ON APPEAL FROM THE HIGH COURT OF JUSTICE
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE RIMER
MR JUSTICE RYDER
| The Commissioners for Her Majesty's Revenue and Customs
|- and -
|Axa UK plc
Jonathan Peacock QC (instructed by Forbes Hall LLP) for the Respondent
Hearing dates : 5-6 December 2011
Crown Copyright ©
Lady Justice Arden:
B. Other exemptions
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:
(d) the following transactions:
3. transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments, but excluding debt collection and factoring;
"The issue, transfer or receipt of, or any dealing with, money, any security for money or any note or order for the payment of money."
The underlying dispute
"10. Denplan's services fall into four categories. First, Denplan operates a membership scheme ("Membership") under which dentists pay a one off membership fee (taxable at the standard rate) in order to become entitled to a number of benefits (and also subject to certain obligations) (Tribunal Decision, paragraph 3 (3)).
11. Second, Denplan provides a registration service ("Registration") under which dentists pay a one-off fee (Taxable at standard rate) to Denplan for setting up and administering a register of patients on behalf of the dentist (Tribunal Decision, paragraph 3 (4)). Under the Registration scheme, Denplan maintains a comprehensive database of all dentists' patients and provides information from the list as and when requested by the dentists. Denplan also assists in recording the patient's name, address, dental records and other necessary details in a database and keeping these up-to-date with amendments as and when they arise.
12. Third, Denplan provides payment handling services ("Payment Handling") in respect of payment plans. Under these plans a patient will agree with his or her dentist to pay particular monthly amounts in return for a certain level of dental care each year. Denplan agrees with the dentist to collect the payment from the patient and transfer the payment to the dentist. Denplan charges the dentist a fee (on average 71p per monthly payment) for collecting and paying over such sums (Tribunal Decision, paragraph 3(5), (6)): this is the fee in dispute for VAT purposes.
13. In return for this fee, paid by the dentist, it is now common ground that Denplan: (1) obtains and retains the authorisation to take money from the patient's account via the direct debit authorisation forms; (2) validates the patient's bank account data via its internal systems; (3) instructs the patients' banks, via BACS, to pay monthly charges directly to Denplan on behalf of the dentists: (4) verifies and reconciles the records of each BACS transfer: (5) allocates the payments to the relevant dentist and produces monthly reports and statements of accounts for the dentist to ensure he/she is aware of their financial position: (6) instructs its own bank, via BACS, to make payment from Denplan to each of the dentists; and (7) informs patients and dentists of failed or unpaid fees (Tribunal Decision, paragraph 3 (5), (8)).
14. Fourth, Denplan provides other, primarily advisory, services to dentists in return for specific fees, again taxable at the standard rate."
10. Denplan contends that the provision of the Payment Handling service (see paragraph 12 set out in paragraph 9 above) to dentists in return for a separate fee of, on average, 71p per transaction falls under the finance exemption.
11. HMRC contend that this is not so on the basis that the Payment Handling service is not exempt.
The decision of the Tribunal
The events leading to the reference to the Court of Justice for a preliminary ruling
The decision of the Court of Justice
"28 As regards the service in question in the main proceedings, it is appropriate to point out that its purpose is to benefit Denplan's clients, namely dentists, by the payment of the sums of money due to them from their patients. Denplan is, in return for remuneration, responsible for the recovery of those debts and provides a service of managing those debts for the account of those entitled to them. Therefore, as a matter of principle, that service constitutes a transaction concerning payments which is exempt under Article 13B(d)(3) of the Sixth Directive, unless it is 'debt collection or factoring', a service which that provision, by its final words, expressly excludes from the list of exemptions.
29 In the absence of a definition of the term 'debt collection and factoring' in the Sixth Directive, it is necessary to view the final words of Article 13B(d)(3) of the Sixth Directive in their context and to interpret them in the light of the spirit of the provision in question and, more generally, of the scheme of that directive (MKG-Kraftfahrzeuge-Factoring, paragraph 70; see to that effect, also, Case 173/88 Henriksen  ECR 2763, paragraph 11; and Case C-16/93 Tolsma  ECR I-743, paragraph 10).
30 Although, as observed in paragraph 25 of the present judgment, the exemptions under Article 13 of the Sixth Directive, as derogations from the general application of VAT, are to be interpreted strictly, the term 'debt collection and factoring' is to be interpreted broadly as it is an exception to such derogation, with the result that the transactions which it covers are subject to tax in accordance with the fundamental rule forming the basis of the Sixth Directive (see MKG-Kraftfahrzeuge-Factoring, paragraphs 72, 73 and 75, and, by analogy, Case C-171/00 P Libéros v Commission  ECR I-451, paragraph 27).
31 According to the Court's case-law, the term 'debt collection and factoring' in Article 13B(d)(3) of the Sixth Directive refers to financial transactions designed to obtain payment of a pecuniary debt (see MKG-Kraftfahrzeuge-Factoring, paragraph 78).
32 It follows from that case-law that the service in question in the main proceedings supplied by Denplan to dentists is covered by the term 'debt collection and factoring' in Article 13B(d)(3) of the Sixth Directive.
33 In fact, the object of that service is to benefit Denplan's clients, namely dentists, by payment of the sums of money due to them from their patients. That service is therefore intended to obtain the payment of debts. By undertaking the recovery of debts for the account of those entitled to them, Denplan frees its clients of tasks which, without its intervention, those clients, as creditors, would have to perform themselves, tasks consisting in requesting the transfer of the sums due to them, via the direct debit system.
34 Contrary to the Commission's submission, it is irrelevant that such service is supplied at the time when the debts concerned become due. The final words of Article 13B(d)(3) of the Sixth Directive cover the collection of debts of any nature, without limiting their application to debts which were not paid on their due date. Moreover, factoring, all forms of which are included in the terms 'debt collection and factoring' (see MKG-Kraftfahrzeuge-Factoring, paragraph 77), is not limited to debts in respect of which the debtor has already defaulted. It can also have as its object debts which have not yet become due and which will be paid on the due date.
35 In addition, in view of the interpretation of the exception to the derogation from the application of VAT given by the case-law cited in paragraphs 30 and 31 of the present judgment, it is also irrelevant to the treatment of the service in question in the main proceedings as 'debt collection and factoring' that it does not provide for coercive measures for the effective payment of the debts concerned.
36 Having regard to the foregoing considerations, the reply to the questions referred is that Article 13B(d)(3) of the Sixth Directive is to be interpreted as meaning that the exemption from VAT provided for by that provision does not cover a supply of services which consist, in essence, in requesting a third party's bank to transfer to the service supplier's account, via the direct debit system, a sum due from that party to the service supplier's client, in sending to the client a statement of the sums received, in making contact with the third parties from whom the service supplier has not received payment and, finally, in giving instructions to the service supplier's bank to transfer the payments received, less the service supplier's remuneration, to the client's bank account."
The points now in issue between Axa and HMRC
Submissions on this appeal
"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 plc  AC 66; Marleasing SA v La Comercial Internacional de Alimentación SA  ECR I-4135; Litster v Forth Dry Dock & Engineering Co Ltd  1 AC 546; Imperial Chemical Industries plc v Colmer (No 2)  1 WLR 2035; Ghaidan v Godin-Mendoza  2 AC 557; R (IDT Card Services Ireland Ltd) v Customs and Excise Comrs  STC 1252; Revenue and Customs Comrs v EB Central Services Ltd  STC 2209 and the Fleming/Condé Nast cases  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 of Aylmerton in the Pickstone case, at p 126b); (b) it does not require ambiguity in the legislative language (per Lord Oliver in the Pickstone case, at p 126b and per Lord Nicholls of Birkenhead in Ghaidan's case, at para 32); (c) it is not an exercise in semantics or linguistics (per Lord Nicholls in Ghaidan's case, at paras 31 and 35; per Lord Steyn, at paras 48-49; per Lord Rodger of Earlsferry, at paras 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 the Litster case, at p 577a; per Lord Nicholls in Ghaidan's case, at para 31); (e) it permits the implication of words necessary to comply with Community law obligations (per Lord Templeman in the Pickstone case, at pp 120h-121a; per Lord Oliver in the Litster case, at p 577a); and (f) the precise form of the words to be implied does not matter (per Lord Keith of Kinkel in the Pickstone case, at p 112d; per Lord Rodger in Ghaidan's case, at para 122; per Arden LJ in the IDT Card Services case, at para 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': see per Lord Nicholls in Ghaidan v Godin-Mendoza  2 AC 557, para 33; Dyson LJ in Revenue and Customs Comrs v EB Central Services Ltd  STC 2209, para 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 per Lord Nicholls, at para 33, Lord Rodger, at paras 110-113 in Ghaidan's case; per Arden LJ in R (IDT Card Services Ireland Ltd) v Customs and Excise Comrs  STC 1252, paras 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 the Ghaidan case, per Lord Nicholls, at para 33; per Lord Rodger, at para 115; per Arden LJ in the IDT Card Services case, at para 113."
"78. Moreover, the term "debt collection" refers to clearly circumscribed financial transactions, designed to obtain payment of a pecuniary debt, which are clearly different in nature from the exemption set out in the first part of Article 13B(d)(3) of the Sixth Directive."
" Lord Nicholls also makes it clear that there is no need to find that the statutory language should be ambiguous before interpreting the legislation so as to be compatible with Convention rights. He does not deal expressly with the possibility of Parliament making express provision in contravention of Convention rights. Mr Lasok refers to such a possibility in the context of legislation designed to implement Community legislation in his argument before us (para 60, above). So he submits that Parliament might use language which made it clear that it did not intend VAT to be imposed in a situation in which it was chargeable under the Sixth Directive. The situation which he postulates is not one in which Parliament has specifically stated that it is legislating in a manner which departs from the Sixth Directive. In the situation postulated, as it seems to me, the court's interpretative duty, whether arising under Community law or arising under s 3, is not excluded. In determining whether the solution is one of interpretation or impermissible law-making, the relevant test remains whether the interpretation that would be required to make the statute in question Convention-compliant or in this case, EU law-compliant, would involve a departure from a fundamental feature of the legislation.
As I see it, the latter cannot be the case where the effect of the interpretation would be to bring the statute into conformity with the objectives of the Sixth Directive in the absence of clear statutory language to the effect that Parliament intended that there should not be such conformity."
"what the agent is doing is recovering some at least of the debt; and any negotiation concerning "the debt" is no more than incidental to its recovery."
"70 It is therefore necessary to view the final clause of Article 13B(d)(3) in its context and to interpret it in the light of the spirit of the provision in question and, more generally, of the scheme of the Sixth Directive.
71 As derogations from the general application of VAT, the exemptions envisaged in Article 13B(d)(3) of the Sixth Directive must be interpreted in a manner which limits their scope to what is strictly necessary for safeguarding the interests whose protection those derogations allow (see, to that effect, paragraph 63 of this judgment).
72 By contrast, as already stated in paragraph 58 of this judgment, exceptions to a rule derogating from the general application of VAT must be interpreted broadly.
73 Under all the language versions, debt collection is an exception to the exemptions listed in Article 13B(d)(3) of the Sixth Directive.
74 The English and Swedish versions of that provision also refer in this respect, on an equal footing with debt collection, to factoring.
75 In view of the requirement to interpret broadly those exceptions to a derogating provision — whose effect is to render the transactions covered by them subject to tax in accordance with the fundamental rule forming the basis of the Sixth Directive — first, factoring as referred to in the final clause of Article 13B(d)(3) in the English and Swedish versions of that directive must be understood as covering both true factoring and quasi-factoring".
" There was no dispute between the parties that on a reference under art 234 EC (formerly art 177 of the EC Treaty), the purpose of the ECJ is 'to decide a question of law and that the ruling is binding on the national court as to the interpretation of the community provisions and acts in question' (see Benedetti v Munari Flli SAS Case 52/76  ECR 163). Even so, the ECJ has jurisdiction to review the legal characterisation of facts found by the national court (see European Commission v Camar Srl Case C-312/00 (2002) Transcript (judgment), 10 December 2002). Also the ECJ has in the past provided guidance in order to enable the national court to give judgment (see Kutz-Bauer v Freie und Hansestadt Hamburg Case C-187/00 (2003) Transcript (judgment), 20 March 2003). On occasions it has 'steered' the national court for the purpose of unified application of the law. However, as the House of Lords made clear in R v Secretary of State for Transport, ex p Factortame Ltd  4 All ER 506 at 927,  1 AC 524 at 550, the English court is not bound by that steer and therefore, with hesitation, could conclude the case in a different way. It is the national court alone that must find the facts.
 It follows that the judge was entitled to disregard any conclusion reached, in so far as it was based upon a factual background inconsistent with his judgment. Thus, upon his perception of the ECJ's judgment, he was entitled to disregard the conclusion in the ruling and decide the case upon the legal principles stated in the judgment of the ECJ."
But this court in Arsenal accepted that the Court of Justice could apply the necessary legal characterisation to the facts:
" Of course the ruling of the ECJ is binding in so far as it is a ruling upon interpretation. However I reject the submission of Mr Thorley that the national court should confine its attention solely to the ruling. Strictly speaking the judgment is the explanation of the ruling, but as Advocate General Warner explained in Robert Bosch GmbH v Hauptzollamt Hildesheim Case 135/77  ECR 855 at 861: '… the operative part of a Judgment of this Court should always be interpreted in the light of the reasoning that precedes it.' That is particularly apt in the present case as the ruling uses the words 'in circumstances such as those in the present case'. To ascertain what the ECJ believed the circumstances were, it is necessary to have recourse to the preceding paragraphs of the judgment. I therefore turn to consider the ECJ judgment with the submissions of the parties in mind."
Practice on receipt of a ruling by the Court of Justice in answer to a reference from this Court for a preliminary ruling
Lord Justice Rimer:
Mr Justice Ryder: