20466
VALUE ADDED TAX – Place of supply of services – Recipient in Japan – Whether Appellants' services were consultancy services – Yes – Appeal allowed – VATA 1994 s.7(10) and (11) and Sch 5 section 8 para 3; VAT (Place of Supply of Services) Order 1992 SI 1992/3121 Art 6
LONDON TRIBUNAL CENTRE
MR JAMES & MRS AMANDA CUTHBERT Appellant
THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS Respondents
Tribunal: MISS J C GORT (Chairman)
MRS C S de ALBUQUERQUE
Sitting in public in London on 15 October 2007
Mr P D Hawes, accountant, for the Appellant
Mr Richard Smith of counsel, instructed by the Solicitor's Office, for the Respondents
© CROWN COPYRIGHT 2007
DECISION
- The disputed decision is contained in a letter dated 21 February 2006 in which on review the Commissioners upheld a decision originally given by a letter dated 23 December 2004. The Commissioners contend that the Appellants' supply of services to the World Youth Visit Exchange Organisation should not be treated for tax purposes in the same way as their TV Location Co-ordinator work for which the place of supply is determined by where the recipient belongs. The Commissioners had in the past determined that the latter are outside the scope of UK VAT for reasons which appear below. It is the Commissioners' contention that the place of supply for the former is the United Kingdom. By a letter dated 7 July 2005 the Appellants were issued with a notification of assessment in the sum of £2,385, the assessment itself was not issued until 13 July 2005.
- It is the Appellants' case that there is no proper distinction to be made between the two types of work performed by them as a matter of fact and therefore they should not be treated differently for VAT purposes.
Background
- The Appellants were registered for VAT purposes with effect from 1 October 1983. At that time their work consisted chiefly of supplying TV location co-ordination services for Japanese film crews. Following a visit in June 1995 by a letter dated 18 August 1995 the Commissioners accepted that the supply of location co-ordination services in the UK to Japanese television crews could be seen as an "intellectual" service, or the provision of consultancy services, and the consequence of this decision was that the place in which such services were deemed to be supplied would be where the recipient of those services belonged, namely Japan. The supplies were therefore deemed to be outside the scope of UK VAT. In or around 2000 the Appellants began to offer a service organising tours in the UK for Japanese university students. It was agreed between the parties that this supply was outside the Tour Operators Margin Scheme (TOMS) but the Commissioners decided that this supply was different from the supply of location services, and that they took place in the United Kingdom and would be subject to United Kingdom VAT at the standard rate.
The legislation
- Section 7(10) of the VATA provides that:
"A supply of services shall be treated as made –
(a) in the United Kingdom if the supplier belongs to the United Kingdom; and
(b) in another country (and not in the United Kingdom) if the supplier belongs in that country."
Section 7(11) of the VATA provides that:
"The Treasury may by order provide, in relation to goods or services generally or to particular goods or services specified in the order for varying the rules for determining where a supply of goods or services is made."
The VAT (Place of Supply of Services) Order 1992 [SI 1992/3121] provides that:
"4. The rules for determining where a supply of goods or of services is made shall be varied in accordance with the following provisions of this Order.
- Subject to article 14 below, where services consist of the making of arrangements for the supply by or to another person or of any other activity intended to facilitate the making of such a supply, being a supply which is not of a description within articles 9 or 10 above or 16 below, those services shall be treated as supplied in the same place as the supply by or to that other person is treated as made."
- Where a supply consists of any services of a description specified in any of paragraph 1 to 8 of Schedule 5 to the Act, and the recipient of that supply –
(a) belongs in a country other than the Isle of Man, which is not a Member State; or …
it shall be treated as made where the recipient belongs."
Schedule 5 to the Act provides at section 8, paragraph 3 as follows:
"Services of consultants, engineers, consultancy bureaux, lawyers, accountants and other similar services; data processing and provision of information …
The BECTU Agreement
- The Commissioners made an agreement with the Broadcasting Entertainment Cinematograph and Theatre Union ("the BECTU Agreement") which specifically recognised that certain services provided within the entertainment industry came within paragraph 3 of Schedule 5 by virtue of being intellectual in nature and being akin to consultancy.
- Table B of the BECTU Agreement specifically describes a Location Manager as being "Consultant; advising/negotiation". In Appendix J of the BECTU Agreement under the heading "consultant" is as follows:
"The title `Consultant' in broad terms is taken to mean an expert who exercises control over a particular area of work and is hired to provide technical expertise rather than work under the direct supervision of another. Thus, not only will directors qualify, but other grades who `control' their area of work, or who are hired to provide advice, e.g. a lighting cameraman who is in charge of the filming or a casting director, but not a production assistant who merely follows instructions. The category also includes other experts, e.g. the chief hairdresser or chief make-up artistes who have overall responsibility for particular design aspects of the characters in films, plays etc. however this category would not extend to other hairdressers or make-up artistes who merely carry out the work."
- VAT Notice 741 at section 12.4.12 which is headed "What is provision of information?" provides:
"It covers the supplying of knowledge of any type and in any form. Information includes facts, data, figures and other material. Examples are:
- Information supplied by a private enquiry agent;
- Telephone helpdesk services (such as for computer software);
- Satellite navigational and vocational services;
- Provision of on-line information; and
- Digitised publications where the contents is essentially non-fiction."
The evidence
- The Tribunal was provided with an agreed bundle of documents which contained extensive correspondence between the parties. We heard evidence from Mr James Cuthbert, who works as a location co-ordinator in the film and television industry and has done so for many years. For the purposes of this decision it is not necessary to set out the contents of the correspondence or various matters which gave rise to complaint on the part of the Appellants.
- Mr Cuthbert's work as a location co-ordinator involved his being contacted from Japan by the producer of the particular film or television programme which it was intended to make. This was usually be about three to four weeks before the arrival of the film crew in the United Kingdom. Mr Cuthbert would do research for the programme via the internet or some other route, and he would then approach the various places where it was intended to film. He had to ascertain how long it was intended to film for, and he would then request permission to film in that particular locality. He was also responsible for making all the logistical arrangements, such as pre-booking accommodation and arranging transport. He would not organise the transport from Japan to the United Kingdom, but would arrange it if the crew were going from the United Kingdom elsewhere, although this was a rare occurrence. He had been doing this work since 1981 and had become registered for value added tax in 1982.
- Mr Cuthbert would collect the clients from Heathrow when they arrived in the United Kingdom and he would accompany them at all times during the filming. From time to time he would be involved in post-production research if it were necessary. On occasion nobody would come from Japan, and Mr Cuthbert would be asked to find a local cameraman and go with him to a particular locality and, for example, conduct an interview or film the locality. On some occasions he would be invited to do research but ultimately no film would be made. He would charge a daily rate of £410 per day when he was on location and filming; when he was doing research he would charge £30 an hour. In respect of incidental expenses incurred during filming, sometimes Mr Cuthbert would be sent a budget and he would pay them out of that, and on odd occasions he would recoup the money subsequently. For some of the services he provided, such as booking accommodation, he had in recent years been charging VAT.
- In the year 2000 Mr Cuthbert was approached by the World Youth Visit Exchange Organisation ("WYVED") which was a non-governmental organisation which operated under the auspices of the Japanese Ministry of Education. The aim was to arrange cultural visits to various United Kingdom universities, to arrange discussions with university students and hold cultural sessions as well as visiting sporting occasions. Mr Cuthbert would be given a brief beforehand of the sort of schedule the organisation wanted him to arrange for the group. He described his work as essentially the same as that when he was working as a location co-ordinator in that he had to organise the various permissions which were required as well as research for the locations. Because of his work as a location manager he already had all the necessary contacts and was essentially dealing with the same people. He was also making accommodation and transport arrangements for the students. Apart from the university visits, Mr Cuthbert was also arranging for the students to do voluntary work, for example he was himself involved in youth work and had contacts with a youth leader group in Dartford. On one occasion he arranged for the students to make footpaths in that area with a group of unemployed youths.
- The third element of his work consisted in arranging for the students to stay with families in the United Kingdom over the weekend. Mr Cuthbert would accompany the students throughout their visit, including taking them to the airport when they left. At the conclusion of the visit he would write an evaluation report for the organisation. He would charge the same hourly rate for the research for the visit as he charged for his television location work, namely £30 per hour, plus any individual expenses that he incurred. He would charge a global fee of £6,500 for his time and work during the visit itself. The cost of the accommodation, and any meals and any other expenses which were incurred were paid by Mr Cuthbert out of money which would have been sent over beforehand from Japan, Mr Cuthbert having given a costing before the arrival of the students. In this respect he acted as an intermediary only and did not charge anything on top of the exact expenses.
- Mr Cuthbert himself is a fluent Japanese speaker and has also acted as interpreter for groups of youth leaders who have come on exchange visits to the United Kingdom organised by the British Council. In respect of those visits he has always paid VAT in the United Kingdom.
- He described his work for the television companies as occasionally involving hiring local people such as an electrician to do the work, and on occasions when he himself was involved in doing the interview, he would be given a list of questions from Japan together with a list of the shots they required and he would ask the cameraman to take those shots. He did not consider that his work was that of a creative director, but was given under guidance at all times from Japan. With the student groups, Mr Cuthbert would himself take part in the discussions which took place at the universities. One group of students wanted to undertake a tour of the City of London, and for this purpose Mr Cuthbert hired a Japanese tour guide. He himself denied working as a tour guide. Nor did he act as a guardian of the students, who would always be accompanied by an adult youth leader. He did however interpret where there were any interactions with the local people. Not only did he set up the discussion groups, he also had an input into the topics at the preparatory stage, and joined in when the discussions took place on site.
- Snapshots of the Appellants' website were contained in the bundle. Those describe Mr Cuthbert's services when acting as a TV location co-ordinator as being: "Research, location scouting, setting up film permission, interpreting and translation, transport, hiring local technical staff and facilities, casting of local actors etc. and acquiring archived film material." His work as an interpreter/tour organiser was described as being: "Aside from the TV work I can also organise and escort specialised group tours, e.g. for students, youth workers etc. Since 1982 I have interpreted for Japanese youth leader groups visiting the UK every autumn, and since 2000 I have organised and escorted tours for Japanese university students to the UK in spring, under the aegis of the World Youth Visits Exchange Association (WYVEA) in Tokyo." A site then shows the specifics of a group tour organised in 2003. This particular tour involved the students staying at Leicester University and having discussions with the students there over a period of two days. The Japanese students then went to Cambridge to visit Queens College and Kings College and in the evening attended a football match in London. The following days involved a tour of London, a tour of the BBC TV Centre, dinner at a youth hostel in Kent, presentation and orientation about the work of Groundwork (an environmental conservation organisation), work on a Groundwork project, a Japan Night, staying with UK hosts, visiting a youth project in the East End of London, a visit to the London Eye, a farewell dinner at the Mandarin Kitchen Chinese restaurant and finally, on the last day, an evaluation of the tour.
- The final accounts for the university group in 2004 show a detailed list of expenses including such items as photocopying, restaurant meals, transport and Mr Cuthbert's own fee in the sum of £6,500. The total, including that fee is £16,084.44. Mr Cuthbert had received from Japan £15,408.80 and therefore that particular tour was £675.64 over budget. In respect of the vast majority of the expenses receipts are itemised. We were also shown a draft budget for that tour which came in at £15,418.90. There is a note at the bottom of that draft budget stating that the total did not include four specific items or any unforeseen changes that might occur.
- The Tribunal also heard evidence from Mr David Scott Younger, a higher officer with HMRC. Mr Younger had taken over conduct of the Appellants' VAT affairs in late January 2005. It was Mr Younger's view that there was a distinction between the location co-ordination services provided by the Appellants and the work with the Japanese students, and that the predominant components of the latter attracted standard rated VAT.
- It was also Mr Younger's opinion that the BECTU Agreement was a concession which was restricted to the entertainments industry. Because there was no such agreement or concession in place in relation to tours, it was his opinion that those supplies should be standard rated, other than supplies of matters such as transport which are properly zero-rated. In the absence of any evidence from the Appellants in issuing the assessment he had had to assume that all elements were subjected to standard rated VAT.
The Respondents' case
- The Commissioners viewed the activities of Mr Cuthbert as arranging accommodation, transport and activities for students on behalf of the Japanese University. In so doing they considered that Mr Cuthbert was acting as an agent and therefore the supplies should be treated as taking place in the United Kingdom and be subject to VAT at the same rate as the underlying supply.
- The reason given by the Commissioners for not accepting the contention of Mr Cuthbert that there was no difference between the location co-ordination services which he supplied to Japanese film crews and the supplies to the universities, was that in the Commissioners' view the location co-ordination services involved the use of a detailed knowledge of, and expertise in, the Japanese television industry, the availability of film locations in the United Kingdom, the means to get permission to film at such locations, the access to local technical support, casting and other specialised knowledge. By contrast it was submitted that the organisation of tours for students involved the booking of events, accommodation and travel which would be available to any tourist and required little or no specialist knowledge. It was therefore not the provision of the services of a consultant, but merely that of an agent or an intermediary.
- It was submitted by Mr Smith that the travel services supplied by Mr and Mrs Cuthbert could not be characterised as consultancy as contemplated in paragraph 3 of Schedule 5 (or Article 56(c) of the Directive on the Common System of VAT 2006/112/EC). The meaning of consultancy took its colour from the other categories of supply listed in paragraph 3 which did not include tour organiser. To suggest otherwise would be to enable traders to come within the exception to the normal place of supply rules who are not intended to benefit from it and the services provided in the present case are not of the same intellectual nature as is required by paragraph 3.
- It was agreed by Mr Smith that the BECTU Agreement does not involve a concession, but was a clarification of the Commissioners' approach to paragraph 3.
- Mr Smith pointed to the fact that much of the trip of which details are on the website involved ordinary tourist activity such as visiting the London Eye or Kings College in Cambridge and a lay person could easily organise such matters.
The Appellants' case
- It was always the contention of Mr and Mrs Cuthbert that the work Mr Cuthbert did for the universities was of the same order as the work he did for the film companies. Those involved a degree of knowledge and experience on his part. It was not accepted by Mr Cuthbert that anybody could have set up the visits to the universities for the students, or the work experience which he had provided them.
Reasons for decision
- Without the BECTU Agreement, we might have had difficulty in deciding whether Mr Cuthbert's location co-ordination work did come within paragraph 3 of Schedule 5 to the VATA as being the services of a consultant. However, the Commissioners over the years and after lengthy correspondence with the Appellant and/or his representative, have continued to view his location work as qualifying for the exemption to VAT provided by that paragraph. The Commissioners never enquired deeply into the exact nature of Mr Cuthbert's work with regard to the supply to the WYVEO. They do not appear to have looked far beyond the details of the one particular tour given on the website.
- Having heard detailed evidence from Mr Cuthbert as to the nature of his work, we are satisfied that, for the most part, the work he does of setting up tours for the Japanese students, and his involvement in those tours, is not the type of work which any travel or other agent could do. It is largely dependent on Mr Cuthbert's own particular knowledge, which he has gleaned over the years as a consequence of film location work and his connections with Japan and knowledge of Japanese. It is significant that Mr Cuthbert himself had to employ a travel agent to undertake some part of the work. We have absolutely no doubt that it would not be easy for somebody without the relevant contacts and experience to set up discussion groups within a university. This is not the sort of work which a travel agent normally does. Not only did he set up discussion groups, but he also took part in them, which again is something which a travel agent would not be able or expected to do. Beyond that his knowledge of Japanese was employed for more than a simple (or in the case of the Japanese language, not so simple) act of interpreting. We also take account of the fact that it was part of Mr Cuthbert's obligation to provide a report on the trip at the end of it, again this is not something which a tour guide would normally do. The fact that a Japanese tour guide was provided when the students went to the City of London, and that they were accompanied by an adult youth leader, of itself shows that Mr Cuthbert's activities went way beyond that of a tour guide alone. Similarly the fact that he was a party to the preparation of as well as his participation in, the topics which were discussed at the universities was evidently work of an intellectual nature. Mr Smith dismissed the visit to, and work on, the Dartford project as again lacking the necessary quality to come within paragraph 3. However, whilst that is clearly a marginal instance, we have no doubt that Mr Cuthbert's years of involvement in the project was instrumental in his being able to make the arrangements, and that access to work with the unemployed is not something which an unqualified person would be able to arrange. Similarly visits to youth projects in the East End of London and working with Afro-Caribbean young men was dependent on a considerable amount of previous knowledge and contact.
- We accept Mr Cuthbert's evidence that in essence, the work he was doing for the film companies was the same as that done for WYVEO. Both roles involved finding particular locations, liaising with authorities and obtaining permissions. He was able to perform both roles because of his detailed knowledge of the Japanese and the Japanese language. His judgment and knowledge were relied on in both instances and he acted entirely independently.
- We are aware that there are various authorities on the correct application of paragraph 3, but we were not referred to any of them by either party. We are not aware of any authority which would directly conflict with our conclusion that Mr Cuthbert is employed by WYVEO as a consultant. The case of Christiane Adam v Administration de l'Enregistrement et des Domaines [2001] EU ECJ C-267/99 is frequently cited for the passage at paragraph 39 where the court said:
"As the Commission has said in its written observations, the liberal professions mentioned in that provision are activities which, inter alia, are of a marked intellectual character, require a high-level qualification and are usually subject to clear and strict professional regulation. In the exercise of such an activity, the personal element is of special importance and such exercise always involves a large measure of independence in the accomplishment of the professional activities."
Whilst for arranging the WYVEO programme Mr Cuthbert has no specific qualifications and is not subject to any professional regulations, however, the same can be said of his film work. Indeed, there is something strange about the Commissioners allowing the location work to be categorised as `intellectual' whilst arranging discussions with university students and taking part in them is not so categorised. Because we find that as a matter of fact there is no real distinction to be made between the two roles performed by Mr Cuthbert, and because of the inconsistency in the Commissioners' approach, we allow the appeal.
- The Respondents to pay the Appellants' costs of, and arising out of this appeal. In the event of failure to agree those reasonable costs the matter is to be referred back to a tribunal.
MISS J C GORT
CHAIRMAN
RELEASED: 23 November 2007
LON 2006/0453
