England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE QBCOF 97/0736/D

(MR JUSTICE HIDDEN )

Royal Courts of Justice

Strand

London WC2

Friday, 30 January 1998

B e f o r e:

LORD JUSTICE BELDAM

LORD JUSTICE HUTCHISON

LORD JUSTICE MUMMERY

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COMMISSIONERS OF CUSTOMS & EXCISE

APPELLANT

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BRITISH FIELD SPORTS SOCIETY

RESPONDENT

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(Transcript of the handed down judgment of

Smith Bernal Reporting Limited, 180 Fleet Street,

London EC4A 2HD

Tel: 0171 421 4040

Official Shorthand Writers to the Court)

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MR N PLEMING QC with MR R JAY (Instructed by the Commissioners of Customs & Excise, London SE1 9PJ) appeared on behalf of the Appellant

MR D MILNE QC and MISS A NATHAN (Instructed by Messrs Knights Solicitors, Kent TN1 1UT) appeared on behalf of the Respondent

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J U D G M E N T

(As approved by the Court )

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©Crown Copyright

Friday, 30 January 1998

J U D G M E N T

LORD JUSTICE BELDAM: The Commissioners of Customs and Excise (“the Commissioners”) appeal on a point of law from the decision of Mr Justice Hidden who on 21st March 1997 upheld the decision of the Value Added Tax Tribunal in favour of the British Field Sports Society (“the Society”) which had appealed against the assessments to value added tax made by the Commissioners for the accounting periods 30th June, 30th September and 31st December 1993.

The Society was formed in 1930 with a view to protecting the rights of its members to carry on field sports. Its foundation was prompted by increasing attacks on field sports in the 1920s. The Society aimed to scrutinise all legislation which might adversely affect field sports and to organise a proper opposition to measures which might be introduced in Parliament to the detriment of its members. It undertook to reply effectively to misleading propaganda about field sports and, as the Society considered a successful attack on one field sport would lead to an attack on others, it aimed to provide a Society which was strong enough to protect every branch of field sports so that it could effectively represent the opinions of its members in defence of their rights. As the main attack was directed against hunting, the Society’s membership contained many hunt supporters.

The objects of the Society are set out in Rule 3 of its rules. They are:

“(a) To ensure the retention of field sports as an integral part of the activities of modern society.

(b) To show how field sports enrich and conserve the wildlife of our country.

(c) To keep a watching brief in Parliament and in the European Parliament on everything likely to affect field sports; to promote legislation where necessary and to oppose legislation likely to be harmful to the interests of field sports.

(d) To assist every branch of field sports and the interests of all field sportsmen and to promote field sports through literature, films, the press, television and radio.

(e) To provide information, advice, services and assistance to members.”

The Head Office of the Society is in Kennington Road, London, SE1. It has a total staff of about 50, of whom about half are at headquarters. There are 14 regional directors. At its London headquarters it has a very active public relations staff and employs 8 other public relations staff in its regional offices.

The affairs of the Society are managed by a board of 12 who are responsible for its day to day organisation and running. The Board has an absolute discretion in directing the administration and expenditure of the funds of the Society for the protection and advancement of the rights and interests of the Society’s members. The Board reports to the Council. Members of the Society who have paid the current full membership subscription are entitled to attend and vote at general meetings of the Society and may propose and vote on resolutions at the meeting.

Today the Society has about 80,000 members and the membership is increasing. 60,000 are subscribing members. Others are covered by family membership and joint subscription. The annual subscription rate in 1993 was £20. Trade membership was £40 or £80. It is common knowledge that in recent years the attacks on the right to carry on field sports have increased in intensity with increased public relations campaigning, demonstrations and attempts to introduce legislation. The Society decided that to counteract these attacks and to carry out its objective of protecting its members’ rights and interests, it would have to make a substantial increase in its use of outside consultants in public relations, in research, campaigning, printing and in supplying the media with information. In short, if it was to perform its obligations for which the members paid their subscriptions, it would have to engage on the members’ behalf all those professional services which in the modern world are needed to make any impact on public opinion.

Thus in the last ten years the Society has pursued the aims of its members with more energy and resources in campaigns and with a substantial increase of expenditure, particularly in the last five years.

Until 1990 the Society had been treated as outside the scope of value added tax, not being a business as defined in sec. 47 of the Value Added Tax Act 1983 (“the Act”), now replaced by the Value Added Tax Act 1994. In 1990 the Society thought it would add to the attraction of membership by offering members substantial legal liability insurance and a free legal help line, insurance against disability arising from an accident whilst participating in a recognised country sport, discount on home insurance cover, free regular copies of the Society’s newspaper and a free country sports directory with a regional sporting planner and current special offers. From 1990 onwards, the Commissioners required the Society to account for value added tax on its subscription income at the standard rate; that proportion of the subscription attributable to insurance was allowed as an exempt supply and the part attributable to the provision of literature as a zero-rated supply. The Society was allowed to reclaim input tax upon the same basis. However in April 1993 the Commissioners sought to deny the Society the right to set off input tax by ruling that the tax incurred by the Society in providing their members with professional services in public relations, printing, publishing, lobbying and its other campaigning activities, was not attributable to the provision of facilities or advantages available to its members. The Commissioners still required the Society to account for value added tax on the whole of the members’ subscriptions, apart from exempt or zero-rated supplies as it was providing facilities and advantages available to its members and thus deemed to be carrying on a business within the meaning of sec. 47(2)(a) of the Act. It is this ruling which gave rise to the Society’s appeal to the Tribunal, to the decision of Mr Justice Hidden and to this appeal.

In addition to the facts as I have outlined them, the Tribunal found that in the course of its campaigning the Society takes a whole series of actions such as publishing advertisements, producing literature, leaflets and booklets which it sends to journalists, making presentations at media conferences, arranging for representation on television, lobbying M.P.s in the House of Commons and organising rallies. It further said:

“The evidence we find to be overwhelming that the members of this Society pay their subscriptions for a package of benefits of which the most important is to have the Society carry on its campaigning activities, which activities it carries on for them and on their behalf.”

The Society is not a body formed to promote some object for its own sake for the public good but is a Society whose members are self-interested and which exists to defend the members’ ability to pursue their sport from threats seen as affecting them all and that is why they join and why they pay their subscription. The Tribunal later said:

“We find upon the particular facts that having the Society campaigning in defence of their sport is a clear and very identifiable advantage. It is plainly an advantage available to them. They do not merely sponsor it. Through their membership of the Society - collectively they are both the Society and control what it does - they commission the campaigning activities. Those activities are carried on for the members. They are activities which an individual member however illustrious or however good his connections could not hope to carry out, or to carry out anything like so effectively, alone in defence of his ability to pursue his own sport. That is why the members have come together in the Society so that collectively they can make their case so very much more strongly. The advantage to them provided by the campaigning is, of course, provided by the Society; and it is provided in return for their subscription, since that is the core of the arrangement between them.”

The Tribunal went on to consider whether the necessary link between payment of the members’ subscriptions and the advantages provided in return for them was established and held on the evidence that there was a direct link between the services provided by the Society for its members and the consideration it received.

Sec. 2 of the Value Added Tax Act 1983 provides:

“(1) Tax shall be charged on any supply of goods or services made in the United Kingdom, where it is a taxable supply made by a taxable person in the course or furtherance of any business carried on by him ...”

Sec. 14 provides for credit for input tax against output tax:

“(1) A taxable person shall, in respect of supplies made by him ... account for and pay tax by reference to such periods (in this Act referred to as “prescribed accounting periods”), at such time and in such manner as may be determined by or under regulations ...

(2) Subject to the provisions of this section, he is entitled at the end of each such period to credit for so much of his input tax as is allowable under sec. 15 below, and then to deduct that amount from any output tax that is due from him.

(3) Subject to sub-sec. (4) below, “input tax”, in relation to a taxable person, means the following tax, that is to say -

(a) tax on the supply to him of any goods or services ...

Being ... goods or services used or to be used for the purpose of any business carried on or to be carried on by him; and “output tax” means tax on supplies which he makes ...”

Sub-sec. 4 makes provision for apportionment where goods or services are supplied and are used partly for the purposes of a business and partly for other purposes.

Sec. 15 regulates the amount of input tax for which a taxable person is entitled to take credit at the end of any period.

The meaning of “business” is given in sec. 47 which provides:

(1) In this Act “business” includes any trade, profession or vocation.

(2) Without prejudice to the generality of anything else in this Act, the following are deemed to be carrying on of a business -

(a) The provision by a club, association or organisation (for a subscription or other consideration) of the facilities or advantages available to its members; and

(b) The admission, for a consideration, of persons to any premises.

(3) Where a body has objects which are in the public domain and are of a political, religious, philanthropic, philosophical or patriotic nature, it is not to be treated as carrying on a business only because its members subscribe to it, if a subscription obtains no facility or advantage for the subscriber other than the right to participate in its management or receives reports on its activities ...”

The Commissioners contended that the only question arising on the appeal was whether the campaigning activities of the Society are deemed business activities within sec. 47(2)(a). They challenge whether the campaigning activities of the Society can constitute a clear and identifiable advantage as the Tribunal held. They argued that the Tribunal’s reasons:

“(1) raise pure points of law which do not depend on impeaching the Tribunal’s conclusion on the evidence or findings of fact;

(2) amount to subtly different ways of stating the same point, namely that all the members derive a benefit from the sure and admittedly selfish knowledge that their interests are being furthered;

(3) seek to distinguish between campaigning societies whose members join from self-interested motives, and societies which seek to promote some object or cause for the public good, when there is no justification in the UK (or EU) value added tax legislation for such a distinction, and the consequent differential tax treatment.”

The Commissioners criticise the reasoning and conclusions of Mr Justice Hidden because they contend he failed to deal with the key point of principle, namely whether the campaigning activities of the Society are capable of coming within the words “facilities” or “advantages” as correctly interpreted within the VAT legislation. Further he did not address the Commissioners’ argument that there was no direct link between the payment of the subscription and the provision of facilities or advantages as a separate point.

The Commissioners argued that mere furtherance of an ideological end or principle in the public arena is not a facility or advantage for a member of the association who subscribes. The activities of the Society benefited those who were not members and who espoused the same aspirations and there was no sufficient link between the payment of subscription and the supply of the facility or advantage. The Commissioners denied that they were seeking to attack the Tribunal’s finding of fact in this regard or, if they were, they were contending that it was one to which no reasonable Tribunal could have come. It advanced two policy arguments: first that the decision of the Tribunal and Mr Justice Hidden rendered the law “uncertain” and second that if pursuit of the objectives of a body such as the Society without more was to be treated as the provision of a facility or advantage to the individual members, then every such body which was “active”, which carried out public relations activities and which advertised or publicised its views, aims or objectives, or which campaigned, would fall outside sec. 47(3) and would fall to be treated as carrying on a business. These policy arguments have a familiar ring but carry little weight in deciding the meaning of a legislative expression which the Commissioners seek to interpret to deny the taxpayer the right to set off input tax. It is, however, said that the draughtsman of sec. 47, in referring to facility or advantage, must have had in mind the provision of some tangible or concrete benefit beyond the furtherance of the Society’s ideological objectives. In short, the Commissioners argue that acting as a collective voice, campaigning on behalf of members, even furthering the interests of members by such campaigning cannot without more be the provision of a facility or advantage to those members. By reference to Article 13(A)(1)(l) of the EEC Sixth Directive on Value Added Tax and the 1st Report of the Commission of the European Communities at page 46, the Commissioners relied upon a statement in the report that:

“Organisations which do not limit their activities to the collective representation of their members may become liable for the tax if the subscriptions they receive actually represent a consideration for individually identifiable services provided to their members.”

Thus the Commissioners argue that the supply of services to its members by the Society does not represent the supply of “individually identifiable services” provided to the Society’s members.

It is, of course, very easy to limit a legislative expression by adding words such as “individually identifiable” but in my view unjustifiable. The court in construing the value added tax legislation should have regard to the fact that the legislation was intended to implement the Sixth EEC Directive. Nonetheless there is considerable scope in the Directive for variations in national legislation. Article 13 is concerned with national exemptions and aims to secure correct and straightforward application of such exemptions and to prevent possible evasion, avoidance or abuse. However the Commissioners’ case is that the Society is not an exempt body since it has to account for value added tax in respect of its subscription income save in respect of zero rated or exempt supplies.

Insofar as the subscription is apportioned by Commissioners to zero rated and exempt supplies, the balance is clearly attributable to the Society’s expenditure in protecting the interests and rights of its members. The paragraph of the 1st Report of the Commission of the European Communities following that quoted suggests that such consideration would be remuneration for services because it is “capable of being expressed as a specific amount of money”. In my view the Commission was referring to the need for services to be individually identifiable, not to a requirement for them to be individually provided to the members of the association.

Further the Commissioners’ description of the benefits provided such as acting as a collective voice and campaigning on behalf of members is calculated to disguise the issue. The Society does not seek to set off input tax incurred for acting as a collective voice or campaigning; it seeks to set off the tax which it is required to pay for the professional and other services it employs in the deemed business it conducts for its members.

The Society argued that the provision of the services of public relations consultants, scrutiny of legislation, organising demonstrations and making presentations to the media are clearly identifiable benefits to the members who could not individually provide them effectively. The finding that this is what the members pay for by their subscription is a finding of fact supported by the evidence. Insofar as the words “facility” or “advantage” used in sec. 47 may have a special meaning in the context in which they are used, that is a question of law but otherwise the Commissioners are simply seeking to reverse conclusions of fact which were open to the Tribunal on the evidence they heard and which could not be said to be perverse. In particular, the finding by the Tribunal that the members of the Society paid their subscription “for a package of benefits of which the most important is to have the Society carrying on its campaigning activities, which activities it carries on for them and on their behalf”, is not open to review. Further the Society contends that output tax and input tax must be treated consistently; the Commissioners are seeking to treat them inconsistently because they expect the Society to account for output tax on that part of its subscription income attributable to campaigning and they deem the whole of the Society’s activities to constitute a business under sec. 47(2)(a). It follows that input tax attributable to campaigning is accordingly recoverable.

Although sec. 47 does not define “facilities” or “advantages”, sec. 47(3) does give two instances of matters which, if not excepted, would amount to “facilities” or “advantages”, namely the right to participate in the management of a body and the receipt of reports on the activities of that body. Facilities or advantages should be given their ordinary everyday meaning. It is quite obviously an advantage to members for the Society to provide the organisation and to carry out the objects of the Society and, in instructing professionals to assist in the campaigns, the Society is doing so on behalf of the individual members each of whom benefits directly and in the manner they expect in return for the payment of their subscription.

Sec. 47(3) is in my view instructive for it proceeds upon the basis that, unless excepted, a body of the nature there described would be carrying on a business if its members, in return for a subscription, obtained only the facility or advantage of the right to participate in management or receive a report on its activities. This seems to me to indicate that the scope of the phrase “facilities or advantages” is very wide and if a member receives a facility or an advantage from the provision of a report on the Society’s activities I cannot see on what logical basis he would not receive a facility or advantage from professional services engaged on his behalf to further the objects to which the report relates. Similarly, if the mere right to participate in the Society’s management is to be regarded as a facility or advantage, how can the benefit of the services provided by management be excluded?

In ordinary usage “facilities” refers to the means, resources or conveniences which make it easier to achieve a purpose, e.g. facilities for research, and “advantages” means the benefit or gain, usually of something not previously enjoyed or available. The use of synonym and paraphrase in statutory construction is generally unhelpful because not infrequently they impart a different nuance to the words interpreted. Nevertheless since it is clear that facilities and advantages are used in sec. 47 in their widest sense, it seems to me permissible in this case to resort to the meanings which would ordinarily be given to these two English words. On this basis I consider the conclusion of the Tribunal was entirely justifiable. They reached no conclusion of fact which was unsupported by the evidence nor did they form a view of the facts which could not reasonably be entertained. The Society, in return for the subscription, provided the members with the facility or advantage of putting forward a collective view in a professional way using the means which in modern conditions are essential if public opinion is to be effectively influenced. In the course of argument Mr Pleming Q.C. accepted that if trade members had united to employ similar services in defence of their interests in supplying equipment for hunting, shooting and fishing, they would have been entitled to deduct as input tax the tax paid in securing the same services as the Society provided for its members. I cannot see a basis for distinguishing the united efforts of those who actively participate in the sports concerned.

The policy arguments put forward by the Commissioners are unconvincing. A decision concerning the facilities and advantages provided by one Society cannot determine the characteristics of facilities or advantages provided by another. The scope of the enquiry whether there is provision of facility or advantage in return for a subscription is so wide and the circumstances are likely to be so variable that it is not possible to envisage criteria which will be determinative in every case. The law is only likely to be “confused” if Tribunals are invited to regard the circumstances in a particular case as determinative of the circumstances in another when the analogy between the two is inexact.

Mr Pleming argued that the Tribunal’s finding that there was a direct link between the payment of subscription and the facilities or advantages provided conflicted with the decision of the European Court of Justice in Apple and Pear Development Council v Commissioners of Customs and Excise [1988] STC 221.

The passages on which he relied are at page 237 in the judgment of the Court:

“14. It is apparent from the order for reference that the Council’s functions relate to the common interests of the growers. In so far as the Council is a provider of services, the benefits deriving from those services accrue to the whole industry. If individual apple and pear growers receive benefits, they derive them indirectly from those accruing generally to the industry as a whole. In that connection, it must be stated that the possibility cannot be ruled out that, in certain circumstances, only apple growers or else only pear growers can derive benefit from the exercise of specific activities by the Council.

15. Moreover, no relationship exists between the level of the benefits which individual growers obtain from the services provided by the Council and the amount of the mandatory charges which they are obliged to pay under the 1980 Order. The charges, which are imposed by virtue not of a contractual but of a statutory obligation, are always recoverable from each individual grower as a debt due to the Council, whether or not a given service of the Council confers a benefit upon him.

16. It follows that mandatory charges of the kind imposed on the growers in this case do not constitute consideration having a direct link with the benefits accruing to individual growers as a result of the exercise of the Council’s functions. In those circumstances, the exercise of those functions does not therefore constitute a supply of services effected for consideration within the meaning of art. 2(1) of the Sixth Directive.”

The question referred to the Court of Justice by the House of Lords was:

“The exercise by the Apple and Pear Development Council of its functions pursuant to art. 3 of the Apple and Pear Development Council Order 1980, SI 1980/623 (as amended by the Apple and Pear Development Council (Amendment) Order 1980 SI 1980/2001) and the imposition on growers pursuant to art. 9(1) of an annual charge for the purpose of enabling the Council to meet administrative and other expenses incurred or to be incurred in the exercise of such functions do not constitute “the supply of ... services effected for consideration” within the meaning of art. 2 of the EC Council Directive 77/388 of 17 May 1977 on the harmonisation of the laws of the member states relating to turnover taxes ...”

The question was whether a charge imposed on growers to meet administrative and other expenses incurred in the exercise of its functions by the Apple and Pear Development Council amounted to consideration for the supply of services. It is clear that the court held that the services and the benefits deriving from them were provided by the council to the whole industry. Individual growers derived benefit only indirectly from the benefits which accrued to the industry as a whole. Further the growers were bound to pay the charges levied whether or not they received benefits and thus the charges could not constitute consideration having a direct link with the benefits accruing to individual growers.

It is also worth noticing the opinion of the Advocate General (Sir Gordon Slynn) who pointed out that the Apple and Pear Development Council was also empowered to impose an additional charge to meet the costs of particular schemes adopted. Such a scheme was launched to promote the sale of standard top quality apples which was known as the Kingdom Scheme. This was a voluntary scheme, and apart from initial government grant was self-financing. He later pointed out (at page 235):

“In this case (where what is in issue takes place within the territory of a member state and importation is not involved), there is no transaction to which a particular payment can be related and indeed it is perfectly possible for some growers to be unable to point to services specifically supplied to them as opposed to the industry as a whole. Some brands of apples may not be advertised or promoted; the apple growers may get no benefit from the promotion of pears and conversely.

It does not seem to me that the obligatory payment of the levy and the obligatory discharge of statutory functions unrelated to individual growers constitute the necessary transaction let alone any form of bargain. The position seems to me to be very different in relation to the Kingdom Scheme where growers voluntarily pay for services directed to their specific products .” [Emphasis added].

The Advocate General’s remarks highlight a point I ventured to make earlier that the circumstances in which facilities or advantages are conferred in return for a consideration are likely to be so variable that it is not possible to formulate universal criteria. On the facts of the Apple and Pear Development Council case the European Court of Justice were obviously justified in taking the view that there was no direct link between the mandatory charges imposed on individual growers and any benefits which accrued to them and thus that there was no consideration for the benefits. Where, as in the present case, the members of the Society have paid voluntary subscription for the Society to provide benefits to the members and to each of them in accordance with the rules of the Society, there is a direct link as the Tribunal found. The benefits are perceived by the members as accruing to them equally for they are provided in pursuit of a common purpose for which they subscribe. Each member may be anxious for the Society to protect his interest and right in carrying out his particular sport but it is clear that the members perceive a threat to one sport as a threat to all and obtain the advantage of the promotion of field sports generally and the protection of the rights of members in a stronger more effective manner than any individually could achieve. As the Tribunal said, it is for this advantage that they pay their subscriptions.

In my judgment the decision of the European Court of Justice in the Apple and Pear Development case does not undermine the conclusions of the Tribunal or Mr Justice Hidden.

I would dismiss the appeal.

LORD JUSTICE HUTCHISON: I agree.

LORD JUSTICE MUMMERY: I also agree.

ORDER: Appeal dismissed with costs; leave to appeal to the House of Lords refused.