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EXTRA DIVISION, INNER HOUSE, COURT OF SESSION
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Lord Macfadyen
Lady Paton
Lord Penrose
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[2008] CSIH 22
XA124/05
OPINION OF THE COURT
delivered by LORD PENROSE
in
Appeal
under section 11 of the
Tribunals and Inquiries Act 1992
by
THE COMMISSIONERS FOR HER
MAJESTY'S REVENUE AND CUSTOMS
Appellants;
against
THE BOARD OF GOVERNORS OF
THE ROBERT GORDON UNIVERSITY
Respondents:
in respect of a decision
of the VAT and Duties Tribunal for Scotland dated 1 November 2005 and communicated to the appellants on 2 November 2005
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Act: J.R. Campbell, Q.C.; Shepherd & Wedderburn LLP
Alt: Tyre, Q.C.;
McGrigors LLP
6 March 2008
[1] By agreement
dated 11 and 19 November 1996 (the "1996 Agreement") entered into between the
Secretary of State for Scotland, acting through the National Health Service
Management Executive, and the Robert Gordon University ("RGU"), RGU agreed to
provide and to perform certain specified services related to the training of
students in nursing and midwifery to standards that would lead to the award of
a Diploma in Nursing or in Midwifery, or its equivalent, and that would lead
also to registration with the United Kingdom Central Council for Nursing
Midwifery and Health Visiting. It is
agreed between the appellants, the Commissioners for Her Majesty's Customs and
Revenue ("HMRC"), and RGU that the provision of those services under the 1996
Agreement constituted a supply for the purposes of Value Added Tax, and that
the supply was an exempt supply in terms of item 1 of Group 6 of Schedule 9 to
the Value Added Tax Act 1994, which implemented for domestic purposes Article
13A(1)(i) of the Directive 77/388, the Sixth Directive. So far as material,
item 1 of Group 6 exempts from VAT:
"The provision by an eligible body of
-
(a) education...;
or
(b) vocational
training".
RGU was at all material times an eligible body.
[2] By
Assignation dated 24 and 27 May 2002, entered into between RGU and
Univation Limited, it was provided:
"We, the Governors of the Robert
Gordon University... in right of the Provider's part of the Agreement hereinafter
assigned in consideration of the assumption of the obligations and liabilities
under the said Agreement and with the consent and concurrence of the Scottish
Ministers, as the successors of the Secretary of State for Scotland
(hereinafter referred to as 'the Purchasers') do hereby assign, transfer and
make over to and in favour of Univation Limited... (hereinafter referred to as 'the
Assignees') the whole obligations to provide pre-registration nursing and
midwifery education services and the right to receive sums due by the Purchaser
(as defined in the Agreement aftermentioned) in relation thereto all in terms
of the Agreement between the Secretary of State for Scotland and ourselves, the
said The Governors of the Robert Gordon University dated Eleventh and
Nineteenth November Nineteen hundred and ninety six, as extended to 31 August
2005... in relation to the provision of pre-registration nursing and midwifery education
services (but excluding our whole rights to the Equipment and the Undertaking
(as defined in the Agreement) which are retained by us, the said The Governors
of the Robert Gordon University and are not transferred to the Assignees),
together with by way of inclusion and not exclusion our whole right, title and
interest in and to the Agreement to the extent aforementioned, including the
right to receive sums due in terms of the condition 4.1 2 of the Agreement, and
the obligations to provide the services set out in annex B to the Agreement;
and that as from and after the first day of June 2002 (hereinafter referred to
as 'the effective date')".
[3] Univation
Limited has not at any time been an eligible body. It was at all material times
a wholly owned subsidiary of RGU. Univation adopted its current objects by
resolutions dated 12 July 1995 and 22 May
2001. Prior
to 22 May 2001, its objects were, in brief, to carry on business as onshore
and offshore engineering, scientific and management consultants and advisers,
including research and development and other related activities. On 22 May 2001 it amended its objects to include:
"business as a training provider". The
company did not become an eligible body by extending the scope of its objects
to include training or education. The
training service it supplied generally, and in particular the services it
undertook to supply in terms of the Assignation, could not constitute an exempt
supply for VAT purposes.
[4] On 5
June 2002,
RGU and Univation entered into an agreement (the "Services Agreement") for the
supply by RGU to Univation of certain specified services relating to the
implementation of Univation's obligations under the Assignation. The issue between the parties is whether the
supply of services under the Services Agreement constituted the provision of
education or training by RGU. HMRC
contend that the proper characterisation of the whole services supplied is the
provision of education. RGU contend that what is supplied comprises no more
than a group of resources and facilities which Univation apply in the provision
of education or training by the company under the 1996 Agreement as assigned to
it.
[5] RGU and HMRC
agreed the following findings in fact and invited the VAT and Duties Tribunal
for Scotland ("the Tribunal") to adopt them:
"1 The Respondent ('the University') and
the Secretary of State for Scotland entered
into an Agreement, dated 11 and 19
November 1996 ('the 1996 Agreement'). The terms of said Agreement are as set out in
the copy agreement at pages 52-89 of the Joint Bundle of Documents before the
Tribunal.
1.1 The effect of the 1996 Agreement was that
the University undertook the provision of certain nursing and midwifery
teaching in North East Scotland, which had previously been carried out 'in-house'
by the NHS. At the time of the formation
of the 1996 Agreement, the Scottish Office did not wish any limited companies
involved in the process of the provision of nurse education.
1.2 The University supplied nurse and midwife
training to the Secretary of State for Scotland pursuant
to this Agreement from 1996 to 2002.
2 Univation Ltd ('the Company') was
formed by the University in 1995, as a wholly owned subsidiary to provide
courses primarily to commercial clients.
2.1 The Company has no employees of its own,
but is run by employees of the University.
Approximately 20-30 employees are engaged almost full time on work
carried out for the Company.
2.2 The Company has a Board of Directors
comprising the Principal of the University, Mrs Patricia Briggs (the
University's Finance Director, who gave evidence before the Tribunal), the
University IT Director, the University's Vice Principal (Professor John
Harper), the nurse contract manager and two external members, one from the oil industry
and one from the local council. The
Managing Director is Vivienne McKinley who has held that post from the
Company's inception. She takes primary
responsibility for the day to day management of the Company.
3 In 2001, the University decided to construct
a new facility to house its Faculty of Health and Social Care (which includes
the School of Nursing and
Midwifery). As part of that process, it
sought instructions from KPMG 'to advise on a VAT efficient structure for the
construction and use of the new Faculty ...'. Certain of that advice is set out in a letter
of 19 January 2001, and the
advice involved a three Phase structure, of which the second was the Nurses
Training Phase.
3.1 The Nurses Training Phase proposed by
KPMG involved the adoption of what KPMG described as 'a more VAT efficient
structure' for the delivery of pre-registration nurses training than that
currently operated by the University.
That advice was that the University assign its contract with the
Scottish Executive to a wholly owned subsidiary so that the training will be
liable to VAT at the standard rate, which would allow the University to recover
VAT on related costs and improve VAT recovery on general overhead expenditure.
3.2 KPMG further advised: (i) that Univation
may be a suitable vehicle 'as it already provides taxable training'; (ii) that it would 'still be necessary to
have one or two individuals who are directly concerned in the nursing training
contract employed by the training provider'; and (iii) that their understanding
was that 'the transfer of undertaking legislation requires that all the
employees will have to be notified of the changed arrangement'.
3.3 KPMG further advised that on the
assumption that all staff remained as employees of the University it would be
necessary to draw up contracts between the University and the nurse training
provider for the provision of resources such as staff and the use of
equipment. They added, '(It is the
supply of such resources which would create increased taxable income for the
University'.)
3.4 Following that decision by the
University, the University assigned the 1996 Agreement to the Company with the
approval of the Scottish Executive, and entered into a Services Agreement with
the Company.
4 The terms of the Deed of Assignation,
dated 24 and 27 May
2002 are as set out in the copy Deed at pages 14 to 17
of the Joint Bundle of Documents. The
University retained its rights in the Equipment and the Undertaking. These terms are defined in the 1996
Agreement, Document 9, Annex A, paragraph 1.26 and paragraph 10 (pp. 59 and
66-68 of the Joint Bundle).
5 The terms of the Services Agreement
dated 5 June 2002 between
the University and the Company are as set out in the copy Agreement in Document
6 of the Joint Bundle (pp. 18-39).
6 Despite the terms of the 2002
Agreements, the University continues to hold itself out in certain documents as the provider of the relevant nursing and midwifery
courses. See (i) the extract from its
website, produced as page 345 of the Joint Bundle of Documents; (ii) the 9 January 2004 press release issued by
the University which states 'RGU is the sole provider in the North of Scotland
for a wide range of pre and post registration nursing courses ...' page 450
of the Joint Bundle; and the literature of CATCH (Centralised Applications to
Nursing & Midwifery Training Clearing House) and NHS Scotland. The website extract at page 345 describes the
role of the Company. NHS Scotland is
aware of the arrangement between the University and the Company.
7 At the time of the Assignation, the
Scottish Executive was concerned that, from the students' point of view,
nothing should change in the provision of the relevant courses.
8 The University and the Company
distinguish two different means of delivering services
rendered by the former to the latter. Where the Company's contract with its
client places students on existing University courses, that is treated as a
supply of education by the University. Where the course is designed
specifically to meet the needs of a client of the Company, that is treated as a
supply of staff and resources by the University.
9 All
students attending the courses in question are matriculated students of the
University in the same manner as they were prior to the Agreements of 2002. They apply for places through the Centralised
Applications to Nursing & Midwifery Training Clearing House (CATCH), as
they did prior to the 2002 Agreements.
If successful in their courses their awards are made by the
University. From the point of view of
the students, nothing has changed as a result of the 2002 Agreements. They are still taught the same courses, by
the same staff, in the same premises, and receive the same awards as they would
have received had the 2002 Agreements not been entered into and their
perception is that they are trained by the University.
10 The content of the nursing and midwifery
courses in question continued to be determined centrally, after the 2002
Agreements, as it had been prior to those agreements.
11 The University undertakes essential
quality control measures in relation to the nursing and midwifery courses, as
it is the University which makes the awards to the students at the end of their
courses.
12 The management of the nursing and
midwifery courses is primarily undertaken by the University's Head of School,
Jennie Parry, who reports to Professor Harper.
Jennie Parry also deals on a day to day basis with the Scottish
Executive in relation to the operation of the contract for the provision of
nursing and midwifery courses. Since the
2002 Agreements no circumstance has arisen which has necessitated Jennie Parry
to refer any issues to the Board of the Company.
13 A written report is prepared for the
Board of the Company once a quarter, and every six months or so, Jennie Parry,
the Head of the School of Nursing and
Midwifery of the University attends a Meeting of the Board of the Company to
present papers. Jennie Parry does not
hold any formal position within the Company and, in particular, is not a member
of the Board of Directors.
14 If the Scottish Ministers were
dissatisfied with the provision of nursing and midwifery education under the
1996 Agreement they would look to the Company for a remedy and not to the
University.
15 The Company has a lease of part of the
Faculty of Health and Social Care Building on the
University campus.
16 The Company makes a profit which is
gifted to the University to avoid any liability to tax arising on the profit.
17 The content of the letter of 22 January 1999 from the
Respondents' Policy Directorate to the Director of Finance at the Scottish
Office Department of Health (Joint Bundle, pages 203/4) was known to the
University's Finance Director prior to entering into the 2002 Agreements. The University took into account the contents
of the letter and advice from KPMG before entering into the arrangements. Despite the terms of that letter, the
University (a) took no steps to ascertain the precise content of the
arrangements being discussed therein, and (b) did not discuss the proposed
arrangements (which became the 2002 Agreements) with HMC&E prior to
entering those agreements."
[6] The Tribunal
made those findings in fact, and, in addition, at the request of RGU, made the
following further findings in fact:
"1. The
relationship between the University and the Company operates in practice in
accordance with the terms of the Agreement.
2. Jennie
Parry reports to Professor Harper (finding 12) 'as a Director of the Company'.
3. The Board of the Company exercises
general control and direction over the staff who are providing services under
the Agreement through its directors Mrs Briggs (in relation to commercial and
financial aspects) and Professor Harper (in relation to academic aspects)."
HMRC contend that the Tribunal was not entitled to make those
additional findings: in so far as they were facts at all, HMRC contend that
they were facts which no reasonable Tribunal, properly directing itself, could
find in light of the evidence before it. HMRC further submitted that, in so far as they
were facts, the findings failed to support the RGU's position. They submitted that these findings were
considerably influenced by the Tribunal's mind set that this case could be
decided on: (1) the contractual form of the transactions; (2) the fact that
Univation had "a commercial purpose"; and (3) that the only "artificiality" was
the concept that exempt education could only be supplied by selected eligible
bodies.
[7] HMRC made
detailed submissions in support of these general propositions. It was submitted that Additional Finding in
Fact 1 was not a "fact". It was at best
an assertion by the Tribunal that followed from its decision that the RGU was
supplying staff and administrative services.
It could not be a fact that led to that decision, as it was itself based
on assertions made by Mrs Briggs about the Agreement and how it worked that
required an acceptance of RGU's position to be validated. To that extent, it was submitted that the
finding should be disregarded. In any
event, in other cases parties had no doubt done what they professed to do in
their written contracts, but that had not been determinative of the VAT
analysis of the transactions involved. Additional Finding of Fact 2 was said to
be based on Mrs Briggs' evidence (reported at page 17 of the transcript) that
"Jenny Parry reports to John Harper on the day to day operation of the
contract". Although Professor Harper was
a director of Univation, he was also a vice principal of RGU and responsible
for the management of the nursing contracts and therefore, it was submitted,
Fact 2 was only valid once the Tribunal had found for RGU. It was again a finding that followed from the
decision rather than informing it. As
both Harper and Parry were employed by RGU in roles where the reporting lines
would be the same if they were acting in their university roles, the comments
made by Mrs Briggs could at best be viewed as no more than an assertion. In any event, on the Appellants' view that
what the Respondent was doing involved the supply of education to Univation,
the fact of Parry reporting to a director of that company was in no way
determinative of the nature of the supply. Additional Finding in Fact 3 was
again no more than an assertion, which depended on a decision by the Tribunal
that RGU's analysis was correct.
Finally, the Tribunal had failed to address the issues arising from
Mrs Briggs' acceptance of a clear distinction between those situations in
which Univation bought education from RGU, and those in which it purported to
buy in the services of staff of RGU. In
like manner, the Tribunal wholly failed to address the issues arising from the
question of control of the teaching staff on the courses concerned. Finally, it was submitted that the additional
findings were fundamentally flawed in that they were clearly circular: the
decision relied on the findings, but the findings could only be valid once the
decision was made that RGU was correct.
[8] For RGU it
was argued that there was a basis in the evidence led for the additional findings,
in particular in the evidence of Mrs Briggs, that RGU had clearly been entitled
to ask the Tribunal to make those findings and that the Tribunal was clearly
entitled to make them. In our opinion
the Tribunal was entitled to make the additional findings. They reflected the terms of Mrs Briggs' oral
testimony, and her credibility and reliability as a witness were not challenged
by HMRC. Parties' submissions in this
appeal must be considered in the light of the Tribunal's findings as a whole.
[9] The parties
lodged extensive written submissions for the purposes of the hearing of the
appeal. In the circumstances a brief
resume only of their respective contentions is required to indicate the scope
of the debate. HMRC contended that in
essence RGU had "mislabelled" the services supplied to Univation in an attempt
to present the supply by the Respondent to Univation as one of "taxable
services". It adopted the form of these
transactions to escape from the strictures applying to exempt supplies of
education and so increase the university's scope for the recovery of input tax.
It was not disputed by HMRC that a
genuine provision of services that fell outwith the scope of the exemption
would be effective. However, it was
submitted that, the contract and assertions made notwithstanding, what RGU did
in relation to the nurses' training courses in question had not changed in any
material respect: RGU still supplied exempt education, albeit to Univation
rather than the Scottish Ministers. The
artificial dissection or deconstruction of a supply of education into a
shopping list of the ingredients (i.e. goods and services) that routinely
comprised such a supply, did not make them "independent services": it was a deliberately artificial representation of the supply, made in an attempt to
disguise its true character to gain a VAT advantage without actually changing
its modus operandi as far as nurses' training was concerned. The Tribunal had misunderstood HMRC's
position. In particular the Tribunal had
proceeded on the misconception that once it was accepted that there had been an
actual supply by RGU to Univation one needed to look no further than the
written contract to ascertain the character of the supply for VAT purposes. It was necessary to have regard to the
realities of the relationship, and the true character of what RGU supplied.
[10] RGU argued
that the correct analysis of the relationship between the university and
Univation had to begin from the written documents. It was not disputed that the terms of the
parties' contract were not determinative of the correct VAT analysis, but the
contractual analysis was nevertheless of considerable significance. In this case, there was no reason to depart
from the terms of the parties' contractual rights and obligations in
characterising for VAT purposes what was supplied by RGU to Univation. That was the submission which the Tribunal
accepted and they were correct in so doing.
The contractual arrangements were not a sham or a dissimulation. There was ample evidence in the documentation,
and in the oral testimony of Mrs Briggs, that RGU supplied staff and
administrative services, and not education, to Univation. The principle of neutrality was critical to
the operation of VAT: tax borne should be recoverable until there was a supply
to the ultimate consumer - or to a person who used what was supplied to make
exempt supplies. And it must not matter
how many links there were in the chain.
In determining the treatment for VAT purposes of a particular supply in
a chain of supplies, it was necessary to consider each link separately. It was not permissible to take a "global view"
and be influenced by the character of another transaction further down the
chain. A strict view must be taken of
what constituted a supply of education for VAT purposes. Where, as here, there was a single stage at
which teaching took place, there should in principle be only one supply of
"education" for VAT purposes. In the
present case (as was not in dispute), that supply was made by Univation. It was a supply made to the Scottish
Executive, in terms of the assigned contract originally entered into by RGU, of
education provided to nursing students.
It would offend against the scheme of VAT if the exemption for education
were to be applied to a link in the chain other than the one where
consideration was paid for teaching. The
supply of education by Univation to the Scottish Executive was not exempt in
terms of the UK legislation because Univation was
not an "eligible body" as defined in Value Added Tax Act 1994, Sch 9, Group 6,
note (1). But if it was, there
would be two transactions being exempted from VAT because of a single act of
teaching. That could not be right and
would offend against the neutrality principle. In the present case, therefore, the proper
analysis, looked at from the point of view of Univation, was that they received
the range of services specified in their contract with RGU which they required
in order to enable them in turn to fulfil their obligations to the Scottish
Executive. What RGU supplied was not
education.
[11] It is a matter
of agreement between parties that the proper characterisation of the supplies
made under the Services Agreement depends upon the analysis of the essential
characteristics of the transaction, and that the terms of the documents are not
determinative of the issue. It was not
disputed by RGU that had the services been provided in terms that mirrored as
closely as might be the terms of the 1996 Agreement, characterisation of RGU's
supply as the provision of education might have been irresistible. HMRC for their part did not contend that if,
on a proper analysis of the arrangements, the aggregate of the elements of the
supply by RGU omitted crucial elements of the provision of education or
training, RGU's supplies would not be exempt.
[12] It is clear
from the Tribunal's findings in fact that, before the 1996 Agreement came into
effect, Grampian, Orkney and Shetland Health Boards provided pre-registration
and post-registration nursing and midwifery education in the relevant area. In terms of clause 4.1 of the Agreement it was
an essential and material condition of the 1996 Agreement that RGU took over as
a going concern the Health Boards' business of the provision of
post-registration and continuing nursing and midwifery education (the
"Business" in terms of the Agreement), and continued to provide that education
for a period of at least a year from 25 October 1995. The present dispute relates to
pre-registration education services provided in terms of clause 1 of the 1996
Agreement which was in these terms:
"The Provider [RGU] shall provide and
perform the services specified in Annex B - Specification to this Agreement on
the terms and conditions specified in, and in accordance in all respects with
the provisions and requirements of, the terms and conditions of contract set
out in Annex A..."
[13] Annex A
provided definitions for the purposes of the 1996 Agreement, of which the
following are material:
"1.9 'Courses'
means the educational courses by which pre-registration nursing and midwifery
education is conducted and carried out by or on behalf of the Provider as part
of the Services...
1.12 'The
NBS' means the National Board for Nursing, Midwifery and Health Visiting for
Scotland, a body established by the Nurses, Midwives and Health Visitors Act
1979...
1.14 'Provider'
means the Robert Gordon University and includes the Robert Gordon University's personal representatives,
successors and permitted assignees, subcontractors, sublessees or other
transferees...
1.18 'The
Services' means the pre-registration nursing and midwifery education services
and other services, all as specified in annex B to the contract...
1.26 'Undertaking'
means the department, section, organisation or part of the Grampian, Orkney and
Shetland Health Boards which, prior to the Services Commencement Date, provides
pre-registration nursing and midwifery education services similar to those
specified in this document at its premises at the Foresterhill College of Nursing & Midwifery."
[14] Clause 7 of Annex
A to the 1996 Agreement provided that RGU should engage, employ and where
necessary train staff qualified to carry out its obligations and duties as
provider under the contract. In terms of
clause 8 of Annex A the Secretary of State and RGU agreed:
"8.1.1 that the Undertaking is an undertaking, and their entering into the
Contract gives rise to a relevant transfer of an undertaking, for the purposes
of the Transfer of Undertakings (Protection of Employment) Regulations 1981;"
[15] The Clause
made detailed provisions to secure compliance with the TUPE Regulations. Clause 10 provided for the transfer to RGU of
the equipment and furniture in use for the provision of the Services up to the Services
Commencement date (1 December 1996). Clause 10 also provided for the onward
transfer of equipment and furniture in use at the termination of the contract.
[16] Clause 16
provided for assignation, inter alia.
Clause 16.2 provided:
"No assignation, sub-contracting,
sub-letting or other transfer of any duty, function, liability, obligation or
responsibility (or any part thereof) incumbent upon the Provider in terms of
the Contract to any third party by the Provider shall have the effect of
relieving it of any such duty, function, liability, obligation or
responsibility (or any part thereof) owed to the Purchaser in terms of the
contract, notwithstanding that the Purchaser has consented to such assignation,
sub-contracting, sub-letting or other transfer, and the Provider shall at all
times be bound to fully implement the Contract jointly and severally with the
person with whom it has entered into an assignation, sub-contract or other
transfer as aforesaid."
[17] In terms of
Annex B to the 1996 Agreement RGU was obliged to provide courses leading to the
award of the Diploma of Higher Education in Nursing or Midwifery or its
equivalent, and which also lead to Registration with the United Kingdom Central
Council for Nursing, Midwifery and Health Visiting. The numbers of students to be accommodated
were prescribed, and payment terms were set out. The expression "courses", was
defined in Annex A as meaning "the educational courses by which
pre-registration nursing and midwifery education is conducted and carried out
by or on behalf of the Provider [the University] as part of the Services." In terms of Annex B the courses had to be
approved by the National Board for Nursing Midwifery and Health Visiting for Scotland and to be in accordance with certain
other requirements; to be validated by an appropriate award-giving body to a
specified level; and to meet certain other requirements. RGU was obliged to
ensure that the curriculum was reviewed and developed on an ongoing basis and
that it was in accordance with changes in health care, always subject to the
approval of the NBS: paragraph 2.
[18] Pausing at
this point, a number of features of the arrangements between the Secretary of
State and RGU appear to have been clearly understood by the parties. The local
Health Boards had had an established educational facility providing
pre-registration education and training appropriate to the education and
training of candidates for the nursing and midwifery vocations, with
appropriate premises, equipment, and staff. RGU agreed to take over that
business, and to continue to run it, providing courses designed to lead to the
award of relevant, duly validated diplomas, and registration with the UK
Central Council, always subject to the on-going approval of NBS, a statutory
body. The agreement of parties that so
long as RGU continued to implement the contract it was providing education
reflects the reality of the position that emerges from the documents.
[19] The
Assignation, as already noted, excluded from the transfer to Univation RGU's
"whole rights to the Equipment and the Undertaking (as defined in the
Agreement)". Given the terms of Clause
10 of the 1996 Agreement the exclusion of the equipment was understandable: it,
or its replacements, had to be available for onward transfer if the 1996
Agreement were terminated. As set out in
paragraph [13] above, the "Undertaking" meant the department, section,
organisation or part of the Grampian, Orkney and Shetland Health Boards which,
prior to the Services Commencement Date, provided pre-registration nursing and
midwifery education services similar to those specified in the 1996 Agreement. That undertaking was the subject of a TUPE
transfer to RGU, complete with the transfer of the contracts of employment of
related employees and pension transfer arrangements broadly comparable to those
applicable prior to the transfer. The
exclusion of the undertaking, as it stood at the date of the Assignation,
indicates that the effect of the assignation was intended to be that RGU would,
so far as it was capable of procuring such a result, transfer its obligations
under the 1996 Agreement to Univation, without transferring to the company any
of the human and other resources required for the implementation of the
obligations it was taking over. The "business"
of provision of pre-registration training was retained by RGU. It is agreed between parties that Univation
had and has no employees of its own. The
Assignation did not put Univation in a position in which it was capable of
performing the duties and obligations it had undertaken, and it had no
resources of its own with which to perform those duties and obligations. RGU retained those resources for the purposes
of its own undertaking of the provision of pre-registration training and
education of nursing and midwifery students which it excluded from the
transfer.
[20] Having regard
to the terms of Clause 7 of Annex A to the 1996 Agreement which required the
provider to engage, employ and where necessary train staff qualified to carry
out its obligations and duties under the contract, the situation created by the
Assignation, viewed in isolation, appears somewhat contrived, but it is clear
that it was never intended to be a free-standing agreement and was dependent on
the execution of a further agreement between RGU and Univation, the Services
Agreement.
[21] The Services
Agreement narrated that Univation (the "Customer") wished to appoint RGU (the
"Supplier") to carry out the "Services" on the terms of the Agreement, and that
RGU had agreed to accept appointment. In
terms of clause 2.1 RGU was obliged to provide the Services in accordance with
the agreement "and the Agreed Terms" set out in part 4 of the Schedule. The definition of the "Services" was therefore
central to the issue. The definition was:
"'Services' means such of the
following services as the Customer requires, as detailed in the Schedule:
(1) the
Additional Services;
(2) the
Administrative Services; and
(3) the
Staff Services."
Superficially, at this initial level, it appears that the
content of the supply was not defined by the agreement: it depended on
subsequent specification by Univation of its requirements.
[22] The Agreed
Terms included provisions related to the quality of the provision of the
Services. Paragraph 3.2.1. of part 4 of
the Schedule obliged RGU at all times to exercise all reasonable skill and care
in the provision of the Services "commensurate with that expected of an
experienced provider of services similar to the Services". Paragraph 3.2.3. required RGU to maintain
professional indemnity insurance and to ensure that contractors and consultants
also maintained such insurance. Paragraph 3.2.4. required RGU to observe any
specific written instructions from Univation in relation to the provision of
the Services. Paragraph 3 further provided:
"3.4 The
Supplier shall keep the Customer fully informed as to which directors,
employees or consultants of the Supplier have responsibility on a day-to-day
basis for the provision of the Services under this Agreement.
3.5 The
supplier shall procure that such directors, employees and consultants devote
such of their time, attention and skill as shall be necessary for the proper
provision of the Services by the Supplier under this Agreement."
[23] Paragraph 8 of
Part 4 governed "Employment matters". It
provided:
"8.1. The Employees shall remain in the employment of the Supplier for
all purposes and the Supplier shall be responsible for all salaries,
remuneration, expenses, bonuses, emoluments, the provision of benefits and all
other liabilities and costs arising out of the employment of the employees
including the deduction and administration of such taxes and NI contributions
as are recoverable thereon.
8.2 For
the purpose only of assisting in the provision of the Services the Supplier
hereby delegates to the Customer the following in relation to the Employees:
8.2.1. the authority to supervise and manage the performance of the
Services; and
8.2.2. the authority to give lawful instructions pursuant to the provision
of the Services.
8.3 In
the event the Customer shall have cause to be dissatisfied by the conduct or
capability of any of the Employees it shall submit a full report of its
concerns to the Supplier, and the Supplier shall take such action as in the
absolute discretion of the Supplier it shall deem appropriate."
[24] The
expressions "Additional Services" and "Administrative Services" were defined in
clause 1 of the Services Agreement by reference respectively to parts 2
and 1 of the Schedule. There was no
reference to the "Staff Services" in the definition clause, and therefore no
formal bridge between the body of the agreement and Part 3 of the Schedule
unless it be in the definition of "Employees" which term was said to mean "the
employees of the Supplier detailed in Part 3 of the Schedule". Part 1 defined in an apparently comprehensive
way the non-teaching services to be provided, including student registration;
student welfare services; student access to the courses; all facilities such as
student union and sports facilities; all necessary administration services; all
library and IT services; and the ongoing monitoring of the delivery of the
services. Part 2 specified the
Additional Services as "The provision of all such additional Services to the
Customer as may be agreed in writing between the Customer and the Supplier from
time to time". Part 3 stated: "The
Supplier shall make available to the Customer (in accordance with the terms of
paragraph 8 of Part 4 of the Schedule) such staff of such grade as the parties
shall from time to time consider appropriate for the provision of the
Services."
[25] RGU accept
that the terms of the Services Contract are not determinative of the correct
VAT analysis: C&E Commissioners v Reed Personnel
Services Ltd [1995] STC 588. They
contend, however, that the contractual analysis is nevertheless of considerable
significance. In appropriate
circumstances the contractual analysis may be determinative of the VAT
analysis, as illustrated in HMRC v Debenhams Retail plc [2005] STC 1155. Mance LJ observed at para 47: "The domestic
contractual position is, in other words, not just the starting point, but also
the finishing point", on the Court's preferred hypothesis in that case. In our view, the parties' contractual rights
and obligations are, properly, the starting point for an analysis of the
transactions entered into. However, in
the present case, it is clear that the contractual provisions are, in
themselves, incapable of determining the nature of the supply for VAT purposes.
[26] The definition
provisions relating to the "Services" are circular and inconclusive as to the
scope of the obligations of RGU to Univation. It was contended for RGU that the contract was
written for the parties and not for HMRC: it was clear to the parties what was required
in order for the Agreement to be implemented. Mr Tyre accepted that different issues might
arise should RGU and Univation be in dispute as to the scope of their
respective rights and obligations. Up to
a point that must be so. However, it is
clear in this case that the parties did not require any fresh written agreement
to identify the resources required to implement the obligations transferred to
Univation. The obligations under the
1996 Agreement were known facts. The
written agreements were required because the parties sought to represent the
reality of their relationship in a particular way. And in that context, the written documents
could be conclusive if and only if they were intelligible and pointed
conclusively to the result desiderated. That
result depended on two complementary propositions: what was supplied by RGU to
Univation was a bundle of resources, human and material, and no more; and that
supply did not constitute the provision of education to the nursing and
midwifery students enrolled by the University.
[27] In order to
make sense of Part 3 of the Schedule to the Services Agreement, RGU argued that
the reference there to "Services" should be read as a reference to the services
defined in the 1996 Agreement. That
necessarily involved giving the term a meaning different from that found in the
main agreement and in other parts of the Schedule. It is clear that, whether or not additional
services were in fact provided, the services to be supplied to Univation had to
be understood to include services yet to be identified and specified at the
date of the Services Agreement and could not properly be defined by reference
only to the 1996 Agreement. There are
further difficulties in attempting to treat the written documents as definitive
of the parties' relationships. The Staff Services, which on any view had to be
central to the supply of teaching services, were not defined at all. The expression: "such staff of such grade as
the parties shall from time to time consider appropriate for the provision of
the Services" left the specification of teaching and administrative staff for
determination by independent agreement.
[28] It is plain
that the objective of RGU and Univation could be achieved only if, on a sound
construction of their arrangements, it was not intended that RGU should supply
Univation with all of the services specified in the 1996 Agreement, but a
selection only of those services that omitted identifiable core obligations
central to the characterisation of the supply as the provision of education. One can identify omissions from the written
agreements that reflected the parties' aims. As already noted, for example, Clause 7 of
Annex A to the 1996 Agreement required the provider to engage, employ and where
necessary train staff qualified to carry out its obligations and duties under
the contract. Paragraph 8.1.of part 4 of the Schedule to the Services Agreement
provided that the relevant employees would remain in the employment of RGU for
all purposes. The provision of teaching
staff was on any view a core activity. There was no express reference to their
training. Another area was the provision
of equipment for the due performance of the 1996 Agreement. As already noted the exclusion of the
equipment from the Assignation was intelligible, given the obligations
incumbent on RGU at termination of the Agreement. However, maintaining suitable equipment for
the delivery of the education and training specified in the 1996 Agreement was
another core activity comprised in the definition of the services to be
supplied.
[29] There are
deficiencies in the Services Agreement in relation to equipment. There is a
definition of "Equipment" as "any and all such equipment as is required by the
Supplier to carry out the Services as specified in the Schedule". However, there is no operative express
obligation to provide the equipment or otherwise make it available for the
purposes of supplying the services. Paragraph
9 of Part 1 of the Schedule provides for the ongoing maintenance and care and,
where required, the repair of all items of the equipment during the term of the
agreement. The agreed facts include, in
paragraph 4, a statement that RGU "retained its rights" in the equipment,
reflecting the terms of the Assignation, but do not include any agreed fact
relating to its use. However, this
appears to be another example of poor drafting rather than a matter of
substance. There would be no point at
all in providing for the maintenance repair and replacement of the equipment if
it were not made available under the Services Agreement. But this is a further example of the need to
rely on material not included in the express terms of the Services Agreement in
characterising the supply. If it were
not correct to imply a term binding RGU to provide or make available the
equipment to Univation, then the result would be provision by RGU, to the
exclusion of Univation, of equipment central to the provision of nursing
training. But that would imply that Univation was in a position to service its
obligations to the Scottish Executive without access to the equipment. At this stage it would be impossible to avoid
a sense of artificiality in the arrangements. In the circumstances it must be concluded that
RGU was intended to provide the equipment to Univation.
[30] However, it
follows that it is not possible to treat the parties' written agreements in
this case as determinative of the character of the transactions. It is necessary to look to the whole
circumstances, including the documents, to arrive at a decision on the central
issue: how properly to characterise for
the purposes of item 1 of Group 6 the supply which both parties agree RGU made
to Univation. It is appropriate at this
point to return to the issues raised by two of the additional findings in fact
made by the Tribunal. A finding in fact
that the relationship between RGU and Univation "operates in practice in
accordance with the terms of the Agreement" cannot resolve the central issue,
nor can it be material to its resolution, if the terms of the agreement do not
define the parties' rights and obligations without reference to external facts
and circumstances. The same applies to
the third additional finding: nothing in the agreement is apt to identify the
staff who were providing services under the agreement. In the context of VAT, reference to staff
providing services is particularly inept.
[31] The starting
point in discussing the central issue between parties is now to be found the
opinion of the Advocate General and the decision of the Court in Stichting Regionaal Opleidingen Centrum
Noord-Kennemerland/West Friesland (Horizon College) Case C-434-05, 14 June
2007, unreported. That case was not
available to the Tribunal. From that
case it appears that the supply of teaching staff by one educational
establishment to another for the recipient to apply in the presentation of its
own courses is not the provision of education but a supply of services falling
outwith the scope of Article 13A(1)(i). The
Advocate General said at paragraph 49:
"When one educational establishment
makes teachers available to another such establishment, where they teach the
latter's students under its instructions and responsibility, the supply made by
the first establishment is not of 'education' but of teaching staff. And, as the Commission pointed out at the
hearing, the 'education, vocational training or retraining' which students
receive in an educational establishment is not merely what is provided by
teachers from their own knowledge and skills. Rather, it includes the whole framework of
facilities, teaching materials, technical resources, educational policy and
organisational infrastructure within the specific educational establishment in
which those teachers work."
[32] Neither party
contended that the final sentence was intended to define exclusively or
exhaustively the expression "education, vocational training or retraining". And the Court of Justice did not approach the
issue on that basis. The Court's opinion
states:
"17 There
is no definition in Article 13A(1)(i) of the Sixth Directive of the various
forms of education covered by that provision.
18 Admittedly,
as Horizon College essentially submits, the transfer of
knowledge and skills between a teacher and students is a particularly important
element of educational activity.
19 However,
..., the fact that such a transfer is taking place is not, by itself, sufficient
for the mere supply of a teacher to an educational establishment, for the
purpose of carrying out teaching duties under the responsibility of that establishment,
to be described as educational activity.
20 Indeed,
as the Commission submitted, in essence, at the hearing, the educational
activity referred to in Art. 13A(1) (i) of the Sixth Directive consists of a
combination of elements which include, along with those relating to the
teacher/student relationship, also those which make up the organisational
framework of the establishment concerned.
21 However,
... according to the terms of the placement contracts at issue in the main
proceedings, it was for the host establishment to define the duties of the
teacher concerned, having regard to the duration of the placement and the role
assigned to that teacher at Horizon College. In addition the host establishment was
required to insure the teacher for the period of his or her placement.
22 Accordingly,
the making available of a teacher to the host establishment in such
circumstances cannot be regarded, of itself, as an activity capable of being
covered by the terms 'education', within the meaning of Art. 13A(1) (i) of the
Sixth Directive. As the Greek and
Netherlands Governments and the Commission essentially contend, the contract
concluded between Horizon College, the host establishment and the
teacher concerned aims, at most, simply to facilitate the provision of
education by the host establishment.
23 That
interpretation is not affected by the circumstance ... that the body which makes
the teacher available is itself, in common with the host establishment, an
educational establishment for the purposes of Art. 13A(1)(i) of the Sixth
Directive. Where a particular activity
is not in itself covered by the term 'education', the fact that it is provided
by a body governed by public law that has an educational aim, or by another
organisation defined by the Member State concerned as having similar objects,
cannot alter that analysis."
[33] It is not
possible in this case to characterise the services supplied by RGU to Univation
as a "mere" supply of one or more teachers. Nor can the supply be characterised as "at
most, simply to facilitate the provision of education" by Univation. On any view, the supply to Univation was much
more comprehensive in its scope than the supply considered in Horizon College. There was a
combination of elements in the supply. The
question is whether, as the law is now to be understood, the Tribunal was
entitled to conclude that that combination in the circumstances did not amount
to the provision of education by RGU. The
Tribunal adopted an approach that could not have been and was not informed by
the decision in Horizon College. In a number of respects the Tribunal's
approach cannot be reconciled with the authorities, including Horizon College.
[34] The Tribunal's
decision was expressed in these terms:
"There was nothing unreal or inessential
about any of the features here. There is
indeed no artificiality created by the Company structure. The artificiality if any is introduced by the
concept of exempt supplies of education being supplied and only supplied by
selected 'eligible' bodies.
The Tribunal considered the statement
by the Commissioners that they did not contend that they were attacking an
avoidance scheme to be basic and fundamental. If it is accepted that there was
no artificiality about the economic activity said to be undertaken and that
supplies were in fact made by the Appellant to the Company and by the Company
to the Scottish Executive 'artificiality' plays little part in the analysis of
the transaction itself.
If by organising transactions in a
particular way an overall benefit in relation to taxation can be achieved that
does not make these transactions unreal or artificial. 'Commercial reality' would demand that the
most tax efficient method of operation should be adopted. In any event plenty good sound commercial
reasons can be envisaged for a division between the University and the Company.
There is significantly an advantage in
relation to liability for legal proceedings. The liability of the Company is limited. The liability of the University, probably not.
That consideration applies to the whole
of the commercial enterprises undertaken by Univation.
Further the Company does not 'supplant'
the Appellant in the teaching of nursing studies and granting of degrees and
plays no part therein. Its function is
to provide training to the Scottish Executive in fulfilment of the contract
with the Scottish Executive. It also
provides intellectual services to other entities as and when required.
The analysis of the appellant is in
our view correct. We follow their
argument. There is no supply of education to the Company. In other words the supply to the Company is
that for which they pay their consideration, which is administration and staff
services. The supply by the Company to
the Scottish Executive, although not strictly relevant, is of training and
would be and is education albeit that has no tax effect since the Company is
not an eligible provider. It might even
be said that constructed in this way the true concept of VAT is followed
through. The University supplies a
taxable service, the Company supplies a taxable service. These are not distorted by any considerations
of exempt supplies and the Company accounts for the VAT it receives and deducts
the VAT it pays. Nothing is artificial
in that."
[35] In the first
two paragraphs of its decision, the Tribunal reflects a failure to deal with
the argument presented by HMRC. The
dispute between the parties was not concerned with the question whether there
was a supply by RGU to Univation. It was
agreed that there was a supply. The
issue, as was agreed before us, was as to the characterisation of that supply. In that context, HMRC sought to persuade the
Tribunal and the court that when one considered the totality of the services
provided, they amounted to a provision of education. The "artificiality" contended for was the
dis-aggregation of the total activity of RGU into its component parts,
separately "labelled", and the representation of those parts as discrete
services which, even when aggregated, fell short of the provision of education.
However, it is clear that by describing
the arrangements as "artificial", HMRC provided a focus for debate that may
well have contributed to the Tribunal mis-directing itself. The third paragraph of the decision appears to
be entirely beside the point, and, in any event, on the terms of the 1996
Agreement probably inaccurate in fact. The
view that Univation did not "supplant" RGU in the teaching of nursing studies
appears to favour HMRC rather than RGU. It is not possible to support the Tribunal's
approach in the light of Horizon College.
Apart from that it fails to address the
issue of characterisation in any real sense. In these circumstances it is appropriate to
approach the issue afresh in the light of the guidance provided by Horizon College.
[36] Among the
documents executed by RGU and Univation was a formal lease of the building
known as the "Faculty of Health and Social Care Building, Garthdee". The permitted use of that building, so far as
material, was, in terms of clause 6.16.1:
"To use the Premises as teaching
accommodation for the delivery of nurse education and training..."
The lease therefore reflected an intention that Univation
should be in a position to provide all forms of nursing education and training:
it was not restricted to pre-registration education and training, but was
comprehensive enough to include that level of education and training. It is appropriate to deal with a submission
advanced in oral argument for RGU that it was implicit in Horizon College that education could only be provided
once in a chain of supply. If Univation was responsible for the provision of
pre-registration nursing education and training, RGU could not be.
[37] The argument
proceeded initially on the basis of a proposition that if Univation had simply
procured the provision of education by RGU, there would only have been one
single supply, from RGU to Univation. Having departed from that submission, Mr Tyre
submitted that, nevertheless, the situation was one in which there was only a
single core activity of teaching. In
this case, as in Horizon College, a
single activity could not characterise successive supplies by two different
people. The Court of Justice excluded
the possibility of telescoping the issue and ignoring the legal framework in
which the two transactions took place. It was implicit in the Court's approach that
the provision of education could take place at one stage only. The Court drew a distinction between the
provision of education and facilitating the provision of education. So approached, it became clear that it was
only when the whole components of the provision of education were brought
together that it was possible to characterise the supply as a provision of
education. Individual components merely
facilitated that ultimate provision.
[38] There are a
number of difficulties with that argument. It is not supported by express authority. In particular it does not have support in the
opinion of the Advocate General nor in the Court's judgment in Horizon College. It did not figure as an issue in that case. It is inconsistent with the observations of
Lord Hoffman in C&E Commissioners v Robert Gordon's College, 1996 SC (HL)
6, at 11H - 12H where, referring to BLP
Group v C&E Commissioners [1996] 1 WLR 174 (ECJ), he stated that the Court of Justice had emphasised that "each transaction in the chain must be
examined separately to ascertain objectively what output tax is payable and
what input tax is deductible." He
also stated that BLP Group "makes it clear that for the purposes of
European value added tax legislation, it is not permissible to take a global
view of a series of transactions in the chain of supply." If each stage must be considered separately,
it is difficult to understand how the characterisation of one stage as the
provision of education can be determinative of the characterisation of another: see also Eastbourne Town Radio Cars Association
[2001] STC 606 and C & E Commissioners v Reed Personnel Services Ltd [1995]
STC 588. Finally, the contention appears fundamentally
undermined by the concession that if RGU had agreed with Univation to meet the
whole obligations under the 1996 Agreement, that would have been the provision
of education or training. The
characterisation of the supply by RGU must be determined by reference to what
it supplied to Univation, not by what Univation supplied to the Scottish
Executive.
[39] In relation to
teaching staff, RGU remained the employer, responsible for all of the
obligations of an employer, and solely empowered to discipline employees and to
ensure their performance of their obligations, and that in the context of the
provision of the university's own courses, which, in terms of the broader
arrangements had to meet the requirements of the public authorities. In terms of paragraph 3.4 of Part 4 of the
Schedule to the Services Agreement, RGU were obliged to keep Univation informed
of the identities of the staff having responsibility for the day to day
provision of the services. Paragraph 8.2
delegated to Univation the authority to supervise and manage the performance of
the services and the authority to give lawful instructions to staff pursuant to
the provision of the services. It is
open to question whether those provisions could have any legally binding effect
in a question with any employee of RGU who was not personally a party to the
arrangements. No employee owed any duty to Univation which that company had a
title or interest to enforce.
[40] Mr Tyre argued
that the Services Agreement empowered Univation to require RGU to secure the
performance by university staff of RGU's obligations under the Agreement. That might well be the case in practice: the
services required of staff following the execution of the Services Agreement
were precisely those that they were obliged to perform in the ordinary course
of their employment with RGU, and the staff were not involved in the
arrangements. The test, however, must be
whether RGU could compel a university employee to carry out a task to implement
an obligation of the university to Univation that was not within the scope of
the employee's duties to RGU. It is
plain that the university would have no such power. In any event, there is a
lack of substance in the notion of Univation having control in relation to RGU
employees. It is reflected in paragraph
8.3. of part 4 of the Schedule to the Agreement. Discipline over
employees, even where Univation had cause to be dissatisfied with a university
employee's conduct or performance, lay with RGU. Univation's sole right was to report to RGU,
at whose exclusive discretion it lay to take action. Control over teaching, on
any view a core element in the provision of education, lay with RGU.
[41] As discussed
above, RGU also retained ownership, and on the express terms of the contracts,
possession of and control over the equipment required for the provision of
nursing training and education. If it is
necessary, as argued above, to imply a term requiring RGU to provide the
equipment or otherwise make it available for the purposes of supplying the
services, the only physical element of the provision of education omitted from
the Services Agreement was the provision of premises. The lease effectively provided separately for
Univation's occupation of the building. But ownership of the property is hardly
material so long as it is available for the prescribed purpose.
[42] At the end of
the day, Mr Tyre did not point to any practical aspect of the activities of RGU
prior to the arrangements with Univation that had changed as a result of those
arrangements. As he put it, nothing of
the RGU structures had been dismantled, but they no longer applied at the top. The directorate of the university no longer
had rights or duties under the 1996 Agreement: a new organisation had
supplanted the university. (It is not
clear why this is said to be the case, given the terms of the 1996 Agreement,
but no point was taken by HMRC on the clause providing for joint and several
liability.) Mr Tyre argued that the
element of control had passed to Univation. Because direction and control had
passed, all that the University could thereafter supply was the teaching
component of education. That was
something less than the provision of education, and the exemption did not
apply.
[43] That a degree
of influence over RGU's performance of its obligations was conferred on
Univation is clear. Unless one were to
dismiss the whole arrangement as a sham, which was not suggested by HMRC, there
was at least a sense in which RGU was answerable to Univation for the
performance of its services under the arrangements. One would expect as much in an arrangement
under which Univation took on some or all of the obligations provided in the
1996 Agreement, and the mechanics of reporting were put in place and have been
operated as between the parties, whatever their content. But that does not entitle one to ignore the
realities of the situation. On that
approach we consider that the interposition of control by Univation is nominal
and immaterial. RGU continued to provide the students' education irrespective
of the creation of an oversight in Univation.
[44] There were
submissions for RGU that sought to distinguish the positions of Univation and
the Scottish Ministers as purchasers of supplies. The Scottish Ministers, it was accepted,
purchased supplies that fell to be characterised as the provision of education
because they were paying for the education and training of the students. Univation on the other hand had taken on the
obligation to implement the contract with the Scottish Ministers. Before and after the arrangements there was
the provision of education to the students. But there was a difference in the contractual
framework. Characterisation at the successive points in the chain of supply
should reach different results. There
were differences between what the Scottish Ministers received under the 1996
Agreement as assigned and what Univation received under the Services Agreement.
[45] In approaching
this issue, it has to be noted that there was already in the 1996 Agreement
provision for external control of aspects of the provision of education. Annex
A paragraph 1.1.1. provided for annual review of the delivery of the services.
Paragraph 7 obliged RGU to produce documentary evidence of the qualifications
of the staff. Annex B paragraph 2 required RGU to meet the requirements of NBS.
Paragraph 3.10 required RGU to monitor practice placement for NBS. Paragraph 7.2 required RGU to comply with the
quality assurance requirements of NBS. Paragraph
8 added to the review requirements. It
has not been suggested that any of these elements of external supervision
detracted from the characterisation of the activities of RGU under the 1996
Agreement as the provision of education. We have not been persuaded that the
interposition of a further supervisory role assuring Univation of the
performance by RGU of its obligations to Univation makes any difference to the
characterisation of RGU's supplies in these circumstances. It was agreed that in fact it was a university
employee, Jennie Parry, who managed the nursing and midwifery courses. She also
dealt with the Scottish Executive on a day to day basis in relation to the
operation of the contract for the provision of nursing and midwifery services. She had no formal position within Univation. She was not a director of the company. It was the university that undertook essential
quality control in relation to the nursing and midwifery courses. There was no evidence that the Board of
Univation had issued any instructions in connection with the implementation of
the arrangements. It was agreed that
there had been no circumstance in which Jennie Parry had found it necessary to
refer any issue to the Board of Univation. Jennie Parry presented a quarterly report to Univation,
and at six monthly intervals presented papers at Board meetings. That level of accountability is insignificant
in comparison to the level of accountability to the Scottish Ministers, and
that depended on due performance by RGU of its obligations.
[46] It is
necessary to mention at this stage the additional finding in fact that "Jennie
Parry reports to Professor Harper ... as a Director of the Company". Professor Harper was Ms Parry's line manager
in RGU. He was a vice principal of the
university and a director of Univation. There was no evidence and there are no
findings in fact that would enable one to distinguish his activities relative
to Ms Parry as between his university role and his role in Univation. Ms Parry
had no relationship with Univation. With
respect to the Tribunal, without some explanation being sought as to the
context in which the assertion was made in evidence and the finding was made,
it is a meaningless statement. However,
if it was intended to indicate that Ms Parry, despite having no
relationship with Univation, represented the university in some sense in
accounting to Univation for her work within the scope of the Services
Agreement, it is difficult to understand what difference that made. It could not elevate Univation's participation
in management of the educational activity above the nominal level it otherwise
had in the absence of some indication that it made a difference to what was
done, or how it was done. If one
attempted to apply the same approach to Professor Harper himself, it would be
necessary to envisage him, as vice principal, reporting to himself as a
director at the interface between university and Univation spheres of activity.
Again one would be forced to question more
closely the artificiality of the arrangements.
[47] In Case
C-108/99 Cantor Fitzgerald International
[2001] STC 1453 the
Court of Justice said: "to facilitate the application of VAT, it is
necessary to have regard, save in exceptional cases, to the objective character
of the transaction in question" (paragraph 33), a proposition for which the ECJ
relied on paragraph 24 of its judgment in BLP Group. Objectively, the
reality of the contract between the parties was that RGU remained for all
practical purposes in control of the staff, the provision of the courses, the
monitoring of performance and staff discipline, the examination of the students
and the awarding of their diplomas, the provision of the social and
environmental services required for their education, and their preparation for
registration. It either remained solely
responsible for the provision of the equipment necessary for nursing and
midwifery training or was impliedly obliged to provide that equipment to
Univation under the Services Agreement. There was no material difference between the
situations before and after the arrangements were entered into. The same cohorts of students received the same
education and training and associated services from members and representatives
of the same organisation after the arrangements. The interposition of Univation in the chain of
control, even if it had involved substantial as distinct from purely nominal
intervention in management, did not alter the characterisation of RGU's
supplies.
[48] It is
unnecessary, and in our view unhelpful, to characterise the whole arrangements
as artificial for the purposes of resolving the issue between parties. It was not disputed that the objectives of RGU
might have been achieved: the university could have transferred the relevant
part of its undertaking to Univation, with the staff and other resources
required to provide education, just as the 1996 Agreement did as between the
Health Boards and RGU. It might have transferred staff to Univation, and
brought itself within the scope of the decision in Horizon College. It might have had a tax reduction motive in
doing so. That would have been
irrelevant unless it were contended that the arrangements offended the
principle of abusive practices: Halifax plc and others Case C-255/02 [2006] STC 919. The issue can be determined without resort to
such considerations.
[49] In our
opinion, what RGU supplied to Univation falls properly to be characterised as a
provision of education, just as much as did the supply the university made to
the Scottish Executive prior to the arrangements with Univation. The appeal falls to be allowed, and the
determination of the Tribunal reversed.
