England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
MR JUSTICE LEWISON
CH2008APP0505

		Royal Courts of Justice Strand, London, WC2A 2LL
		08/11/2010

LORD JUSTICE ETHERTON :

Introduction

1. This case concerns the proper treatment for Value Added Tax ("VAT") of the sale by a UK trader, such as a high street shop, of phone cards issued in another member state of the EU by a supplier of telecommunications services established there, and purchased and used in the UK by non-business customers to telephone someone in another member state of the EU using the telecommunications services of the issuer. The Appellant, Prince Karunaraina Samarappuli Arachchige, who runs such a shop, contends that such sales do not attract VAT. The Respondents, Her Majesty's Commissioners of Revenue and Customs, contend that they do.
2. The case turns on whether or not under UK legislation, notwithstanding the phone card is sold by the UK trader to a customer in the UK, the supply represented by the sale of the card is deemed to be in the EU member state of the entity providing the telecommunications service. This turns on the proper meaning and application of Article 21 the Value Added Tax (Place of Supply of Services) Order 1992/3121 ("the Place of Supply Order") as it was worded prior to its amendment with effect from 1 August 2006. That amendment made it clear that, in respect of sales of phone cards after that date, the sale is a taxable supply in the UK.
3. The Appellant succeeded before the VAT Tribunal (Charles Hellier (chairman) and Mohammed H Hossain FCA, FCIB) ("the Tribunal"), whose decision was released on 4 June 2008. The Respondents successfully appealed to Lewison J, whose judgment was handed down on 20 May 2009. This is an appeal from his order of the same date.

Factual background

4. The following summary of the factual background is taken from the helpful summaries of Lewison J and the Tribunal.
5. During the relevant period the Appellant ran a shop at 192B West Hendon Broadway, London. Among the things that he sold in that shop were phone cards. He sold a variety of phone cards. Some provided cheaper calls to European destinations, others to Asian or African destinations. They were bought by people who had relatives or contacts in those areas. The phone cards generally bore face values of £3 or £5. They were sold for their face value or a slightly lesser amount. The Appellant bought each phone card for about 10p or 20p less than the amount for which he sold it. The vendors of the phone cards came to his shop every day. The Appellant would accept a batch of cards and the vendor would return at the end of the day to collect money equal to the agreed purchase price of the cards that he had sold.
6. In order to use a phone card he or she had purchased from the Appellant, the customer had to scrape off the covering of a PIN on the reverse of the card. The card also bore a phone number. The customer dialled that phone number followed by the PIN, and then the full number of the destination he or she wished to call. The call arrived at the receiver of the card phone number. At that location there was a piece of equipment called a `switch'. The switch recorded the use of the card and redirected the call. The call was directed so that for the period of the call use would be made of telephone line capacity acquired or paid for by a person involved in the operation of the cards. The switch device was either owned by the issuer of the card (or rented by the issuer on a long term basis) or owned (or rented) by a sister company of the issuer. The issuer of the card did not own the line over which the call reached the switch (that was generally a BT line) or the line along which the call travelled to its final destination but would have acquired the right to use time on the lines on which the onward travel took place. All the switch devices for cards sold in the UK were located in the UK. Generally cards sold in the UK were for use by someone using a telephone in the UK and could not be used from outside the UK.
7. The Appellant was assessed for £43,289.00 VAT in respect in respect of his sales of phone cards from 1 May 2003 to 31 January 2005. He appealed against that assessment to the Tribunal on several grounds, one of which was that pursuant to Schedule 10A of the Value Added Tax Act 1994 ("VATA 1994") the supply of some of the phone cards should be disregarded for VAT purposes. He accepted that the supply of phone cards issued by a non-EU telecoms company for use in telephoning a non-EU country was subject to VAT. His objection was only to the assessment in respect of his supply of phone cards issued by a telecoms company in another EU member state.

The EU legislation

8. For the purpose of this appeal, it is necessary to refer only to the following EU legislation.
9. The EU provisions governing the place of supply were formerly in Article 9 of the Sixth Directive (Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the member states relating to turnover taxes), which has subsequently been recast in Articles 24, 44-48, 53-54 and 56-59 of the Principal VAT Directive (2006/112/EC) of 28 November 2006, with effect from 1 January 2010. The argument before the Tribunal, Lewison J and this court has been conducted on the provisions of Article 9 of the Sixth Directive, and so it is convenient to refer to those same provisions in this judgment. The relevant provisions of Article 9 are as follows

"(1) The place where a service is supplied shall be deemed to be the place where the supplier has established his business or has a fixed establishment from which the service is supplied or, in the absence of such a place of business or fixed establishment, the place where he has his permanent address or usually resides.

(2) However:

…

(e) the place where the following services are supplied when performed for customers established outside the Community or for taxable persons established in the Community but not in the same country as the supplier, shall be the place where the customer has established his business or has a fixed establishment to which the service is supplied or, in the absence of such a place, the place where he has his permanent address or usually resides:

…

Telecommunications. Telecommunications services shall be deemed to be services relating to the transmission, emission or reception of signals, writing, images and sounds or information of any nature by wire, radio, optical or other electromagnetic systems, including the related transfer or assignment of the right to use capacity for such transmission, emission or reception. Telecommunications services within the meaning of this provision shall also include provision of access to global information networks.

…

3. In order to avoid double taxation, non-taxation or the distortion of competition the Member States may, with regard to the supply of services referred to in 2 (e) and the hiring out of movable tangible property consider:

(a) the place of supply of services, which under this Article would be situated within the territory of the country, as being situated outside the Community where the effective use and enjoyment of the services take place outside the Community;

(b) the place of supply of services, which under this Article would be situated outside the Community, as being within the territory of the country where the effective use and enjoyment of the services take place within the territory of the country."

10. This case is concerned with supplies by the Appellant within Article 9(1). Article 9(2) does not apply because his sales were not to business customers within Article 9(2)(e). Under Article 9(1) the supplies are, as the Respondents contend, in the UK where the Appellant's business is established.

The UK legislation

11. The UK's obligations under the Sixth Directive were transposed into domestic legislation by VATA 1994. By section 1 of VATA 1994 UK VAT is chargeable on the supply of goods or services in the UK.
12. Section 7 deals with the place of supply. Section 7(10) and (11) are the material provisions. They provide as follows:

"(10) A supply of services shall be treated as made—

(a) in the United Kingdom if the supplier belongs in the United Kingdom; and

(b) in another country (and not in the United Kingdom) if the supplier belongs in that other country.

(11) The Treasury may by order provide, in relation to goods or services generally or to particular goods or services specified in the order, for varying the rules for determining where a supply of goods or services is made."

13. Section 7(10) (a) reflects and transposes into UK legislation the provisions of Article 9(1) of the Sixth Directive. The Appellant "belongs" in the UK within that provision because section 9(2) of VATA 1994 provides that a supplier of services is treated as belonging in a country if he has there a business establishment or some other fixed establishment and no such establishment elsewhere. The question is whether the application of section 7(10) of VATA 1994 to the Appellant, in respect of the supply of phone cards in issue on this appeal, was varied by the Place of Supply Order pursuant to the power conferred by section 7(11).
14. The phone cards sold by the Appellant were "face-value vouchers" as defined in Schedule 10A of VATA 1994 as amended. Paragraph 1(1) of Schedule 10A defines them as follows:

"(1) In this Schedule "face-value voucher" means a token, stamp or voucher (whether in physical or electronic form) that represents a right to receive goods or services to the value of an amount stated on it or recorded in it."

15. Paragraph 2 of Schedule 10A clarifies that the supply of such a voucher is a supply of services and not of goods in the form of the voucher itself. It provides:

"2. The issue of a face-value voucher, or any subsequent supply of it, is a supply of services for the purposes of this Act."

16. The phone cards which are in issue on this appeal are "retailer vouchers" within paragraph 4 of Schedule 10A, as distinct from "credit vouchers" within paragraph 3 of Schedule 10A. It is not necessary to examine the differences between those two types of voucher for the purpose of resolving this appeal beyond saying that, in the case of a credit voucher, the person who issues the voucher is not the same as the person who "redeems" it (that is, gives value for it), whereas, in the case of a retailer voucher, the issuer is the same person as the redeemer.
17. We come finally to the provision which is critical to this case, Article 21 of the Place of Supply Order, which was as follows at the time of the relevant supplies of the Appellant:

"21. (1) The place of supply of a right to services shall be the same as the place of supply of the services to which the right relates (whether or not the right is exercised).

(2) The reference to a right to services in paragraph (1) shall include a reference to any right, option or priority with respect to the supply of services and to the supply of an interest deriving from any right to services."

18. In briefest outline, the question, which is a very narrow one, is whether the supply by the Appellant of the phone cards in issue on this appeal was (a) the supply "of a right to services" supplied by the foreign EU telecoms company, for the purposes of Article 21(1), in which case the supply was deemed to be the place where that company was established, or (b) the supply of a service complete in itself, so that the basic rule applies that the supply was by the Appellant in the UK.
19. With effect from 1 August 2006 (after the supplies were made which are the subject of this appeal), Article 21(1) was amended by the Value Added Tax (Place of Supply of Services) Amendment Order 2006 (SI 2006/1683)) so as to provide:

"The place of supply of a right to services shall be the same as the place in which the supply of the services to which the right relates would be treated as made if made by the supplier of the right to the recipient of the right (whether or not the right is exercised)."

20. That amendment makes quite clear that someone in the position of the Appellant would be treated as making the supply in the UK. The Respondents' public position, set out in the Explanatory Memorandum to SI 2006/1683, has always been that the amendment was purely for clarification and did not effect a substantive change.

The Tribunal's decision

21. As I have said, the Appellant succeeded in his appeal to the Tribunal that the supply by him of the phone cards in issue on this appeal did not give rise to VAT. The Tribunal were satisfied that was the consequence of Article 21 of the Place of Supply Order. The Tribunal regarded the meaning and effect of Article 21 to be clear. They said:

"76. It seems clear to us that the [pre 1 August 2006] version did not intend an additional assumption to be made that the supplier of the right was also making the supply of the service. There will be many cases where the supplier of the right does not or cannot make the supply of the services. The plain intention of [that] version is that one looks to the provision of the services and asks whence will that take place. The rule is specific and clear: it does not affect the nature of the supply of the right but merely the place of supply and aligns that place with the place of supply of the services to be obtained.

77. ...

78. We have noted the tacit assumption that the phone cards represented a 'right' to a supply of phone services. As a result the place of supply of the phone cards is determined by Article 21. The place of supply of Mr Arachchige's services in providing the phone card was not therefore the place which these services would have been provided if they had been provided by Mr Arachchige to the buyer of the phone card, but instead the place of supply of the telecommunications services obtained by the buyer – or obtainable by the buyer from the use of the card.

79. Thus, subject to other provisions of SI 1992/3121, if the telecommunication service supplier belonged in the UK the place of supply of the telecoms service (and therefore of the phone card) would (by section 7(10) VATA) be treated as being in the UK and otherwise would be treated as supplied outside the UK."

22. So far as relevant to this appeal, the Tribunal summarised their conclusion in paragraphs 86 of their decision, as follows:

"86 … In either case [that is, whether the cards supplied by the Appellant were credit vouchers or retailer vouchers] a non-UK but EU supplier of the telecoms service will mean that the supply of the card is not VATable because it will not be a supply made in the UK."

23. The Respondents relied before the Tribunal on the decision of the Court of Appeal in HM Revenue and Customs Commissioners v IDT Card Services Ireland Ltd [2006] EWCA Civ 29, [2006] STS 1252. That case concerned the proper interpretation of paragraph 3(3) of Schedule 10A of VATA 1994 in the context of the receipt of phone cards by a distributor who belonged in the UK and received them for the purposes of its business from an Irish issuer. In briefest outline and to some extent simplified, the facts (so far as relevant to this appeal) were that IDT Card Services Ltd ("ICSIL") was an Irish company that issued phone cards and sold them to UK distributors and retailers. It did not supply telecommunications services itself. They were supplied by Interdirect Tel Ltd ("Interdirect"), another Irish company. Under the Irish VAT rules, VAT was charged on the supply of phone cards to end users for their private use in Ireland or another EU member state, or to traders in Ireland, but not to traders outside Ireland. Further, no VAT was payable in Ireland when the end user used the phone cards. The question in the case was whether the charge to VAT that would otherwise have arisen under the reverse charge provisions of section 8 of VATA 1994 (imposing VAT liability on a person belonging to the UK who receives a supply from a person belonging to another country for the purpose of a business being carried on by the recipient in the UK) was or was not negated by paragraph 3(2) of Schedule 10A (providing for the consideration for the supply of a credit voucher to be disregarded), and that turned on whether the phone cards were excluded from paragraph 3(2) by paragraph 3(3). If there was no UK charge to VAT, neither the issue, nor subsequent supply nor subsequent use of the phone cards would be subject to VAT.
24. Arden LJ summarised the issues that arose on the appeal as follows in paragraph [27] of her judgment:

"27. The issues which arise on this appeal may be formulated as follows:

i) Are the avoidance of non-taxation, the avoidance of double taxation and the prevention of the distortion of competition general principles of the Sixth Directive?

ii) If the answer to the first question is yes, and leaving on one side the possible impact of the place of supply rules, are any of those principles violated by the conclusion that the supplies to the UK distributors of phonecards in this case are not subject to VAT?

iii) If the answer to the second question is yes, are those principles excluded by the place of supply rules in this case?

iv) If the answer to the third question is no, should national implementing legislation be construed so far as it can in accordance with those principles?

v) If the answer to the last question is yes, can paragraph 3(3) of schedule 10A be interpreted so as to be compatible with those principles and, if so, is the effect that the disregard in paragraph 3(2) is inapplicable where the supply of telecommunications by Interdirect is not liable to VAT under Irish law?"

25. Arden LJ, with whose judgment Latham LJ agreed, answered issues (i)(ii)(iv) and (v) in the affirmative, and issue (iii) in the negative. In short, Arden LJ considered that, in order to avoid UK legislation infringing the provisions of the Sixth Directive, which it would do if there was no charge to VAT on the supplies to the UK traders in that case, paragraph 3(3) of Schedule 10A of VATA 1994 was to be interpreted in such a way as to prevent that outcome. She said:

"112. It follows from the fact that if ICSIL is correct in its interpretation of para 3(3) of schedule 10A, the VAT treatment of the distribution of the phonecards for Interdirect's services infringes the principles of the Sixth Directive. It further follows that the United Kingdom is acting in a way which is incompatible with its Community obligations if the effect of para 3 of schedule 10A is to relieve any supplier from VAT under the guise of granting relief to a supplier from the double taxation on telecommunications services. Therefore the court is under an obligation to interpret para 3 as far as possible in the light of the wording and purpose of the Sixth Directive and specifically to prevent the non-taxation of the supplies to the UK distributors of ICSIL's phonecards, or other taxpayers in the same position."

"114. Mr Pleming [counsel for HMRC] ventured only briefly to submit precisely how para 3 should be interpreted in order to bring it into conformity with Community law. As the Ghaidan case shows it is not necessary to find a simple linguistic device for this. It also shows that one of the ways of interpreting a provision "so far as possible" is to write in words. In my judgment the appropriate interpretation is to read in words to widen the disapplication in para 3(3) of the disregard in para 3(2) so that the disapplication applies where the disregard would result in the non-taxation, contrary to the objectives of the Sixth Directive specified in paragraph 95 above, of a taxable supply of goods or services in the United Kingdom. In my judgment it is unnecessary for this court to attempt to splice precise words into the language used by Parliament in schedule 10A as if it were itself the Parliamentary drafter. As the Ghaidan case shows, it is not an objection to interpretation of this nature that it amends the language used by Parliament. … The interpretation of para 3(3) of schedule 10A which I prefer gives effect to the wording and purpose of the Sixth Directive because it implements the general principles of VAT law identified above in respect of the harmonised rule relating to the place of supply of telecommunications services, i.e. that such supply should in the case of private consumers be taxed in Ireland but in the case of registered persons such as the United Kingdom distributors be taxed in the place where such persons are established."

26. The Respondents urged on the Tribunal that the same approach should be taken in the present case since, on the Appellant's analysis, there would be inconsistency between the provisions of Article 9(1) of the Sixth Directive, under which VAT was chargeable on the Appellant's supplies of the phone cards in issue, and the provisions of Article 21, by virtue of which there would be no charge to VAT on those supplies, certainly in the UK and probably elsewhere.
27. The Tribunal rejected that argument of the Respondents, essentially because the Tribunal found that the words of Article 21 were too clear to bring them into line with Article 9(1) of the Sixth Directive. The Tribunal's reasoning appears in the following paragraphs of their decision:

"101. … we find that, for the purposes of the Directive, the vouchers supplied by Mr Arachchige are to be treated as supplied in the UK by him in conformity with Article 9(1).

102. If that is right then … Article 21(1) appears to conflict with the Directive. We must interpret domestic legislation so far as possible in the light of the wording and purpose of the directive in order to achieve the result pursued by the Directive (Arden LJ in IDT paragraph 79). That might require departing from the unambiguous meaning of Article 21(1) (paragraph 86 IDT) but not so as to produce a meaning which departs substantially from a fundamental feature or cardinal principle of the legislation or where there would be important practical repercussions which the courts are not equipped to evaluate (paragraph 87). The interpretation chosen must go with the grain of the domestic legislation.

103. We do not find this an easy task. We see nothing in the setting of Article 21 or of the place of supply provisions generally in the UK domestic legislation which indicates any general policy. Article 21 appears to stand on its own. Thus any grain or cardinal features must be derived from its provisions. Those words are clear: the place of supply of the right is the place of supply of the services to which the right relates. Given that clarity of expression it does not seem proper or possible to read into those words additional words which would give a different place."

28. The Tribunal held that, accordingly, their earlier conclusion remained. They repeated that conclusion as follows at paragraph 136(7) of their decision:

"136 …. (7) The effect of paragraph 21(1) SI 1992/3121 as it applied before 1 August 2006 (and therefore as it applied to the periods under appeal) was that the supply of the card should be treated as taking place where the supply of the telecoms services obtainable by the use of the card took place. Because the purchasers of the cards belonged in the UK, but were not acquiring the cards for the purposes of a business carried on by them, the supply of the card is to be treated as having taken place in the UK unless the supplier of the telecoms service belonged in the EU, when it would have taken place in the supplier's Member State."

The judgment of Lewison J

29. Lewison J allowed the Respondents' appeal. He said ([20]) that Arden LJ's judgment in IDT was the authoritative judgment of the Court of Appeal, binding on him, and was authority for the following points:

"i) Turnover tax across the EU is intended to be a coherent system; and the coherence can be maintained provided that, if tax is not paid on the issue of a voucher in one member state it is paid on the supply of the voucher or the services for which it is redeemed in another member state (§ 4);

ii) If the phone cards issued by IDT had been retailer vouchers there would have been no question but that the supply in the United Kingdom by distributors to members of the public would have attracted VAT (§ 13);

iii) The principles of avoidance of non-taxation, avoidance of double taxation and the prevention of the distortion of competition are general principles of the Sixth Directive (§ 95). Arden LJ expanded on this:

"One of the objectives of the directive is the harmonisation of rules on turnover taxes … and the Directive contains mandatory rules as to which supplies shall be taxable and where those supplies are deemed to take place. It must follow from these provisions that one of the objectives of the Directive is to prevent situations arising in which a taxable supply escapes taxation because it is not caught by the legislation of member states. I therefore reject Mr Lasok's submission that VAT is simply a territorial tax and if one member state fails to impose VAT that cannot result in the imposition of VAT by another member state: as I see it, it is a necessary corollary of the principle of non-taxation, as this case shows, that this can occur."

iv) If neither the issue of phone cards for Interdirect's telecoms services nor the supply of those services to persons within the EU is subject to VAT the principle of avoidance of non-taxation is infringed (§ 99);

v) This conclusion is not altered by the place of supply rules (§§ 102-107);

vi) In applying the place of supply rules, the issue of a phone card is no more than a promise to make telecoms services available or to procure that they are made available, and therefore itself constitutes a supply of telecommunications services (§ 107);

vii) When a phone card is issued its place of supply is governed by article 9 (2)(e) (§ 107);

viii) The court has an obligation, so far as possible, to interpret domestic legislation so as to avoid infringing the principle of non-taxation (§ 112)."

30. Lewison J noted (([22]) that the Appellant was not registered for VAT in any other member state; and that, if he was not liable to pay VAT on his sales of phone cards in issue on this appeal, no VAT will be payable on them. He said that would mean the principle of avoidance of non-taxation would be infringed, and so he ought to interpret the place of supply rules to avoid that result if it was possible to do so.
31. Lewison J then concluded that Article 21(1) of the Place of Supply Order could and should be interpreted to mean that the place of supply of the right to the telecommunications services was to be regarded as the place of supply of the services, so that the place of supply of the services was to be treated for VAT as being the UK. He said:

"24. As I see it, what this [viz. Article 21(1)] is saying is that A is the same as B, where A is the place of supply of a right to services and B is the place of supply of those services. If A = B, then one can identify A, in which case identification of A will automatically identify B. Or one can identify B, in which case identification of B will automatically identify A."

"26. But in so far as this conclusion [of the Tribunal] deals with cards redeemable with service providers who "belong" in other member states, it infringes the principle of avoidance of non-taxation. Returning to my algebraic paraphrase of article 21 the Tribunal identified B and then equated it with A. As a matter of the language of article 21 (1) of the Place of Supply Order it would have been possible to identify the place of supply of the phone card (A) first and then to have equated that with the place of supply of the telecoms services (B). Since on any ordinary view of the facts the place of supply of the phone cards was the United Kingdom, that would result in the place of supply of the telecoms services also being treated for VAT as being the United Kingdom. That interpretation avoids any infringement of the principle of avoidance of non-taxation…"

32. He then gave ([26]), as an alternative ground for allowing the appeal, that Arden LJ had categorised the supply of a phone card as being itself a supply of a telecommunications service for the purposes of VAT. That was a reference to the statement in paragraph [99] of Arden LJ's judgment that "the vouchers are essentially promises to supply services", and to her statement in paragraph [107] that "the issue of a phone card (to the extent subsequently used for telecommunications services) is no more than a promise to make such services available or to procure that such services are made available and therefore constitutes a supply of telecommunications services within article 9(2)(e)."
33. For both those reasons, Lewison J concluded:

"26... Thus as a matter of fact the place of supply of the right to the services was the same as the place of the supply of the services themselves, so that, on the facts, A = B. Both A and B are the United Kingdom."

34. He said that that Tribunal had fallen into error in failing to apply the principles explained in IDT. He said:

"30. Where I think that the Tribunal went wrong was that they treated IDT as an "add on" to be considered after they had come to a conclusion about the meaning of article 21. The correct approach, in my judgment, would have been for the Tribunal to have informed itself of the principles explained in IDT before embarking on the process of construction at all. In addition, I do not agree with the Tribunal that article 21 is unambiguous, for the reasons I have tried to explain. Finally, as HMRC rightly submit, the Tribunal's ultimate conclusion is one that infringes the principle of avoidance of non-taxation, and undermines the conclusion of the Court of Appeal in IDT."

The appeal

35. Mr David Southern, leading for the Appellant, attacked the judgment of Lewison J on the following grounds. First, he submitted that the Judge had adopted an impossible interpretation of Article 21 and that its clear meaning and effect were as found by the Tribunal. Secondly, the Judge wrongly considered that IDT was relevant and incorrectly applied the EU principle of avoidance of non-taxation which was highlighted by Arden LJ in that case. Thirdly, he submitted that it was impossible to "read down" Article 21 (1) so as to avoid infringing the principle of avoidance of non-taxation. He elaborated on those arguments as follows.
36. Mr Southern drew attention to Case C-40/09 Astra Zeneca UK Ltd v Commissioners for Her Majesty's Revenue and Customs 29 July 2010 in the Court of Justice of the European Union. That case concerned the proper treatment for VAT of retailer vouchers provided by Astra Zeneca to its employees as part of their remuneration. The Advocate General advised, and the Court of Justice held that the vouchers were not a "supply of goods" within the meaning of Article 5 (1) of the 6^th Directive, but a "supply of services" within the meaning of Article 6 (1) of that Directive. Mr Southern referred to the following passage in the opinion of the Advocate General in which he described the retail vouchers as conferring a "right" to goods/or services:

"31. Consequently, the provision of retail vouchers such as those at issue in the main proceedings does not constitute, for VAT purposes, a supply of goods, but simply the transfer of a future (and as yet indeterminate as to the object) right to goods and/or services. I therefore consider that the provision of such a voucher must be regarded as a supply of services, on account of the fact that, for VAT purposes, each transaction that is not a supply of goods is, necessarily, a supply of services."

37. Indeed, Mr Southern pointed out that the Respondents have not disputed that Article 21 applies in the present case, presumably because the phone cards are "face-value vouchers" within Schedule 10A of VATA 1994, which are desccribed in paragraph 1(1) of that Schedule as representing "a right to receive goods or services".
38. Mr Southern submitted that the meaning of Article 21 is clear. It makes an explicit distinction between the place of the "supply of a right to services" and the place of the "supply of the services to which the right relates". He emphasised that, in its application to the phone cards in issue on this appeal, the distinction is between the foreign EU member state, in which the supplier of the telecommunications service was established, and the UK, which is where the Appellant supplied the phone card conferring the right of access to the service. Mr Southern contended that, quite simply, the Judge, by adopting the false metaphor of an equation in paragraph [24] of his judgment, stood Article 21 (1) on its head. Mr Southern's analysis was that Article 21 (1) was not saying that A (the place of supply of the right to services) and B (the place of supply of those services) are identical. It was saying that A is dependent upon the identity of B. It is not the function of Article 21 to identify the place of supply of services by automatically identifying it as the same as the place of supply of the right to those services. The place of supply of those services is identified by s.7(10)(b) of VATA 1994. The function of Article 21 is to identify the place of supply a right to services by automatically identifying it as the same as the place of supply of those services.
39. Mr Southern submitted that the Judge was wrong to place any weight on, or be influenced by, IDT; and he was wrong in particular to adopt, as an alternative ground for his conclusion, Arden LJ's categorisation in that case of a supply of a phone card as being itself a supply of a telecommunications service for the purposes of VAT. Mr Southern distinguished IDT on several grounds. It was a case concerning the supply of phone cards to a UK distributor for the purpose of the distributor's business. It therefore fell squarely within Article 9(2)(e) of the Sixth Directive, and not, like the present case, within Article 9 (1). It also fell within Article 16, and not Article 21, of the Place of Supply Order. The "place of supply" rules for a supply from one business to another are fundamentally different from the rules applicable to a supply from a business to a non-business recipient. The effect of Article 16 (reflecting Article 9(2)(e) of the Sixth Directive) is that where the recipient of a supply of telecommunications services is a person who belongs in a member state, but in a country other than that in which the supplier belongs, and who receives the supply for the purposes of a business carried on by him or her, the supply shall be treated as made where the recipient belongs, instead of where the supplier belongs. In IDT, therefore, the place of supply of the telecommunications services was in the UK because the supplier belonged in Ireland and the recipient was a UK trader. Further, the supply in IDT involved the reverse charge provisions in s.8 of VATA 1994 and the issue whether paragraph 3(2) of Schedule 10(A) of VATA 1994 (concerning credit vouchers, and not, like the present case, retailer vouchers) was, on the facts, disapplied by paragraph 3 (3) of that Schedule. None of those provisions are relevant to the resolution of the present case. Article 21 was never considered, or indeed even mentioned, in IDT. Mr Southern submitted, accordingly, that Lewison J was wrong to believe that he was in any way constrained to decide the present case in a way which conforms with the outcome in IDT.
40. Mr Southern submitted, moreover, that, while the definition of "telecommunications services" in Article 9(2)(e) of the Sixth Directive, an almost identical version of which definition is contained in paragraph 7A of Schedule 5 of VATA 1994, was relevant in IDT, it (and that in Schedule 5) has no relevance to the present case because it is a definition relevant only to a supply to a business.
41. Mr Southern further submitted that the EU principle of avoidance of non-taxation, which Arden LJ emphasised in IDT, is not, contrary to the view of Lewison J, in issue in the present case. He pointed out that, unlike the position of Ireland which was considered in IDT, there is no evidence in the present case about the VAT arrangements in any other member state relevant to the issuers of the phone cards with which this appeal is concerned. Further, the Appellant argues that the fact that a trader makes his supplies in a number of member states, in each of which his turnover is under the member state's registration threshold, so that he is not required to register in any state, whereas if he had made all his supplies in one member state he would have been liable to register and to pay VAT there, does not infringe the principle of avoidance of non-taxation. On the contrary, the right of a trader not to register for VAT in a member state if the value of his supplies in that state is below the registration threshold is a form of exemption from VAT expressly permitted by Article 24 of the Sixth Directive. Indeed, so far as the UK itself is concerned, Schedule 1 of VATA 1994 only requires a trader to register for VAT in the UK if the value of his "taxable supplies" (that is, supplies made in the UK: see s.4(2)) exceeds a stated threshold. The fact that the trader makes further supplies outside the UK is irrelevant. The Appellant contends that Parliament must be taken to have understood the consequences of a rule that treats a trader as making his supplies in a multiplicity of member states. In any event, Mr Southern submitted, if Article 21(1) cannot be interpreted to conform with Article 9(1) of the Sixth Directive, the issue of avoidance of tax simply does not arise.
42. Furthermore, the Appellant contends, even if the principle of non-avoidance of taxation were to be infringed by the correct interpretation of Article 21, the meaning of that Article is so clear and certain that the principle cannot be invoked to produce an interpretation which is simply impossible on its wording.

Respondents' Notice

43. The Respondents have served a Respondents' Notice, in which they seek to uphold the Judge's order on the "alternative route" mentioned in paragraph [26] of the judgment: namely adopting the approach of Arden LJ in IDT of categorising the supply of a phone card as itself a supply of a telecommunications service for the purposes of VAT. On that footing, "the place of supply of the services to which the right relates" in Article 21 was the place of supply of the telecommunications service between the Appellant and his customer, which was in the UK.
44. In the alternative, the Respondents submit that Article 21 (1) should be "read down" so as to comply with the Sixth Directive, in accordance with the principle described and applied by the European Court of Justice in Case C-106/89 Marleasing SA v La Commercial Internacional de Alimentation SA [1990] ECR I-04135. The principle is that the domestic legislation of member states must, so far as possible, be interpreted in the light of the wording and the purpose of a directive in order to achieve the result pursued by the directive and thereby comply with EU (formerly Community) obligations; the presumption being that the member state had the intention of fulfilling entirely the obligations arising from the directive concerned. Mr Nigel Pleming QC, for the Respondents, relied upon the following passages in the judgment of Sir Andrew Morritt C in Vodafone2 v Revenue and Customs Commissioners (No 2) [2009] EWCA Civ 446, [2009] Ch 123 as setting out correctly the applicable principles:

"[37] We were referred in the parties' respective written arguments and orally to a number of reported cases on the principles to be observed in looking for a conforming interpretation in either the European Community or Human Rights contexts. In chronological order they are Pickstone v Freemans [1989] AC 66; Marleasing SA v La Comercial Internacional de Alimentacion SA [1990] ECR I-4135; Litster v Forth Dry Dock [1990] AC 546; ICI v Colmer [1999] 1 WLR 2035; Ghaidan v Godin-Mendoza [2004] 2 AC 557; HMRC v IDT Card Services Ireland Ltd [2006] STC 1252; HMRC v EB Central Services Ltd [2008] EWCA Civ 486 and Fleming/Conde Nast v HMRC [2008] 1 WLR 195. The principles which those cases established or illustrated were helpfully summarised by counsel for HMRC in terms from which counsel for V2 did not dissent. Such principles are that:

"In summary, the obligation on the English courts to construe domestic legislation consistently with Community law obligations is both broad and far-reaching. In particular:

(a) It is not constrained by conventional rules of construction (Per Lord Oliver in Pickstone at 126B);

(b) It does not require ambiguity in the legislative language (Per Lord Oliver in Pickstone at 126B; Lord Nicholls in Ghaidan at 32);

(c) It is not an exercise in semantics or linguistics (See Ghaidan per Lord Nicholls at 31 and 35; Lord Steyn at 48-49; Lord Rodger at 110-115);

(d) It permits departure from the strict and literal application of the words which the legislature has elected to use (Per Lord Oliver in Litster at 577A; Lord Nicholls in Ghaidan at 31);

(e) It permits the implication of words necessary to comply with Community law obligations (Per Lord Templeman in Pickstone at 120H-121A; Lord Oliver in Litster at 577A); and

(f) The precise form of the words to be implied does not matter (Per Lord Keith in Pickstone at 112D; Lord Rodger in Ghaidan at para 122; Arden LJ in IDT Card Services at 114)."

[38] Counsel for HMRC went on to point out, again without dissent from counsel for V2, that:

"The only constraints on the broad and far-reaching nature of the interpretative obligation are that:

(a) The meaning should "go with the grain of the legislation" and be "compatible with the underlying thrust of the legislation being construed." (Per Lord Nicholls in Ghaidan at 33; Dyson LJ in EB Central Services at 81) An interpretation should not be adopted which is inconsistent with a fundamental or cardinal feature of the legislation since this would cross the boundary between interpretation and amendment; (See Ghaidan per Lord Nicholls at 33; Lord Rodger at 110-113; Arden LJ in IDT Card Services at 82 and 113) and

(b) The exercise of the interpretative obligation cannot require the courts to make decisions for which they are not equipped or give rise to important practical repercussions which the court is not equipped to evaluate. (See Ghaidan per Lord Nicholls at 33; Lord Rodger at 115; Arden L in IDT Card Services at 113.)"

45. The Respondents submit that, if they are otherwise incorrect on the proper interpretation of Article 21(1), the Marleasing principle of conforming interpretation could be given effect in the present case by interpolating into Article 21(1) the words underlined in the following two alternatives:

(1)"The place of supply of a right to services shall (in the case of phone cards) be the same as the place of supply of the services to which the right relates (whether or not that right is exercised),namely the promise to make such services available or to procure that such services are made available."

(2)"The place of supply of a right to services shall be the same as the place of supply of the services to which the right relates (whether or not that right is exercised), had that supply of services been made by the supplier of the right."

46. The first of those alternatives is based on Arden LJ's description of the services inherent in the supply of a phone card at paragraph [107] of IDT. The wording of the second alternative is similar to the post-2006 version of Article 21(1), an amendment that, as I have said, the Commissioners considered to be clarificatory.

Discussion

47. The point in issue on this appeal, turning on the proper meaning and effect of Article 21(1) of the Place of Supply Order, is a very short and narrow one. Mr Southern formulated it as: whether Article 21(1) can be interpreted in accordance with (that is, consistently with) Article 9(1) of the Sixth Directive. If it cannot be so interpreted, then the UK will not have transposed properly into domestic law the Sixth Directive, and will have broken its treaty obligations. The Appellant's case is, quite simply, that the wording of Article 21(1) and (2) is so certain and clear that it is impossible, as a legitimate exercise of interpretation, to give it a meaning which is consistent with Article 9(1) of the Directive. He maintains that is so, notwithstanding the EU principle of avoidance of non-taxation, which in any event he says has no application to the facts of this case, and the principle of EU law that domestic legislation is to be interpreted so as to give effect to EU directives, if necessary employing the wide interpretive latitude conferred by the Marleasing principle. In view of the clear and certain terms of Article 21(1) and (2), so to interpret Article 21(1) would, the Appellant contends, be going "against the grain" of the UK legislation and be incompatible with a fundamental aspect of UK law encapsulated in Article 21(1).
48. I agree with Mr Southern that it is not possible legitimately to interpret Article 21(1) in the manner suggested by the Judge in paragraph [24] and the first part of paragraph [26] of his judgment. Indeed, that is common ground on this appeal, for Mr Pleming did not seek to uphold that aspect of the judgment. In short, it is not possible to interpret Article 21(1) as saying that identification of "the place of supply of the services" will "automatically" identify the "place of supply of a right to [those] services". As Mr Southern said, that would be turning Article 21(1) on its head.
49. I agree with the Judge, however, in his alternative approach that the Appellant's supply of the phone cards in issue on this appeal was a supply of a service, and not merely a supply "of a right to services" within Article 21(1). Accordingly, on the wording of Article 21, the place of supply is the UK because the place of supply of the services "to which the right relates" is the UK where the Appellant supplied his customers. As the Judge noted, this approach reflects the views of Arden LJ in IDT that phone cards "are essentially promises to supply services" (para. [99]), that is "a promise to make [telecommunications] services available or to procure that such services are made available" (para. [107]).
50. Mr Southern, as I have said earlier in this judgment, made a powerful and eloquent submission that those comments of Arden LJ are not only not binding, but they have no application at all to the present case because they were made in the context of a supply of phone cards to UK traders to which the provisions of Article 9(2)(e) of the Sixth Directive, and the comparable provisions of UK legislation, applied. By contrast, the present appeal is concerned with the supply by a UK trader to non-business customers, which fell within Article 9(1) of the Sixth Directive. As Mr Southern pointed out, Article 9(2) of the Sixth Directive contained its own definition of "telecommunications services", which is reflected in paragraph 7A of Schedule 5 of VATA 1994. Such services were expressly defined as "including the related transfer or assignment of the right to use capacity for such transmission, emission or reception". There could be no dispute in IDT, therefore, that the supply of phone cards in that case was a supply of telecommunications services.
51. That submission of Mr Southern is, in my judgment, far too narrow and technical. First, it is to be noted that Arden LJ, with whom Latham LJ agreed, did not, in her explanation of the service supplied by a phone card (quoted above), expressly refer to the definitions in Article 9(2) of the Sixth Directive and paragraph 7A of Schedule 5 of VATA 1994 and, in particular, to the specific words on which Mr Southern placed reliance. She described the phone cards as "promises" "to supply" or "make" services available or "to procure" that such services are made available. That is not the language of the definitions in Article 9(2) of the Sixth Directive or paragraph 7A of Schedule 5 of VATA 1994. It is a much more general description of what a phone card represents to any purchaser, trader or non-business customer. I consider that Arden LJ's general description is binding in this case; but, even if it is not, it is a description which I consider correct and, on the proper interpretation of VATA 1994 and the Place of Supply Order, applicable to the supply of the phone cards in issue in this case.
52. That approach is not undermined by Astra Zeneca. So far as relevant to this appeal, the principal issue in that case was whether or not the supply of the retail vouchers to the employees as part of their remuneration was a supply of goods or a supply of services for the purposes of the Sixth Directive. It was not a case in which the distinction between the supply of a right to services as distinct from the supply of the services to which the right relates was in issue. The relevant part of the judgment of the Court of Justice is paragraph 26, which was as follows:

"26. Consequently, in so far as those vouchers do not immediately transfer the right to dispose of property, their provision constitutes, for VAT purposes, not a 'supply of goods' within the meaning of Article 5(1) of the Sixth Directive, but a 'supply of services' within the meaning of Article 6(1) of that directive, since, under Article 6(1), any transaction which does not constitute a supply of goods within the meaning of Article 5 is regarded as a supply of services."

53. In any event, I consider that it is legitimate, in interpreting VATA 1994 and the Place of Supply Order in their application to the facts of the present case, to have regard to the definition of "telecommunications services" in Article 9(2)(e) of the Sixth Directive and paragraph 7A of Schedule 5 of VATA 1994. No cogent explanation, indeed no explanation at all, has been put forward by Mr Southern as to why there should be an artificially wide definition of "telecommunications services" intended solely for the supply of services to business customers. I see no reason, therefore, why the definition should not be used for an insight into the intention of those framing the Sixth Directive and the Place of Supply Order as to the meaning generally of provisions relating to the supply of services in the context of telecommunications. I am not, in this respect, saying that the definition is binding in the context of supplies of phone cards to non-business customers; rather, the definition gives support to the treatment of phone cards as providing a service complete in itself, whether in the context of a supply to a business customer or a non-business customer.
54. I do not consider that this analysis is fatally undermined by the description of a "face-value voucher" in paragraph 1(1) of Schedule 10A to VATA 1994 as representing "a right to receive good or services". That description does not preclude a finding, in the case of a phone card, that in reality the card is a promise to supply or make available the supply of a telecommunications service or to procure such a service is made available.
55. I reach those conclusions without any need to invoke independently the EU principle of avoidance of non-taxation or the Marleasing principle of conforming interpretation. It is, therefore, not necessary to consider the opposing submissions of the parties on those issues.

Conclusion

56. For those reasons, I would dismiss this appeal.

LORD JUSTICE SULLIVAN

57. I Agree.

LORD JUSTICE MUMMERY

58. I also agree.