolution of the disputed issue depended upon whether the services in question were consultancy services within the scope of paragraph 3 schedule 5 to the VAT Act 1994.
3.	The Appellant contended that the services were consultancy services with the consequence that they were supplied in Japan and as such outside the scope of VAT. HMRC, on the other hand, submitted that the services were of an essentially managerial nature concerned with the day to day and longer term management of the SMBC organisation. Thus the services were not within the definition of consultancy services with the result they were supplied in the United Kingdom and subject to VAT. 
4.	The services in question were provided pursuant to clause 1 and paragraph 4 of schedule 1 to the Service Level Agreement between the Appellant and SMBC. Under this part of the Service Level Agreement the Appellant was obliged to provide SMBC with “management and corporate services………… as a whole of Europe Division in SMBC”. The Appellant stated that these services were provided by the Chief Executive Officer, the General Manager of the Planning Department, and the Planning Group.
5.	The Appellant relied on the testimony of Jonathan Eifion-Jones to explain the nature of the disputed services and the particular contribution of the three providers. Mr Eifion-Jones was the Head of the Finance section within the Planning Department, and performed the role of financial controller for the Appellant. The Appellant called another witness, Brian Strutt, an Assistant General Manager, whose evidence related principally to the chronology of the dispute and not material to the disputed issue. A bundle of documents was provided in evidence.
Background
6.	The Appellant was a subsidiary of SMBC which was based in Tokyo. SMBC was an international wholesale commercial bank which offered a broad range of financial services centred on banking. SMBC was formed by a merger of Sumitomo Bank with Sakura Bank in April 2001 which subsequently merged with Wakashio Bank in March 2003. Following the merger in 2003 the United Kingdom Financial Services Authority required SMBC to establish a subsidiary in the United Kingdom in order for it to be granted a United Kingdom banking licence which resulted in the incorporation of the Appellant in March 2003.
7.	SMBC was a large international organisation comprised of different legal entities throughout the world. The legal structure of the Bank of international subsidiaries, branches and representative offices were organised for administrative purposes into four separate divisions: the Asia Oceania division, the China division, the Americas division, and the Europe, Middle East and Africa division (hereinafter known as the EMEA division).
8.	The EMEA division comprised two subsidiaries, Sumitomo Mitsui Finance Dublin Limited in Republic of Ireland and the Appellant in London, three branches at Dubai, Dusseldorf and Brussels, and eight representative offices in Madrid, Bahrain, Tehran, Cairo, Johannesburg, Amsterdam, Prague and Doha. The Appellant also had two branches one in Milan and the other in Paris, and a representative office in Moscow which shortly will become a subsidiary of SMBC. Much of the work of the EMEA division was conducted in the Appellant’s offices in London which has approximately 800 members of staff compared with 200 in total at other locations.
9.	Apart from the formal legal structure, SMBC divided up its activities within a management structure. The EMEA divisional management structure consisted of eleven functional departments which in turn were broken into sections. Of relevance to this Appeal was the Planning Department.
10.	The Planning Department comprised five sections with the head of each section reporting to the General Manager of the Planning Department:
(1)	The planning group;
(2)	The finance and control section;
(3)	The legal and compliance section;
(4)	The human resources section;
(5)	The information technology section. 
11.	Each of the eleven departments was headed by a General Manager who reported direct to the head of the EMEA division, the Chief Executive Officer. The General Manager of the Planning Department deputised for the Chief Executive Officer. These two executive officers were the most powerful and important people in the Appellant’s business.
12.	The Appeal concerned the services provided by the Chief Executive Officer, the General Manager of the Planning Department and the Planning Group to SMBC in Tokyo pursuant to the Service Level Agreement relating to Research and Corporate Services made between the Appellant and SMBC on 22 March 2004. 
13.	Service level agreements formed an essential part of the business arrangements between the Appellant and the different subsidiaries, branches and offices of SMBC. The purposes of the service level agreements were to set out the responsibilities of the service provider and service recipient and provide the Regulators in each jurisdiction with assurance that all transactions were done at arms length. 
Facts
14.	The purpose of the Service Level Agreement was stated in the Fundamental Remarks section as
“The provider (the Appellant) will assist Recipient (SMBC) with its personnel and other facilities to enable Recipient to more efficiently conduct its activities to streamline workflows by making them consistent in all SMBC group companies and control activities as necessary to meet internal requirements and facilitate business operations. Provider will provide Recipient with services listed in Schedule 1. Provider and Recipient shall mutually determine the manner and place of execution of the services. Provider shall assure that the services being provided are responsive to the Recipient’s needs and are provided on a timely basis and will give to the Recipient necessary information and access to all files and office rooms”.
15.	The services provided by the Appellant to SMBC which formed the dispute of the Appeal were described in the Service Level Agreement as providing management and corporate services. Mr Eifion-Jones’ accepted that the service level agreement was not specific as to what was included in management and corporate services. He would not be drawn on what the phrase meant other than the Appellant in substance was not providing management as the company (SMBC) would define it. However, he accepted that the Chief Executive Officer supplied management services pursuant to the Agreement
16.	Under the Service Level Agreement about 15 to 20 per cent of the total costs of the Chief Executive, the General Manager of the Planning Department and the Planning Group were charged by the Appellant to SMBC. This 15 to 20 per cent proportion of the activities of the Appellant’s two senior employees and the Planning Group constituted the purported consultancy services, which were allegedly of a different nature from the activities forming the bulk of their jobs. Mr Eifion Jones acknowledged that there were no guidelines of how to apportion the services of the senior personnel and the Planning Group to the Service Level Agreement and no definition of the type of management services covered by the Agreement.  He recognised that there was an element of arbitrary allocation of the services between the Appellant and SMBC. The Appellant kept no written records of the time spent by the various persons on the purported consultancy services. Mr Eifion Jones essentially formed a view about what charge would be reasonable after consulting with the Planning Group and having regard to head count and tax jurisdiction. 
17.	Mr Eifion Jones explained that the Chief Executive Officer was responsible for the EMEA Division and based in London. He performed the role of roaming ambassador and leader of the EMEA Division.  The Chief Executive Officer reported to SMBC main board on strategy and was in constant dialogue with Tokyo about developments in the banking sector and changes in the market. 
18.	Mr Eifion Jones stated that the Chief Executive Officer would not agree to anything without the approval of Tokyo. SMBC’s management style was consensus driven which was delivered through a transparent process of written proposals (known as “Kessais”) and formal approvals (known as “Kyogis”).  The Kyogis were represented at the top of the Kessais by a series of stamps of the various persons involved in the process. A Kessai could only go forward if all the necessary Kyogis were affixed on the document. Mr Eifion Jones relied on the evidence of the process of Kessais and Kyogis for his proposition that the Chief Executive Officer was essentially providing an advisory service to Tokyo. Mr Eifion Jones, however, accepted in cross-examination that the Chief Executive Officer was an integral part of SMBC’s decision-making processes, and that he enjoyed a degree of autonomy in making decisions.
19.	  Mr Eifion Jones considered that part of the Chief Executive Officer’s work devoted to dealing with Regulators outside the United Kingdom, talking to Tokyo and generally performing the ambassadorial role fell within the service legal agreement. 
20.	Mr Eifion Jones, however, was unable to demonstrate how the activities of the Chief Executive Officer talking to United Kingdom Regulators differed from his dealings with outside Regulators. The examples given of talking to Tokyo comprised of setting up the Russian Office, and keeping Tokyo informed about market conditions. Mr Eifion Jones believed that the Chief Executive Officer’s interaction with Tokyo was largely advisory which contrasted with his day to day responsibilities of giving direction to the General Managers in the London Office.
21.	Mr Eifion Jones supplied a Powerpoint presentation of the Chief Executive Officer’s speech on 21 May 2007 to the Europe Division Conference as an example of his ambassadorial role. The speech dealt with the Review of Europe division, the Current Situation and Future Direction. Mr Eifion Jones acknowledged that a consultant would not give this type of speech, only a senior manager would deliver such a speech.
22.	The role of the General Manager of the Planning Department was to provide strategic management, consultancy, guidance and related professional services to the EMEA division. For example, the General Manager ensured that policies were in place to manage the Appellant’s credit levels, liquidity, regulatory compliance, human resources and operational risks. The General Manager deputised for the Chief Executive Officer in his absence. 
23.	Mr Eifion Jones stated that the General Manager’s interaction with Tokyo consisted of strategic advice on the identification of long term funding sources for the bank, providing reports on profitability levels, and dealing with Japanese Financial Regulator. These formed the typical supplies of the General Manager covered by the service level agreement between the Appellant and SMBC. Mr Eifion Jones, however, acknowledged that the General Manager in performing these functions was doing so as part of the Appellant’s decision making processes.
24.	The Planning Group was a small highly specialised section of the Planning Department consisting of seven individuals. They acted as “Tokyo’s Eyes and Ears” and ensured that the Appellant’s processes were being done the “Tokyo Way”. The Planning Group achieved the “Tokyo Way” by ensuring that the Kessais reflected the overall objectives set by SMBC and that the necessary approvals were secured before implementation of the proposals.
25.	 According to Mr Eifion Jones the Planning Group carried out various functions on behalf of SMBC in Tokyo which included strategic management, strategic implementation, reviews of organisational structure, financial risk management/capital allocation, performance analysis, bespoke advisory projects and consultancy services. Mr Eifion Jones contended that all the work done by the Planning Group was consultancy, despite his wide ranging description of the functions performed by the Group, which had included consultancy services as a specific function amongst six others.
26.	 The Planning Group did not meet clients for the purpose of seeking business. Further the Group was not involved with the execution of transactions and collection of payments which were the responsibilities of the Operations and Administration Department.
27.	Mr Eifion Jones supplied specific examples of work carried out by the Planning Group for SMBC which included:
(1)	The Opening of new SMBC Offices in Dubai
•	Action plans and project management for the installation and infrastructure of computer systems.
•	Setting up a human resources department.
•	A business trip report to obtain information about setting up the new Office.
(2)	Implementation of a Risk Management Department
•	The integration of different activities from several Departments and Sections within EMEA divisions.
•	Liaising with Tokyo about the changes.
(3)	Monitoring and Controlling the Bank’s Financial Assets and Capital Allocation on its Balance Sheet
•	Understanding the funding requirements of the entire SMBC group and liaising with Tokyo to negotiate and advise on the allocation of capital and risk assets between each of the four Divisions, and between each of the Departments within each Division. This allocation determined the Bank’s lending capability.
28.	 Mr Eifion Jones considered that the functions performed by the Chief Executive Officer, the General Manager, and the Planning Group for SMBC were essentially about giving advice and could equally be performed by consultants. Mr Eifion Jones indicated that the Appellant engaged outside consultants to do specific tasks. He was unable to provide an example where an outside consultant had given his approval (Kyogi) to a particular project carried out by the Appellant.
The Law
29.	As a  general rule a supply of services shall be treated as made in the United Kingdom if the supplier belongs in the United Kingdom ( see section 7(10) of the VAT Act 1994 and Article 43 of the Principal VAT Directive).
30.	The legislation gives exceptions to the general rule which enables specific supplies of services to be treated as supplied where the recipient belongs. Of relevance to this Appeal, Article 56 of the Principal Directive provides:
“The place of supply of the following services to customers established outside the Community, or to taxable persons established in the Community but not in the same country as the supplier, shall be the place where the customer has established his business or has a fixed establishment for which the services is supplied, or, in the absence of such a place, the place where he has his permanent address or usually resides:
(c) the services of consultants, engineers, consultancy bureaux, lawyers, accountants and other similar services, as well as data processing and the provision of information.
31.	An equivalent provision was contained within article 9(2)(e) of the Sixth VAT Directive (77/388/EEC) which was the predecessor to the Principal VAT Directive. This decision hereinafter refers to article 9(2)(e) of the Sixth VAT Directive rather than Article 56 of the Principal Directive. 
32.	The Community legislation has been incorporated into United Kingdom legislation by the way of the VAT (Place of Supply of Services) Order 1992 (SI 1992/3121) which was made under the enabling provisions of  section 7(11) of the VAT Act 1994.
33.	Article 16 of the VAT (Place of Supply of Services) Order 1992 provides that where a supply consists of any services of a description specified in any of paragraphs 1 to 8 of schedule 5 to the VAT Act 1994 and the recipient of that supply belongs in a country which is not a Member State, the supply shall be treated as where the recipient belongs.
34.	Paragraph 3 of schedule 5 to the VAT Act 1994 sets out a list of services which broadly (but not exactly) corresponds to the list of services set out in article 9(2)(e) of the Sixth Directive:
“Services of consultants, engineers, consultancy bureaux, lawyers, accountants and other similar services, data processing and provision of information (excluding from this head any services relating to land)”. 
Construction of the Legislative Provisions
35.	The European Court of Justice has considered the construction of paragraph 9(2)(e) of the Sixth Directive, in Maatschap M J M Linthorst, K G P Pouwels and J Scherescs v Inspecteur der Belastingdienst/Ondernemingen Roermond (Case C – 167/95) [1997] STC 1287 and von Hoffman v Finanzamt Trier (Case C – 145/96) [1997] STC 1321.
36.	The Linthorst case considered the question amongst others whether the services principally and habitually provided by a veterinary surgeons fell within article 9(2)(e). Von Hoffman concerned whether the services of an arbitrator corresponded to any services of the professions mentioned in article 9(2)(e). 
37.	The following principles of construction can be derived from the Linthorst and von Hoffman cases:
(1)	Article 9(1) which lays down the general rule for determining place of supply of services does not take precedence over article 9(2). The objects of these provisions are to avoid conflicts of jurisdiction and non-taxation. In every situation the question which arises is whether the disputed supplies are covered by one of the instances in article 9(2), if not it falls within the scope of article 9(1) (see paragraphs 10 & 11 Linthorst  [1997] STC 1299).
(2)	The activities listed in the third indent of article 9(2)(e) are heterogeneous and lacking in common elements. The only common feature of the disparate activities mentioned in that provision is that they all come under the heading of liberal professions. Yet …… if the Community legislature had intended all activities carried on in an independent manner to be covered by that provision, it would have defined them in general terms (see Advocate General’s Opinion paragraph 21 and ECJ paragraph  20 Linthorst [1997] STC 1299).
(3)	Article 9(2)(e) did not refer to professions but to services and therefore in order for the services to be treated thereunder as having been supplied at the place where the customer was established, the services in question had to fall within the categories of services principally and habitually carried out as part of the professions listed. The services of an arbitrator were principally and habitually those of settling disputes between parties. Those services did not correspond to any services of the professions mentioned in the third indent of article 9(2)(e), as none of the services principally and habitually provided as part of any of those professions concerned the settling of disputes between parties. In particular, the Community definition of a lawyer did not cover the services of an arbitrator, since a lawyer’s services were principally and habitually those of representing or defending the interests of a person (see Von Hoffman [1997] STC 1321).
(4)	It is appropriate to add, whereas veterinary surgeons’ duties sometimes involve advisory or consultancy aspects, that fact is not enough to bring the principal and habitual activities of the profession of veterinary surgeon within the concepts of consultants or consultancy bureaux or to cause them to be regarded as similar. Thus it is the nature of the services provided that it important not the objective characteristics of the person providing it (see ECJ paragraph  22 Linthorst [1997] STC 1299). 
38.	The VAT and Duties Tribunal have considered the meaning of consultancy services on several occasions. Two specific decisions featured in the parties’ arguments, Vision Express Limited v the Commissioners of Customs and Excise (2000) VAT Decision 16848, and American Express Services Europe Limited (2008) VAT Decision 20744.
39.	Vision Express Limited concerned supplies of management services from Grand Vision, the parent company, established in France to Vision Express in United Kingdom. The management services provided were for a defined period with the purpose of aligning the practices of the newly acquired United Kingdom subsidiary with those of its parent company.  The Tribunal agreed with HMRC’s contention that the management services of Grand Vision were those of consultants. Mr Parker QC for HMRC argued that
“…the services supplied by Grand Vision were consultancy services or akin to consultancy services: in a broader sense the services were those of strategic management advice, essentially of a financial and marketing nature. He pointed out that, in his evidence, Mr Likierman had emphasised:
1)     that on acquisition of Vision Express, Grand Vision had found its operations "suffering" from being managed on a sales philosophy based on volume and turnover rather than one of quality of products and value to customers, as favoured by Grand Vision; and
2)     that Vision Express had been encouraged to adopt cross-fertilising ideas promoted by Grand Vision”.
The Tribunal decided that 
“….. the Advocate-General (Fennelly) in the Hoffman case (whose opinion was not followed by the ECJ) did observe, at para 22 (p. 1328 of the STC report), that consultant "is a word of broad import or . of 'indeterminate . scope'". Adopting that view, I am quite satisfied, and find, that the services supplied by Grand Vision to Vision Express, being of a strategic, rather than a clerical or administrative, nature, were those of consultants for the purposes of paragraph 3 of schedule 5”.
40.	American Express Services Europe Limited concerned the place of supply of services provided by the Appellant to American Express Travel Related Services Company, Inc ("AETRSCo"). The Appellant was established in the United Kingdom, AETRSCo was established in the United States of America. The services comprised three broad categories: the performance of those management functions which AETRSCo had delegated to the Appellant including approval of lease transactions; the provision of advice, information and support to the local business units in relation to real estate; and the provision to AETRSCo itself of reports, information and recommendations. The Tribunal decided that the services did not come within Article 9(2)(e):
“We accept the submission of Mr Cordara that in order to come within Article 9.2(e) the Appellant does not have to show that the supply falls within any one of the specific heads of the third indent. Mr Mantle did not dispute this, see paragraph 51 above. However we accept Mr Mantle's submission that the combination of supplies, or composite supplies, must fall within the activities listed in the indent although straddling more them one. In our judgment the activities of the Appellant did go beyond those listed in the indent in that the Appellant was clearly involved in management and in taking decisions. In our view it was no accident that three of the streams identified by the Appellant were Transaction Management, Project Management and Facilities Management. In view of the evidence, we consider that those were not mere labels but were a proper description of various aspects of the supplies to AETRSCo”.
Reasons for Decision
41.	The Tribunal’s starting point is to define the limits of the dispute. The Appellant argued that its supplies of the Chief Executive Office, General Manager of the Planning Department and the Planning Group to SMBC pursuant to the service level agreement were services of consultants and or consultancy bureaux within the meaning of paragraph 3 schedule 5 of VAT Act 1994. The Appellant did not contend that the disputed supplies were other similar services.  The parties accepted that there was no requirement under the legislation that an independent expert had to provide the consultancy services. It made no difference whether the disputed services were provided independently of, or from within the Appellant’s personnel. 
42.	Appellant’s counsel submitted that consultancy was not restricted to the giving of advice. The European Court of Justice in Linthorst and von Hoffman acknowledged that there was a myriad of possible forms of consultancy. The reference in paragraph 22 of  the Linthorst decision to advisory or consultancy aspects should be read disjunctively with the inference that consultancy went beyond advisory functions. This construction was confirmed in the Tribunal decision in Vision Express which decided that management services comprising the reorganisation of functions and redefining the interaction with customers came within services typically supplied by consultants. In this respect counsel adopted the advice given to HMRC officers in paragraph 14.12 of Customs and Excise Manuals in that management services the essential nature of which comprise the exercise of corporate or strategic guidance over the running of another, usually associated company fell within the services of consultants under paragraph 3 schedule 5 of the VAT Act 1994.
43.	Appellant’s counsel pointed out that there was no requirement for the services to be supplied by an independent consultant. Further the nature of consultancy services did not change because they were provided on an ongoing basis. Counsel suggested that the Tribunal should approach the decision of American Express Services Europe Limited with caution. The Tribunal in American Express did not consider Vision Express. Also the disputed supplies in that case included elements of operational decision making. Counsel concluded that Vision Express was good law. The facts of this Appeal were similar to that of Vision Express, in that the disputed supplies were of a strategic rather than clerical or administrative nature and equated with services principally and habitually provided by consultants.
44.	HMRC counsel submitted that the principal question to be asked was whether the services of the Chief Executive Officer, General Manager and Planning Group were principally and habitually carried out by consultants. The disputed supplies were an integral part of the ongoing management of the Appellant’s business and went far beyond the nature of supplies made by consultants. Counsel disputed the Appellant’s construction placed on the myriad of functions performed by consultants and whether the phrase advisory or consultancy aspects was disjunctive. Counsel pointed out that the myriad of functions was not authority for saying that the subject of consultancy services was not advisory. The phrase advisory or consultancy aspects should be viewed in the context of the Advocate General’s opinion when he said that some advisory or consultancy work was not sufficient to bring it within Article 9(2)(e).  The Advocate General was drawing a distinction between those who may provide advice rather than advice being a principal and habitual activity.
45.	According to HMRC counsel consultants were not part of the ongoing management processes. An essential characteristic of the services supplied under Article 9(2)(e) were that they were given in an independent manner. This did not require the services to be provided by persons independent of the organisation but the supplies must be independent of the ongoing management processes. The facts of this Appeal were fundamentally different from Vision Express in that the disputed supplies in Vision Express were made by a limited team for a short duration. There were striking similarities between this Appeal and American Express. Counsel considered that Mr Eifion Jones’ testimony was fraught with confusion. Counsel concluded that the disputed supplies were services of an essentially managerial nature which could not be described as services of consultants.
46.	The Tribunal agrees with HMRC counsel’s assessment of Mr Eifion Jones’ evidence in that it was fraught with confusion. The Tribunal finds that Mr Eifion Jones’ evidence did not come up to proof. Mr Eifion Jones did not give straightforward responses to questions posed by HMRC counsel. The Tribunal formed the impression that he was overly cautious and doing his best to avoid damaging the Appellant’s case with its emphasis on the split between strategic and administrative functions highlighted in the Vision Express decision. This resulted in Mr Eifion Jones effectively changing his initial replies to specific questions or giving answers which were implausible.  A specific example of changing his initial reply related to the role of the Chief Executive Officer under the Service Level Agreement which he depicted at first of giving advice at all times but in the end accepted that the Chief Executive Office was part of the decision making processes for SMBC.  Mr Eifion Jones’ characterisation of dealings with foreign Regulators as consultancy which was different in nature from dealings with the United Kingdom Regulators was in the Tribunal’s view implausible, as was his suggestion that the role of the Chief Executive Officer could be performed by an outside consultant.
47.	The Tribunal considers that Mr Eifion Jones’ failed to draw a clear dividing line between the management and consultancy services supplied under the Service Level Agreement  from those which formed part of the day-to-day jobs of the Chief Executive Officer, General Manager, and Planning Group. Mr Eifion Jones accepted that the allocation of chargeable supplies to the Service Level Agreement was arbitrary and not based on any published set of objective criteria. Further the actual time spent by the various personnel on the supplies under the Service Level Agreement was arrived at by subjective judgment. The personnel involved kept no documentation recording the time spent on servicing the agreement. The Tribunal formed the view that the need to spread costs across the whole SMBC organisation was the prime motivation for splitting up the jobs of the Chief Executive Officer, General Manager and Planning Group rather than inherent differences in the type of services supplied to Tokyo from their day-to-day functions.
48.	The Tribunal finds that the Chief Executive Officer and the General Manager did not   separate out specific aspects of their roles to meet the requirements of the Service Level Agreement. On the facts the roles of the Chief Executive Officer and the General Manager were essentially similar, operating at the strategic level of the organisation. Their roles were to provide leadership and strategic direction of the EMEA division within the overall strategy set by SMBC. Their roles did not assume a different character when dealing with Tokyo as opposed to dealing with the London Office. The relationships of Chief Executive and the General Manager with Tokyo were integral to their leadership role of the EMEA division which involved making strategic decisions and giving advice on an ongoing basis within the decision making processes for SMBC.
49.	The Planning Group’s supplies likewise did not assume a different character when provided under the Service Level Agreement. The Group did not take operational decisions. The Group acted as the enforcers of the Tokyo Way for the EMEA  Division as a whole and constituted a fundamental part of the ongoing SMBC management control processes. The Group monitored and controlled the Bank’s financial assets and capital allocation, and ensured that new offices were established in accordance with the requirements set by SMBC.
50.	The supplies provided under the Service Legal Agreement were described as management and corporate services.  The Fundamental Remarks for the Agreement emphasised the managerial nature of the services provided, with the use of phrases of efficiently conducting its activities and streamlining workflows.  Further the Remarks highlighted that the purpose of the services was to ensure consistency of processes throughout the SMBC business empire. Mr Eifion Jones agreed that the Chief Executive Officer supplied management services under the Agreement. Also he considered that the word corporate did not change the nature of the services supplied. The Tribunal finds that management services were an accurate description of what was provided by the Chief Executive Officer, General Manager, and the Planning Group.
51.	In summary the Tribunal makes the following findings of fact in respect of the services provided by the Chief Executive Officer, General Manager of the Planning Department, and the Planning Group under the Service Level Agreement:
(1)	The supplies were correctly described by the Service Level Agreement as management services.
(2)	The allocation of chargeable supplies to the Service Level Agreement was arbitrary and not based on any published set of objective criteria.
(3)	The need to spread costs across the whole SMBC organisation was the prime motivation for splitting up the jobs of the Chief Executive Officer, General Manager and Planning Group rather than inherent differences in the type of services supplied to Tokyo.
(4)	The services supplied under the Agreement by the Chief Executive Officer, General Manager and Planning Group were not separate and distinct parts of their duties. The services supplied to Tokyo were the same services carried out in discharge of their functions for the EMEA Division in respect of their London office responsibilities.
(5)	The roles of the Chief Executive and General Manager were to provide leadership and strategic direction of the EMEA division within the overall strategy set by SMBC. Their relationships with Tokyo were integral to their leadership role of the EMEA division which involved making strategic decisions and giving advice on an ongoing basis within the decision making processes for SMBC.
(6)	 The Planning Group acted as the enforcers of the Tokyo Way for the EMEA Division as a whole and a fundamental part of the ongoing management control processes to ensure consistent practices throughout SMBC. Their supplies to Tokyo were incorporated within its enforcement role.
52.	Thus the services principally and habitually carried out under the Service Level Agreement by the Chief Executive Officer and the General Manager of the Planning Department were ones of leadership and providing strategic direction which were ongoing and an integral part of SMBC decision making processes. 
53.	The services principally and habitually carried out under the Agreement by the Planning Group were to ensure that the processes of the EMEA Division complied with the requirements set by SMBC. Their services were ongoing and integral to the management control processes for SMBC. 
54.	The essential characteristics of the services supplied by the Chief Executive Officer, General Manager and the Planning Group under the Agreement were that they were ongoing, involving decisions and integral to SMBC’s management processes of control and strategy development. 
55.	The critical question is whether the services principally and habitually carried out by the personnel described in paragraphs 52 to 54 were services principally and habitually carried out by consultants and or consultancy bureaux. 
56.	The Tribunal considers that the European Court of Justice in Linthorst and von Hoffman offered sparse guidance on the services principally and habitually carried out by consultants. On balance, the Tribunal preferred the analysis of HMRC counsel. The Tribunal interpreted the Advocate General’s opinion about the myriad of possible forms of modern consultancy work and indeterminate scope (Linthorst at paragraph 21 and AG at paragraph 24) as consultants acting in a wide range of areas rather than their services being broad in nature.  Similarly the Tribunal agreed with HMRC counsel’s construction of the European Court’s use of advisory or consultancy aspects (Linthorst at paragraph 22) which was about consultancy had to be the principal and habitual activity to trigger article 9(2)(e) rather than a statement about the breadth of consultancy work. HMRC counsel adopted the view of counsel in American Express at paragraph 39 who stated that the Advocate General gave a strong hint in Linthorst that the essence of a consultant’s activity was advisory. HMRC counsel relied on the Court’s indication in Linthorst (paragraph 20) that consultancy was carried out in an independent manner which related to the nature of the activities undertaken and not to the status of the person providing the consultancy services. 
57.	HMRC counsel concluded from his analysis that the defining features of the principal and habitual activities of consultants were that they were advisory and carried out in an independent manner, in the sense that the activities were not an integral and ongoing part of  managerial activities. 
58.	 The Tribunal finds Appellant’s counsel’s construction of the principal and habitual activities of consultants too wide. The construction defined what they were not (operational management) but not what they were. Counsel relied upon the phrase of indeterminate scope (AG paragraph 24 Linthorst) and the Tribunal decision in Vision Express for his proposition that the activities of consultants went far beyond advisory work. Counsel contended that the facts of this Appeal were so similar to the facts of Vision Express that if  his submissions did not find favour this Tribunal would have to rule that the decision in Vision Express was bad.
59.	The Higher Courts have cautioned Tribunals against entering into an elaborate analysis of previous Tribunal decisions which were not precedents and generally fact laden (see C & E Commissioners v Ferrero UK Limited [1997] STC 881). This advice was particularly pertinent when the decision was principally one of fact, which was so in this Appeal. This Tribunal, however, disagrees with counsel’s assessment of the factual similarities between this Appeal and Vision Express.  In Vision Express the services were supplied by the parent company following acquisition of a company. The services were those of a limited team and for a short duration.
Decision
60.	Having regard to the Tribunal’s preferred construction of the principal and habitual activities of consultants as advanced by HMRC counsel, this Tribunal decides the disputed issues as follows:
(1)	 The services principally and habitually carried out under the Service Level Agreement by the Chief Executive Officer and the General Manager of leadership and providing strategic direction which were ongoing and an integral part of SMBC decision making processes were not the services of consultants or consultancy bureaux within the meaning of paragraph 3 schedule 5 of the VAT Act 1994. 
(2)	The services principally and habitually carried out under the Service Level Agreement by the Planning Group of ensuring that the processes of the EMEA Division complied with the requirements set by SMBC, which were ongoing and an integral part of the management control processes were not the services of consultants or consultancy bureaux within the meaning of paragraph 3 schedule 5 of the VAT Act 1994.
61.	The parties agreed that the Appellant belonged in the United Kingdom. Thus the place of the supply of the services principally and habitually carried out under the Service Level Agreement by the Chief Executive Officer, the General Manager and the Planning Group was the United Kingdom. The Appeal is, therefore, dismissed.
Costs
62.	For the avoidance of doubt the Tribunal directs that the costs regime operating prior to 1 April 2009 applied to this Appeal.
63.	At the beginning of the hearing the Tribunal dealt with and announced its decision on a preliminary application by the Appellant that HMRC be directed to adhere to its Statement of Case. In summary the Tribunal found that
(1)	The Appellant had made out the grounds of its application in that there was a material and substantive difference between HMRC’s skeleton argument and its statement of case.
(2)	The Tribunal had the authority to make the order as requested by the Appellant.
(3)	The Appellant conceded that it had not been substantially prejudiced by the change in HMRC case and was in a position to deal with it.
(4)	In view of the Appellant’s concession the Tribunal considered that the appropriate remedy was an award of costs.
64.	The Tribunal directs that the Appellant submits its Application for costs within 28 days of release of the decision. HMRC will have 28 days to respond after receiving the Application. The Appellant 14 days to reply after receiving the response. The Tribunal will determine the Application on written submissions unless either party requests an oral hearing.

                                

                                 MICHAEL TILDESLEY OBE
TRIBUNAL JUDGE
RELEASE DATE: 3 June 2009

Notes
65.	A party wishing to Appeal this decision to the Upper Tribunal must seek permission by making   an application in writing to the Tribunal within 56 days of being provided with full written reasons for the decision. An application for permission must identify the alleged error(s) in the decision and state the result the party making the application is seeking.