20856

TRANSFER OF A GOING CONCERN – initial transfer not qualifying, subsequently novated in circumstances which qualified – whether treatment applicable to subsequent payments treated as separate supplies – subsequent payments not consideration for the sale of business so the issue did not arise
EXEMPTION – insurance brokers and insurance agents whether introduction of existing insureds on sale of business by former insurer  qualified – no 

LONDON TRIBUNAL CENTRE

	ROYAL BANK OF SCOTLAND GROUP PLC	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

			Tribunal:	DR JOHN F AVERY JONES CBE (Chairman)
					JOHN BROWN CBE FCA CTA

Sitting in public in London on 16 September 2008

David Milne QC, counsel, and Greg Sinfield, solicitor, instructed by Lovells, for the Appellant

Sam Grodzinski, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2008

DECISION

1.	This is an appeal by Royal Bank of Scotland Group plc as representative member of a group including UK Insurance Limited (to which we shall for convenience refer as “the Appellant” recognising that this is not strictly correct) relating to the taxability of payments by the Appellant to Prudential Assurance Company Limited (“Prudential”), the appeal being by the Appellant as recipient of the supply because if there is a tax liability it will fall on the Appellant.  The Appellant was represented by Mr David Milne QC and Mr Greg Sinfield, and the Respondents (“Customs”) by Mr Sam Grodzinski.
2.	The facts of this appeal arise out of the same series of transactions considered by the Tribunal in Winterthur Swiss Insurance Company v HMRC (2006) VAT Decision 19411, [2006] V&DR 375 to which reference may be made for an explanation of the background.  
3.	There was an agreed statement of facts as follows:
(1)	Royal Bank of Scotland Group plc is a public limited company limited by shares and incorporated in Scotland on 25 March 1968 with registered number SC045551.
(2)	Royal Bank of Scotland Group plc is registered for VAT under number 
243 8527 52.  It is the representative member of a VAT group of which the Appellant is a member.
(3)	On 4 January 2002 Prudential entered into a series of agreements with Winterthur Swiss Insurance Company (“Winterthur”), a company based in Switzerland.  The relevant agreements were a Marketing Agreement, a Renewal Rights Agreement and a Brand Licence Agreement.  On the same date Prudential also entered into a Business Purchase Agreement with Churchill Management Limited (“Churchill”).  At the time Churchill was the UK subsidiary of Winterthur.  The effect of the various agreements was that Prudential sold its general insurance business to Winterthur and Churchill.
(4)	The rights and obligations of Winterthur under the Marketing Agreement, the Renewal Rights Agreement and the Brand Licence Agreement were novated by Winterthur to Winterthur Atlantic Limited (“WAL”), a company based in Bermuda, on 28 February 2002.  The novations were subject to the consent and approval of Prudential.  On 1 September 2003 the rights and obligations under the Marketing Agreement, the Renewal Rights Agreement and the Brand Licence Agreement were novated by WAL to the Appellant.  These novations were also subject to the consent and approval of Prudential.  
(5)	As a result of the series of novations the Marketing Agreement, the Renewal Rights Agreement and the Brand Licence Agreement are now between Prudential and the Appellant.  The appeal is most directly concerned with the commissions payable by the Appellant to Prudential pursuant to the terms of the Marketing Agreement.  
The terms of the Marketing Agreement
(6)	Under the terms of the Marketing Agreement Prudential provided Winterthur with exclusive right 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:
1.	Lead A:  No lead provided by Prudential;
2.	Lead B:  Name and address of a Prudential Group Non-GI customer who has expressed an interest in a Prudential-branded General Insurance Product;
3.	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. 
4.	Lead D:  Name and address of a Prudential Group Non-GI customer who wishes to purchase a Prudential-branded General Insurance Product. 
The disputed decision
(9)	On 3 August 2005 Kieran Devlin of Prudential wrote a letter to Brian New of the Respondents, setting out Prudential's view of the VAT treatment of commission payable by the Appellant to Prudential pursuant to the Marketing Agreement.  Prudential's view was that supplies of services by Prudential to the Appellant pursuant to the Marketing Agreement were exempt supplies of insurance intermediary services by an insurance agent and accordingly exempt from VAT under Item 4, Group 2 of Schedule 9 Value Added Tax Act 1994.
(10)	On 24 November 2005 Brian New of the Respondents wrote a letter to Kieran Devlin of Prudential rejecting Prudential's view of the VAT treatment of the commission payments.  The Respondents' view was that the supplies made by Prudential to the Appellant pursuant to the Marketing Agreement were not those of an insurance agent but rather were akin to marketing services and the provision of a regulation framework and customer information and data.  Accordingly the Respondents’ view was that commission payments were taxable at the standard rate if made to a person in the UK.  As the services were being supplied to the Appellant who was a person in the UK the payments were subject to VAT at the standard rate.
(11)	Following the decision of the Respondents in the letter of 24 November 2005, Prudential filed a Notice of Appeal on 22 December 2005.  On 2 November 2006 Prudential made an application to the Tribunal for Royal Bank of Scotland Group plc to be substituted for Prudential as the Appellant in the Appeal.  This application was granted by the Tribunal.
(12)	On 12 March 2007, the Appellant filed Amended Grounds of Appeal and Directions in this Appeal were issued by the Tribunal.  
4.	We had two binders of documents and heard evidence from Ms Lorraine Dodds, head of product management for general insurance at Prudential, and Mr Clinton Thomas, senior manager at the Appellant, and find the following further facts:
(1)	Under the Renewal Rights Agreement Prudential sold to Winterthur for £350,011,088 the goodwill of its UK general insurance business comprising household, motor, creditor and travel insurance, consisting of 1.9m policies (“the Business”).  
(2)	Under the Brand Licence Agreement Prudential granted to the Winterthur (for nil consideration) an exclusive licence to use the Licensed Rights (trade marks and all elements of the Prudential brand including Pru Sans typeface) in providing the Licensed Services (the Business insurance products and services) in the UK, the Isle of Man and the Channel Islands for a term of 15 years. 
(3)	Under the Marketing Agreement Prudential provided Winterthur with exclusive use of the In-Force GI [General Insurance] Data (broadly, the details of the in-force general insurance customers) for a 15 year term and provides for the way in which Winterthur will conduct itself in relation to the renewals process.  Winterthur agreed to pay commissions to Prudential calculated by reference to each Prudential-branded general insurance policy which is written.  However, commissions in respect of the renewal of Prudential’s in-force business are set against and reduce the Debit Account (which is a notional account, with an initial balance of £350m on which notional interest accrues).  The full amount of commission in respect of the renewal of Prudential’s in-force business only becomes payable when the Debit Account has been reduced to zero, which occurred in March 2008.  In respect of sales of Prudential-branded general insurance products to new customers, 50 per cent of the commissions are payable on a monthly basis to Prudential and the other 50 per cent is set-off against the Debit Account.
(4)	Once the Appellant had the initial In-Force GI Data comprising details of the insured and the policy it required no further information from Prudential to be able to renew the insurance.
(5)	It is customary for an insurance intermediary who introduced the business initially to receive commission on renewals without taking any further action.  
5.	Article 13B of the Sixth Directive 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;…”
 Group 2 of Schedule 9 to the VAT Act 1994 provides:
“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 or 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.”
6.	Mr Milne and Mr Sinfield, for the Appellant, contend:
(1)	Payments under the Marketing Agreement are consideration for the transfer of the Business.  Since the Appellant is registered for VAT the conditions for the transfer of the Business as a going concern are met (which the Tribunal decided in Winterthur were satisfied as to there being the transfer of the Business as a going concern but not as to Winterthur carrying on the Business and being UK VAT registered) in relation to payments of commission following the Appellant’s acquisition of the Business, because each payment represents a separate supply.  Transfer as a going concern (“TOGC”) treatment remains available where the Business is transferred for a fixed period of time and a necessary amount of operational involvement is maintained.
(2)	Alternatively, the payments of commission under the Marketing Agreement are exempt either under art 13B(a) of the Sixth Directive (now art 135(1)(a) of the Recast VAT Directive) or under item 4 of Group 2 of Schedule 9 to the VAT Act 1994 on the basis that Prudential is an insurance broker or insurance agent providing the services of an insurance intermediary where those services are related to insurance transactions and are provided in the course of acting in an intermediary capacity.  Prudential, as former insurer, is even closer to the insurance contract than a normal insurance broker or agent and should qualify for exemption.
7.	Mr Grodzinski, for Customs, contends:
(1)	On the TOGC aspect
1.	The Marketing Agreement did not involve any transfer of assets, but only the right to use data for 15 years.
2.	It is a mischaracterisation to contend that the consideration for the transfer is £350,011,088 plus the unascertained amounts of commission over the 15 year period.  The latter was stated in the Marketing Agreement to be consideration for the ongoing marketing and other services provided by Prudential.  Even if the debit account of £350m plus interest was an upfront non-refundable payment of commission for the right to sell Prudential-based general insurance products, as the Tribunal found in Winterthur, the commission in excess of this amount is for future marketing and other services supplied under the Marketing Agreement, which did not involve the transfer of any assets.  The recipient had no power to dispose of the assets as owner.
3.	Prudential transferred the Business to Winterthur.  Subsequent novations cannot retrospectively make the 4 January 2002 transfer a TOGC.  Eligibility for TOGC treatment must be judged at the time of the transfer: see the references to the relevant date in para 5(2A) and (3) of the VAT (Special Provisions) Order 1995.
4.	We record that Customs reserve their right to argue on an appeal that the Tribunal was wrong in Winterthur to find that the package of assets supplied under the various agreements constituted part of a business capable of separate operation.
(2)	As to the exemption issue:
1.	Prudential is not an insurance broker or agent; it is the former insurer.  An insurance agent has power to bind the insurance company and has a role in negotiating the terms of the insurance between the parties (see Taksatorringen, Case C08/01 and Arthur Andersen, Case C-472/03).  Prudential has no legal relationship with the insured.
2.	It is not providing services of an insurance intermediary.  In relation to Lead A cases it has merely permitted the policy to be sold under the Prudential brand.  In relation to the other categories it has done no more than pass the name, address and policy details to the Appellant in the first year, following which the Appellant has renewed its own policies.
3.	Nor are the services provided in the course of acting in an intermediary capacity as defined in Note (1).
Reasons for our decision
8.	On the TOGC issue, we consider that the consideration for the sale of the Business was solely the £350,011,088 stated in the Renewal Rights Agreement.  The commission payments under the Marketing Agreement were for the use of the In-Force GI Data for a 15 year term.  The fact that no commission was payable (except 50 per cent of the commission on new business) until the total commission earned exceeded £350m plus interest does not mean that the commission in excess of £350,011,088 becomes consideration for the transfer of the Business.  On this basis, Mr Milne’s ingenious argument that the time of supply rules means that one applies TOGC treatment to the circumstances applying at the time of each payment of commission does not arise.  We therefore do not have to decide how one applies the TOGC rules when there have been a series of transfers—from Prudential to Winterthur to WAL to the Appellant, of which the first two failed to qualify under the 1995 Order because reg 5(1)(b) (ii) and (iii) were not satisfied, as the Tribunal found in Winterthur, and the last would have qualified had it been a transfer from Prudential.  We are, however, doubtful whether as a result of the novations the transaction should be looked at is if there had been a sale of the Business by Prudential to the Appellant.  Accordingly, we prefer Mr Grodzinski’s argument on this issue. 
9.	On the exemption issue, we bear in mind that as an exemption it must be construed strictly, which as Chadwick LJ pointed out in Expert Witness Institute v Customs and Excise Commissioners [2002] STC 42 at [17] does not mean a restricted interpretation:
“It does not follow, however, that the court is required to give to 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 his context, with a restricted construction.” 
Although both parties referred to HMRC v IDT Card Services Ireland Limited [2006] STC 1252 we consider that it has no relevance since the wording of insurance broker and insurance agent is identical in both the VAT Directive and domestic law.
10.	  Both art 13B(a) and item 4 of Group 2 refer to insurance brokers and insurance agents, which, although there was no evidence about this, we understand to be civil law terms of art.  The ECJ referred to Directive 77/92 for the interpretation of these terms in Taksatorringen, Case C-8/01, [2006] STC 508 at [45] “without its being necessary to rule on whether the terms ‘broker’ or insurance agent’ must necessarily be construed in the same manner in Directive 77/92 as they are in the Sixth Directive;” and as the Advocate General said in Arthur Andersen at [23] of that and the later Directive 2002/92 “it is without doubt essential to take into consideration in order to avoid the development of a concept of ‘insurance agent’ under art 13B(a) which would risk losing all contact with legal reality and practice in the area of insurance law.”  The Directive 77/92 defines the activities of an insurance broker in art 2(1)(a) as:
“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, in particular in the event of a claim.”  
The directive lists in art 2(2)(a) the words used for insurance broker in each Member State, the French word being courtier d’assurance, which we understand to be a person who brings the parties together without taking any part in the insurance contract, thus operating like an estate agent in the UK.  As the ECJ said in Taksatorringen, at [45] “The assistance in the administration and performance of contracts of insurance referred to in art.2(1)(a) of that directive is in addition to the activities involved in introducing persons seeking insurance and the insurance companies and in preparing and concluding insurance contracts.”  The Advocate General made the same point:
“90. Admittedly, the activities set out in art 2(1)(a) of Directive 77/92, which under para 2 of that article correspond to those of an insurance broker, include those of assisting in the administration and performance of insurance contracts, particularly in the event of a claim, but it is stated clearly that this assistance is to be provided ‘where appropriate’ in conjunction with the activities which are distinctive of the carrying on of the business of an insurance broker, namely the bringing together of insurers and persons seeking insurance and the preparation of insurance contracts [our italics].”
Accordingly the primary requirement is that an insurance broker must “bring together, with a view to the insurance or reinsurance of risks, persons seeking insurance or reinsurance and insurance or reinsurance undertakings.”  He may also perform ancillary activities both before and after the conclusion of the insurance contract.
11.	By contrast, a different civil law profession is that of an insurance agent (in French, agent general d’assurance) whose activities are defined in art 2(1)(b) as:
“professional activities of person 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.” 
In contrast to insurance brokers who do not themselves create any legal relationship insurance agents are “empowered to act in the name and on behalf of, or solely on behalf of, one or more insurance undertakings.  Originally the European Court said that that this “involves the power to render the insurer liable in respect of an insured person who has incurred a loss” Taksatorringen at [45].  However, the Advocate General in Arthur Andersen, Case C-472/03 at [31] pointed out that this was true only of the agent who “acted in the name of and on behalf of” the insurer, and not where he acted in his own name on behalf of the insurer:
31. …However, it follows from the aforementioned Article 2(1)(b) that a person may be classified as an ‘insurance agent’ even when acting ‘solely on behalf’ of the insurer. It is clear that where he is not acting ‘in the name’ of the insurer, he does not have any power to render the insurer liable in respect of third parties. An insurer is not rendered liable in respect of policyholders by the declarations of an agent who does not act ‘in the name of the insurer’ and who is thus not legally his representative. Accordingly, the power to render the insurer liable cannot be the decisive criterion for classifying a person as an insurance agent. It will not be sufficient, per se, to make a taxable person an insurance agent within the meaning of Article 13B(a) of the Sixth Directive. 
(Our understanding of this distinction is that in civil law the intermediary contracting in the name and on behalf of the principal creates legal relations between the principal and the third party (here the insured); and the intermediary contracting in his own name but on behalf of the principal creates legal relations between the intermediary and the third party, although in some legal systems the principal can sue the third party (but never the reverse).   The same distinction is made elsewhere in the Sixth Directive, for example in art 9(2)(e) seventh indent for the former, and art 6(4) (and art 5(4)(c) but mistranslated in English) for the latter.)  
12.	The ECJ agreed with the Advocate General on this point in its judgment in Arthur Andersen:
 “31. In that connection, it should be noted that it was indeed held, in relation to the Sixth Directive, that the professional activity described in Article 2(1)(b) of Directive 77/92 ‘involves the power to render the insurer liable in respect of an insured person who has incurred a loss’ (Taksatorringen, paragraph 45). 
32.  However, as the Advocate General points out in para 31 of his opinion, it cannot be inferred from that case law that the existence of a power to render the insurer liable is the determining criterion for recognition of an insurance agent within the meaning of art 13B(a) of the Sixth Directive.  Recognition of a person as an insurance agent presupposes an examination of what the activities in question comprise.”  
Therefore the Court gave more weight to the second part of the definition:
“…in introducing, proposing and carrying our 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.”
On the facts ACMC did not carry out these functions but carried out some of the functions normally carried out by the insurer:
“33.  In that regard, irrespective of whether, as part of its activities, ACMC has a relationship with both the insurer and the insured parties, as required by the case-law for recognition as an insurance agent (Taksatorringen, paragraph 44), it is apparent from the information contained in the order for reference, as supplemented by the information provided by the defendant in its written observations, that ACMC’s activities consist in handling insurance applications, assessing the risks to be insured, determining whether a medical examination is required, deciding whether to accept the risk where such an examination is deemed unnecessary, issuing, managing and rescinding insurance policies and making amendments to contracts and modifying premiums, receiving premiums, managing claims, setting and paying commission for insurance agents and maintaining contact with them, handling aspects relating to reinsurance and supplying information to insured parties and insurance agents and to other interested parties, such as the tax authorities.
34.  In the light of that information, it must be held that, although they contribute to the essence of the activities of an insurance company, the services rendered by ACMC to UL, which are not insurance transactions within the meaning of Article 13B(a) of the Sixth Directive (see paragraph 22 of the present judgment), do not constitute services that typify an insurance agent either. 
…
38. Consequently, the services rendered by ACMC to UL must be regarded as a form of co-operation consisting in assisting UL, for payment, in the performance of activities which would normally be carried out by it, but without having a contractual relationship with the insured parties. Such activities constitute a division of UL’s activities and not the performance of services carried out by an insurance agent (see, by analogy, CSC Financial Services Ltd v Customs and Excise Comrs (Case C-235/00) [2002] STC 57, [2002] 1 WLR 2200, para 40).”
13.	We summarise our understanding of the position in this way.  There is a difference between insurance brokers and insurance agents in the way they create legal relations: brokers not doing so at all, and agents doing so in either of two different ways in accordance with a distinction made in civil law.  The activity they perform is in the former “bring[ing] together, with a view to the insurance or reinsurance of risks, persons seeking insurance or reinsurance and insurance or reinsurance undertakings” and in the latter “introducing, proposing,…or in concluding, contracts of insurance, which is similar, except in relation to concluding contracts, which follows from the agent’s power to create legal relations.  In both cases they may “carry out work preparatory to the conclusion of contracts of insurance and, where appropriate, assist in the administration and performance of such contracts, in particular in the event of a claim.”
14.	We consider that we should read the terms insurance broker or insurance agent in the VAT Directive in the light of the understanding of these terms in the Directive 77/92, as explained by the ECJ.  Directive 72/92 is no longer in force but there is no suggestion, particularly given the reliance on it in two ECJ cases and especially the Advocate General’s comment in Arthur Andersen quoted above, that the meaning that it gave to insurance agent or broker was other than the ordinary meaning of those terms in civil law.  It has been replaced by Directive 2002/92 which does not use the terms insurance agent or broker, recital (9) explaining that various types of persons, such as agents, brokers and “bancassurance” operators, can distribute insurance products, as a result of which the new Directive, presumably to get away from national differences, uses the more general term insurance intermediary defined as a person who for remuneration takes up or pursues insurance mediation, in turn defined as “the activities of introducing, proposing or carrying out other work preparatory to the conclusion of contracts of insurance, or of concluding such contracts, or of assisting in the administration and performance of such contracts, in particular in the event of a claim.”  Accordingly the new Directive, by deliberately avoiding references to terms which have a specific meaning in domestic law, is not of assistance in interpreting insurance agent or broker in the VAT Directives or domestic law.  In the light of this, we respectfully disagree with the Tribunal in Trader Media Group Ltd v HMRC (2008) VAT decision 20671, which we understand is under appeal, in placing reliance on it.  That decision was strongly relied upon by Mr Milne.  The Tribunal in Insurancewide.com Services Limited v HMRC (2007) VAT Decision 20394, which is also under appeal, also considered this aspect and, while accepting that it was not necessary to decide it, concluded that the appellant there was an intermediary.
15.	It is common ground that domestic law must be interpreted in the light of the VAT Directive.  We therefore ask whether Prudential acts in the way we have interpreted Directive 77/92.  We do not give much weight to the creation of legal relations because brokers do not, and agents do, create them.  As the Court did in Arthur Andersen we give much more weight to the activities.  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.  Secondly, did it “carry out work preparatory to the conclusion of contracts of insurance”?  The only aspect claimed by Mr Milne is that Prudential has restricted the discounts that can be offered by the Appellant, and in requiring its approval of customer-facing materials.  The first is to prevent manipulation of the commission by encouraging insurance which, being cheap, is not renewed without the discount, and the second is to preserve the Prudential brand.  Prudential also gave information about its existing insureds as part of the sale of the Business.  Whether any contract was concluded was solely a matter between the Appellant and the insured for which Prudential took no action.  We do not find these sufficient to satisfy this requirement.   Thirdly, does Prudential “assist in the administration and performance of such contracts, in particular in the event of a claim”?  Mr Milne relies on Prudential’s training of the Appellant’s call centre staff, the provision of ongoing assistance to help maintain the successful performance of the insurance contracts and the Appellant’s staff holding themselves out as Prudential staff.  There is no assistance in relation to “such contracts” ie concluded insurance contracts, in contrast to work preparatory to their conclusion.  We do not find this requirement is satisfied. 
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).  While we sympathise with Mr Milne in his contention that Prudential is even closer to the insurance contract than a normal insurance broker, and that the situation here is a highly unusual one, we cannot stretch the meaning of insurance broker to cover it, particularly bearing in mind the need to construe exemptions strictly.  We should add that if we were wrong to ignore the new Directive 2002/92 we should have reached the same conclusion as the definition is similar to the combination of the separate former definitions but leaving aside any requirements about creating legal relations.
17.	If Prudential is not an insurance agent or broker it is not necessary to deal with the remainder of the requirements of item 4 of Group 2.  However, consideration of these further requirements reinforces the conclusion we have reached.  Note (1) defines the services of an insurance intermediary as being one of the following: in para (a) the bringing together, with a view to the insurance of risks of persons who are or may be seeking insurance and persons who provide insurance.  Mr Milne relied on the three criteria listed in Royal Incorporation of Architects in Scotland v HMRC (2007) VAT Decision 20252: the intermediary is paid for successful take-up of an insurance policy, they are targeting their own customer base and the intermediary endorses the product or the insurer, all of which are satisfied here.  As Notice 701/36 makes clear at para 8.3.1 these criteria are used to determine whether the service is an advertising service or an insurance introductory service, which is not the issue here.  Prudential has not performed an insurance introductory service for the reason considered above in relation to whether it is an insurance broker or agent; any introduction was in the context of a sale of the Business.  Secondly, in para (b) the definition includes the carrying out of work preparatory to the conclusion of contracts of insurance.  We find that this is not satisfied for the reasons given in considering whether it was an insurance broker or agent.  Thirdly, in para (c) the definition includes the provision of assistance in the administration and performance of such contracts, including the handling of claims.  We find that this is not satisfied for the reasons given in considering whether it was an insurance broker or agent.  As Jacob J (in the Court of Appeal) found in Century Life plc v Customs and Excise Commissioners [2001] STC 38, in that case the work in question was a vital part of the administration of the contracts, which is far from the case here.  Prudential is doing these acts to protect its brand without being contractually bound to do them.  Para (d), the collection of premiums, is not in point.  Accordingly, we find that Prudential’s services are not those of an insurance intermediary.
18.	 Note (2) defines acting in an intermediary capacity as acting as an intermediary between a person who provides insurance and a person who is or may be seeking insurance or is an insured person.  For the reasons given in relation to Note (1)(a) we find that Prudential does not qualify in relation to a person who is or may be seeking insurance.  Nor does it act as an intermediary in relation to an insured person other than supplying the insured person’s details as part of the sale of the Business.
19.	Accordingly we dismiss the appeal.  Customs did not ask for costs.

JOHN F AVERY JONES

CHAIRMAN
RELEASE DATE: 22 October 2008

LON/06/0016 (corrected)