England and Wales High Court (Administrative Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
THE ADMINISTRATIVE COURT

		Royal Courts of Justice Strand London WC2
		21st December 2004

MR JUSTICE MOSES:

Introduction

1. The Irish treatment of phonecards for VAT purposes differs from their treatment in the United Kingdom. In Ireland the consideration paid for phonecards is treated as a prepayment for telecommunications services. When phonecards are supplied within Ireland they attract VAT on that supply. When they are redeemed and access is obtained to telecommunications services no VAT is payable. When phonecards are supplied to business users such as retailers in the United Kingdom, the Irish authorities expect the supply to be charged in the United Kingdom. Conversely, the United Kingdom does not treat the sum paid for a phonecard as prepayment. The issuer only becomes liable when the card is redeemed and the end-user gains access to the telecommunications service.
2. IDT Card Services Ireland Limited (ICSIL) supplies cards from Ireland to distributors or retailers within the United Kingdom. Purchasers of those cards obtain telecommunications services from Interdirect Tel Limited, (Interdirect) is a company established in Ireland. Accordingly ICSIL contend that Interdirect is not liable to account for VAT to the United Kingdom.

The Facts

3. ICSIL sells cards to independent distributors. The independent distributors sell those to retailers who sell them to members of the public. The cards are described as multifunctional cards because by buying the card a member of the public acquires a right to obtain two types of service up to the face value of the card: sports information from a company established in the United Kingdom and telecommunications services from the company established in Ireland: Interdirect Tel Limited.
4. This case is concerned only with the telecommunications services which the purchaser of a multifunctional card may access by dialling an access number and entering a PIN. By this means the cardholder obtains access to Interdirect's telecommunications network. Both ICSIL and Interdirect are members of the IDT group the head of which IDT Corp, established in the USA. One of its main activities is the sale of prepaid face value phonecards.
5. IDT has been selling such cards throughout Europe, including the United Kingdom, since 1998. To improve its competitive edge against rival suppliers of phonecards it decided to introduce the multifunctional card in February 2003. The date and purpose of this decision is relevant to an argument, to which I shall return subsequently, that the purpose of the structures deployed was tax avoidance. IDT's business plan, dated February 2003, identified the purpose as being to distinguish IDT cards from others (see the rationale at Volume 1, page 176) and it was decided to start in the United Kingdom. It proposed setting up a new company in Ireland to distribute the cards and to employ its existing Irish telecommunications company, albeit under a different name to provide the telecommunications services.
6. The rationale for this structure is explained within the business plan as follows:

"It would seem logical to set up a new company to launch these new products. This company would look for 3rd party providers of various services, and would then put together phonecards offering these various services. Obviously the offering of making international cards would be one of the services. It would seem sensible for this new company to steer clear of trying to handle the telecoms side of the business. Rather it should focus on finding suppliers, putting the card together, pricing it to make it attractive, and then handling the distribution, leaving the services on offer in the hands of expert companies who would redeem the service when the end-user calls."

7. This was further explained by Mr Kent, a director of ICSIL, in his witness statement. In pursuance of this plan, and those distinctions, ICSIL was set up and the existing Irish telecommunications company became Interdirect.
8. It is of note that at the time of the Business Plan the relevant legislation was not that which is the subject matter of the instant case, namely Schedule 10A of the Value Added Tax Act 1994 (the 1994 Act), which applied after April 2003, but its predecessor, paragraph 5 of Schedule 6 of the 1994 Act which re-enacted earlier provisions contained in paragraph 6, Schedule 4 of the VAT Act 1983. These measures provided that where a right to receive goods or services on any token or voucher was granted for consideration, the consideration was disregarded for the purpose of the UK VAT legislation, save to the extent that that consideration exceeded the amount stated on the token, stamp or voucher. Thus no VAT was payable on the sale of the vouchers. The only taxable transaction occurred when the voucher was redeemed and either the goods were sold or services were supplied.
9. Paragraph 5, Schedule 6 read that:

"Where a right to receive goods or services for an amount stated on any token, stamp or voucher is granted for a consideration, the consideration shall be disregarded for the purposes of this Act except to the extent (if any) that it exceeds that amount."

10. This provision was intended to avoid the double taxation which might otherwise have arisen on the supply of the right to obtain goods or services when the voucher was sold and again when the voucher was redeemed and the goods or services, to which it related, were supplied (see the Commissioner's argument, apparently accepted by the CA in Customs and Excise v Granton 96 STC 1049 at v 1053 b-f).

History of the Introduction of Schedule 10

11. In October 1996 the European Court of Justice in Argos Distribution CD V CE [1997 QB 499] decided that VAT was only due on the sum for which a face value voucher was originally sold, not on the value of the goods or services for which the voucher was eventually exchanged. Thus where a company supplied vouchers at a discount on the face value of the vouchers, it was only liable to output tax on the consideration it received on the sale of the voucher, and not on the face value of the voucher.
12. In June 2002 the Commissioners for Customs and Excise published a consultation document identifying the scope for tax avoidance and what the document described as "tax leakage". It referred, although not by name, to Argos (1.5) and said that:

"The most common problems arise when intermediaries purchase vouchers from issuers at a discount, and then sell them on to customers at full price. VAT does not currently apply to the mark-up made by the intermediaries, a situation which - in ordinary circumstances - leads to leakage of tax, and - in some cases - is being deliberately abused by associated companies to avoid tax."

It described the purpose of the review as being

"to block tax leakage and abusive tax avoidance in this area;

While ensuring that, where goods or services do not attract VAT, the treatment of FVVs [Face Value Vouchers] that can only be used to purchase them reflects that fact. (paragraph 1.8)"

The Statutory Provision

13. Schedule 10A of the 1994 Act, as introduced by section 19 of the Finance Act 2003, Schedule 1, paragraph 2, provides:
"[SCHEDULE 10A FACE-VALUE VOUCHERS]

Amendments-

This Schedule inserted by FA 2003 s 19, Sch 1 para 2 with effect for supplies of tokens, stamps or vouchers issued after 8 April 2003.

Meaning of 'face-value voucher' etc

[1-

(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.

(2) References in this Schedule to the 'face value' of a voucher are to the amount referred to in sub-paragraph (1) above.]

Amendments-

1 Schedule inserted by FA 2003 Sch 1 para 2 in relation to supplies of tokens, stamps or vouchers issued after 8 April 2003.

[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.]

Amendments-

1 Schedule inserted by FA 2003 Sch 1 para 2 in relation to supplies of tokens, stamps or vouchers issued after 8 April 2003.

Treatment of Credit Vouchers

[3-

(1) This paragraph applies to a face-value voucher issued by a person who-

(a) is not a person from whom goods or services may be obtained by the use of the voucher, and

(b) undertakes to give complete or partial reimbursement to any such person from whom goods or services are so obtained.

Such a voucher is referred to in this Schedule as a 'credit voucher'.

(2) The consideration for any supply of a credit voucher shall be disregarded for the purposes of this Act except to the extent (if any) that it exceeds the face value of the voucher.

(3)Sub-paragraph (2) above does not apply if any of the persons from whom goods or services are obtained by the use of the voucher fails to account for any of the VAT due on the supply of those goods or services to the person using the voucher to obtain them.]

Amendments-

Schedule inserted by FA 2003 Sch 1 para 2 in relation to supplies of tokens, stamps or vouchers issued after 8 April 2003.

Treatment of retail vouchers

[4-

(1) This paragraph applies to a face-value voucher issued by a person who-

(a) is a person from whom goods or services may be obtained by the use of the voucher, and

(b) if there are other such persons, undertakes to give complete or partial reimbursement to those from whom goods or services are so obtained.

Such a voucher is referred to in this Schedule as a 'retailer voucher'.

(2)The consideration for the issue of a retailer voucher shall be disregarded for the purposes of this Act except to the extent (if any) that it exceeds the face value of the voucher.

(3) Sub-paragraph (2) above does not apply if-

(a) the voucher is used to obtain goods or services from a person other than the issuer, and

(b) that person fails to account for any of the VAT due on the supply of those goods or services to the person using the voucher to obtain them.

(4)Any supply of a retailer voucher subsequent to the issue of it shall be treated in the same way as the supply of a voucher to which paragraph 6 applies.]

Amendments-

1 Schedule inserted by FA 2003 Sch 1 para 2 in relation to supplies of tokens, stamps or vouchers issued after 8 April 2003.

Treatment of postage stamps

[5 The consideration for the supply of a face-value voucher that is a postage stamp shall be disregarded for the purposes of this Act except to the extent (if any) that it exceeds the face value of the stamp.]

Amendments-

1 Schedule inserted by FA 2003 Sch 1 para 2 in relation to supplies of tokens, stamps or vouchers issued after 8 April 2003.

Treatment of other kinds of face-value voucher

[6-

(1) This paragraph applies to a face-value voucher that is not a credit voucher, a retailer voucher or a postage stamp.

(2) A supply of such a voucher is chargeable at the rate in force under section 2(1)(standard rate) except where sub-paragraph (3),(4) or (5) below applies.

(3) Where the voucher is one that can only be used to obtain goods or services in one particular non-standard rate category, the supply of the voucher falls in that category.

(4) Where the voucher is used to obtain goods or services all of which fall in one particular non-standard rate category, the supply of the voucher falls in that category.

(5) Where the voucher is used to obtain goods or services in a number of different rate categories-

(a) the supply of the voucher shall be treated as that many different supplies, each falling in the category in question, and

(b) the value of each of those supplies shall be determined on a

Just and reasonable basis]"

14. Those provisions applied to face-value vouchers after the 8th April 2003.

The Tax Consequences of a supply of telecommunications services from Ireland

15. If the telecommunications services had been supplied not by Interdirect from Ireland but by a company established in the United Kingdom, then by virtue of Paragraph 3 of Schedule 10A the consideration for the supply of the card would have been disregarded and VAT would be due and payable on the supply of the service. Indeed, VAT is due and paid on the supply of sports information services by Teamtalk, the company established in the United Kingdom.
16. There is no dispute but that Interdirect does not have to account for VAT in Ireland when a card is redeemed and Interdirect supplies a telecommunications service from Ireland to an end-user within the United Kingdom. (see the letter from Deloitte, on behalf of the claimants, dated 19th June 2003, and the reply from the Irish Revenue, dated 30th July 2003, the penultimate paragraph.)
17. However, under Irish VAT law the supply of the cards to a distributor or retailer within Ireland would attract VAT (see the letter from Deloitte's of 19th June) since they are used for access to telecommunications services. In effect, the consideration paid for the issue of the card is treated as prepayment for the supply of the telecommunications service. No further VAT is payable when the phonecard is in fact used, otherwise double taxation would occur, but the supply of such cards for business purposes to distributors or retailers in the United Kingdom are outside the charge to Irish VAT (see the Irish Revenue's letter dated 30th July). The Irish tax authorities expect the telecommunication services, being Fourth Schedule Services, to be charged in the state where the recipient is established (see Irish Revenue's VAT leaflet 9.01 at paragraph 2(3)). I should mention that although the correspondence and the Commissioners' written arguments referred to provisions of Irish VAT law, no expert evidence was advanced. The parties have been content to rely upon that which occurs from the exchange of correspondence and the copies of the relevant legislation. So must I.
18. Accordingly, unless the Commissioners can establish that VAT is payable on the supply of the telecommunication services by Interdirect to an end-user within the United Kingdom, the supply of the multifunctional card and its redemption for access to telecommunication services will escape VAT altogether.
19. It is apparent that this consequence flows from a difference in treatment of phonecards between the Irish and United Kingdom legislation. Ireland imposes VAT on the supply of the phonecards and avoids double taxation by providing that no further VAT is due when access to the telecommunication services is obtained. The United Kingdom imposes VAT not on the supply of the card but on the supply of the service when the card is redeemed.
20. On 13th July 2004 the Commissioners published a Business Brief in which they asserted that distributors of phonecards should account for VAT on the supply of the cards. If the United Kingdom imposed the charge on the supply of the card from Ireland to a distributor or retailer within the United Kingdom for business purposes, viewing the consideration as prepayment for a telecommunication service, then the problem, as the Commissioners see it, and the advantage, as the claimant see it, will not arise.
21. Pursuant to Article 9(2)(e) of the Sixth Directive, sections 7 to subsection (11) of the 1994 Act, and the VAT Place of Supply of Services Order SI 1992/3121 Article 16, and Schedule 5, paragraph 7(a) of the 1994 Act, the trader would then account for output on the value of the supply received and deduct VAT, so accounted for, as input tax, "the reverse charge". The same fiscal effect results as if the trader had received the telecommunications service from a United Kingdom supplier.

The Commissioners' argument

22. The Commissioners contend that it is absurd that the supply of a telecommunications service, clearly within the community scope of VAT framed by the Sixth Directive, should escape VAT altogether merely because a card is supplied to a trader within the United Kingdom but the actual telecommunications service is supplied from Ireland to an end-user who redeems that card. If the telecommunications service itself was provided to a trader, such as a distributor within the United Kingdom, then VAT would be charged under the reverse charge procedure, to which I have already referred.
23. The Commissioners in their written argument describe the claimant's structures as "the exploitation of the difference between the Irish and the UK treatment of phonecards" and as "a naked and deliberate attempt, truly remarkable in its audacity" and later as "classic tax avoidance" and "as a deliberate attempt to avoid paying any VAT at all."
24. However, behind the rhetoric lie two specific contentions as to construction: firstly it is contended that the words "VAT due", within paragraph 3 mean VAT due in the European Union or under the Sixth Directive since telecommunications services are clearly within the scope of the Sixth Directive and the claimants have failed to account for any VAT in respect of such supply. The disregarding provision in paragraph 3(2) does not apply and VAT is payable on the consideration for the supply of the card to a trader within the United Kingdom in accordance with the reverse charge procedures.
25. Alternatively, the reference in paragraph 3(1) to a person in the context means a taxable person. ICSIL and Interdirect are members of the same VAT group for Irish tax purposes and, accordingly, the voucher is issued by the same person (ICSIL) as the person (Interdirect) from whom the telecommunications service may be obtained.
26. In those circumstances the card is not a credit voucher but is a retail voucher under paragraph 4. By virtue of paragraph 4(4), on the supply of the retail voucher to an end-user in the United Kingdom, VAT is chargeable pursuant to paragraph 6.

Tax Avoidance: Conclusion

27. Although the thunder of guns could most readily be heard when the Commissioners' broadside was aimed at tax avoidance, once the smoke cleared, their arguments do not depend upon establishing tax avoidance but rather on techniques of interpretation which require the domestic legislation to be construed in a manner consistent with the Sixth Directive, and in fulfilment of the obligations imposed in Article 10 on all Member States and their courts. But since the attack has been made and colours the Commissioners' approach, I should record my views as to whether the barrage was well aimed. I do not find any evidence of tax avoidance of a kind which amounts to abuse in a Communitaire or any sense which the court should not condone. In Gemeente Leusden and another v Staatsecretaris van Financien, Joined cases C-487/01 and C-07/02, the European Court of Justice said at paragraph 78:

"As regards abuses, the Court has held that a finding of an abuse requires, first, a combination of objective circumstances in which, despite formal observance of the conditions laid down by the Community rules, the purpose of those rules has not been achieved and, second, a subjective element consisting in the intention to obtain an advantage from the community rules by creating artificially the conditions laid down for obtaining it."

At paragraph 79 the Court continued:

"As regards tax avoidance, although, under the law of a Member State, a taxpayer cannot be censured for taking advantage of a provision or a lacuna in the legislation which, without constituting an abuse, has allowed him to pay less tax, the repeal of legislation from which a person liable to VAT has derived an advantage cannot, as such, breach a legitimate expectation based on Community law."

28. The claimants' proposals pre-dated the legislation. The Business Plan makes no reference to any fiscal advantage but provides ample commercial rationale for the structures adopted. There is no basis for asserting that the structures were designed to exploit a perceived gap arising from the difference in treatment of phonecards in Ireland and the United Kingdom. Apart from observing that as a result of the structures adopted for commercial reasons Interdirect has been able to use the apparent gap to its fiscal advantage, nothing can usefully be gained in resolving the questions of construction. In the instant case the issues are, to my mind, better resolved by asking whether, on a proper construction, consistently with the Sixth Directive, the provisions of Article 3(2) or the provisions of paragraphs 4 and 6 Schedule 10A are applicable.

Paragraph 3 of Schedule 10A

29. The Commissioners' starting point is that it is plain that the Sixth Directive contemplates that the supply of telecommunication services falls within the scope of VAT. The supply of such services clearly falls within Article 2 which provides:

"The following shall be the 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."

30. Such service came under Article 6. ICSIL and Interdirect are plainly taxable persons within Article 4. Article 9 identifies the place where a service is supplied for the purposes of Article 2. Article 9(1) provides:

"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."

Article 9(2)(e) provides:

"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:..."

The indents which follow include a reference to telecommunication services.

31. Article 9 is of particular importance to the arguments on both sides. The Commissioners rely upon it because they contend that it is one of the key provisions designed to achieve the Sixth Directive objectives of preventing possible tax evasion, avoidance and abuse. The claimants rely upon it to demonstrate that there is no such thing as a European Union Tax due under the Sixth Directive, but rather the tax is due in a particular Member State in accordance with the place of supply rules laid down in Article 9.
32. Once it can be seen that the supply of telecommunication services ought to be charged to VAT, there is no difficulty, contend the Commissioners, in interpreting the domestic provisions in a way which ensures that the supply is charged to VAT.
33. The essential dispute, as it seems to me, turned on the principle to be derived from the Sixth Directive as to the extent of the right conferred, or indeed duty, placed, on a Member State to construe its domestic legislation so as to avoid non-taxation of a supply which falls within the charge to VAT under that Directive.
34. There was a debate between the Commissioners and the claimants as to how far the interpretation for which the Commissioners contended stretched the wording of Paragraph 3 of Schedule 10A beyond its breaking point. Both sides deployed decisions of the ECJ to demonstrate, on the one hand, the elasticity and, on the other, the limitations to the principle, often referred to as the Marleasing principle, that domestic legislation must be construed in a manner consistent with the Community Directive.
35. But, before it is possible to decide whether the Marleasing principle permits the interpretation of the domestic legislation in accordance with the Sixth Directive, the logically prior question to be determined is whether the principle for which the Commissioners contend can be derived from the Sixth Directive, consistently with which it is sought to interpret the domestic legislation.
36. That that is crucial is demonstrated by contrasting this case with others in which the Marleasing principle was applied. In those cases there was no difficulty in identifying the community legislation or the ruling of the European Court of Justice in accordance with which domestic legislation had to be construed.
37. In Marleasing SA v La Comercial Internacional de Alimentacion SA C-106/89 [1990] ECR 1 4135 a creditor company sought a declaration nullifying the Defendant Company's founder contract on the grounds that it was a sham and set up to put assets beyond the creditor's reach. Spanish law contained no limitation on the grounds for such a declaration. But Article 11 of the Community's First Company Directive permitted nullification only on limited grounds. Notwithstanding that the Community Directive had not been implemented in Spain and despite the fact that that Directive could not impose obligations on the individual (see paragraph 6), the European Court of Justice held that the Spanish Court must construe its legislation in a manner consistent with the Directive and by that means the grounds for ordering nullity were only those identified in Article 11 (see, in particular, paragraph 8).
38. The Commissioners stress that the ruling might have had the effect (although we do not know the result eventually in Spain) of depriving the creditor of its ability to recover the credit it had extended.
39. The Court applied the same principle (see Paragraph 16) in Centrosteel Srl V Adipol GmbH [2000] ECR 1 6007. The domestic Italian legislation required commercial agents to be registered, non-registered agency contracts were void. The Community's Commercial Agents Directive provided that the only requirement is that the contract of agency be in writing. The ECJ ruled that the court was bound to interpret the domestic legislation in the light of the wording and purpose of the Directive, so far as possible. The domestic provision "prohibited any person who was not registered from pursuing the activity of commercial Agent or representative".
40. Mr Parker QC, on behalf of the Commissioners, contended that notwithstanding that wording it was, so the ECJ concluded, possible to reduce the force of an apparently mandatory requirement and the effect of an apparent prohibition. He described the Marleasing principle as entailing a complete volte face in Italian Domestic Law.
41. I am not sure that Centrosteel carries him quite so far. As the Advocate General pointed out at Paragraph 36 and the Court observed at Paragraph 17:

"the Corte Suprema di Cassazione had changed its case law so that failure to enter on the register no longer resulted in nullity."

42. Article 9 itself makes no reference to nullity. Thus Centro involves no more than the application of the principle requiring interpretation of a domestic measure in the light of the wording and purpose of the relevant Directive so far as possible.
43. In Webb v EMO Air Cargo UK Limited [1993] 1 WLR 49 and No (2) [1995] 1 WLR 145 the House of Lords, both on reference, and following the European Court of Justice's ruling, were prepared to regard the wording of section 1(1)(a) and section 5(3) of the Sexual Discrimination Act as permitting an interpretation which considered pregnancy a circumstance relevant to the case of a woman temporarily unavailable albeit engaged indefinitely, but a circumstance not relevant in the case of an hypothetical man. Such an interpretation restricted the effect of the Section 1(1) test to cases other than those of pregnant women covered by the Equal Treatment Directive.
44. There are, submits Mr Parker, no difficulties in applying the same principles in the instant case. The wording and purpose of the Sixth Directive are clear. The supply of telecommunication services are subject to VAT. Such a purpose cannot be defeated by the mere device of supplying the service on the redemption of a previously supplied phonecard. There are 3 important objectives within the Sixth Directive, namely the prevention of avoidance of tax, the prevention of distortion of competition and the preservation of neutrality. As to avoidance, in Leusden, the Court referred to tax avoidance at paragraph 79 in the passage to which I have already referred. Distortion of competition is referred to in Articles 4(5) and 6(2)) of the Sixth Directive and the preservation of neutrality was referred to as a primary objective of the Sixth Directive at paragraph 22 of Carpaneto [1989] ECR 3233.
45. All those objectives are, so the Commissioners submit, frustrated in the instant case. Quite apart from tax avoidance, if suppliers of phonecards which enable end-users to access telecommunication services from another Member State are able to escape taxation but direct suppliers of such services cannot, there is clear distortion. Moreover, Interdirect can deduct the costs of supplies it receives from global suppliers, as it intends to do (see the letter dated 19th June 2003) but is not subject to output tax when it supplies the services to UK end-users.
46. I accept these consequences follow if ICSIL are correct. I also accept that under the Sixth Directive the supply of telecommunication services falls within Article 6 and that the supply is made by a taxable person within Article 4.
47. The essential difficulty arises from the wording and purpose of Article 9. The provisions of Article 9 are designed to avoid conflicts of jurisdiction Jurgen Dudda v Finanzamt Bergisch Gladbach, case C-327/94 [1996] ECR 1-4959 at Paragraph 20 (tab 15) the ECJ said:

"As regards the relationship between Article 9(1) and Article 9(2), the Court has already held that Article 9(2) sets out a number of specific instances of places where certain services are deemed to be supplied, whereas Article 9(1) lays down the general rule on the matter. The object of those provisions is to avoid, first, conflicts of jurisdiction, which may result in double taxation, and, secondly, non-taxation, as Article 9(3) indicates, albeit only as regards specific situations... "

In Design Concept SA v Flanders Expo (2003) STC 912 the Court said at paragraph 29:

"... Such an approach would appear to be in tension with the more general objective of art 9, which is to avoid instances of double taxation or non-taxation through the establishment of a common scheme for allocating the place of taxation of services."

48. Article 9(1) makes it clear that the supply of the telecommunications service by Interdirect is deemed to be the place of its establishment from which the service is supplied, namely Ireland. As the Court in Jurgen Dudda v Finanzamt Bergisch Gladbach C-327/94 [1996] ECR I-4959 made clear, whilst one of the objectives is to avoid non-taxation that is achieved only by the clear allocation of the obligation to tax and in the specific situations to which Article 9(3) refers, namely where effective use or enjoyment is either within or outside the Community.
49. There is no provision within Article 9 or elsewhere in the Sixth Directive which enables one Member State to charge VAT on the supply of services from another Member State in circumstances where Article 9(1) is applicable because the supply is not made to a taxable person falling within Article 9(2)(e). There is no provision to be found which enables a Member State to charge VAT on a supply as if that supply was made to a taxable person and thus fell within Article 9(2)(e).
50. The scheme of the Sixth Directive and, in particular of Article 9, is to provide a territorial basis for jurisdiction to charge VAT. Each Member State is responsible for charging tax due on a supply where that supply falls within its jurisdiction. There is no mandate to be found for imposing tax on a supply which falls within the jurisdiction of another Member State but which that other Member State has not imposed. In short, I can discern no obligation within the Sixth Directive imposed on the United Kingdom to tax a supply of a telecommunication service from an establishment in Ireland to an end-user in the United Kingdom unless that end-user is a taxable person in the United Kingdom within the meaning of Article 9(2)(e), in other words, that the service is supplied to a business user in the United Kingdom.
51. Mr Parker QC sought to meet those arguments by contending that since the place of supply rules in Article 9 are themselves designed to prevent non-taxation, they cannot be prayed in aid to achieve that purpose. But as already recalled, the European Court of Justice in Dudda observed that the avoidance of non-taxation is only an explicit objective in a specified situation. The difficulty in the instant case is that the avoidance of non-taxation can only be achieved at the cost of disregarding the rules of conflict which delimit the powers of Member States. I refer, in particular, to a passage on which Mr Parker relied at Paragraph 12 of the Commission of the European Communities v Kingdom of Spain [1993] ECR 1 5997 in which the Court said:

"That article [9(2)(e)] constitutes a rule of conflict which determines the place of taxation of advertising services and, consequently, delimits the powers of the Member States. It follows that 'advertising services' is a Community concept which must be interpreted uniformly in order to avoid instances of double taxation or non-taxation which may result from conflicting interpretations."

52. It seems to me that the flaw in the Commissioners' contentions lies in the fact that there is nothing within the Sixth Directive which confers a power, let alone imposes an obligation on the United Kingdom to charge tax on Interdirect's supply of telecommunications to an end-user. Thus it profits the Commissioners nothing to seek to interpret Paragraph 3 consistently with the Sixth Directive. Absent any principle empowering or requiring the United Kingdom to charge VAT, in circumstances where under Article 9(1), the place of supply was Ireland, Paragraph 3(3) cannot be construed as if Interdirect had failed to account for any VAT due under the Sixth Directive or in the European Union. Under the Sixth Directive the United Kingdom has no right, nor any obligation, to impose a charge on a supplier from Ireland which does not fall within Article 9(2)(e).
53. Such a conclusion is not inconsistent with the jurisprudence of the European Court of Justice in relation to attempts by one Member State to impose VAT in order to avoid non-taxation. In Dudda, to which I have already referred, the Court was concerned with the supply of sound engineering for artistic or entertainment events. Under Article 9(2)(c) the place of supply was the place of the event. Germany thought that such an approach might lead to a tax avoidance by highly mobile providers of services and sought to interpret Article 9(2)(c) in a way which interpreted ancillary services as those provided by the artists themselves. On that interpretation the supply of acoustic services took place in the Member State where the supplier was established. The Court rejected that argument and concluded that the services were ancillary, notwithstanding the potential of the non-taxation.
54. In the Commission v France (2001) ECR 1 637 the Court was concerned with a dispute as to the place of supply where the main contractor in relation to a waste disposal business was established outside France, but the actual disposal took place within France carried out by a French subcontractor. The Court followed Dudda since the supply fell within Article 9(1), notwithstanding that the result might be non-taxation where the main contractor is established outside the community (see paragraphs 51 and 52). It is not possible to derive any principle of interpretation which permits the Directive to be construed in a way which prevents non-taxation.
55. In Banque Bruxelles Lambert SA (BBL) v Belgian State case

C-8/03 (the Advocate General's opinion, dated 18th May 2004, and the ECJ judgment, dated 21st October 2004) Belgium sought to tax a bank providing services to SICAVs in Luxembourg. The recipients of those services were SICAVs not liable to VAT in Luxembourg. The Belgian provision (Art 21(3)) implementing Article 9(2) of the Sixth Directive did not apply and the services were to be treated as being supplied in Belgium, so the Belgian Government contended (see para 18). The Court concluded that the place of supply was the place where the recipient SICAVs established their business (see paragraphs 44 to 48). The contention advanced by Mr Parker was not expressed in that case.

56. I should note that there appears to have been no uniformity of treatment amongst Member States of SICAVs, but certainly one can find no support for the principle of construction which avoids non-taxation.
57. I conclude that the jurisprudence does not reveal any support for the principle which permits the United Kingdom to impose VAT on a supply from Ireland where the place of supply is determined by Article 9(1) and not by Article 9(2)(e).
58. In those circumstances I conclude that Paragraph 3(3) cannot be construed so as to regard Interdirect as having failed to account for any of the VAT due on the supply of telecommunication services. Paragraph 3(3) is consistent with my construction of the Sixth Directive. It is only possible to determine whether a person has failed to account for any VAT due once the place of supply is determined according to the provisions of Article 9. Tax was not due in Ireland, the place of supply, it was not due in the United Kingdom because Article 9(2)(e) did not apply and the United Kingdom was not the place of supply.
59. It will be apparent that had I been able to identify the principle for which Mr Parker contends within the Sixth Directive, it may have been possible to construe the domestic legislation in the way suggested. Mr Lasok QC, on behalf of the claimants, submitted that the words in Paragraph 3(3) cannot be so construed because to do so is to stretch the Maleasing principle too far. He referred to the opinion of the Advocate General in Scotch Whiskey Association v COFEPP [1998] ECR 1 4571 at Paragraph 18:

"However, it is a fundamental principle of statutory interpretation that words which do not require interpretation, because they are perfectly clear, should not be distorted under pretence of interpretation."

60. He also referred to the Federal Republic of Germany v Commission [2000] ECR 1-11261 in which at paragraph 72 the Court observed:

"... It is important to bear in mind that the need to ensure legal certainty means that rules must enable those concerned to know precisely the extent of the obligations they impose on them. The Commission thus cannot choose, at the time of the clearance of EAGGF accounts, an interpretation which departs from and consequently is not dictated by the normal meaning of the words used."

61. I do not regard the wording of Paragraph 3 to be such as to preclude the possibility of applying a community principle, if such a principle enabled the United Kingdom to charge VAT as if the supply fell within Article 9(2)(e) where it was not charged to tax in accordance with 9(1). But since there is no principle, in my view the question, whether the suggested construction goes beyond any meaning which the words can bear, need not be further elaborated.
62. Nor would I have regarded the principle of legal certainty as precluding the Commissioners' Construction. If there was a principle which enabled the United Kingdom to tax the supply of telecommunication services from Ireland to an end-user in the United Kingdom but outwith 9(2)(e), then I do not see how the principle of legal certainty could have any application. The only certainty would be that that principle would be applied.

Are Interdirect and ICSIL the same person within the meaning of Paragraph 3(1)?

63. In the absence of the principle for which the Commissioners contend, it is not possible to construe a person under Paragraph 3(1) as meaning a taxable person, or to regard Interdirect as the same person as ICSIL so as to conclude that the vouchers fell within Paragraphs 4 and 6 and outwith paragraph 3. Even if such a principle did exist I would find it impossible to conclude that "person" meant "taxable person" within the law of the United Kingdom.
64. Firstly, Article 4 draws a clear distinction between persons and taxable persons. Article 4(4) allows Member States to treat a person as a single taxable person where those taxable persons are "established in the territory of the Country who while legally independent are closely bound to one another by financial, economic and organisational links." Article 4(4) does not contemplate treating persons as a single taxable person when they are not established in the territory of that Member State. But ICSIL and Interdirect are not eligible to be members of a VAT group within the United Kingdom (see section 43(a) of the 1994 Act.
65. Secondly, even if ICSIL and Interdirect could be regarded as a single taxable person by the United Kingdom because of their status in Ireland, the legislation does not refer to taxable persons but only to persons: a distinct concept. The legislation is clearly referring to legally independent persons and not to a VAT Group.
66. I conclude that there is no principle to be derived from the Sixth Directive which requires the United Kingdom to treat Interdirect and ICSIL as the same person within Article 3(1).
67. In those circumstances the United Kingdom is not entitled to charge VAT on the supply of telecommunication services by Interdirect to those who redeem ICSIL's multifunctional cards purchased from retailers within the United Kingdom. Accordingly this application succeeds.
68. MR LASOK QC: I would ask for costs to be assessed, if not agreed. So far as the relief sought is concerned--
69. MR JUSTICE MOSES: Can we do one thing at a time? Firstly, you are jolly lucky that you won because your clients, Deloitte, have obviously resolved on a new meaning of direct access which means not only direct access to you, but direct access to the judge, since I received a letter direct to me when I was sitting in Newcastle telling me to hurry up with my judgment. Not only did they nearly not get a judgment but I nearly found in favour of the Commissioners. Perhaps you would have a word with them that direct access does not mean direct access to the judge and chasing him for a judgment.
70. MR LASOK QC: I apologise.
71. MR JUSTICE MOSES: It is not your fault, but it was pretty aggravating. Anyway so the first application is--
72. MR LASOK QC: I suppose what I should have said was the claim for relief itself. There is a claim for declaratory relief.
73. MR JUSTICE MOSES: Do you need anything? The judgment is plain. I should have thought until the Court of Appeal says otherwise they cannot charge VAT. I should not have thought you need one. What do you say about that, Mr Parker?
74. MR PARKER QC: The position is clear: we are not in a position to charge VAT.
75. MR JUSTICE MOSES: I do not think you need it. That goes by the by.
76. MR LASOK QC: It is only the question of costs. We would submit costs to be awarded in our favour to be assessed if not agreed.
77. MR PARKER QC: That is agreeable.
78. MR LASOK QC: I do not know whether my learned friend wants to ask--
79. MR JUSTICE MOSES: I said last time that I would give leave to appeal.
80. MR PARKER QC: If your Lordship was able to give further time, say 31st January.
81. MR JUSTICE MOSES: Yes, because I will need to correct this. I have a pretty full note which I will give to the shorthand writer. If you want a copy of it. People can perhaps get a copy from the shorthand writer. It is pretty rough, but it is possible to follow it.
82. MR PARKER QC: I just ask for further time.
83. MR JUSTICE MOSES: What is the order that I make then to give you further time?
84. MR PARKER QC: It is time for serving a Notice of Appeal because your Lordship has given permission to appeal to be extended to 31st January.
85. MR JUSTICE MOSES: I can do that rather than the Court of Appeal?
86. MR LASOK QC: We do not oppose that. There has been a concern because the Commissioners after the hearing did issue, as we understand it, assessments against our distributors. My learned friend said a moment ago that in the light of your Lordship's judgment the Commissioners could not extract the tax. I understand the position of the Commissioners as being therefore that they will not issue any further assessments.
87. MR JUSTICE MOSES: They might want to issue assessments so that they get interest if they win in the end.
88. MR LASOK QC: I think they will get that, in any event.
89. MR JUSTICE MOSES: They do not have to issue the assessments to get the interest.
90. MR PARKER QC: We are not going to issue further assessments, pending any appeal. Pending any appeal they will not take any further action in relation to any of the assessments they have already issued against our distributors. Apart from that the only thing I ought to mention is that in your Lordship's judgment you referred to one of the companies as Interdirect. I think it is actually Interdirect.
91. MR JUSTICE MOSES: I got that wrong all the way through it.
92. MR PARKER QC: I think if I mention now then whoever transcribes this--
93. MR JUSTICE MOSES: Otherwise I will make a note. Has anybody got the reference. I have it upstairs.
94. MR LASOK QC: I am afraid we do not have a copy.
95. MR JUSTICE MOSES: Thank you both very much. I ought to say that neither side sought a reference so that question just never arose. I suppose it might later on.
96. MR LASOK QC: I think it is my understanding that the Commissioners will not take further steps in relation to the current assessment. No doubt they will let us know.
97. MR JUSTICE MOSES: Thank you both very much.