England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL) DIVISION)
ON APPEAL FROM MR JUSTICE LIGHTMAN

		Royal Courts of Justice Strand, London, WC2A 2LL Thursday 25 January 2001

CHADWICK LJ:

1. This is an appeal from the order made on 8 February 2000 by Mr Justice Lightman dismissing an appeal from the decision, released on 24 September 1998, of a Value Added Tax Tribunal (Mr Theodore Wallace) on an appeal by Trinity Mirror Plc (formerly Mirror Group Newspapers Limited) under section 83 of the Value Added Tax Act 1994.

The underlying fact

2. The facts have not been in dispute. They are conveniently set out in an agreed statement which was before the Tribunal:

"1. In May 1991 Mirror Group Newspapers Limited ('Mirror') which at that time was a wholly owned subsidiary of RM Holdings Limited, carried out an issue of shares under which the public was invited to subscribe for shares in Mirror under an arrangement with Salomon Brothers International Limited, Nat West Bank plc and Lloyds Bank plc. A total of 196,392,000 ordinary shares were issued, of which 72,332,300 were issued to non-EU residents and 124,059,700 were issued to EU residents.

2. Mirror incurred VAT of £1,530,997.88 in respect of fees of legal advisers, financial advisers etc. in connection with the issue of shares. HM Customs & Excise ruled that £871,300 [of] that VAT was irrecoverable. The purpose of the issue of shares was to raise finance for the expansion of the business. The funds were actually used for this purpose.

3. Mirror recovers 100% of input tax on its overheads.

4. Input tax attributable to exempt supplies is not recoverable.

5. The VAT treatment of the issue of shares is not consistent throughout the EU member states. Some member states allow full or partial recovery of input tax attributable to the issue of shares in a similar way to the recovery of input tax attributable to general overheads, while other member states (including the UK) disallow any input tax recovery on the basis that the issue of shares is an exempt supply."

The issue for determination

3. The question for the Tribunal was whether the Commissioners of Customs and Excise ("C&E") were correct in their view that the issue in the United Kingdom by a taxable person of its own shares for the purpose of financing the expansion of its business constitutes a supply of services for the purposes of the Value Added Tax Act 1994. The Tribunal answered that question in the affirmative. The judge upheld that decision. Permission to appeal to this Court was given on the ground that that question was of some general importance.
4. The answer to that question is determinative of the appeal. It is not in dispute that the appellant is a taxable person for the purposes of the Act. Nor is it in dispute that, if the issue of shares does not constitute a supply of services for the purposes of the Act, then the fees charged by legal and financial advisers can be treated as part of the appellant's general expenses; with the consequence that the input tax in respect of those fees will be allowable under section 26 of the 1994 Act as being attributable to taxable supplies (or to supplies outside the United Kingdom which would be taxable supplies if made in the United Kingdom) made by the appellant in the course or furtherance of its business.
5. If, on the other hand, the issue of shares does constitute a supply of services for the purposes of the 1994 Act, then the input tax in respect of fees charged by legal and financial advisers in connection with the issue are, plainly, attributable to that supply. The fees cannot be treated, for the purposes of value added tax, as part of the appellant's general expenses. It is not in dispute that, if the issue of shares does constitute a supply of services, then that supply is an exempt supply – see section 31 of, and item 6 of group 5 in schedule 9 to, the 1994 Act. Accordingly, that supply is not a taxable supply – see section 4(2) of the 1994 Act. It follows that input tax attributable to that supply is not allowable as a credit, save in so far as the supply is made to a person outside the European Union ("the EU") – see section 26(2)(a) and (c) of the 1994 Act.
6. The matters to which I have just referred lead to the conclusion – which, again, is not in dispute - that, if the issue by the appellant of its own shares does constitute a supply of services for the purposes of the 1994 Act, then the input tax attributable to that share issue (£1,530,997.88) is not allowable as a credit, save to the extent that the input tax can be attributed to the issue of shares to non-EU residents. It appears from the agreed statement of facts that the amount of the input tax attributable to the share issue which was then to be allowed (on the ground that it is the amount attributable to the issue of shares to non-EU residents) was £659,697 or thereabouts. The judge refers to a different figure (£689,130); and it may be that this reflects some change in the computation between the hearing before the Tribunal and the hearing before him. It has not been suggested to us that the difference is of any significance. We are required to determine only the question of principle: whether the issue in the United Kingdom by a taxable person of its own shares for the purpose of financing the expansion of its business constitutes a supply of services for the purposes of the 1994 Act. We have not been asked to address any consequential question of computation.

Value Added Tax: the legislative history

7. Value Added Tax first became chargeable in the United Kingdom upon the coming into force of Part I of the Finance Act 1972. It has been common ground that Part I of the Finance Act 1972 was enacted in order to implement the First and Second Directives of the Council of the European Economic Community, issued on 11 April 1967, relating to "the harmonisation of legislation of Member States concerning turnover taxes". The fourth recital to the First Council Directive (67/227/EEC) explained that:

". . . in the light of the studies made, it has become clear that such harmonisation must result in the abolition of cumulative multi-stage taxes and in the adoption by all Member States of a common system of value added tax."

8. Article 1 of the First Directive required that Member States should replace their present system of turnover taxes "by the common system of value added tax defined in Article 2." Article 2 was in these terms:

"The principle of the common system of value added tax involves the application to goods and services of a general tax on consumption exactly proportional to the price of the goods and services, whatever the number of transactions which take place in the production and distribution process before the stage at which tax is charged.

On each transaction, value added tax, calculated on the price of the goods and services at the rate applicable to such goods and services, shall be chargeable after deduction of the amount of value added tax borne directly by the various cost components.

The common system of value added tax shall be applied up to and including the retail trade stage.

. . . "

9. Article 3 provided for the Council to issue a second directive concerning the structure of, and the procedure for applying, the common system of value added tax. The Second Council Directive (67/228/EC), issued on the same day, contained the following (amongst other) provisions:

"Article 2

The following shall be subject to the value added tax:

a) The supply of goods and the provision of services within the territory of the country by a taxable person against payment;

b) the importation of goods.

Article 3

'Territory of the country' means the territory in which the State concerned applies the value added tax; this territory shall, as a general rule, include the whole of the national territory, including territorial waters.

Article 4

'Taxable person' means any person who independently and habitually engages in transactions pertaining to the activities of producers, traders or persons providing services, whether or not for gain.

Article 5

1 'Supply of goods' means the transfer of the right to dispose of tangible property as owner.

2 The following shall also be considered a supply within the meaning of paragraph 1: ... [particulars not material]

Article 6

1 'Provision of services' means any transaction which does not constitute a supply of goods within the meaning of Article 5.

2 The rules laid down in this Directive as regards the provision of services shall be compulsorily applicable only to services listed in Annex B.

3 The place of the provision of service shall, as a general rule, be regarded as being the place where the services provided, the right transferred or granted, or the object hired, is used and enjoyed.

4 ..."

Annex B to the Second Council Directive – which prescribed those services in relation to the provision of which Member States were required to make provision for the payment of value added tax - did not include the transfer, assignment or issue of shares, debentures or other securities. That reflected the conclusion, expressed in the sixth recital to the Directive, that "it has proved possible to leave Member States themselves to make rules concerning the numerous services whose cost has no influence on the price of goods, . . ."

10. As I have indicated, the First and Second Council Directives of 11 April 1967 were implemented, following the accession of the United Kingdom to the Treaty establishing the European Economic Community, by Part I of the Finance Act 1972. Section 1(1)(a) of that Act required that value added tax was to be charged, in accordance with the provisions of the Act, "on the supply of goods and services in the United Kingdom (including anything treated as such a supply)". Section 5 of that Act applied for the purpose of determining what was to be treated as a supply of goods or services. In particular, section 5(2) provided that "supply of goods includes all forms of supply . . .; but . . . does not include anything done otherwise than for a consideration"; and section 5(8) provided that, subject to the preceding provisions of the section:

". . . anything which is not a supply of goods but is done for a consideration (including, if so done, the granting, assignment or surrender of the whole or part of any right) is a supply of services."

Effect was given to the need, identified in the fourth recital to the First Council Directive, to abolish cumulative multi-stage taxes by the enactment of section 54, in Part II of the Finance Act 1972. That section abolished purchase tax in the United Kingdom, with effect from 1 April 1973.

The Sixth Directive

11. On 17 May 1977 the Council of the European Communities issued the Sixth Directive (77/388/EC) on the harmonisation of the laws of Member States relating to turnover taxes. Recital [1] to the Sixth Directive recorded that all Member States had adopted a system of value added tax in accordance with the First and Second Directives of 11 April 1967. But there was more to be done. Recital [3] identified the need to make further progress "in the effective removal of restrictions on the movement of persons, goods, services and capital" and the integration of national economies. Recital [4] identified the need to ensure that "the common system of turnover taxes is non-discriminatory as regards the origin of goods and services, so that a common market permitting fair competition and resembling a real internal market may ultimately be achieved". To those ends it was necessary to clarify the terms "taxable person" and "taxable transaction" (see recitals [5] and [6]), to harmonise the concepts of chargeable event (recital [8]); to draw up a common list of exemptions (recital [11]); and to harmonise the rules governing deductions and the calculation of the deductible proportion (recital [12]).
12. Article 2 of the Sixth Directive replaced Article 2 of the Second Directive. It was in these terms:
"Article 2

The following shall be subject to value added tax:

1. the supply of goods or services effected for consideration within the territory of the country by a taxable person acting as such;

2. the importation of goods."

Article 3 of the Sixth Directive provided a more specific definition of the "territory of the country". Article 4 re-defined "taxable person" to mean "any person who independently carries out in any place any economic activity . . . whatever the purpose or results of that activity"; and "economic activity" in that context was to mean all activities of producers, traders and persons supplying services – see Article 4(2). Article 5(1) of the Sixth Directive defined "supply of goods" in the same terms as in the Second Directive; and the further paragraphs of Article 5 expanded that definition. In particular, Article 5(3) enables a Member State to include within "tangible property" – and so within "supply of goods" – interests in immovable property.

13. Article 6(1) of the Sixth Directive confirmed the inclusive definition, introduced in the Second Directive, of "supply of services" as "any transaction which does not constitute a supply of goods within the meaning of Article 5"; but explained or expanded that definition in the following words:

"Such transactions may include inter alia:

- assignments of intangible property whether or not it is the subject of a document establishing title,

- obligations to refrain from an act or to tolerate an act or situation,

- the performances of services in pursuance of an order made by or in the name of a public authority or in pursuance of the law."

Article 6(3) provided that:

"In order to prevent distortion of competition and subject to the consultations provided for in Article 29, Member States may treat as a supply of services for consideration the supply by a taxable person of a service for the purposes of his undertaking where the value added tax on such a service, had it been supplied by another taxable person, would not be wholly deductible."

Implementation of the Sixth Directive by United Kingdom legislation

14. The changes necessary to comply with the Sixth Directive were to be enacted by Member States at the earliest opportunity, and were to be in force no later than 1 January 1978 – see Article 1. They were introduced in the United Kingdom by the enactment of section 14 of, and schedule 6 to, the Finance Act 1977. In particular, paragraph 1 in Part I of schedule 6 substituted for the provisions formerly in sections 5(2) and 5(8) of the Finance Act 1972 provisions which have been re-enacted subsequently – first, as section 3(2) of the Value Added Tax Act 1983, and, latterly, as section 5(2) of the Value Added Tax Act 1994. The purpose of those provisions is to give effect to Articles 2 and 6 of the Sixth Directive. Section 5(2) of the 1994 Act, now in force, provides that:

"Subject to any provision made by [Schedule 4] and to Treasury orders under subsections (3) to (6) below –

a) "supply" in this Act includes all forms of supply, but not anything done otherwise than for a consideration;

b) anything which is not a supply of goods but is done for a consideration (including, if so done, the granting, assignment or surrender of any right) is a supply of services."

Supply of services: the essential characteristics

15. It is beyond dispute – and it has been common ground – that two essential characteristics of a "supply of services" for the purposes of value added tax are (i) that it must be something "done for a consideration" and (ii) that it must be something done which is not a "supply of goods". Whether something done is, or is to be treated as, a supply of goods is to be determined by reference to Article 5 of the Sixth Directive and schedule 4 to the 1994 Act. It has been common ground that the issue of its own shares by a company incorporated in the United Kingdom is not, and is not to be treated as, a supply of goods. It has been common ground, also, that (in the present case) the issue by the appellant of its own shares in May 1991 was done for a consideration. Those two essential characteristics are present in the instant case.
16. Subject to the need, imposed by the terms of section 5(2) of the 1994 Act, to find those two essential characteristics in a transaction before it can be a "supply of services", that concept is to be interpreted broadly, in furtherance of the aims of the Council Directives. In van Tiem v Staatssecretaris van Financiën (Case C-186/89) [1993] STC 91, the Court of Justice emphasised, in paragraph 17 of its judgment, that "Article 4 of the Sixth Directive confers a very wide scope on value added tax (VAT), comprising all stages of production, distribution and the provision of services".
17. In Mohr v Finanzamt Bad Segeberg (Case C-215/94) [1996] STC 328, the Court of Justice considered whether a farmer, who in applying for compensation under EC Council Regulation 1336/86 had undertaken to discontinue milk production, had thereby made a supply of services within the meaning of Article 6(1) of the Sixth Directive. In delivering his opinion, the Advocate General (Mr Francis Jacobs QC) referred, at paragraphs 25, to Article 2 of the First Directive and went on:

"26. Thus VAT is a general tax on consumption of goods and services. In keeping with the VAT legislation's underlying aim of fiscal neutrality, the definition given to the 'supply of goods' in art 5 of the Sixth Directive and the residual definition of 'supply of services' in art 6(1) ensure the broad application of the tax to all forms of consumption (see Farmer and Lyal EC Tax Law (1994) p 93). . . .

27. The scope of the tax is nevertheless limited by its character as a tax on consumption. A trader must supply goods or services for consumption by identifiable customers in return for a price paid by the customer or by a third party. In the present case that requirement is not met. . . . [T]he Community, by compensating farmers through the medium of the competent national authorities for the loss of income resulting from discontinuance of milk production, does not acquire goods or services for its own use but acts in the common interest of promoting the proper functioning of the Community milk market. . . . In the present case the public authorities, whether Community or national, cannot be regarded as consumers of a service."

That analysis was adopted by the Court of Justice – see paragraphs 20 to 22 of the judgment.

18. In Landboden-Agrardienste GmbH & Co KG v Finanzamt Calau (Case C-384/95) [1998] STC 171, a similar point was considered in relation to a subsidy given to a farming company under a national scheme in return for its undertaking not to harvest a specified proportion of its potato crop. The Advocate General (again, Mr Francis Jacobs QC) developed the reasoning which he had advanced in Mohr (which had been decided after the decision of the national court in the Landboden case and while the reference in that case was pending before the Court of Justice). At paragraph 26 of his opinion he explained:

"The transaction in the present case does not fit with that definition [in Article 2 of the First Council Directive]. There is no consumption. The farmer does not supply goods to a consumer, he does not provide services to an identifiable consumer and he does not provide any benefit capable of forming a cost component of the activity of another person in the commercial chain."

That was endorsed by the Court of Justice – see paragraph 23 of its judgment. The Court went on to say this, at paragraph 24:

"Since the undertaking given by a farmer to reduce production does not entail either for the competent national authorities or for any other identifiable persons any benefit which would enable them to be considered to be consumers of a service, it cannot be classified as a supply of services within the meaning of art 6(1) of the Sixth Directive."

19. Consideration of the decisions of the Court of Justice in Mohr and in Landboden-Agrardienste led counsel for the C&E to submit that two further essential characteristics of a "supply of services" for the purposes of value added tax are (iii) that that done must be capable of being used by and for the benefit of an identified recipient, and (iv) that the benefit provided must be capable of being regarded as a cost component of the activity of another person in the commercial chain. That submission was not challenged before the judge, and he accepted it. Counsel for the appellant has not sought to challenge the submission in this Court. It was unnecessary for him to do so. It would be of no benefit to the appellant to advance a case that those two further characteristics were not essential to a supply of services. It is common ground that, if those are essential characteristics, they are present in the instant case.
20. Counsel for the C&E identified two further characteristics in addition to those to which I have already referred. She submitted that it was essential that what was done must have constituted a transaction; and that it must have been done by the person who is said to have made the supply of services. For my part, I would accept that the first of those propositions underlies the provisions of section 5 of, and schedule 4 to, the 1994 Act; and, further, is made explicit by the terms in which "supply of services" is defined in Article 6(1) of the Sixth Directive. I do not think it necessary to express a concluded view on the second of those propositions. It seems to me possible to conceive of circumstances in which an obligation imposed on a person to refrain from an act or to tolerate a situation – which, as Article 6(1) of the Sixth Directive makes clear, is capable of being treated as a "supply of services" – could not easily be said to be something done by the person on whom that obligation is imposed. The point does not arise on this appeal. It is common ground that the two further characteristics are present in the instant case.
21. The issue on this appeal is whether, in addition to the six characteristics identified by the C&E, all of which are present in the instant case, it is a necessary further characteristic of a "supply of services" that the consideration for the supply be part of the supplier's "turnover". Before addressing that issue it is convenient to refer to other provisions of the Sixth Directive and the United Kingdom legislation.

Exempt supply

22. Recital [11] of the Sixth Directive identified the need to draw up a common list of exemptions. Article 13 is clearly intended to meet that need. Article 13(A) provides for the exemption of certain activities in the public interest. Article 13(B) makes provision for "other exemptions". It is in these terms, so far as material:

"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) ...

...

(d) ... the following transactions:

(1) ...

...

(5) transactions, including negotiation, excluding management and safekeeping, in shares, debentures and other securities, excluding:

- documents establishing title to goods,

- the rights or securities referred to in Article 5(3);

(6) ...;"

23. At the date when the Sixth Directive was issued, the provisions in the United Kingdom legislation as to exempt supply were found in section 13 of, and schedule 5 to, the Finance Act 1972. Item 4 of Group 5 ("Finance") exempted:

"The issue, transfer or receipt of, or any dealing with, any security or secondary security within the definition in section 42 of the Exchange Control Act 1947."

Section 42(1) of the Exchange Control Act 1947 defined "securities" to mean "shares, stock, bonds, notes (other than promissory notes), debentures, debenture stock, units under a unit trust scheme and shares in an oil royalty". When the enactments relating to value added tax were consolidated in the Value Added Tax Act 1983, the relevant exemption was preserved, in the same terms, as item 6 of Group 5 in schedule 6 to that Act. The provisions as to exempt supply were re-enacted as section 31 of, and schedule 9 to, the Value Added Act 1994. The relevant exemption now appears as item 6 of Group 5 in schedule 9:

"The issue, transfer or receipt of, or any dealing with, any security or secondary security being -

(a) shares, stocks, bonds, notes (other than promissory notes) notes), debentures, debenture stock or shares in an oil royalty; or . . ."

24. It is clear, therefore, that on the occasions on which the question has been considered by the United Kingdom legislature – both in the context of the First and Second Directives (on accession by the United Kingdom to the Treaty) and in the context of the Sixth Directive – the view has been taken that the issue (as well as the transfer) of shares, stocks and debentures should be treated as an exempt supply. It is accepted on behalf of the C&E – correctly, in my view – that the inclusion in the list of exemptions of "something done" does not, of itself, lead to the conclusion that that "something done" would otherwise be a taxable supply of goods or services. The question whether the "something done" is a supply of goods or services turns on the proper interpretation of section 5 of the 1994 Act, read in conjunction with Articles 5 and 6 of the Sixth Directive (to which, plainly, section 5 of, and schedule 4 to, the Act are intended to give effect). But the legislation must be construed as a whole; and the inclusion of an item in schedule 9 to the 1994 Act provides, to my mind at least, a strong pointer to the intention of the legislature that that item was, or was to be treated as, a supply of goods and services within section 5. It is pertinent to keep in mind that the purpose of section 31(1) of the Act (to which schedule 9 is ancillary) is to identify "things done" which do constitute the supply of goods and services but which, because exempt, are not a taxable supply – see section 4(2) of the Act.

Input tax – the right to deduct and the deductible proportion

25. Recital [12] of the Sixth Directive identified the need to harmonise the rules relating to the deduction from the value added tax which a taxable person is liable to pay of tax (input tax) paid or payable in respect of goods or services supplied to him. Deductions are the subject of Title XI in the Sixth Directive. Article 17 addresses the origin and scope of the right to deduct. The basic rule is expressed in Article 17(2)(a):

"In so far as the goods and services are used for the purposes of his taxable transactions, the taxable person shall be entitled to deduct from the tax which he is liable to pay:

a) value added tax due or paid within the territory of the country in respect of goods or services supplied or to be supplied to him by another taxable person; . . ."

The right to deduct arises at the time when the deductible tax becomes chargeable - see Article 17(1). Article 17(3) gives the right to deduct input tax attributable to the supply by the taxable person of goods or services which is, itself, an exempt supply in certain cases where the supply is to a consumer outside the EU. The article is in these terms, so far as material:

"Member States shall also grant every taxable person the right to the deduction or refund of the value added tax referred to in paragraph 2 in so far as the goods and services are used for the purposes of:. . .

(a) ...

(b) ...

(c) any of the transactions exempt pursuant to Article 13(B)(a) and (d)(1) to (5), when the customer is outside the Community or when those transactions are directly linked with goods to be exported to a country outside the Community."

Transactions exempt pursuant to Article 13(B)(d)(5) include transactions in shares, debentures and other securities.

26. Article 17(5) provides for apportionment of input tax in a case where the goods or services supplied to the taxable person are used partly for the purposes of his own taxable transactions (Article 17(2)) or for transactions in respect of which Article 17(3) gives the right to deduct and partly for purposes in respect of which there is no right to deduct. The Article is in these terms, so far as material:

"As regards goods and services to be used for a taxable person both for transactions covered by paragraphs 2 and 3, in respect of which value added tax is deductible, and for transactions in respect of which value added tax is not deductible, only such portion of the value added tax shall be deductible as is attributable to the former transactions. . . ."

Article 19 makes provision for the calculation of the deductible proportion. Article 19(1) is in these terms, so far as material:

"The proportion deductible under the first subparagraph of Article 17(5) shall be made up of a fraction having:

- as numerator, the total amount, exclusive of value added tax, of turnover per year attributable to transactions in respect of which value added tax is deductible under Article 17(2) and (3),

- as denominator, the total amount, exclusive of value added tax, of turnover per year attributable to transactions included in the numerator and to transactions in respect of which value added tax is not deductible. . . ."

27. The principles embodied in Articles 17 and 19 of the Sixth Directive are reflected in sections 24 to 26 of the 1994 Act. "Input tax" is defined, in section 24 of the Act, to mean value added tax paid or payable on the supply to the taxable person of goods or services used or to be used for the purpose of any business carried on or to be carried on by him. Section 25(2) provides that a taxable person is entitled to credit for so much of the input tax as is allowable under section 26. Section 26 is in these terms, so far as material:

"(1) The amount of input tax for which a taxable person is entitled to credit at the end of any period shall be so much of the input tax for the period (that is input tax on supplies, acquisitions and importations in the period) as is allowable by or under regulations as being supplies within subsection (2) below.

(2) The supplies within this subsection are the following supplies made or to be made by the taxable person in the course or furtherance of his business –

(a) taxable supplies;

(b) supplies outside the United Kingdom which would be taxable supplies if made in the United Kingdom;

(c) such other supplies outside the United Kingdom and such exempt supplies as the Treasury may by order specify for the purposes of this subsection.

(3) The Commissioners shall make regulations for securing a fair and reasonable attribution of input tax to supplies within subsection (2) above, and any such regulations may provide for –

(a) determining a proportion by reference to which input tax for any prescribed accounting period is to be provisionally attributed to those supplies; . . ."

28. As I have already explained, it is the application of those provisions to the circumstances of the present case which gives rise to the need to decide whether the issue in the United Kingdom by a taxable person of its own shares for the purpose of financing the expansion of its business constitutes a supply of services for the purposes of the 1994 Act. If it does not, the input tax on the fees paid to professional advisers in connection with the issue of shares can be treated as part of the appellant's general expenses attributable to taxable supplies, under section 26(2)(a) or (b) of the Act. If it does, the input tax on those fees is attributable to a supply of services which is exempt; and so the input tax is allowable under section 26 only to the extent that the claim can be brought within section 26(2)(c) of the Act.

A tax on turnover

29. The appellant submits, correctly, that value added tax may be regarded as a tax on turnover. It points out that the purpose of the First Council Directive was expressed to be "the harmonisation of legislation of Member States concerning turnover taxes". We were referred to the observations of Advocate General Jacobs in H J Glawe Spiel-und Unterhaltungsgeräte Aufstellungsgesellschaft mbH & Co KG v Finanzamt Hamburg-Barmbek-Uhlenhorst (Case C-38/93) [1994] STC 543, 547, at paragraph 18 of his opinion:

"VAT is intended to be charged in proportion to the actual turnover which a trader earns from his supplies of goods and services after deduction of tax on the cost components thereof (see art 2 of EC Council Directive 67/227 of 11 April 1967 on the harmonisation of legislation of member states concerning turnover taxes (the First Directive)."

30. Those observations must be read in context. In the Glawe Spiel case the taxable person was an operator of gaming machines which it installed in bars and restaurants. The machines were constructed with two separate compartments for coins. One compartment (the 'reserve') contained the stock of coins from which winnings were paid to the players. The other compartment (the 'cash box') contained coins which the operator of the machine was able to remove for his own benefit. The machines were designed to ensure that coins staked by players did not enter the cash box unless and until the reserve was full. If the reserve was not full, the coins staked entered the reserve. The law applicable to the operation of the machines required the machines to be set so that they paid out, on average, at least 60% of the value of the coins staked. Article 11(A)(1)(a) of the Sixth Directive provides that the taxable amount shall be everything which constitutes the consideration which has been obtained by the supplier from purchaser for the goods and services supplied. The issue was whether the operator, Glawe, was assessable to value added tax on the total value of the coins staked or only on the coins which entered the cash box.
31. It was in that context that the Advocate General went on to say this:

"18. As Glawe and the United Kingdom observe, for all practical purposes the operator's turnover consists in the amounts he is able to remove from the machine, and not in the total amounts inserted by the players. Otherwise one would arrive at the surprising result that the machine operator refunds the larger part of his turnover to his customers. Such an analysis would be possible, although implausible, if the refunds could be regarded as 'discounts' or 'rebates' for the purposes of art 11A(3)(b) of the Sixth Directive so that the taxable amount was reduced accordingly. However for the reasons given (at para 31ff [of the opinion]) they cannot be so regarded. Such a view might also be possible if the winnings could, as the Commission suggests, be treated as expenditure on goods or services on which VAT was deductible under art 17(2) of the Sixth Directive. The tax would then operate normally and in accordance with art 2 of the First Directive, since it would be charged on the total stakes inserted after deduction of input tax on the cost components of the operator's services, i.e. after deduction of the input tax deemed to have been incurred by the operator on the winnings paid out. However, art 17(2) is clearly inapplicable on its wording since, as the Commission concedes, the sums paid out to winning players do not constitute the consideration for 'goods or services supplied or to be supplied to [the operator] by another taxable person' for the purposes of that provision. Nor do I think it possible or necessary to arrive at that result by applying art 17(2), as the Commission seeks to do by analogy.

19. In my view the consideration which the operator obtains for his services for the purposes of art 11A(1)(a) is limited to the amounts which he empties from the machine. . . ."

The Court of Justice agreed with that conclusion – see paragraph 9 of its judgment.

32. The decision in the Glawe Spiel case equates "the actual turnover which a trader earns from his supplies of goods and services" with "everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser, the customer or a third party for such supplies". It does not provide any support for a contention that 'turnover' has to bear some meaning which excludes consideration received by a company on the issue of its own shares; so that the consideration received by a company on the issue of its own shares cannot be consideration obtained for the supply of services.
33. We were referred, also, to a passage in the judgment of Mr Justice Carnwath in Customs and Excise Commissioners v Bugeja [2000] STC 1, at pages 8j-9a, where, after referring to the observations of Advocate General Jacobs in the Glawe Spiel case that VAT is "intended to be charged in proportion to the actual turnover which a trader earns", he said this:

"Although the criteria are not based on turnover as such, one would expect the result to have some relation to the trader's turnover in commercial terms"

Again, it is important to set the passage in context. Mr Bugeja supplied videos at the price of £20 to new customers (an introductory supply) or at a price of £10 to customers who exchanged a video previously purchased from him (a replacement supply). The issue was whether Mr Bugeja should be assessed to value added tax on an amount of £20 in respect of each replacement supply – on the basis that what he received from the customer was £10 in cash and the return of a video previously purchased (to which a value of £10 should be attributed). The VAT tribunal had found as a fact that the cost to Mr Bugeja of a video bought in from wholesalers was between £2 and £3. The judge held that the consideration obtained from the customer on the occasion of a replacement supply was the aggregate of the £10 cash and the 'subjective value' to Mr Bugeja of the returned video (which could not exceed £2 to £3). As he said, in a sentence immediately following that cited above:

"If one assumes an introductory transaction followed by four replacement transactions, Mr Bugeja only receives £60 in cash; on no view could he be said to have a turnover of £100 (5 x £20)."

34. Further support for the proposition that value added tax is a tax on turnover was sought in the observation of Lord Justice Ward, in Customs and Excise Commissioners v Plantiflor Ltd [2000] STC 137, at page 153c, that "VAT is a tax on turnover". But the proposition itself is not in doubt; and such assistance as the appellant might otherwise obtain from Lord Justice Ward's observation is removed by the fact that the Lord Justice equates 'turnover' in that context with "whatever is available as profit, for meeting overheads and for discharging the cost-components of the supply". If that is the test, then I can see no reason why it is not met by the receipts of a share issue.
35. The Sixth Directive uses 'turnover' as a concept in connection with the calculation of the 'deductible proportion' prescribed by Article 19(1); that is to say, for calculating the proportion of input tax which is deductible in a case to which Article 17(5) applies. The meaning of 'turnover' in that context was considered by the Court of Justice in Sofitam SA v Ministre chargé du Budget (Case C-333/91) [1997] STC 226. Sofitam, the holding company of a group of companies, obtained its income partly from its own supply of goods and services (on which VAT was paid by the customer) and partly from dividends paid by companies within the group (in the management of which Sofitam was not concerned). Sofitam claimed to be entitled to deduct from value added tax paid to it, and for which it was accountable, (output tax) all the value added tax which it had paid on goods and services supplied to it (input tax). The issue was whether, as was contended on behalf of Minister for Budgetary Affairs, the input tax deductible had to be calculated by applying the Article 19(1) proportion on the basis that the denominator included the dividends received. It is necessary to have in mind that the denominator prescribed by Article 19(1) is:

". . . the total amount . . . of turnover per year attributable to transactions included in the numerator [i.e. transactions in respect of which value added tax is deductible] and to transactions in respect of which value added tax is not deductible".

36. The Advocate General (Mr Van Gerven), at paragraph 15 of his opinion, rejected the Minister's contention (advanced by the French government) on the ground that "mere financial participation in other undertakings is not an economic activity within the meaning of the Sixth Directive" – see [1997] STC 226, 243a-b. So income in the form of dividends "can in no way be regarded as consideration for a well-defined (economic) act or transaction on the part of the shareholder". Accordingly the dividends were not turnover attributable to any 'transaction' relevant for the purposes of value added tax. But he went on, in a passage on which the appellant relies strongly, to say this:

"That [conclusion] is also indicated by the fact that, in the absence of a specific definition in the Sixth Directive, the concept of 'turnover' in article 19(2) of the directive must be interpreted by reference to its general economic meaning in common parlance. . . . In common parlance, that concept refers to the value of the total sales of goods and services by an undertaking during a given period. In my opinion, it is clear that the receipt of dividends cannot be brought under that concept. The Community legislature also uses the concept of 'turnover' in that sense in EC Council Directive 78/660 of 25 July 1978 based on art 54(3)(g) of the EEC Treaty on the annual accounts of different types of companies (OJ L222 14.8.78 p11) (the Fourth Company Law Directive). Article 28 of that directive defines 'net turnover' with a view to drawing up the profit and loss account as being (OJ L222 14.8.78 p22) –

'. . . the amounts derived from the sale of products and the provision of services falling within the company's ordinary activities, after deduction of sales rebates and of value added tax and other taxes directly linked to the turnover'.

The difference between the turnover of an undertaking and the dividends which accrue to it as a result of its holdings in other undertakings is, moreover, clear from the layouts provided for by the Fourth Company Law Directive regarding the presentation of the profit and loss account: in it the heading 'net turnover' is always distinguished from the heading 'income from participating interests' (see arts 23 to 26 inclusive of the Fourth Company Law Directive (OJ L222 14.8.78 p19-21))."

37. It is important to note that the Advocate General was directing his remarks to the concept of 'turnover' in article 19(2) of the Sixth Directive – as appears from the first sentence of the passage which I have just set out. It is pertinent to have the terms of art 19(2) in mind:

"By way of derogation from the provisions of paragraph 1, there shall be excluded from the calculation of the deductible proportion, amounts of turnover attributable to the supplies of capital goods used by the taxable person for the purposes of his business. Amounts of turnover attributable to transactions specified in Article 13(B)(d), in so far as these are incidental transactions, and to incidental real estate and financial transactions shall also be excluded. . . .

38. It is, of course, Article 13(B)(d) which requires financial transactions – including transactions in shares (see sub-paragraph (5) of that Article) – to be treated as exempt supply. So, for the purposes of calculating the deductible proportion, 'turnover' is given a meaning which is more limited than that which the concept would otherwise bear in other contexts relevant to the Sixth Directive. For the purposes of calculating the deductible proportion, "turnover attributable to the supplies of capital goods" and "turnover attributable to transactions specified in article 13(B)(d), in so far as these are incidental transactions" is not to be taken into account. Two points may be made. First, it is plain that consideration received by the supplier in respect of a transaction within Article 13(B)(d)(5) would, generally, be treated as 'turnover' for the purposes of the Sixth Directive. It is because consideration received would otherwise be treated as turnover that it is necessary to exclude it for the purposes of calculating the deductible proportion. Second, turnover attributable to a transaction within Article 13(B)(d)(5) is only excluded from the calculation of the deductible proportion if the transaction is 'an incidental transaction'. Even for the purposes of Article 19 there is no blanket exclusion of consideration received in respect of transactions in shares. In my view it is important to appreciate that the Advocate General's remarks are directed to the particular meaning of 'turnover' in the context of Article 19(1); in relation to which the concept is given a special meaning by Article 19(2). That is the context in which he advanced what may be described as his alternative approach.
39. No support for that alternative approach can be found in the judgment of the Court itself. The Court referred to the proposition, established in Polystar Investments Netherlands BV V Inspecteur der Invoerrechten an Accijnzen Arnhem (Case C-60/90) [1993] STC 222, at 239, that the mere acquisition of financial holdings in other companies did not constitute an economic activity within the meaning of the Sixth Directive, and went on, at paragraphs 13 and 14 of its judgment, to say this:

"13. Since the receipt of dividends is not the consideration for any economic activity within the meaning of the Sixth Directive, it does not fall within the scope of VAT. Consequently, dividends resulting from holdings fall outside the deduction entitlement.

14. Consequently, dividends must be excluded from the calculation of the deductible proportion referred to in arts 17 and 19 of the Sixth Directive, if the objective of wholly neutral taxation ensured by the common system of VAT is not to be jeopardised."

The Court of Justice decided the question on the first of the grounds advanced by the Advocate General. It did not adopt his analogy with the accounting treatment of 'net turnover' in the Fourth Company Law Directive.

40. For my part, I find no assistance, in relation to the issue which falls for decision in the present case, in the oft-repeated generality that 'value added tax is a tax on turnover'. It is, I think, obvious – notwithstanding the observations of Advocate General Van Gerven in the Sofitam case - that 'turnover' in the context of the value added tax legislation has a meaning which goes well beyond that which it would bear in the context of domestic, or Community, accounting provisions. Article 19(2) of the Sixth Directive itself provides examples. Other examples may be found in Article 5(4) – transfer of property pursuant to an order by a public authority – and in Article 6(2) – use of goods forming part of the assets of a business for private purposes. 'Turnover', in the context of value added tax, is a convenient label to describe "everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser, the customer or a third party for . . . supplies [of goods and services]" - see Article 11(A)(1). The correct approach is to ask whether, in the light of the definitions in the Sixth Directive and the 1994 Act, 'something done' is, or is to be treated as, the supply of goods or services. If it is, then the consideration obtained by the supplier for that 'something done' may be described as part of his 'turnover' for the purposes of value added tax. To begin with a pre-conceived notion that 'turnover' has some autonomous meaning in this context, independent of the value added tax legislation, and to argue that, because the consideration obtained from what has been done does not fit within that meaning, it must follow that what has been done cannot be the supply of goods or services, is to invert that approach and is likely to lead to error.

The principle of fiscal neutrality

41. In BLP Group plc v Customs and Excise Commissioners (Case C-4/94) [1995] STC 424 the Court of Justice considered whether input tax paid on professional fees incurred in connection with the disposal by BLP Group plc, a holding company, of shares which it held in a German subsidiary could be deducted. The C&E contended, as they do in the present case, that the professional fees had been incurred in connection with an exempt transaction (the disposal of the shares) and so could not be treated as used for the purposes of a taxable transaction so as to give rise to the right to deduct under Article 17(2) of the Sixth Directive. The argument for BLP (advanced by Mr Milne QC, who appeared for the appellant in that case as he does in the present case) was that the phrase 'for the purposes of his taxable transactions' in Article 17(2) must be given a wide interpretation. The argument was summarised by the Advocate General (M. Lenz) at paragraph 27 of his opinion:

"Regard should be had not to the (exempt) transaction which has been directly served by the service, but to the taxable person's principal activity (here the taxable transactions), if, as in this case, the discharge of indebtedness brought about by the exempt transaction is for the benefit of that activity."

42. That argument was rejected, both by the Advocate General and by the Court of Justice. No attempt to resurrect it has been made – or could have been made – in the present case. The relevance of the BLP case in the present context lies in the way in which the Advocate General and the Court of Justice dealt with a secondary argument that the raising of money to discharge liabilities by the disposal of shares in a subsidiary ought to have the same consequences, for the purposes of value added tax, as the raising of a loan. The argument, and the basis upon which it was rejected by the Advocate General, appear for paragraphs 45 to 47 of his opinion:

"45. (b) In support of its argument (see para 27 above) BLP further relies on the principle of fiscal neutrality, which it deduces from the recitals in the preamble to the First Directive (see the first to eighth recitals . . .) and the case law . . . In BLP's view it is incompatible with that principle to give different fiscal treatment to the various forms of raising money. BLP refers in particular to the possibility that instead of selling the interest in the company it could have taken up a (long-term secured) bank loan. The costs of advice incurred on taking up that loan would have been deductible in full. If in a case such as the present one the right to deduct were refused, that would, contrary to the said principle, lead to economic decisions being influenced by tax factors.

46. That argument does not hold water.

47. The objectives of the common system of VAT do not by any means require all forms of raising money to be treated alike. If the harmonisation introduced with that system is intended to prevent distortion of conditions of competition, as is expressed in the recitals to the First Directive, that can only mean that operations of the same type are to be treated in the same way. The taking up of a loan and the selling of an interest in a company are not, however, operations of the same type for the purposes of the VAT system, because that system focuses on transactions and makes a clear distinction between taxable and exempt transactions. (Nor are they either, moreover, for an undertaking's operational purposes, since the income from the sale of shares is part of the undertaking's own resources, whereas the loan is part of its borrowed resources.) If a taxable person sells an interest in a company, he is effecting an (independent) transaction within the meaning of the common VAT rules which, being an exempt transaction, excludes deduction of the incident input tax. If, by contrast, he takes up a loan, he does not himself thereby effect a transaction within the meaning of those rules. Instead he is the recipient of a service, which is the subject of a transaction by a third party. Under those circumstances the input tax charged on the advisory services supplied in connection with taking up the loan may be deducted, if it is attributable to taxable transactions." [emphasis as in original text]

The Court of Justice dealt with the point shortly, at paragraph 25 of its judgment:

"It is true that an undertaking whose activity is subject to VAT is entitled to deduct the tax on the services supplied by accountants or legal advisers for the taxable person's taxable transactions and that if BLP had decided to take out a bank loan for the purpose of meeting the same requirements, it would have been entitled to deduct the VAT on the accountant's services required for that purpose. However, that is a consequence of the fact that those services, whose costs form part of the undertaking's overheads and hence of the cost components of the products, are used by the taxable person for taxable transactions."

43. In the BLP case money was raised by the disposal of shares in a subsidiary. The disposal was not a supply of goods within Article 5 of the Sixth Directive, because shares in a company are not tangible property. So the disposal fell within Article 6, as a supply of services. It could not be argued that the disposal was not a transaction; and, not being a transaction which constituted a supply of goods, it was necessarily a transaction which was a supply of services. But it was an exempt transaction; because, plainly it fell within Article 13(B)(d)(5) as a transaction in shares. In the present case money was not raised by the disposal of shares held by one company (the supplier) in another company. In the present case money was raised by the issue by the company of its own shares. The appellant submits that the raising of money by the issue by a company of its own shares is not materially different from the raising of money by the taking of a loan. It is said that if the raising of money by way of loan is not to be treated as the supply of services by the borrower – as the Court of Justice acknowledged – then neither can the raising of money by the issue of shares by treated as a supply of services by the issuing company.
44. The judge addressed the point at paragraph 10 of his judgment. He said this:

"I am satisfied that the issue of shares to a subscriber does constitute a supply of services for consideration capable of being expressed in money terms (namely payment of the subscription): there is no basis to be found in the Sixth Directive or any decision of the European Court, in reason or otherwise, for any requirement for any further characteristic beyond the six agreed such as is suggested by Mr Milne. The borrowing of a loan lacks this characteristic and does not constitute a supply by the borrower, but the reason why the borrower does not make a supply is that, far from making a supply to the lender, and far from receiving consideration capable of being expressed in monetary terms from the lender, he is providing such consideration (namely interest). To hold that the borrower makes a supply would be to turn the Community concept of supply on its head. On the other hand to recognise an issue of shares as a supply is to treat the issue of shares the same as the sale of shares from which it is for the purposes of Community VAT legislation indistinguishable: they share the same essential ingredient, namely the vesting by the "vendor" in the "purchaser" for monetary consideration of like intangible property. As the Tribunal aptly put it:

'If the purchasers of shares in BLP were consumers, I can see no logical reason for distinguishing the subscribers in the present case'."

[emphasis added]

45. It is relevant to have in mind that the 'further characteristic' to which the judge refers in that passage was not the 'turnover' point that was advanced in this Court. The 'further characteristic' relied upon by the appellant before the judge was "some transfer of the resources of the person making the supply to the other party or at least some depletion of the resources of the person making the supply". It is to that concept that the judge was referring when he observed that "the borrowing of a loan lacks this characteristic".
46. In this Court, the appellant criticises the judge's explanation, in the words which I have emphasised in the passage cited, for the reason why the borrower does not make a supply of services to the lender. It is said that the judge failed to appreciate that a borrower does create rights in favour of the lender – the right to receive interest, rights over security and the right to receive repayment – for which the lender provides consideration capable of being valued in monetary terms, "namely putting the principal of the loan at the borrower's disposal for the period of the loan" (see paragraph 6 of the appellant's skeleton argument in this Court). In my view that criticism is misconceived. The judge was not addressing a case where the borrower provides security; nor was he addressing a case where the borrower issues loan or debenture stock. He was addressing the simple case where money is borrowed at interest. In such a case, as the judge pointed out, the payment of interest is the consideration for the use of the money lent. On a proper analysis the borrower is paying for a service (the grant of credit) which is provided by the lender. That is the analysis which found favour with the Advocate General in the BLP case, when he said, in the passage which I have cited:

"If, by contrast, he takes up a loan, he does not himself thereby effect a transaction within the meaning of those rule. Instead he is the recipient of a service, which is the subject of a transaction by a third party".

47. It is true that the illustration upon which BLP had relied in that case was described by the Advocate General, in an earlier passage of his opinion, as "a (long-term secured) bank loan"; but he did not address the question whether the provision of security could, of itself, be the supply of goods or services. Nor did the Court of Justice consider that question. If they had thought it necessary to do so, they would, no doubt, have taken account of the fact that the creation of interests in immovable property – including security interests - is capable, at the option of the Member State, of being treated as the supply of goods; see Articles 5(3) and 13(B)(d)(5) of the Sixth Directive; and see, also, section 5(1) of, and paragraph 4 in schedule 4 to, the 1994 Act, and item 1 in group 5 of schedule 9 to the 1994 Act. It is, to my mind, by no means self-evident that the provision of security cannot be a transaction effected by the provider. If the provision of security can be a transaction effected by the provider then, as it seems to me, there is no reason why it should not be, or be treated as, the supply of goods or services in relation to which the provider of the security is the supplier. Nor, as it seems to me, is it self-evident that the issue of loan or debenture stock (with or without security) should not be the supply of services by the issuer. But it is not necessary to decide those questions on the present appeal. It is enough to note that they were not the subject of decision in the BLP case. The Advocate General and the Court of Justice in that case – and the judge in the present case – were doing no more than point out that a borrower who accepts a loan upon terms as to the payment of interest cannot be said to be making a supply to anyone. It is impossible, as it seems to me, to treat that proposition – which is not in doubt – as the foundation for the proposition that a company which issues its own shares is not effecting a transaction under which it is the supplier of those shares.

Should there be a reference to the Court of Justice

48. The judge was invited to refer the question whether the issue by a taxable person of its own shares to subscribers was a supply of services within Articles 2 and 6 of the Sixth Directive to the Court of Justice for a preliminary ruling, pursuant to Article 177 of the Treaty establishing the European Economic Community. He declined to do so. He said this, at paragraph 11 of his judgment:

"If I considered that there was any real doubt whether the issue of shares constituted a supply of services, I would refer the question to the European Court for there is involved a question of practical importance and the diversity in practice in European Member States is undoubtedly a significant factor since this may so long it lasts distort competition in share issues in Member States. But whilst there is no decision of the European Court on this specific issue, the guidance available in the existing authorities on the applicable principles enables me to have no real doubt (as the Tribunal had not doubt) what the answer is."

49. The appellant challenges the judge's decision to refuse a reference. Alternatively, I think – although it is not made clear in the notice of appeal – the appellant invites this Court to direct a reference in the exercise of its own power in that behalf.
50. Article 177 of the Treaty empowers the Court of Justice to give preliminary rulings on the interpretation of acts of the institutions of the Community. It provides, in particular, that where such a question is raised before any court of a Member State that court may, if it considers that a decision on the question is necessary to enable it to give judgment, request the Court of Justice to give a ruling thereon. Where the court before which such a question is raised is one against whose decisions there is no judicial remedy under national law, that court is required to bring the matter before the Court of Justice. This is not such a case. This Court is not a final court of appeal. Even if it were, Article 177 would not require a reference in a case where the question is acte clair.
51. The question, therefore, is whether this Court considers that a decision of the Court of Justice as to whether the issue by a taxable person of its own shares is a supply of services is necessary to enable this Court to give judgment on this appeal. In Regina v International Stock Exchange, ex parte Else [1993] QB 534 Sir Thomas Bingham, when Master of the Rolls, explained the approach which this Court should adopt to such a question, at page 545D-F:

". . . : if the facts have been found and the Community law issue is critical to the court's final decision, the appropriate course is ordinarily to refer the issue to the Court of Justice unless the national court can with complete confidence resolve the issue itself. In considering whether it can with complete confidence resolve the issue itself the national court must be fully mindful of the differences between national and Community legislation, of the pitfalls which face a national court venturing into what may be an unfamiliar field, of the need for uniform interpretation throughout the Community and of the great advantage enjoyed by the Court of Justice in construing Community instruments. If the national court has any real doubt, it should ordinarily refer."

52. But it is, I think, important to have in mind, also, the observations of the Advocate General (Mr Francis Jacobs QC) in Wiener S I GmbH v Hauptzollamt Emmerich (Case C-338/95) [1998] CMLR 1110. The question which he thought it necessary to address is stated at paragraph 10 of his opinion:

". . . whether it is appropriate – and especially whether it is still appropriate today, in view of developments which I shall mention below – for the Court to be asked to rule in every case where a question of interpretation of Community law may arise."

He identified the matter which was of practical concern to the Court of Justice, at paragraph 15:

"Any 'application' of a rule of law can be regarded as raising a question of 'interpretation' – even if the answer to the question of interpretation may seem obvious. Every national court confronted with a dispute turning on the application of Community law can refer a question which, if more or less properly phrased, this Court is bound to answer after the entire proceedings have taken their course. That will be so even where the question is similar in most respects to an earlier question; the referring court (or the parties' lawyers) may always seek to distinguish the facts of the cases. It will be so even where the question could easily, and with little scope for reasonable doubt, be answered on the basis of existing case law; again the facts may be different, or it may be that a particular condition imposed in earlier case law gives rise to a new legal argument and is regarded as needing further clarification. The net result is that the Court could be called upon to intervene in all cases turning on a point of Community law in any court or tribunal in any of the Member States. It is plain that if the Court were to be so called upon it would collapse under its case-load."

The solution is "a greater measure of self-restraint on the part of both the national courts and the Court of Justice" – see paragraph 18. Where the national court is not a court of last resort, a reference will be most appropriate where the question is one of general importance and where the ruling is likely to promote the uniform application of the law throughout the European Union. A reference will be least appropriate where there is an established body of case law which could readily be transposed to the facts of the instant case; or where the question turns on a narrow point considered in the light of a very specific set of facts and the ruling is unlikely to have any application beyond the instant case. Between those two extremes there is a wide spectrum of possibilities – see paragraph 20.

53. Even where the national court is a court of last resort, the Advocate General has urged what he described as an 'evolutionary' approach to the duty to refer under Article 177 – see paragraphs 51 to 65 of his opinion. We were referred to a passage at paragraph 61, which illustrates this approach:

". . . another development which is unquestionably significant is the emergence in recent years of a body of case law developed by this Court to which national courts and tribunals can resort in resolving new questions of Community law. Experience has shown that, in particular in many technical fields, such as customs and value added tax, national courts and tribunals are able to extrapolate from the principles developed in this Court's case law. Experience has shown that that case law now provides sufficient guidance to enable national courts and tribunals – and in particular specialised courts and tribunals – to decide many cases for themselves without the need for a reference."

54. In my view this is not a case in which a decision of the Court of Justice on the question whether the issue by a taxable person of its own shares is, or is to be treated as a supply of services is necessary to enable the national court to give judgment. Neither the Tribunal, nor the judge, thought that there was any real doubt how that question should be answered. I think that they were right to take that view. I have in mind, as they did, that there is said to be a difference in practice amongst Member States as to the allowance of input tax incurred in relation to share issues. Had that difference in practice been supported by the decisions of other national courts, I would have regarded the case for a reference to the Court of Justice as much stronger; although, of course, the matter would then fall to be considered in the light of the reasoning which had led to those decisions. It may well be that the case for a reference would have seemed stronger if there had been evidence as to the basis upon which bodies with responsibilities in other Member States for the administration and collection of value added tax had taken a different position to that taken by the C&E in the present case. But there is nothing more than the bare statement that there is a difference in practice. I do not regard that as sufficient either to raise the real doubt which is the pre-requisite to a reference, or to demonstrate that the intervention of the Court of Justice is desirable in order to promote uniformity.
55. In reaching the decision that this is not an appropriate case for a reference by this Court under Article 177, I have in mind that the relevant provisions of United Kingdom law have been enacted in statute since the Finance Act 1972. I do not, myself, think that the position was altered by the issue of the Sixth Directive in 1977. But, even if it were, the position has remained unchanged for over 20 years. The reason why the question has arisen, as it seems to me, is not because there is any real doubt – or has ever been any real doubt – that the issue by a taxable person of its own shares is an exempt supply; but because the decision of the Court of Justice in the BLP case established that input tax incurred in relation to an exempt supply of this nature was not deductible. The question of principle has been decided by the Court of Justice and a national court or tribunal can now act in the light of that decision.

Conclusion

56. I would refuse to direct a reference to the Court of Justice. In my view there is no real doubt that the Tribunal, and the judge, reached the correct conclusion that the issue by a taxable person of its own shares is an exempt supply. In so far as it is appropriate for this Court to consider the matter in terms of acte clair, I would hold that that test is satisfied in this case.
57. Accordingly, I would dismiss this appeal.

MR JUSTICE WRIGHT:

58. I agree.

LORD JUSTICE PILL:

59. I also agree.

Order: Application to pay respondents costs of £9,397.45 vat not included.

(This order does not form part of approved judgment)