England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		15/05/2009

Sir Edward Evans-Lombe:

1. I have before me two appeals in the first of which the Commissioners for HM Revenue & Customs ("HMRC") are Appellants and Trader Media Group Limited ("Trader Media") are Respondents and in the second of which InsuranceWide.com Services Limited ("InsuranceWide") are Appellants and HMRC are Respondents. Both appeals are from contrasting decisions of the VAT and Duties Tribunal, as to the first appeal on the 8^th May 2008, and as to the second appeal on 8^th November 2007. The principal issue in both appeals is whether supplies made by the Taxpayers fell outside the VAT exemption contained in Schedule 9, Group 2, Item 4 to the Value Added Tax Act ("VATA") 1994 namely, in broad terms, whether the supplies in question by the Taxpayers constituted the provision by an insurance agent or insurance broker of the services of an insurance intermediary. Schedule 9, Group 2 of VATA 1994 implements Article 13B(a) of the Sixth VAT Directive of the EU which is now found in Article 135(1)(a) of the recast 2006 VAT Council Directive. Because the authorities on the point in issue were decided under the pre-Article 135 law, the parties presented their cases under the legislation as it then stood and I will take the same course in this judgment.
2. In the first appeal ("the Trader Media appeal"), HMRC appeal against the decision of the Tribunal allowing an appeal from the decision of HMRC that Trader Media's supplies of services were outside the exempting provisions of VATA 1994 and so not liable for VAT. In the second appeal ("the InsuranceWide appeal"), InsuranceWide appeal from the decision of the Tribunal dismissing their appeal from a similar decision of HMRC. I will refer to Trader Media and InsuranceWide together as "the Taxpayers".
3. In each appeal the services in question provided by the Taxpayers were introductory services whereby the Taxpayers channelled would-be assureds ("customers") to insurers by electronic means with a view to their making a contract of insurance for which service the taxpayer received a commission from the insurer in the event that an insurance contract was arrived at between that customer and the insurer selected by the customer from a panel of insurers organised, inter alia, by or with the approval of the taxpayer.
4. Both appeals raised a point of law, namely whether a mere introducing taxpayer was capable of attracting the exemption from VAT provided for in Article 13B(a) as implemented in VATA 1994. If that point of law were determined in favour of the contentions of HMRC, it would follow that the appeal of HMRC in the Trader Media appeal would necessarily be allowed and a part of InsuranceWide's appeal would be dismissed. Accordingly, at my suggestion, the parties agreed that I should deal with what is a point of law as a preliminary issue to my decision on both appeals. The parties defined the issue to be dealt with as follows:-

"Is the act of introduction sufficient:

(A) to render a trader, an insurance agent and/or insurance broker and/or intermediary within the meaning of either Article 13B of the Sixth VAT Directive and/or Schedule 9, Group 2, Item 4 of the Value Added Tax Act 1994?

(B) to constitute one or more of the services described in Schedule 9, Group 2, Note 1 of the Value Added Tax Act 1994?"

I heard submissions over three days from each of the parties to the appeals directed to the resolution of this issue.

The European Legislation

5. Value added tax ("VAT") is the creature of the Sixth Council Directive of the European Union requiring Member States to modify their systems of taxation so as to impose a tax on the supply of goods and services, the tax on services being prescribed by Article 6. It was intended that VAT should, as far as possible, apply to all supplies of goods and services, however certain special situations required that the supply of certain services should be exempt from VAT. Materially to the issues in these appeals, Article 13 provided for "exemptions within the territory of the country" and at B:

"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:

(a) insurance and re-insurance transactions including related services performed by insurance brokers and insurance agents; …"

6. The Directive did not contain, and in its new form does not contain, any definition of the words "insurance brokers and insurance agents". The nearest approximation to a definition of those words in European law is contained in Council Directive 77/92/EEC of 13 December 1976 made for the purpose of regulating the freedom of establishment throughout the EC, pursuant to Article 43, of such professions as insurance brokers and insurance agents. Article 2 of that Directive provides as follows:-

"Article 2

1. This Directive shall apply to the following activities falling within ex ISIC Group 630 in Annex III to the General Programme for the abolition of restrictions on freedom of establishment:

(a) professional activities of persons who acting with complete freedom as to their choice of undertaking, bring together, with a view to the insurance or re-insurance of risks, persons seeking insurance or re-insurance and insurance or re-insurance undertakings, carry out work preparatory to the conclusion of contracts of insurance or re-insurance and, where appropriate, assist in the administration and performance of such contracts, in particular in the event of a claim …

(b) professional activities of persons instructed under one or more contracts or empowered to act in the name and on behalf of, or solely on behalf of, one or more insurance undertakings in introducing, proposing and carrying out work, preparatory to the conclusion of, or in concluding, contracts of insurance, or in assisting in the administration and performance of such contracts, in particular in the event of a claim

(c) activities of persons other than those referred to in (a) …who, acting on behalf of such persons, among other things carry out introductory work, introduce insurance contracts or collect premiums, …

2. This Directive shall apply in particular to activities customarily described in the Member States as follows:

(a) activities referred to in paragraph 1(a):- …

in the United Kingdom: insurance broker:…

(b) activities referred to in paragraph 1(b):- …

in the United Kingdom: agent:…

(c) activities referred to in paragraph 1(c):-

in the United Kingdom: sub-agent."

7. For the further facilitation of the right of establishment of persons conducting "insurance mediation" Directive 2002/92EC of the European Parliament and of the Council of 9 December 2002 was made and was to apply to "persons whose activity consists in providing insurance mediation services to third parties for remuneration, …." By Article 2 of this Directive the term "insurance mediation" was defined at paragraph 3 as meaning:-

"… the activities of introducing, proposing or carrying out other work preparatory to the conclusion of contracts of insurance, or of concluding such contracts, or of assisting in the administration and performance of such contracts in particular in the event of a claim."

Domestic legislation

The requirements of Article 13B of the Sixth Directive were implemented in UK legislation by Schedule 9, Group 2 of VATA which provides that the following, inter alia, are exempt supplies:-

"Item number…

4 The provision by an insurance broker or insurance agent of any of the services of an insurance intermediary in a case in which those services –

(a) are related (whether or not a contract of insurance or re-insurance is finally concluded) to an insurance transaction or a re-insurance transaction: and

(b) are provided by that broker or agent in the course of his acting in an intermediary capacity.

NOTES

(1) For the purposes of Item 4 services are services of an insurance intermediary if they fall within any of the following paragraphs:

(a) the bringing together, with a view to the insurance or re- insurance of risks of -

(i) persons who are or may be seeking insurance or re-insurance, and

(ii) persons who provide insurance or re-insurance:

(b) the carrying out of work preparatory to the conclusion of contracts of insurance or re-insurance;

(c) the provision of assistance in the administration and performance of such contracts, including the handling of claims;

(d) the collection of premiums.

(2) For the purposes of Item 4 an insurance broker or insurance agent is acting "in an intermediary capacity" wherever he is acting as an intermediary, or one of the intermediaries, between

(a) a person who provides insurance or re-insurance, and

(b) a person who is or may be seeking insurance or re-insurance or is an insured person…

(7) Item 4 does not include –

(a) the supply of any market research, product design, advertising, promotional or similar services; or

(b) the collection, collation and provision of information for use in connection with market research, product design, advertising, promotional or similar activities."

8. Since the issue which I have to decide is a pure question of statutory construction, the background facts from which the two appeals arise are strictly irrelevant. However, it seems to me that it will assist the reader if I briefly summarise those background facts.

The Trader Media Appeal

9. The background facts to this appeal are set out under the heading "Factual Background" between pages 27 and the top of page 31 of the transcript of the decision. For my purposes it is sufficient to say that Trader Media is a publishing company which specialises in classified display advertising which allows members of the public and businesses to sell and purchase a wide variety of motor vehicles. One of those publications is a magazine called Auto Trader. In addition to that magazine, Trader Media maintains an internet website devoted to this purpose. The online site comprises a number of products including the ability to advertise a car for sale, car valuation, details of new cars, financing, insurance and other products. In respect of insurance products, there is an "insurance centre" which customers using the website can use to obtain quotes for car insurance from a panel of selected insurers. In 2005 Trader Media undertook a tender process with the object of finding a partner with which it could enter into an arrangement under which such a partner could work with Trader Media to provide and sell insurance products to customers accessing the website who would probably have been readers of Auto Trader. As a result of this process Trader Media entered into an agreement with a company known as BISL. At page 29 of the decision the Tribunal gave a brief explanation of how the service to such customers worked as follows:-

"A user logs on the Auto Trader website. There were a number of options in terms of the information available which were contained in links from the home page to other parts of the website or in a dropdown menu. For example, a user could click on the "Finance Centre" to access information relating to loans or could click on the "Motoring Centre" to access information about car warranties or MOT tests. Similarly, if a user wished to access information in respect of insurance products, there were a number of routes available to access the Insurance Centre. The Insurance Centre contained information about choosing the best motor insurance policy. It did this by asking standard form questions of the proposer and provided in return information on insurance cover and premiums. There was no negotiation between the parties.

To get a customer to use the Insurance Centre, they were invited to press the "get a quote" button. At that stage, they entered into the Auto Trader and Compare the Market branded insurance quotation page which opened up a separate "window" on their computer screen. Questions were asked and answers given in order to provide the information necessary for a quote. The URL or internet address for the quotation process was that of Auto Trader and customers gained access to the questions through the Auto Trader website."

10. The Insurance Centre was run by BISL although Trader Media had initial and continuing input into such matters as the questions asked of customers and the constitution of the panel of insurers to whom the answers of a customer could be referred for them to submit quotes. A customer who "clicks on" the indicator of the Insurance Centre on the Auto Trader web page is transferred automatically by electronic ("hypertext") link to the Insurance Centre run by BISL where he is invited to answer questions relating to his insurance requirements. If an insurance contract between the customer and one of the panel of insurers results, Trader Media are paid a commission by the insurer.

The InsuranceWide Appeal

11. A description of the background facts to this appeal is given by the Tribunal between paragraphs 10 and 33 inclusive of the decision. The relevant service which InsuranceWide supplied started in 1999 with an agreement between InsuranceWide and Freeserve (the internet service supplier, now Orange) whereby Freeserve appointed InsuranceWide to be its sole designated provider of insurance products. This was done by InsuranceWide passing particulars of would-be insureds through Freeserve, initially, to a company known as Cox which was a publicly-quoted company that owned Equity Red Star, a syndicate which underwrote motor and household business and which operated a panel of insurers. InsuranceWide passed particulars of customers to Cox which put each customer in contact with an appropriate insurer chosen by it. If an insurance contract resulted, InsuranceWide would be paid a commission. At paragraph 13 of the decision the Tribunal found that:-

"It was accepted by Mr Harrison [InsuranceWide's witness] that InsuranceWide did not have authority to bind Cox. It was also acknowledged that InsuranceWide did not at any stage handle claims or collect premiums or prepare insurance policies. InsuranceWide did not employ staff to deal with such administrative matters."

12. Thereafter until the present day, InsuranceWide's method of conducting this aspect of its business went through a number of developments involving technological changes, including the use of computers, so that customers were automatically matched with groups of insurers offering insurance contracts suitable for the customer from which the customer could select an insurer at a price acceptable to the customer. InsuranceWide maintained an internet website which was the primary means whereby its customers accessed its insurance services through Freeserve. At paragraph 17 of the decision the Tribunal found that:-

"Throughout its existence the principal remuneration for InsuranceWide remained commissions based on the insurance contracts made as a result of its internet connections. However it also at all times received income from advertisers on its website, such income has been accepted by InsuranceWide as being subject to standard VAT."

13. It seems clear that InsuranceWide played and plays a more active part in setting up, maintaining and developing the process by which customers ultimately make a contract of insurance with one of what are now a wide variety of insurers, than was the case with Trader Media. However, by contrast with Trader Media, InsuranceWide, in its terms and conditions of service to customers, accepts "no responsibility whatsoever (whether in contract, negligence or any other course of action) for the insurance provider's websites including the sale of such products or services" and later in the same document says that it does "not represent, warrant or endorse the suitability of any insurance products or services, nor the accuracy or reliability of information concerning any insurance products or services."
14. Further terms and conditions of InsuranceWide state that:-

"We do not sell insurance or enter into insurance contracts. We are not an insurance company, broker or intermediary. We do not act as an agent for you or for the insurer. We simply provide a referral service."

The preliminary issue

15. The issue before me is whether the provision of such a referral or introductory service in which the provider simply channels customers, who are attracted to its website because of its reputation as a facilitator for the obtaining of insurance services and which plays no part in negotiating the terms of any contracts of insurance which ultimately result, or in attempting to do so, is thereby constituted an insurance broker or insurance agent, providing the services of an insurance intermediary so as to bring itself within the exemption from VAT provided for by Article 13B of the Sixth Directive and Schedule 9 Group 2 Item 4 of VATA. This is a process of statutory construction, primarily, of the provisions of the relevant European legislation, i.e. of Article 13B. However, it is established by authority that if national legislation, implementing European legislation, confers on citizens of the relevant Member State, rights which exceed those conferred on them by the European legislation being implemented, those citizens are entitled to the benefit of such national legislation until repealed: see per Mummery LJ in Customs and Excise Commissioners v CSMA [1998] STC 111 at 115 and per Morritt V.C. in Customs and Excise Commissioners v BAA plc [2003] STC 35 at p.42, para. 14.

The approach to the construction of legislation exempting suppliers of goods and services from VAT

16. In Expert Witness Institute v Customs and Excise Commissioners [2002] STC 42, the Court of Appeal were considering whether a body, incorporated as a company limited by guarantee, as an organisation for the support and training of experts of all professional disciplines in giving expert evidence in court, whose members paid nothing for its services other than membership subscriptions, were subject to VAT and not entitled to exemption under Article 13A(1)(o) of the Sixth Directive. At paragraph 16 of his judgment in that case Lord Justice Chadwick says:-

"16. We were reminded by Mr Patchett-Joyce, who appeared for the Commissioners on this appeal, that the context in which the phrase "aims of a civic nature" falls to be construed is the determination of the scope of an exception to or exemption from, the general principle that turnover tax (or VAT) is to be levied by a Member State on all services supplied for consideration by a taxable person within the relevant territory. Accordingly, the phrase is to be construed strictly: see the observations of the Court of Justice of the European Communities in Stichting Uitvoering Financiele Acties v Staatssecretaris van Financien (Case 348/87) [1989] ECR 1737 at 1753 para. 13 -

The terms used to specify the exemptions envisaged by Article 13 of the Sixth Directive are to be interpreted strictly since they constitute exceptions to the general principle that turnover tax is levied on all services supplied for a consideration by a taxable person.

That that is the approach to the construction of the phrase which we should adopt on this appeal is not I think in doubt. Unless the aims of the Institute fall fairly within the phrase "aims of a civic nature" supplies of services by the Institute are not to be treated as exempt supplies for the purposes of VAT. It is not for this court to adopt a strained construction in order to fill what it may perceive to be a lacuna in exempting provisions in fiscal measures. …

17. It does not follow however that the court is required to give the phrase (aims of a civic nature) the most restricted, or most narrow meaning that can be given to those words. A strict construction is not to be equated, in this context, with a restricted construction. The court must recognise that it is for a supplier, whose supplies would otherwise be taxable, to establish that it comes within the exemption, so that if the court is left in doubt whether a fair interpretation of the words of the exemption covers the supplies in question the claim to exemption must be rejected. But the court is not required to reject a claim which does come within a fair interpretation of the words of the exemption because there is another, more restricted, meaning of the words which would exclude the supplies in question."

17. This approach to the construction of Article 13 is further well illustrated in the decision of the European Court in the case of The Commission v France Case C-76/99 (judgment dated 11^th January 2001), in which the court was considering the construction of Article 13(A)(1)(b) of the Sixth Directive and the words:-

"(b) Hospital and medical care and closely related activities undertaken by bodies governed by public law, by hospitals, centres for medical treatment or diagnosis and other duly recognised establishments of a similar nature."

18. At paragraph 21 of the judgment of the Court the following appears:-

"In that regard it should be observed, first, that, although the Court has held…the exemptions referred to in Article 13 of the Sixth Directive are to be interpreted strictly, the Court has also noted …that those exemptions constitute independent concepts of Community law whose purpose is to avoid divergencies in the application of the VAT system from one Member State to another.

22. It must be pointed out, second, that Article 13(A)(1)(b) of the Sixth Directive does not include any definition of the concept of activities "closely related to hospital and medical care."

23. As the Advocate General noted in point 23 of his opinion, that concept does not, however, call for an especially narrow interpretation since the exemption of activities closely related to hospital and medical care is designed to ensure that the benefits flowing from such care are not hindered by the increased costs of providing it that would follow if it or closely related activities were subject to VAT."

19. There are three preliminary observations to be made with relation to the European and United Kingdom legislation.
20. The first is to observe that whereas European law, and, in particular, the Sixth Directive, contains no attempt to define the words "insurance brokers and insurance agents", Schedule 9 of VATA paragraph 4 and Notes (1) and (2) does so, in so far as those two groups act in an intermediary capacity, by reference to the functions they must perform when so acting. The provisions of Notes (1) and (2) plainly find their origin in Article 2 of Council Directive 77/92/EEC of 13 December 1976 and primarily from paragraph 1(a) of that Article [see above para. 6].
21. Secondly, it is suggested that Schedule 9 Item 4 and its notes may create a third group of individuals called "insurance intermediaries", in addition to insurance brokers and insurance agents, capable of attracting exemption from VAT under Article 13B. In my view, Schedule 9 para. 4 is not to be construed as doing this. Paragraph 4 is plainly directed to restricting the exemption of insurance brokers and insurance agents to apply only to services supplied by them when acting as intermediaries performing the roles set out in Notes (1) and (2). In any event it seems to me that the words "insurance broker" and "insurance intermediary" are interchangeable. It seems to me that "agent" should be given "its broad popular commercial" meaning and this is really indistinguishable from "broker": see the judgment of Woolf J. in Customs and Excise Commissioners v Johnson [1980] STC 624. Thus, in my view, in the context of Article 13B there is effectively no difference between a professional described as an insurance broker and one described as an insurance agent. Whether they are exempt from VAT will depend on the functions they are performing when making the relevant supply of services.
22. Thirdly, at subparagraph (d) of Article 13B exemption from VAT is extended to:-

"(d) The following transactions:

1. The granting and the negotiation of credit and the management of credit by the person granting it;…

2. The negotiation of or any dealings in credit guarantees…

3. Transactions, including negotiations, concerning deposit and current accounts…

4. Transactions, including negotiation, concerning currency.

5. Transactions, including negotiation, excluding management and safe keeping, in shares…

6. Management of special investment funds…"

Sub-paragraph (d) then sets out a further five sub-paragraphs describing credit transactions which are to attract exemption, four of which include the word "negotiation". There are a number of decided cases both in the European Court and in United Kingdom courts directed to the meaning of "negotiation" in Article 13B(d). There is an issue as to whether those authorities can be of guidance in answering the questions put to me. I can see no reason why those authorities should be treated as irrelevant because they are considering provisions of the Sixth Directive which do not directly apply to the facts of the appeals which are before me, if they otherwise appear to be of guidance. I note that one of those cases, CSC Financial Services Limited v Customs & Excise Commissioners in the European Court (Case C-235/00), is referred to at paragraph 38 of the report of the judgment of the European Court of Justice in Staatssecretaris van Financien v Arthur Andersen & Co Accountants cs (Case C-472/03), an important precedent in these appeals, as giving guidance to the court in that case which also concerned Article 13B(a) of the Sixth Directive; but see the comments of the Advocate General and the Court in the Taksatorringen case, referred to below at paragraph 89 and 45 of the report of that case respectively; see also the comments of the Advocate General in the Arthur Andersen case at paragraphs 22 and 23 which the Court in the Arthur Andersen case do not seem to have followed; contrast Card Protection Plan v C & E Commissioners [2001] STC 174 at paragraphs 31 and 32 and the decision of the UK Court of Appeal in Century Life plc v Customs and Excise Commissioners [2001] STC 30 per Jacob J. at para. 12.

23. It is the Taxpayers' contention that both the relevant European and United Kingdom legislation and decisions of the European and United Kingdom courts point to the conclusion that an individual or organisation whose service is only to introduce customers to insurers, and who may even only form part of a chain of introducers and not necessarily the introducer immediately proximate to the insurer, is entitled to exemption under Article 13B(a) as providing services "related to insurance… transactions".
24. It is HMRC's position that a mere introducer cannot fulfil the role of an insurance agent or insurance broker within the legislation so as to attract an exemption from VAT. In particular, in the Trader Media case, the taxpayer was categorised by HMRC as simply the supplier of an electronic link to insurers whereby customers for insurance services could obtain immediate access to those insurers by clicking on the appropriate place on the taxpayer's website page and thus was no more than an advertiser of the services of insurers. It was HMRC's case that a mere introducer did not qualify for exemption because it did not have power to bind any insurance company at any time. [See paragraph 39(1) of HMRC's skeleton argument in the InsuranceWide case]. Further, it "did not have any role to play in negotiating the terms of any of the insurance contracts which eventuated" with the consequence that it "did not act on behalf of either the insurer or the person seeking the insurance in the course of the negotiation of the insurance contract". [See sub-paragraph (5)]. Yet further, a mere introducer did not recommend or endorse any particular insurer or group of insurers to a customer [see paragraph 20(7)]. It was not HMRC's case that a power to bind one of the parties to any actual or proposed insurance contract or the fact that the introducer was endorsing an insurer or insurers, were absolute requirements in order to obtain exemption. It was submitted that the power to bind was a strong indication of an insurance agent for the purposes of the legislation. It was, however, submitted that it was a requirement of exemption that the agent or broker should play a part in the negotiation of the terms of insurance contracts which eventuated or which were sought though not achieved. In short, a mere introducer was in no sense an intermediary for any purpose in the making of insurance contracts.
25. I have come to the conclusion that I am unable to accept HMRC's submissions. I have arrived at this conclusion for the following reasons:-

i) As a preliminary matter, it is necessary to define what one means by an introducer in the context of the background facts of these two appeals. It seems to me that an introducer is one who, by reason of his relationship with two or more individuals or groups of individuals, is able to put two or more of those individuals or groups in contact with each other with a view to their forming, in the future, a commercial relationship, in these cases the relationship of insurer and insured. I reject HMRC's description of the role of Trader Media as a mere provider of an electronic link for customers to use in contacting insurers. One has to ask the question why customers seek to make use of the link in the first place. The answer is because, in Trader Media's case, of Trader Media's reputation in the market place, through its publications, in particular of Auto Trader, as a purveyor of information about motor cars. This is a reputation which Trader Media has established over many years and is a valuable resource which would-be insurers of motor cars wish to be in a position to exploit. Thus, customers seeking to use the electronic link are, at that stage, customers of Trader Media seeking insurance services. Through its electronic link those customers are able to have access to BISL and the facilities which BISL has contracted with Trader Media to supply to customers using the link, namely, to be put in touch with an insurer or a number of insurers offering insurance services suitable to their needs.

ii) I have already said that I find the terms broker and intermediary interchangeable. Thus, a broker will usually be acting in an intermediary capacity. The business of a broker is to be an introducer performing the functions which I have described. It seems to me that another way of describing those functions in the context of insurance is "the bringing together, with a view to the insurance or re-insurance of risks of – (i) persons who are or may be seeking insurance or re-insurance, and (ii) persons who provide insurance or re-insurance": see note (1)(a) of the notes to item 4 of Schedule 9. See also the Card Protection Plan case in the judgment of the Court at paragraphs 31 to 33. The description of those functions also fits the words of Article 2 of Directive 2002/92 EC – "activities of introducing, proposing or carrying out other work preparatory to the conclusion of contracts of insurance… ." In my judgment sub-paragraph (1)(a) of the notes to paragraph 4 of schedule 9 Group 2 of VATA describes the functions of an introducer.

iii) Paragraph (1) of note 4 starts with the words "for the purposes of item 4 services are services of an insurance intermediary if they fall within any of the following paragraphs [my emphasis]:" Then follows (a) from which I have just quoted, but after that comes (b) "the carrying out of work preparatory to the conclusion of contracts of insurance or re-insurance;" It seems to me to follow from these provisions that the notes differentiate between those falling within sub-paragraph (a) who are introducers and those falling within paragraph (b) who would include those concerned with the negotiations of the terms of contracts of insurance. The point is reinforced by the words of Article 2 of Directive 2002/92 "activities of introducing… preparatory to the conclusion of contracts of insurance, or of concluding such contracts…" [my emphasis]. Sub-paragraphs (a) and (b), therefore, describe two separate types of individual entitled to exemption (a) introducers and (b) negotiators of the terms of insurance contracts.

iv) A broker is an intermediary between two potential contracting parties whose objective is to facilitate the making of a contract between them. A broker is not performing functions typical of a broker if he acts as a sub-contractor of the parties and an individual who only acts as a supplier of support services to either of the negotiating parties is not performing a function which constitutes an exempt supply. This was the conclusion of the European Court in the Arthur Andersen case to which I have already referred. In that case the European Court was examining a claim to exemption from VAT by a company referred to as UL "active in the life assurance market through insurance agents" and a company referred to as ACMC which concluded a collaboration agreement with UL to provide UL with "back office activities", namely, "the acceptance of applications for insurance, the handling of amendments to contracts and premiums, the issuing, management and rescission of policies, the management of claims, the setting and paying of commission to insurance agents, the organisation and management of information technology, the supply of information to UL and to insurance agents and the drafting of reports for insured parties and third parties…". [See paragraphs 9 and 10 of the report]. In this case, the Court was concerning itself with whether ACMC was constituted an "insurance agent" as opposed to "broker", for the purposes of Article 13B(a) but that distinction seems to me to be immaterial; see paragraph 21 above. On the way to coming to its conclusion, the Court made the important statement at paragraph 32 that "recognition of a person as an insurance agent presupposes an examination of what the activities in question comprise." Thus whether or not an individual seeking exemption is entitled to it depends upon what that individual is actually doing and not how he may describe himself or be described. At paragraph 34 of the report the Court says this:-

"34. In the light of that information, it must be held that, although they contribute to the essence of the activities of an insurance company, the services rendered by ACMC to UL, which are not insurance transactions within the meaning of Article 13B(a) [i.e. involving actual insurance or re-insurance transactions] …do not constitute services that typify an insurance agent either.

35. The services in question have specific aspects, such as the setting and payment of commission for insurance agents, the maintenance of contact with them, the handling of aspects relating to re-insurance and the supply of information to insurance agents, and to the tax authorities, which quite clearly are not part of the activities of an insurance agent.

36. Furthermore as the Commission of the European Communities stated in its written observations and as the Advocate General pointed out at paragraph 32 of his opinion, essential aspects of the work of an insurance agent, such as the finding of prospects and their introduction to the insurer, are clearly lacking in the present case. It is apparent from the order for reference – and the defendant has not disputed – that the activity of ACMC starts only when it handles the applications for insurance sent to it by the insurance agents through whom UL seeks prospects in the Netherlands life insurance market." [my emphasis]

It is clear that an introducer performing the functions which I have described fits the words which I have underlined in paragraph 36 above.

v) It is clear from authority that "related services" referred to in Article 13B(a), which qualify for exemption, do not have to be entirely performed by one individual to qualify for exemption but can be performed by one or more individuals in a chain. This is illustrated in the Trader Media case by customers being introduced by Trader Media to BISL by its electronic link and passed on by BISL to its associated insurers. In CSC Financial Services Limited v Customs & Excise Commissioners (Case C-235/00 judgment 2001), the European Court was considering a case where a company known as CSC provided call centre services for financial institutions and in particular did so for the Sun Alliance insurance company. Sun Alliance entrusted to CSC all communications and contacts with the public concerning a particular investment product under which investment was made by means of units in a unit trust. CSC provided potential investors with information and the relevant investment application forms. CSC processed the forms, checked that they were properly filled in, that the applicant satisfied eligibility conditions, that the correct payment was enclosed and dealt with cancellation requests. The issue in the case involved Article 13B(d)(5) of the Sixth Directive and so whether the activities of CSC fell within the term "transactions in securities" of that Article. For the purposes of this part of this judgment the case is important for what is said at paragraph 23 of the judgment of the Court as follows:-

"23. It is important to note that the wording of Article 13B(d)(5) of the Sixth Directive does not in principle preclude a transaction in securities from being broken down into a number of separate services which may together amount to a transaction in securities within the meaning of that provision and which may benefit from the exemption laid down therein…."

In Ludwig v Finanzamt Luckenwalde (Case C-453/05) [2008] STC 1640, the European Court was concerned with exemption from VAT in respect of financial transactions under Article 13B(d)(1). In that case the applicant was a self-employed financial adviser who acted on behalf of a German company, DVAG, on the basis of a commercial agency agreement. Through the intermediation of its sub-agent acting in the capacity of a financial adviser, DVAG made available to private persons a range of financial products, such as credit facilities, in respect of which the general conditions had been defined in advance with the lending financial institution. To that end the financial adviser canvassed potential clients in the name of DVAG. Following an analysis of the financial situation of the person thus contacted, the financial adviser proposed to that person those financial products appropriate to his needs. These services were rewarded by the payment of a commission from the provider of the financial services which was shared between DVAG and Mr Ludwig the financial adviser. The question was whether the services of Mr Ludwig fell within sub-paragraph 1 of paragraph (d) of Article 13B, i.e. within the words "the negotiation of credit". In the judgment of the Court at paragraph 37 the following passage appears:-

"37. It is not, therefore, inconsistent with Article 13B(d)(1) of the Sixth Directive for the service of negotiation of credit to be divided as in the case before the referring court, into two services, the first provided by the main agent DVAG, in the context of the negotiation with the lenders, and the second by its sub-agent Mr Ludwig, in his capacity as financial adviser in the context of the negotiation with the borrowers.

38. As stated in paragraph 39 of CSC Financial Services, negotiation is an act of mediation which may consist among other things in pointing out to one party to the contract suitable opportunities for the conclusion of such a contract, the purpose of such an activity being to do all that is necessary in order for two parties to enter into a contract without the negotiator having any interest of his own in the terms of that contract. The concept of negotiation does not, therefore, necessarily presuppose that the negotiator, as sub-agent of the main agent, enters into direct contact with both parties to the contract, in order to negotiate its terms, provided, however, that his activity is not limited to dealing with some of the clerical formalities related to the contract."

In JCM Beheer BV v Staatssecretaries van Financien [2008] STC 3360 the European Court of Justice was considering a case where a taxpayer company acted as sub-agent for a company referred to as VDL which was acting as an insurance broker and agent. The activities which the taxpayer carried out in the name and on behalf of VDL concerned the conclusion of insurance contracts, the processing of transfers of insurance policies, the issue of such policies, the payment of commissions and provision of information to the insurance company and policy holders. In addition, it offered and concluded new insurance policies independently and on its own initiative. Before the Court the taxpayer appealed against a supplementary turnover tax assessment. In a reference to the Court of Justice for a preliminary ruling the national court asked whether the exemption provided for in Article 13B(a) extended to the activities of a legal person who performed characteristic and essential activities of an insurance broker and insurance agent, whereby negotiations were carried out in the name of another insurance broker or insurance agent in connection with the bringing about of insurance transactions. At paragraph 23 of the report and following the Court says this:-

"23. …It is clear from the order for reference that although the Appellant in the main proceedings does not have a formal relationship with the insurers on whose behalf VDL acts, it nonetheless has an indirect relationship with those insurers. Thus, through its contract with VDL, which itself has a contractual relationship with the insurers, the applicant in the main proceedings acting in the name and on behalf of VDL is indirectly linked with those insurers.

24. However it should be pointed out that in the case-law on which the Netherlands government bases its interpretation, the Court did not indicate the nature of the relationship between the insurance agent or broker and the parties to the insurance contract and, therefore, did not limit the nature of that relationship to the specific form.

25. Thus, although the Court considered that the activities carried on by the taxable persons in question in Taksatorringen and Arthur Andersen did not, of their nature, constitute activities related to insurance transactions carried out by an insurance broker or an insurance agent within the meaning of Article 13B(a) of the Sixth Directive, it did not seek to analyse the relationship of those taxable persons with the insurers and the insured parties (see to that effect Taksatorringen (paras. 44 to 46 ) and Arthur Andersen (para. 36)).

26. Consequently the Appellant in the main proceedings cannot be refused the benefit of the exemption provided for in Article 13B(a) of the Sixth Directive merely because it does not have a direct relationship with the insurers on whose behalf it acts indirectly, as a sub-agent of VDL in regard to insurance policy holders.

27. Moreover the wording of Article 13B(a) of the Sixth Directive does not in principle preclude the activity of insurance broker and agent from being broken down into separate services which may then fall within the definition of "insurance and re-insurance transactions" including related services performed by insurance brokers and insurance agents."

See also the judgment of Mummery LJ in the CSMA case ibid at page 118 paragraphs [2] to [3].

vi) It is also clear that an introducer, performing those functions, is performing much more than "advertising, promotional or similar services" for insurers and so the supply of their introductory services are not excluded from exemption by sub-paragraph (7) of the notes to item 4 of Schedule 9 group 2 of VATA. It was HMRC's contention that what both taxpayers were doing in maintaining a website through which customers could access insurers amounted only to advertising specifically excluded from exemption by note 7(a) of the notes to item 4 of Schedule 9. That, of course, is an allegation of fact but one, which requires comment in this judgment which is directed simply to statutory construction. In my view, there is clearly an essential difference between advertising and introduction. Advertising involves a display to all the world of the wares or the services of the advertiser with the intention of attracting custom to the advertiser's business. This will usually involve third parties who contract with the advertiser to effect such a display. Introduction involves a relationship between the introducer and two individuals or groups of individuals. In the field of services it involves the introducer having a relationship with both the seekers of a particular service and the potential suppliers of that service. In the plain case, the introducer will have a group of clients to whom he habitually supplies introductory services and who will use him, and his familiarity with the relevant market, to obtain for them the services which they require. Those are not the facts of these appeals. However, it seems to me that the readership of a newspaper or other publication are no less clients of the newspaper if the newspaper in question offers its readership the service of facilitating the supply of their requirements. The newspaper may advertise the merits of those suppliers but it also may become an introducer if it also gives them information which facilitates a reader's ability to access a supplier, for instance, where it obtains for its readers a discount by the supplier from its usual price of supply. It will be different if the relevant information appears as part of a banner advertisement and thus a representation by the supplier of the merits of its product and the reasonableness of its cost. This discussion illustrates that the line between advertisement and introduction will not always be easy to draw. In the context of these appeals, whether what the taxpayer does constitutes advertisement or introduction will be a question of fact for the tribunal.

vii) It was submitted by HMRC that it was significant that the Taxpayers in these two appeals were not regulated pursuant to the Financial Services and Markets Act. The Taxpayers do not accept that this has always been so but it will probably be so of most introducers. In any event I accept Miss Sloane's submission for Trader Media that this is irrelevant. There does not appear to be any requirement that an insurance agent or broker be regulated pursuant to FSMA in order to qualify for exemption. I accept Miss Sloane's submission that the decision of the Court of Justice in Card Protection Plan v Customs & Excise Commissioners [1999] STC 270 at 294 paragraph 33 demonstrates that the Court of Justice has ruled that the United Kingdom may not restrict the scope of the exemption for insurance transactions exclusively to supplies of services by authorised suppliers.

viii) Counsel for HMRC placed substantial reliance on the decision of the Court of Justice in Assurandor-Societetet, acting on behalf of Taksatorringen v Skatteministeriet (Case C-8/01) [2006] STC 1842. The taxpayer in this case was an association of small or medium-sized insurance companies authorised to underwrite motor vehicle insurance policies. The taxpayer's purpose was to assess damaged motor vehicles in Denmark on behalf of the members of the association. The Court was dealing with the reference to it of the question "whether Article 13B(a) was to be construed as meaning that motor vehicle damage assessments carried out, on behalf of its members, by an association whose members were insurance companies were insurance transactions or related services performed by insurance brokers or insurance agents;". The relevant passage in the judgment of the Court appears at paragraphs 44 and 45 of the judgment. That passage specifically approves two passages from the opinion of the Advocate General, the first at paragraph 86 as follows:-

"86. I am of opinion that the weight of these arguments against Taksatorringen's submissions is sufficient to dispose of the matter. Even if Article 13B(a) of the Sixth Directive is not particularly well drafted, in that it distinguishes between insurance brokers and insurance agents, whereas a broker is truly an insurance agent in that his task is to act on behalf of a person seeking insurance in finding an insurance company that will provide cover exactly suited to his needs, it remains clear that this provision applies only to services provided by those professionals who have a relationship with both the insurance company and persons seeking insurance.

87. Taksatorringen itself does not contend that it has any kind of relationship with insured persons, in other words it does not claim to act as an intermediary."

The second passage in the Advocate General's opinion specifically approved by the Court is at paragraphs 90 and 91 as follows:-

"90. Admittedly the activities set out in Article 2(1)(a) of Directive 77/92 which under paragraph 2 of that Article correspond to those of an insurance broker, include those of assisting in the administration and performance of insurance contracts, particularly in the event of a claim, but it is stated clearly that this assistance is to be provided "where appropriate" in conjunction with the activities which are distinctive of the carrying on of the business of an insurance broker, namely the bringing together of insurer and persons seeking insurance and the preparation of insurance contracts.

91. As far as the activities described in Article 2(1)(b) of Directive 77/92 are concerned, which by paragraph 2 of that Article correspond to those of an insurance agent, the wording itself of the Community legislation does not refer to assistance given in the administration and performance of insurance contracts, particularly in the event of a claim, as being an ancillary activity, as this form of assistance is prefaced by the conjunction "or", and thus within the same category as the introduction, proposing and carrying out of insurance contracts. In order for this assistance to be provided by an insurance agent, however, it must be given within the context of a contract or an authority to act "in the name and on behalf of, or solely on behalf of, one or more insurance undertakings." There must therefore be a power to bind the insurance company in relation to an insured person who has submitted a claim. Once again this requirement is not met by Taksatorringen."

The judgment of the Court at paragraph 44 reads as follows:

"44. As to whether such services are "related services performed by insurance brokers and insurance agents", it must be stated, as the Advocate General has set out in paragraph 86 of his opinion, that this expression refers only to services provided by professionals who have a relationship with both insurer and the insured party, it being stressed that the broker is no more than an intermediary.

45. With regard to Directive 77/92, without its being necessary to rule on whether the terms "broker" and "insurance agent" must necessarily be construed in the same manner in Directive 77/92 as they are in the Sixth Directive, [an interesting observation in the light of the drafting of item 4 Schedule 9 group 2 of VATA and the notes made under it] suffice it to note that, for the reasons stated by the Advocate General in paragraphs 90 and 91 of his opinion, the activity of an association such as Taksatorringen fails to satisfy the conditions of Article 2(1)(a) or 2(1)(b) of Directive 77/92. The assistance in the administration and performance of contracts of insurance referred to in Article 2(1)(a) of that Directive is in addition to the activities involved in introducing persons seeking insurance and the insurance companies and in preparing and concluding insurance contracts and that referred to in Article 2(1)(b) of that Directive involves the power to render the insurer liable in respect of an insured person who has incurred a loss."

As I understand it, it was HMRC's submission that a mere introducer did not have the necessary relationship with both the customer and the insurer so as to constitute itself an intermediary within the above passages from the Advocate General's opinion and from the judgment of the Court. As to paragraph 44 of the judgment, as I have already said, an introducer does have a relationship with both the insurer and the insured party (the customer). Such relationships are the whole basis of the process of introduction. As I have already found, it is not necessary for the introducer to have a direct relationship with both customer and insurer as long as he is part of a chain of introduction communicating between customer and insurer; see reason v) above and, in particular, the above-quoted comments in the judgment of the court in the Beheer case on the Taksatorringen case.

As to paragraph 45 of the judgment, here the Court is, somewhat reluctantly, looking at the terms insurance broker and insurance agent against the provisions of Directive 77/92, apparently the basis of the English legislation. We can discount the reference to Article 2(1)(b) of that Directive and the statement "that the Directive involves the power to render the insurer liable in respect of an insured person who has incurred a loss". We are only concerned with Article 2(1)(a). It seems to me that the Court is pointing out that the process of introduction described in paragraph (a) down to but not including the words "carry out work" is a separate function attracting exemption, separate from the function described in the remainder of the sub-paragraph.

The Court in Taksatorringen was considering the application of the exempting legislation to an entirely different factual situation to the circumstances of an introducer. In any event, it seems to me that what the Advocate General and the Court say, is of no assistance to HMRC's case, rather it assists the Taxpayers.

26. For these reasons I would answer both question (A) and (B) in the affirmative.