England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE UPPER TRIBUNAL (TAX AND CHANCERY CHAMBER)
MR JUSTICE HENDERSON
FTC/40/2010

		Royal Courts of Justice Strand, London, WC2A 2LL
		11th October 2013

Lord Justice Patten :

1. This is my judgment on the renewed application by Marcus Webb Golf Professional ("MW") for permission to appeal against the decision of the Upper Tribunal (Tax and Chancery Chamber) (Henderson J) that MW is liable to account for VAT in respect of supplies of golfing tuition services provided on behalf of MW by Mr Richard West.
2. The Upper Tribunal (affirming an earlier decision of the First-tier Tribunal) held that the supplies in question did not fall within the exemption from VAT contained in item 2 of Group 6 of Schedule 9 to the Value Added Tax Act 1994 ("VATA 1994") which relates to:

"the supply of private tuition, in a subject ordinarily taught in a school or university, by an individual teacher acting independently of an employer."

3. This provision was intended to give effect in domestic UK law to Article 13(A)(1)(j) of the Sixth VAT Directive (Council Directive 77/388/EEC of 17 May 1977). Article 13A(1) (so far as material) provides that:

"1. Without prejudice to other Community provisions, Member States shall exempt the following under conditions which they shall lay down for the purposes of ensuring the correct and straightforward application of such exemptions and of preventing any possible evasion, avoidance or abuse:

…

(i) children's or young people's education, school or university education, vocational training or retraining, including the supply of services and of goods closely related 3 thereto, provided by bodies governed by public law having such as their aim or by other organisations defined by the Member State concerned as having similar objects;

(j) tuition given privately by teachers and covering school or university education;

…"

4. The facts as found by the FTT were very briefly stated and attracted some criticism in the judgment of Henderson J. But it seems to have been accepted for the purposes of the hearing in the Upper Tribunal that although Mr West was an employee of MW (and not a member of that partnership), he provided golfing tuition to clients of MW on what the judge described as a freelance basis. A fuller statement of the facts (derived from the submissions of counsel at the hearing before the Upper Tribunal) is quoted by Henderson J in [11] of his judgment and I repeat it below:

"(c) Mr West is the Appellant's assistant and employee, who works in the Appellant's retail outlet.

(d) However, Mr West also provides golf tuition directly to his own clients on a self-employed basis.

(e) In addition, Mr West also provides tuition to the Appellant's clients, either those who have come "through the shop" or who have been passed on to Mr West by the Appellant. The Appellant objects to these supplies not being exempt.

(f) When bookings for tuition are made through the Appellant they go into the Appellant's diary and Richard West undertakes some of these lessons on behalf of the Appellant. Mr Webb accepted in cross-examination that if it were not for the Appellant's shop then Mr West probably would not get that particular tuition request and if a lesson is cancelled then the client may rebook. The booking, again, is made via the Appellant and is not necessarily undertaken by Mr West. Similarly, appointments for future tuition are entered into the Appellant's diary not Mr West's personal diary.

(g) The Appellant has no control over the fees charged by Mr West to his own clients. Mr West produces invoices on his own letterhead for those services … and/or is paid directly on the golf course. However, the fees for tuition provided to the Appellant's clients and for bookings that come through the shop are publicised by the Appellant and invoices are created on the Appellant's letterhead …"

5. The appeal was therefore argued on the basis that:

"even though Mr West may have been self-employed, and had his own separate client list, he effectively contracted with the Partnership to provide tuition services on the Partnership's behalf to the Partnership's clients."

6. The only issue therefore for the Upper Tribunal and for me on this application is whether the exemption relied upon applies to the factual situation I have just set out. Mr Rice (who appeared for MW both in the Upper Tribunal and on this application) attempted, I think, at various points in his argument to question aspects of that analysis but it is not open to this Court to depart from the facts as found below.
7. It was conceded by HM Revenue and Customs that golfing tuition fell within the type of tuition described in the Article 13(A)(1)(j) exemption so that the only issue is whether that tuition was given "privately". Mr Rice submitted to me that the provisions of item 2 of Group 6 in VATA 1994 do not accurately reproduce the terms and scope of Article 13A(1). But the English Court will, as a rule, attempt to construe the domestic legislation in conformity with the terms of the Directive it is intended to give effect to and, in this case, Henderson J based his decision on the binding decisions of the Court of Justice on the meaning of Article 13(A)(1)(j). They are Haderer v Finanzamt Wilmersdorf [2007] ECR I-4841 ("Haderer") and Ingenieurbüro Eulitz GbR Thomas und Marion Eulitz v Finanamt Dresden IL: Case (C-473/08) ("Eulitz").
8. Although the facts of those cases are not identical with each other or with those of the present case, they are authoritive in terms of the construction of Article 13(A)(1)(j) which is what is in issue in the present case. The ground of appeal relied on in the Upper Tribunal and again on this application is that the Article 13(A)(1)(j) exemption must be interpreted consistently with the principles which run through and underpin the VAT system. These include in particular the principle of fiscal neutrality. MW contend that this principle is contravened if the exemption is interpreted so as to make the supplies of tuition provided by Mr West to MW's clients taxable but not those which are provided directly by Mr Webb as a member of the MW partnership.
9. Both the FTT and the Upper Tribunal felt obliged to construe the private tuition exemption as inapplicable to the tuition provided by Mr Webb. Mr Rice submitted that this must be wrong and creates a disparity of tax treatment which is unjustifiable in terms of the principle of fiscal neutrality. But in my judgment the decision of both tribunals was inevitable given the guidance contained in Haderer and Eulitz. Both those cases contain identical statements of the principles to be applied to the construction of the exemption. In Haderer the ECJ said:

"16. As a preliminary point, it should be noted that Article 13A of the Sixth Directive relates to the exemption from VAT of certain activities in the public interest. However, that exemption does not cover every activity performed in the public interest, but only those which are listed in that provision and described in great detail (see Case C-149/97 Institute of the Motor Industry [1998] ECR I-7053, paragraph 18; Joined Cases C-394/04 and C-395/04 Ygeia [2005] ECR I-10373, paragraph 16; and Case-401/05 VDP Dental Laboratory [2006] ECR I-12121, paragraph 24).

17. According to the case-law of the Court, the exemptions provided for in Article 13 of the Sixth Directive constitute independent concepts of Community law whose purpose is to avoid divergences in the application of the VAT system from one Member State to another …

18. The terms used to specify those exemptions are to be interpreted strictly, since they constitute exceptions to the general principle that VAT is to be levied on all services supplied for consideration by a taxable person (see Case C- 287/00 Commission v Germany [2002] ECR I-5811, paragraph 43, and Case C-8/01 Taksatorringen [2003] ECR I-13711, paragraph 36). Nevertheless, the interpretation of those terms must be consistent with the objectives pursued by those exemptions and comply with the requirements of the principle of fiscal neutrality inherent in the common system of VAT (see Case C-45/01 Dornier [2003] ECR I-12911, paragraph 42; Case C-498/03 Kingscrest Associates and Montecello [2005] ECR I-4427, paragraph 29; and Case C-106/05 L.uP. [2006] ECR I-5123, paragraph 24). Thus, the requirement of strict interpretation does not mean that the terms used to specify the exemptions referred to in Article 13 should be construed in such a way as to deprive the exemptions of their intended effect (see, to that effect, Case C-284/03 Temco Europe [2004] ECR I-11237, paragraph 17, and also, in relation to university education, Commission v Germany, paragraph 47).

19. The same must also be true of the specific conditions laid down for those exemptions to apply, and in particular of those concerning the status or identity of the economic agent performing the services covered by the exemption (see, to that effect, Case C-216/97 Gregg [1999] ECR I-4947, paragraphs 16 to 20)."

10. But the Article 13(A)(1)(j) exemption was nonetheless held to be inapplicable where (as in this case) the services in question were supplied not on the tutor's own account but under contractual arrangements with and on behalf of another entity, in this case MW. In Eulitz the ECJ said:

"52. In any event, without there being any need to examine the three sets of circumstances listed in the second question referred, it is clear from the order for reference that Mr Eulitz acted as a teacher in the context of training courses offered by another body, EIPOS. According to the findings of the national court, it is that body – and not Mr Eulitz – which was in charge of the education institute within the framework of which Mr Eulitz gave tuition and which provided training to the participants of these courses.

53. As the German and Greek Governments submit, that fact, in itself, rules out the possibility that Mr Eulitz – and thus Eulitz GbR – could be regarded as giving tuition "privately" within the meaning of Article 13A(1)(j) of the Sixth Directive. The facts set out in the second question, taken together or individually, cannot lead to any different conclusion.

54. The guidance given by the Court of Justice in Haderer is, moreover, to that effect. In paragraphs 33 to 35 of that judgment, the Court states, in essence, that it appeared that Mr Haderer had made himself available as a teacher to another entity, which paid him as a provider of services to the education system administered by that body, so that a person in the position of Mr Haderer could not be regarded as having acted "privately", but that this was for the referring court to verify, taking account of all the circumstances of the case.

55. Therefore, the answer to the second question referred must be that Article 13A(1)(j) of the Sixth Directive is to be interpreted as meaning that, in circumstances such as those at issue in the main proceedings, a person such as Mr Eulitz, a partner in the claimant in the main proceedings, who performed teaching work for training courses offered by another entity, cannot be regarded as having given tuition "privately" within the meaning of that provision."

11. Although one can construct arguments (as Mr Rice has done) to the effect that these decisions do not in fact give proper effect to the principle of fiscal neutrality, both the Upper Tribunal and this Court are bound to apply the law as set out in those decisions. I was referred to a recent decision of the Court of Justice in Skatteverket v PFC Clinic AB (Case C-91/12) which in [23] contains the same guidance on interpreting exemptions as appears in [18] in Haderer. But it does not deal with Article 13(A)(1)(j) and casts no doubt about the decisions in Haderer and Eulitz.
12. For these reasons, a further appeal to this Court would have no prospect of success. The application is therefore dismissed.