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URL: http://www.bailii.org/scot/cases/ScotCS/2018/[2018]_CSIH_49.html
Cite as: 2018 SC 604, 2019 SCLR 131, [2018] ScotCS CSIH_49, 2018 SLT 1066, [2018] STC 1828, [2018] CSIH 49, 2018 GWD 24-314, [2018] BVC 36

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FIRST DIVISION, INNER HOUSE, COURT OF SESSION

Lord President

Lord Drummond Young

Lord Bannatyne

[2018] CSIH 49

XA81/17

OPINION OF LORD CARLOWAY, the LORD PRESIDENT

in the appeal by

SiBCAS LTD

Appellants

against

THE COMMISSIONERS FOR HER MAJESTY’S REVENUE AND CUSTOMS

Respondents

Appellant: Simpson QC; Anderson Strathern

Respondents: Roxburgh; Office of the Advocate General

13 July 2018

Introduction

[1] This appeal is about whether the appellants’ supply of temporary school

accommodation to an educational institution is exempt from Value Added Tax as

constituting “the grant of [an] interest in or right over land or of [a] licence to occupy land”,

as interpreted to include “the leasing or letting of immovable property”. Unusually, it is the

respondents who maintain that the supply is exempt. The issue is of some importance since

there requires to be clarity, or at least firm guidance, for commercial enterprises on whether

they ought to charge VAT to customers to whom they supply a variety of different types,

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shapes and sizes of accommodation modules which are, at least at the time of the initial

supply, intended for temporary use.

Statutory Background

[2] The Value Added Tax Act 1994 provides (s 1) that VAT shall be charged “(a) on the

supply of goods or services”; “supply” including (s 5) “all forms of supply”. The supply

requires to be by a taxable (registered) person (s 3) “in the course or furtherance of any

business” (s 4). The 1994 Act has its source in the Sixth Directive (EC 77/388) on the

harmonisation of ... turnover taxes”, which became the Principal Directive (EC 2006/112) on

the common system of VAT. The Act’s terms require to be construed in a manner

compatible with the 2006 Directive. Article 9 of the 2006 Directive refers to a taxable person

being someone carrying on “any economic activity”; meaning “any activity of producers,

traders or persons supplying services” (see also the Sixth Directive, Art 4). There is, for

other purposes, a definition of “a building” in Article 12; being “any structure fixed to or in

the ground”.

[3] The 1994 Act provides that “the grant of any interest in or right over land or of any

licence to occupy land” is exempt from VAT (s 31(1); Sch 9, part II, group 1 (land), item 1(l)).

This implements Article 135(1)(l) of the 2006 Directive, which requires member states to

exempt transactions involving “the leasing or letting of immovable property” from the

charge (see the Sixth Directive Art 13B(b)). Exceptions to the exemption in this group

include the provision of hotel, catering or holiday accommodation, caravan park or camping

facilities, and accommodation at a sports ground or other place of entertainment.

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Facts found by the First Tier Tribunal

[4] The appellants’ business is the manufacture, supply and hire of relocatable, modular

prefabricated accommodation units. Single units are manufactured in different sizes, but are

generally 3 metres wide and between 6.8 and 9.2 metres long. They are rectangular boxes.

The units are transported by lorry to the customers’ sites by the appellants. The duration of

hire is typically between 1 and 13 months for a single unit; averaging 7 months. Multiple

unit hires will range from 4 to 36 months; averaging 20 months.

[5] Part of a secondary school in Stockton-on-Tees, which was operated by the Church of

England, had been condemned. Temporary school accommodation was to be supplied by

the appellants. The supply was for a minimum of 24 months, although it ultimately lasted

for 32 months.

[6] The appellants required to carry out foundation works, since the structure was to be

laid on an uneven tarmac playground/tennis court, which was adjacent to the condemned

school. The ground conditions were of insufficient strength to cope with the structure’s

predicted weight. The appellants cut the tarmac and dug three parallel trenches. They filled

each trench with compacted stone and placed large steel levelling beams on top of the stone

to provide an adequate and level base for the units. The beams were not attached to or

embedded in the stone. They simply rested on top of it. The trenches were about 30 metres

long and between 300 and 600 millimetres deep. The ground floor units rested on, and were

initially clamped to, the beams. The purpose of these friction clamps was not to secure the

structure permanently to the ground, since its mass and weight would do that. They were

used to stop the first unit moving as the others were positioned next to it and to do the same

with other units during the construction phase. The clamps could have been removed on

completion of the structure, although there was no need to do so.

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[7] The accommodation consisted of three interlinked, two storey blocks, plus four

landings and steps, one disabled access ramp to the ground floor and two landings and

stairs to the first floor. The base of one staircase was surrounded by tarmac and the others

were bolted to metal plates secured to the tarmac. There was no roof framework; simply the

flat top of the upper units, which was covered by a sealant membrane. The completed

construction contained 19 classrooms with associated staff and other accommodation,

including toilets and an internal lift and stairways. It extended to almost 4,000 m2. It had

central heating and air conditioning as well as other utilities, including plumbing and

electric and network cabling.

[8] The construction involved 66 units, some of which were combined to create the

desired space. The units were clipped or clamped together to create the integrated

structure. Decoration and tiling ran across the units. Skirtings were installed between the

floors and below the ground floor for cosmetic and safety reasons. Each unit required an

articulated lorry to move it onto site, with eight more lorries needed for the carriage of other

component parts. The units had all come from another site, where they had also been used

as educational accommodation. The overall complex size was the same, although some

minor internal modifications were made to meet the school’s specific requirements. The

units were positioned using a telescopic crane. They took 29 days to assemble (it being

impractical to deliver all the units to the site at once).

[9] When the contract came to an end, the services were disconnected, the cabling

stripped out and central heating pipes cut. This required far less skill than that used in

construction. The rooms were broken back into units. Each unit was removed by crane and

lorry. The trenches and stone infill were left on site. The steel beams were taken away. It

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took 98 man days (14 men x 7 days) to dismantle and remove the structure. No unit was

damaged and all were subsequently rehired to other customers.

The First Tier Tribunal’s analysis

[10] The FTT focused on the nature of the completed structure in order to determine

whether there had been a lease of immovable property. In that context, it had regard to C-

315/00 Maierhofer v Finanzamt Augsburg-Land [2003] STC 564, C-60/96 Commission v France

[1999] STC 480, HM Revenue & Customs v UK Storage Co (SW) [2013] STC 361 and University

of Kent v Commissioners of Customs & Excise [2004] BVC 2215. The FTT determined that

“immovable” meant “fixed to or in the ground” (Maierhofer (supra) at para 35). The relevant

question was “whether the prefabricated components and therefore the units are fixed to or

in the ground and whether they can be easily dismantled or easily moved”. Each unit had

to be considered in isolation. The friction clamps did not attach or fix the units “and

therefore the building” to the beams. The beams which rested on the stone were not an

integral part of the building. The foundation trenches and stone remained on site after

removal. The external service connections were very limited. Objectively, the attachment

was not sufficient to enable the building, or the individual units, to be “firmly fixed to the

ground”. In any event, it was a straightforward matter to disconnect and remove the units.

The appellants did this all over the country on a regular basis with no particular difficulty.

The works were therefore not exempt from the VAT charge.

The Upper Tribunal

[11] The UT considered that the question for the FTT had been whether there had been a

“grant of any interest in or right over land or of any licence to occupy land”. This depended

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upon whether there had been a letting of “immovable property” within the meaning of

Article 135(l) of the 2006 Directive. Article 135(l) had to be interpreted in its context and

having regard to the underlying purpose of the exemption which it established. The letting

of a building may be one of immovable property even if the land on which the building

stands is not included in the letting (Maierhofer at para 41). In terms of Advocate General

Jacobs’ first conclusion in Maierhofer (at para 43), “’immovable property’ ... covers buildings

constructed from prefabricated materials … if they are firmly fixed to or in the ground”.

[12] Reading both Maierhofer and C-532/11 Leichenich v Peffekoven [2013] STC 846, it was

clear that: (1) Article 135(l) of the 2006 Directive should be interpreted in a way which was

consonant with Article 12(2), whereby a building will be immovable property if it is “fixed

to or in the ground”; (2) in neither case did the CJEU exhaustively prescribe the

circumstances in which a building ought to be regarded as so fixed. An active connection,

such as a physical fastening was not a requirement, as the FTT and the UT in UK Storage Co

(SW) (supra) had held; (3) immovability was to be determined by looking objectively at the

characteristics of the building and its relationship with the site; (4) Maierhofer did not say

that the immovability of a prefabricated building fell to be decided according to whether

individual components were fixed to the ground. The issue was whether the building was

fixed to or in the ground; and (5) neither Maierhofer nor Leichenich recommended a sequential

approach. The UT in UK Storage Co (SW) had erred in adopting that approach. The means

by which a building was kept in position and the ease of removal or dismantling were inter-

related and both were relevant to whether the building was fixed to or in the ground. They

ought to be considered together.

[13] In the UT’s view, the relevant question was whether the building was fixed to or in

the ground. The FTT had taken an unduly restrictive view of what this had involved. It had

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regarded the facts in Maierhofer as representing a minimum requirement. It had wrongly

adopted the sequential approach. It ought to have looked objectively at the building’s

relationship with the ground and taken a holistic view, looking cumulatively at all of the

links between the building and the ground and whether the building could be easily

dismantled and moved. The FTT had erred in looking at each connection separately. The

issue was whether the beams and foundations had been integral to the building before

dismantling. They plainly were. The FTT’s error had been compounded by looking at

whether a unit rather than the structure could be easily dismantled and moved. The

structure was fixed to or in the ground. It had substantial foundations sunk into the ground.

It was held very firmly in position by compressive force. It was connected to services

running through the ground. Other parts of the structure, including the stairways, were

secured to the ground. “Importantly, the building could not feasibly be moved without

being dismantled, and it could not easily be dismantled and moved.” The appeal was

allowed.

Submissions

Appellant

[14] The appellant maintained that the proper approach was to focus on the FTT’s

decision, because that tribunal was the primary fact-finder and the maker of judgments

based on those primary facts. Unless it had made an error in law in so doing, it was not for

the court to interfere (Procter & Gamble UK v Revenue & Customs Commissioners [2009] STC

1990 at para 7). The court should be slow to interfere with findings of fact (Advocate General

v Murray Group Holdings 2016 SC 201 at para [46]). The FTT had been reversed on the

question of whether the beams and stone had constituted part of the building. The FTT had

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given acceptable reasons for its conclusions on this point and it had been wrong in law for

the UT to alter that. Similarly, the UT had wrongly reversed the FTT on the ease of

dismantling and removing.

[15] The reason for the exemption in relation to the lease of immovables was that the

construction of a building marked the end of the production process. Letting was normally

a passive activity; not adding significant value (C-326/99 Stichting Goed Wonen v

Staatssecretaris van Financiën [2001] ECR I-6856 at para 52). Once the construction process

had been completed, value was brought within the scope of VAT on the first grant of a

major interest (albeit zero rated). Apart from that, supplies were exempt because, generally,

nothing apart from construction added value. In contrast, the appellants’ activities in

relation to the units were comparatively active. Each hire added value. At the end of each

hire the units were taken back and maintenance carried out before the construction of a new

structure for subsequent hire. Standing back and looking at the case generally, the

appellants were not passive exploiters of immovable property. They manufactured

individual units and actively exploited them by using them to create a variety of different

structures for different customers. If the appellants’ supply were deemed to be exempt, that

would cause a serious practical problem in deciding whether a particular structure was

exempt. It might depend on the condition of the ground in terms of its strength or level.

[16] Maierhofer (supra) indicated that the concept of being fixed to or in the ground

required some active connection between the structure and the land. The UT erred in

adopting a broad interpretation of this phrase to include “firmly placed on the ground”.

Resting on top of ground was not enough. Using the definition of “building” as an aid, the

CJEU had held that there was, for a prefabricated structure to be deemed immovable, a

requirement for the components to be fixed to or in the ground in such a way that they (ie

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the components) could not either be easily dismantled or easily moved. This was so even if

the building was to be removed at the end of the lease and re-used elsewhere. The

difference here was that the units would be re-used to form different structures. C-428/02

Fonden Marselisborg Lystbådehavn v Skatteministeriet [2005] ECR I-1527 was distinguishable.

Leichenich v Peffekoven (supra) was consistent with Maierhofer (supra). It referred (para 26) to

the relevance of the objective envisaged by the parties and the function allocated to the

structure. The houseboat there was permanent and passively exploited.

[17] HM Revenue & Customs v UK Storage Co (SW) (supra) had been correct in stating

(para 26) that a building, which was kept in place merely by its own weight, could not be

held to be fixed to or in the ground. The formulation by the CJEU required a causal

relationship between the manner of fixing and the ease of dismantling or moving. Any

difficulty in dismantling, which was brought about by the connection between components,

was to be ignored in assessing whether the supply was of immovable property. The

formulation in Maierhofer (supra) was that, where a structure consisted of prefabricated parts,

the question was whether the parts could be easily dismantled or moved. The UT erred in

rejecting the sequential approach in UK Storage Co (SW) (supra). The FTT had been correct to

find that the trenches and stone had not formed part of the structure. The services did not

connect the structure to the land. It was a straightforward matter to disconnect the units

from the ground, hoist them onto a truck and drive them away. The FTT had been correct to

find that the trenches and stone had not formed part of the structure. The services did not

connect the structure to the land.

[18] The purpose of the legislation was not to distinguish between immovable and

moveable. That is what it did. The purpose was to remove passive investment in land and

buildings from the scope of VAT. The appellants’ business was to manufacture

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“Portacabin” style units and to hire them out to a variety of different customers. That

involved transport, installation, customisation and removal. The building only existed for

the period of hire before disappearing. Having regard to the purpose of the exemption, this

was a business which should be fully taxable. Applying the CJEU jurisprudence, there was

a taxable supply.

Respondents

[19] The respondents maintained that the UT had been correct to find that the FTT had

erred in law in: (1) its application of Maierhofer (supra); (2) its identification of the structure to

which the Maierhofer test applied; (3) its approach to whether the building was fixed to or in

the ground; (4) finding that the units were not attached to the beams; (5) finding that the

stone and beams were not an integral part of the structure; and (6) finding that it was a

straightforward matter to dismantle and remove the building.

[20] In C-428/02 Fonden Marselisborg Lystbådehavn v Skatteministeriet (supra), Advocate

General Kokott had said (para 30) that immovable property was “a specific part of the

earth’s surface, including buildings firmly constructed thereon”. In Maierhofer (supra) it was

noted that there were degrees of movability. Whether a particular structure was movable or

immovable depended upon where on the scale it fell. The court held (para 33) that

structures fixed to or in the ground must be regarded as immovable. There was no need for

them to be inseverably fixed. The letting of a building constructed from prefabricated

components, which were fixed to or in the ground in such a way that they could not be

either easily dismantled or easily moved, constituted the letting of immovable property,

even if the building was to be removed at the end of the lease and reused on another site.

The approach in Maierhofer was applied in Leichenich v Peffekoven (supra), which

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demonstrated that it was necessary to look at the building’s link with its site. In University of

Kent (supra) and UK Storage Co (SW) (supra), the tribunals had been concerned with

individual units with no foundations. The FTT had taken a “unit” as shorthand for a

prefabricated component in Maierhofer. It had ignored the beams and foundation trenches.

The FTT had asked the wrong question when considering whether the units, as distinct from

the whole structure, were fixed in or to the ground and could be easily dismantled or

moved.

[21] Whether the units making up the ground floor were physically attached to the beams

was irrelevant. The units could not have been sited on the land without the beams and the

foundations. What was important was that the beams were integral parts of the structure

before the building was dismantled. The FTT had found that there was a physical

connection between the beams and the units. This fixed or attached the units to the beams.

The UT was correct to hold that the beams and the foundations were integral parts of the

structure. The question, of whether the building was fixed to or in the ground in such a way

that it could not be easily dismantled or moved, involved looking objectively at the

characteristics of the building and its relationship with the site.

[22] The argument that the exemption was designed to exclude passive exploitation was

rejected by the Advocate General in Maierhofer ((supra) at para 41). The question was

whether the building was fixed in or to the ground; looking at what was supplied and

whether it could be easily dismantled and moved (UK Storage Co (SW) (supra) at paras [20],

[30] -[31]). The building in Maierhofer had involved foundations. There was no requirement

for an active connection. Compressive force was sufficient. Little turned on whether or not

a sequential approach, such as that in UK Storage Co (SW), was applied. The building was

not made of Lego. There were interconnected services. The supply had to be looked at

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objectively; the period of the lease was not relevant nor was what happened after the

supply.

Decision

The cases

[23] Each of the cases cited is materially different in nature from that under consideration,

although each contains relevant dicta for analaysis. Approaching the European cases

chronologically, C-326/99 Stichting Goed Wonen v Staatssecretaris van Financiën [2001] ECR I-

6831 concerned three newly built housing complexes, which were undoubtedly immovable.

The issue was whether a housing association’s grant to a foundation, which it had

established, of a right to use the complexes for a period of 10 years in circumstances in

which the foundation had in turn contracted with the association to manage the individual

lets, was exempt from the VAT charge. Put another way (para 39), was the grant of a right

to use the housing complexes for a limited period of time itself the lease of immovable

property; was it a “supply”? The court noted (para 46) that exemptions from the VAT

charge were derogations from the general principle that VAT is to be levied on all supplies

or services. They therefore required to be interpreted strictly.

[24] Of more interest, however, is the court’s analysis (paras 50 et seq) of the ratio legis of

the exemption. It stated:

“52. Although the leasing of immovable property is in principle covered by the

concept of economic activity ... it is normally a relatively passive activity, not

generating any significant added value. Like sales of new buildings following their

first supply to a final consumer, which marks the end of the production process, the

leasing of immovable property must therefore in principle be exempt from taxation

...

53. ... The common characteristic of the transactions which [are excluded] from

the scope of the exemption is indeed that they involve more active exploitation of

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immovable property, thus justifying supplementary taxation, in addition to that

charged on the initial sale of the property”.

The purpose of the exemption is essentially to cover the passive act of leasing land and

buildings constructed upon it.

[25] C-315/00 Maierhofer v Finanzamt Augsburg-Land [2003] STC 564 involved (AG’s

Opinion para 13) “buildings similar to prefabricated houses”; with the walls being made of

panels, secured to a concrete base erected on sunk foundations, and a roof framework with

tiles. The base was secured by bolts embedded in the foundations. This is a different type of

structure from the modular units in this case. The contract involved only the leasing of

existing buildings; not their design, transportation, construction and removal. It involved

the let, not only of the accommodation, but the land (ibid para 12). The only issue was

whether the buildings were immovable. The buildings were, in part, built on land which

Mr Maierhofer had rented from the local authority or on land rented, but not owned, by the

tenants.

[26] Advocate General Jacobs was not convinced (para 31) by the argument that the

transaction entailed active exploitation of immovable property beyond that levied upon the

initial sale. He reasoned (para 41), no doubt correctly, that Mr Maierhofer “merely lets the

buildings ...; in so doing he does not exploit the property more actively than he would if the

letting were of a conventional building which he had constructed”. His dismissal of the

significance of the possibility of dismantling and re-using the components elsewhere was

because “such a sequence of events is ... merely hypothetical, and as such cannot without

undermining legal certainty influence the correct classification of a building at a given time

as ‘immovable property’ ...”.

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[27] The Advocate General’s reasoning on why he considered the buildings in Maierhofer

to be immovable is instructive, even if it was not entirely adopted by the court. The German

Government had suggested that the buildings were comparable in type to the “tents,

caravans, mobile homes and light-framed leisure dwellings” in Case C-60/96 Commission v

France [1999] STC 480. The Advocate General commented (para 32) that “a true building

with walls and foundations will ... only very exceptionally be moved whereas a circus tent’s

core function is precisely to be movable”. He posed the question of whether buildings

should be classified as immovable either by looking at objective criteria, such as the quality

of attachment to the land, or by subjective criteria, such as the intended duration of the

attachment. He excluded the latter as irrelevant because of what he described as the

“notoriously fickle criterion” of intention. This reasoning stemmed partly as a consequence

of his perception, no doubt soundly based, of the semi-permanence of certain post war

“prefabs”. An objective criterion, specifically “whether the structure is firmly fixed to or in

the ground”, was selected. In that context, he continued:

“42. ... The buildings stand on a concrete base erected on concrete foundations

sunk into the ground and are secured by bolts embedded in those foundations. ...

they were solidly built in order to last at least five years. It would take a team of

eight persons a period of ten days to dismantle them. They may be distinguished

from tents, caravans and mobile homes which are both inherently mobile and less

firmly attached to the ground” (emphasis added).

[28] The CJEU commenced its interpretation by reiterating (paras 27 and 28) the need to

“consider its wording as well as the context in which it occurs and the objectives of the rules

of which it forms part”. In also contrasting the buildings with “caravans, tents, mobile

homes and light-framed leisure dwellings” in C-60/96 Commission v France (supra), the court

said:

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“32 ... the buildings at issue ... are not mobile; nor can they be easily moved. They

are buildings with a concrete base erected on concrete foundations sunk into the

ground. They can be dismantled on expiry of the lease for subsequent re-use but by

having recourse to eight persons over ten days.

33 Such buildings made of structures fixed to or in the ground must be regarded

as immovable property. ... [I]t is significant that the structures cannot be easily

dismantled or easily moved but ... [T]here is no need for them to be inseverably fixed

to or in the ground. Nor is the term of the lease decisive for the purpose of

determining whether the buildings at issue are moveable or immovable property”.

[29] The court stressed the utility of adopting the definition of “building”, in what is now

Article 12 of the 2006 Directive, before continuing:

“... the letting of a building constructed from prefabricated components fixed to or in

the ground in such a way that they cannot be either easily dismantled or easily

moved constitutes a letting of immovable property ... even if the building is to be

removed at the end of the lease and re-used on another site”.

That is entirely understandable in relation to the letting of prefabricated buildings. That is

not to say that the same result is achieved in relation to a contract for the construction of

temporary accommodation using, not prefabricated walls, ceilings and roofs, but modular

units, which are essentially designed to be relatively easily positioned as units, fitted out

and even more easily dismantled and removed, and where the contract provides for that

removal after a limited period of time.

[30] C-428/02 Fonden Marselisborg Lystbådehavn v Skatteministeriet [2005] ECR I-1527 was

decided shortly after Maierhofer (supra). It concerned a foundation that owned and operated

a marina and let out moorings and storage sites for boats on a short or long term basis. The

boat owner acquired a right to use a mooring, which was alongside a jetty, and certain

communal facilities. The court observed (at para 28) that what is now Article 135 of the 2006

Directive must be interpreted “having particular regard to the underlying purpose of the

exemption”. Letting of immovable property meant (para 30) the grant by a landlord of a

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right to occupy “his property” in return for a rent for an agreed period. The ground used

for the moorings was immovable. The foundation owned it and let it to the boat owner. It

was therefore an exempt supply.

[31] More recently, C-532/11 Leichenich v Peffekoven [2013] STC 846 concerned an

agreement to lease a houseboat, landing stage and adjoining area for use as a café-

restaurant, and later as a discotheque. The landlord had an agreement with the waterways

authority, which allowed him to occupy the relevant river bank and a section of water. The

houseboat, whilst immobilised by ropes, chains and anchors, had no system of propulsion

and had full utility connections and a postal address. The court noted that Maierhofer (supra)

had determined (para 23) that it was not necessary for a construction to be “indissociably

incorporated into the ground in order to be regarded as immovable”. It continued:

“24 By the terms of the leasing contract which is concluded for a duration of five

years and which shows no wish of the parties to confer an occasional and temporary

character to the use made of the houseboat, the latter is used exclusively for the

permanent operation of a restaurant-discotheque” (emphasis added).

The court took account (para 25) of not only the physical link of the houseboat with its site

but also the nature of the contract which designated it “exclusively and permanently to the

operation” of a restaurant-discotheque in determining that it was immovable.

[32] Turning to the Upper Tribunal decisions, University of Kent v Commissioners of

Customs & Excise [2004] BVC 2215 was concerned with 20 “sleep units” hired by the

University to accommodate an unexpected number of students who had meantime been

placed in hotels because of the University’s guarantee of a campus bedroom. The hire lasted

for an academic year. The units were to be placed in a car park, which turned out not to be

level. A contractor was engaged to place slabs or blocks under the units in order to remedy

this problem. Three units could be transported on each lorry. Each weighed about a tonne.

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They measured 2700mm (width), 3600mm (length) and 2300mm (height). They had no

foundations, but did have four adjustable corner points. They were placed in two rows,

back to back, with a service corridor being created between the rows. Timber steps and

landings were added to the door of each unit together with various skirtings. A timber

member was secured to the tarmac of the car park with bolted connections. A batten was

bolted to the sub-frame of the unit and a panel screwed onto it. Concrete traffic control

barriers were placed around the units. Electricity, water and drainage connections were

established. The units normally contained two beds, but this was reduced to one in order to

permit study space. The construction took about 3 weeks. Removal took much less time,

with ducting, which had been cut into the car park surface, left on site.

[33] In addressing whether the units were immovable, the UT accepted that the test was

“how easily the units could be removed from the site” (para 52). They considered that there

was a scale of degrees of movability and immovability. In attempting to follow Maierhofer

(supra), the UT were of the view that the issue was where on this scale the units fell. They

did not consider that they were firmly fixed to the ground. It took only about 1½ hours to

move a unit after the disconnection of services. The UT held the units to be movable.

[34] HM Revenue & Customs v UK Storage Co (SW) [2013] STC 361 involved the provision

of self-storage facilities to the public. The customer could hire one or more of some 300

storage units; being cladded steel boxes each accessed through a door. The units were

assembled on demand and positioned by telescopic crane into gap free rows, placed back to

back. The units weighed 600kgs and rested on a concrete surface. They could be dismantled

in 2 man-days. The UT, in determining that the provision was not exempt as being the grant

of an interest in land, made certain observations on the interpretation of Maierhofer (supra).

The first (para [20]) was that, in order to be immovable property, a structure had to be “fixed

Page 18 ⇓

to or in the ground”, but not inseverably so. A structure which rested under its own weight

could not be regarded as “fixed to or in the ground”. Using a sequential approach, the UT

said, secondly (para [21]) that, if a structure was fixed to or in the ground, but it could be

easily dismantled and removed or easily moved without being dismantled, then it would

not be immovable. The fact that it could be re-used on another site was nevertheless “not

relevant”. The units in question could easily be moved.

Anaylsis

[35] Some time has been taken to set out the facts and circumstances of these cases with a

view to determining what test is to be applied to the central question. That question is not

simply one of whether the completed structure of the temporary school accommodation was

immovable. It is whether, looking at the primary facts found by the FTT, the appellants’

supply of the accommodation constituted a grant of an interest in or right over land or any

licence to occupy land (Value Added Tax Act 1994, s 31(1), Sch 9, part II (land) I, group 1,

item (l)); interpreted compatibly with the phrase “the leasing or letting of immovable

property” in the Council Directive 2006/112/EC on the common system for VAT

(Art 135(1)(l)). This is a matter of law; there can only be one correct answer. There is no

discretionary element in the judgment.

[36] It is important, in the interests of commercial certainty, that the circumstances in

which VAT is chargeable in these or similar circumstances are as clear as is reasonably

possible. They should not involve the trader or customer making difficult judgments, which

are capable of arriving at different results depending upon, for example, the degree of

physical connection between a modular unit or units and a pre-existing or re-constructed

ground surface.

Page 19 ⇓

[37] In deciding whether a supply is, put shortly, a grant of an interest in land, such as a

lease of immovable property, the whole circumstances of the supply, and not just the

physical properties of the product, must be looked at in order to understand the substance

of the commercial transaction (supply) undertaken. In a case, such as the present, where

there are features to the supply beyond the mere leasing of land and/or a building, the

purpose of the exemption should be borne firmly in mind, since it is essentially “passive”

leases which are intended to be exempt and not transactions with active elements such as

those of design, construction, transportation, hire and removal. In all of this, the terms of

the contract, including its duration, may be important in understanding the true nature of

the supply (HM Revenue & Customs v Robert Gordon University 2008 SC 419, Lord Penrose,

delivering the Opinion of the Court, at para [25]). It is no doubt correct that, in a case which

undoubtedly involves the lease of a building, such as Maierhofer (supra), the duration of the

lease is irrelevant. The lease of immovable property remains classified as such, no matter

what its term might be. That is not to say that the duration of a contract involving the

construction and dismantling of what is not simply intended to be, but actually contracted

to be, a temporary structure falls into the same category.

[38] Another factor, although not a determinative one, is whether any interest in the land

(ie the undoubted immovable) was conveyed or leased, or already belonged to, the person

receiving the supply. In this case, the land was not, nor could it have been, leased by the

appellants to the school. At the start of the contract, and at all times thereafter, the property

which the appellants supplied, that is to say their units, were movable property. They had

no immovable property in Stockton-on-Tees (so far as disclosed) which they could lease, or

over which they could grant a right of occupancy. The contract involved the design,

transportation and construction of “temporary classroom accommodation” on the school’s

Page 20 ⇓

own land, payment of rental for the accommodation for a minimum 24 month period and,

again perhaps of some significance, the removal of the temporary classroom facilities at the

end of the rental period. Part of the construction was the creation of a level surface of

adequate strength to support the structure. However, the design of this foundation was not,

as in the case of a normal building, intended to cement or bolt (fix) the structure to the land.

The design was, on the contrary, such as would not hinder the removal of the structure, unit

by unit, or the levelling beams at the end of the period of hire. The supply was of a structure

which was always intended to be a temporary one, albeit lasting at least two years, on top of

land which was, and remained throughout, the property of the school.

[39] In each of the cases cited, the court or tribunal reached a particular result. In each,

that result appears to have been eminently sensible on the particular facts. On the one hand,

Mr Maierhofer’s buildings were, prima facie, immovable, even if they might possibly have

been dismantled. The berths in the Marselisborg marina seemed immovable.

Mrs Leichenich’s permanent floating discotheque was, apparently, immovable. In these

cases, the land (and water) and buildings concerned were, using Advocate General’s Jacobs’

term (supra) “inherently immovable” as he applied that only to land. UK Storage’s boxes and

Kent University’s pods, on the other hand, appeared to be, again borrowing the Advocate

General’s phraseology, “inherently movable”, given their general nature.

[40] Proceeding on the basis that each case was correctly decided, the search must be to

find why that is. Approaching the matter on the basis that all the relevant circumstances

relating to the goods or services supplied must be taken into account in determining the true

nature of the supply, certain of the dicta in the cases (infra), which restrict the scope of that

inquiry, must fall to be rejected.

Page 21 ⇓

[41] The Upper Tribunal was correct to hold that the cases do not prescribe an exhaustive

list of circumstances in which a building will be regarded as fixed to or in the ground. Sheer

weight of a substantial structure built on rock may render it immovable, even if it has no

binding. The UT was also correct to say that the immovability of a building is to be

determined by looking at its characteristics and its relationship to the site. However, that

will not necessarily answer the question of whether the supply contracted for is truly what is

meant by a lease of immovable property. Furthermore, looking at what is normally

understood to be the characteristics of a lease or a right to occupy, one objective factor must,

as noted above, be the ownership of the land, to which the building attaches, at least where

that owner is, as here, the person to whom the respondents maintain, the building is also to

be leased. That too may not be determinative, but it may be a good pointer towards

acknowledging that what is involved is not a lease; that term normally being understood to

involve a landlord who owns or has a head lease over the relevant land and building and

who leases them to another who is not that owner or head landlord.

[42] The Upper Tribunal was correct in rejecting the idea, which the FTT adopted, that it

was the connection of the individual components to the ground that was important. That

may be a factor, but the structure as a whole must be considered. As already observed, the

groundworks in this case were never intended to fix the structure to the ground. The

purpose of the design was to provide a stable and level surface, but one which enabled the

removal of the units without any form of structural disruption. Equally, for similar reasons,

the sequential approach in UK Storage Co (SW) is not appropriate. The degree of difficulty in

dismantling or moving must be looked at alongside the degree of fixation or, perhaps better

put, immobility. The services in this case, as with those of the University of Kent’s pods, were

designed to be easily disconnected (eg they were not buried). The connection with the

Page 22 ⇓

surface, involving no substantial fastening between beam and ground, or beam and unit

(other than the friction clamps), positively enabled easy removal of each unit by crane, even

if that process would inevitably take some time dependent on many practical factors; not

least transport. The finding of fact, made by the FTT (para 90), that “it was a straightforward

matter to disconnect the individual units from the ground and, once the internal wiring,

connections etc had been stripped out, the removal of the units was also very

straightforward” is important in this context.

[43] It follows that the Upper Tribunal’s identification of a number of errors in the FTT’s

approach is sound. That is, however, only the start of the equation. The next, and

determinative issue, is whether, applying a holistic approach, the design, provision and

removal of the temporary school accommodation amounted to a lease of immovable

property. On this question, which is the correct one rather than the more restricted issue of

whether the building was fixed to or in the ground, for all the reasons given above, the FTT

reached the correct decision. The structure was one which was “inherently movable”. The

appeal should therefore be allowed and the FTT’s ultimate determination that the supply

was not exempt should be re-instated.

Page 23 ⇓

FIRST DIVISION, INNER HOUSE, COURT OF SESSION

Lord President

Lord Drummond Young

Lord Bannatyne

[2018] CSIH 49

XA81/17

OPINION OF LORD DRUMMOND YOUNG

in the appeal by

SiBCAS LTD

Appellants

against

THE COMMISSIONERS FOR HER MAJESTY’S REVENUE AND CUSTOMS

Respondents

Appellant: Simpson QC; Anderson Strathern

Respondents: Roxburgh; Office of the Advocate General

13 July 2018

Introduction

[44] The critical question in this case is, as your Lordship in the chair indicates, whether

the provision by the taxpayer of goods and services to the Ian Ramsay Church of England

School was an exempt supply; if it was it is not subject to VAT. That issue turns on the

construction of Part II of Schedule 9 to the Value Added Tax Act 1994, read against the

background of article 135(1)(l) of Council Directive 2006/112/EC of 28 November 2006 on the

common system of VAT. Part II of Schedule 9 lists the groups of goods and services that are

Page 24 ⇓

exempt from the scheme of VAT. Group 1, item 1 of Part II deals with land. It is in the

following terms:

“The grant of any interest in or right over land or of any licence to occupy land, or, in

relation to land in Scotland, any personal right to call for or be granted any such

interest or right…”.

This is subject to a list of exceptions, but none of those is of direct relevance to the present

case. Group 1 of Schedule 9 is based on article 135(1)(l) of the 2006 VAT Directive, which is

in the following terms:

“1. Member States shall exempt the following transactions:

…

(l) the leasing or letting of immoveable property”.

[45] The exemption for the leasing or letting of immoveable property has been the subject

of case law in both the Court of Justice of the European Union and domestic courts and

tribunals in the United Kingdom. Before I consider the details of those cases, however, I

should note certain general principles that apply to the construction of the EU legislation

governing VAT. Two general propositions are relevant to the construction of article 135 of

the 2006 VAT Directive and the corresponding United Kingdom legislation. First, the

exemptions that are now provided in articles 132 and 135 of the 2006 VAT Directive are

imposed by Community law. Consequently they must be given a Community definition.

The interpretation of the expression “letting of immoveable property” in article 135 cannot

therefore be determined by the interpretation given by the civil law of any member state:

Case C-315/00, Maierhofer v Finanzamt Augsburg-Land, [2003] ECR I-563; [2003] STC 564, at

paragraphs 25-26; Case C-532/11, Leichenich v Peffekoven, ECLI: EU: C: 2012:720; [2013] STC

846, at paragraph 17. Secondly, in construing the exemptions and their scope, a court must

take proper account of the context, both legal and factual, in which an exemption may fall to

Page 25 ⇓

be applied, and must take proper account of the purpose of the exemption: Maierhofer v

Finanzamt Augsburg-Land, supra, at paragraphs 27-28; Case C-428/02, Fonden Marselisborg

Lystbådehavn v Skatteministeriet [2005] ECR I-1527, at paragraph 27; Leichenich v Peffekoven,

supra, at paragraph 18. I would observe that these considerations correspond, at a functional

level at least, to the principles of statutory construction that are normally applied to

domestic United Kingdom legislation.

[46] Two further general statements of principle relating to the structure of the VAT

legislation are of fundamental importance in the construction of article 135 of the 2006 VAT

Directive. First, the general principle underlying VAT is that all economic activity should be

subject to it apart from a limited number of defined exemptions, together with certain

categories of transaction that are subject to zero rating; none of the latter categories is

relevant to the present case. In the circumstances of the present case, that presumption

operates in favour of the taxpayer, which contends that its activities are economic in nature

and should therefore be subject to VAT. Secondly, it follows from the last proposition that

exemptions from VAT should be restrictively construed.

[47] These two principles are essentially the converse of each other, and are discussed in

the judgment of the Court of Justice in Case C-326/99, Stichting ‘Goed Wonen’ v Staatssecretaris

van Financiën, [2001] ECR I-6856. The facts of that case and the detailed issues that it raised

(in particular, whether the exemption from VAT for the leasing or letting of immoveable

property applied to a usufructuary right over immoveable property that subsisted for a

limited period) are not relevant to the facts of the present case. Nevertheless in its opinion

the Court of Justice expressed the general approach that should be taken in the application

of the exemption for leasing or letting of property. It indicated (paragraph 46) that what is

now article 2 of the 2006 VAT Directive states the general principle of the Directive, namely

Page 26 ⇓

that VAT is to be levied on all supplies of goods or services made for consideration by a

taxable person. The exemptions provided for in what is now article 135 of the 2006 VAT

Directive are accordingly derogations from that general principle stated in article 2, and it is

established in the case law that because they are derogations the exemptions, including that

for the letting of immoveable property, must be interpreted strictly. (The same point is

made in the Court’s decision in Case C-428/02, Fonden Marselisborg Lystbådehavn v

Skatteministeriet (supra), at paragraph 29). It was further noted (paragraphs 47-49) that,

according to the preamble of the Directive, the Council had established a common list of

exemptions in order to ensure uniformity of collection of taxes in all the member states of

the European Union. Thus consistency of approach across different member states is an

important background consideration. In the area of rights over property significant

differences existed in the national legal systems of member states, and consequently the

concept of leasing or letting contained in what is now article 135(1)(l) required a Community

meaning, independent of the law of individual member states.

[48] The Court accordingly held (paragraphs 50-54) that it was necessary to analyze the

ratio legis of the exemption for the leasing or letting of immoveable property, to determine

whether the exemption might be extended to the grant of a right of usufruct. On that basis,

although the leasing of immoveable property is in principle covered by the concept of

economic activity, “it is normally a relatively passive activity, not generating any significant

added value”. The leasing of immoveable property must therefore in principle be exempt

from taxation; an analogy was drawn with new buildings following their first supply to a

final consumer, which marks the end of the production process. In effect, this part of the

Court’s reasoning is that landlords of immoveable property are typically rentiers, in the

Page 27 ⇓

economic sense of that word, and do not engage in entrepreneurial activity. It was

nevertheless consistent with the general aim of the VAT Directive that:

“if immoveable property is made available to a taxable person through leasing or

letting as a means of contributing to the production of goods or services whose cost

is passed on in their price, the property stays within, or returns to, the economic

circuit and must be capable of giving rise to taxable transactions. The common

characteristic of the transactions which [the VAT Directive] excludes from the scope

of the exemption is indeed that they involve more active exploitation of immoveable

property, thus justifying supplementary taxation, in addition to that charged on the

initial sale of the property” (paragraph 53).

In other words, if a person leasing immoveable property can truly be described as engaging

in entrepreneurial activity, as against functioning as a rentier, the justification for exempting

leasing transactions from the system of VAT no longer applies.

[49] In the present case it was contended for the taxpayer that its activities in leasing

structures made up of prefabricated units were plainly entrepreneurial in nature. A

structure was put together from prefabricated units within the taxpayer’s stock. It was

erected to serve a defined and limited purpose, of an essentially temporary nature. Once

that purpose had been fulfilled, the structure was dismantled, and the components were

used to create new structures in other places. That did not amount to the passive

exploitation of immoveable property. I agree with those general contentions. I would

qualify that, however, by stating that the question of whether the activities of the taxpayer

are entrepreneurial in nature, or on the other hand are the classic activities of a rentier,

cannot be conclusive by itself; the ultimate question that must be determined is whether

specific activities of the taxpayer fall within the statutory concept of leasing or letting of

immoveable property, or in domestic legislation the grant of an interest in or right over land

or a licence to occupy land, including in Scotland personal rights to that effect. That must

depend upon the precise analysis of the particular transaction.

Page 28 ⇓

Case law on article 135

[50] Article 135 and its predecessor, article 13B(b) of the Sixth VAT Directive, has been

considered by the Court of Justice in a number of cases. The most important statements of

principle are in my opinion found in two of these, Maierhofer v Finanzamt Augsburg-Land,

supra; and Leichenich v Peffekoven, supra. The facts of Maierhofer bear some similarity to those

in the present case; the taxpayer had constructed single-story and two-story buildings using

prefabricated components, which stood on a concrete base erected on concrete foundations

sunk into the ground. The walls were secured to foundations by bolts, a factor that

functionally does not exist in the present case, where the clamping arrangements were only

used to secure units during construction. The buildings could be dismantled at any time by

eight persons in ten days and subsequently reused (paragraph 13). The buildings were let to

the Free State of Bavaria, with the necessary land, for the temporary accommodation of

asylum-seekers. The status of the land on which they were built was not entirely clear

(Advocate General, paragraph 12). Some of the land used for the buildings was rented by

the taxpayer from the city of Bamberg, while other buildings were situated on land that the

Free State of Bavaria had rented from the city of Bayreuth. The taxpayer claimed that the

Bayreuth land was made available to him without consideration, but the order for reference

from the German court stated that the taxpayer let the accommodation with the necessary

land. There was thus some doubt as to whether the taxpayer provided both the buildings

and the land to the Free State of Bavaria or merely provided buildings that were erected on

the Free State’s land. Ultimately, however, this issue does not appear to be relevant in view

of the answer given to the second question asked by the German court. On this question,

the Court of Justice held (paragraph 41) that for the purpose of determining whether a

Page 29 ⇓

letting was of immoveable property within the meaning of what is now article 135 it was

irrelevant whether the lessor made available to the lessee both the building and the land on

which it was erected or merely the building erected on the lessee’s land. The letting of

immoveable property might concern solely a building (paragraph 40). This seems to be

based on a principle of Community law corresponding to the principle of accession in Scots

domestic law, whereby moveable property that is sufficiently attached to immoveable

(heritable) property becomes immoveable, or heritable, in nature: compare Brand’s Trs v

Brand’s Trs, 1876, 3R (HL) 16.

[51] The primary question for the Court of Justice was whether the term “letting of

immoveable property” as used in the Sixth VAT Directive covered the provision for

consideration of a building constructed from prefabricated components which is to be

removed following the termination of the contract and may be reused on another site. The

Advocate General gave detailed consideration to the criteria that were relevant to this

question: paragraphs 32-42. He noted that the only property that is inherently immoveable

is land itself, and that other items attached to land fall within a spectrum of “moveability”,

ranging from true buildings with walls and foundations to tents and similar items. He then

suggested that the question of whether buildings or other literally moveable objects are in

legal terms immoveable property may be answered in principle by either objective or

subjective criteria; objective criteria relate to “the quality of the attachment of the object

under consideration to the land on which it stands”, or its “inseverability”. Subjective

criteria covered matters such as the intended duration of the attachment. Many judgments

had assumed that that the letting of conventional buildings or parts of buildings would

amount to a letting of immoveable property for the purposes of the VAT Directive, but there

was no guidance from the Court on the criteria to be applied in borderline cases. In the

Page 30 ⇓

Advocate General’s opinion, subjective criteria such as the intended duration of the

attachment should not be taken into account. The German domestic legislation (in

paragraphs 94 and 95 of the Buergerliches Gesetzbuch, quoted at paragraphs 8 and 9)

excluded tangible property attached to the ground only for a temporary purpose from the

definition of immoveable property, but the Advocate General considered intention to be a

“notoriously fickle” criterion, since subjective criteria raised problems of verification.

Reference was made to the prefabricated buildings put up to provide housing after the

Second World War as a temporary measure which remained for many years. Consequently

(paragraph 38)

“It is desirable therefore that the criterion for determining whether a building or

similar structure constitutes immovable property within the meaning of [article 135]

should be objective. In my view the correct criterion is… whether the structure is

firmly fixed to or in the ground”.

Furthermore, the fact that the structures in question in Maierhofer could be removed and re-

erected elsewhere did not entail a more active exploitation of property than if a conventional

building were constructed and leased (paragraph 41). The buildings under consideration in

Maierhofer must be regarded as “firmly fixed to or in the ground”, as they stood on a

concrete base erected on concrete foundations sunk into the ground and were secured by

bolts embedded in the foundations.

[52] The Court of Justice did not adopt this part of the Advocate General’s analysis in its

opinion, although it agreed with the result suggested by him. The Court described the

structures in question at paragraph 13, in terms that suggested a degree of permanence. It

referred in particular to the fact that the single-story and two-story buildings were “similar

to prefabricated houses”, and that they stood on a concrete base erected on concrete

foundations sunk into the ground. Moreover, the walls were secured to the foundations by

Page 31 ⇓

bolts, the roof was covered with tiles and the floors and walls of bathrooms and kitchens

were tiled. These factors in themselves suggested that the structures were analogous to

commonly found types of permanent or semi-permanent building. In the critical part of its

opinion the Court commented that the wording of article 13B(b) of the Sixth Directive (the

equivalent of article 135(1)(l) of the 2006 VAT Directive) indicated that the letting of

moveable property was intended to be subject to tax, in contrast to the letting of immoveable

property which, as a general rule, was to be exempt (paragraph 29). In an earlier decision,

Case C-60/96 Commission v France, [1997] ECR I-3827; [1999] STC 480, the Court had held that

caravans, tents, mobile homes and light-framed leisure dwellings were not immoveable

property for the purposes of the exemption in article 13B(b), as they were either mobile or

could be easily moved (paragraph 31). That distinguished the earlier decision from the

structures in Maierhofer, which were not mobile and could not be easily moved.

[53] The critical part of the Court’s reasoning is found in paragraphs 33 and 35:

“33 Such buildings made of structures fixed to or in the ground must be regarded

as immoveable property. In that connection, it is significant that the structures

cannot be easily dismantled or easily moved but… there is no need for them to be

inseverably fixed to or in the ground. Nor is the term of the lease decisive for the

purpose of determining whether the buildings at issue are moveable or immoveable

property.

…

35 The answer to the first question must therefore be that the letting of a

building constructed from prefabricated components fixed to or in the ground in

such a way that they cannot be either easily dismantled or easily moved constitutes a

letting of immoveable property for the purposes of Article 13B(b) of the Sixth

Directive, even if the building is to be removed at the end of the lease and re-used on

another site”.

In my opinion three aspects of this reasoning are important for present purposes. First, two

features are relied on in determining whether the structures were moveable or immoveable

property: the fact that they were “fixed to or in the ground” and the fact that they could not

Page 32 ⇓

be easily dismantled or moved. Secondly, it is stated that the term of the lease is not

“decisive” in determining this question. That is different from the Advocate General’s

analysis. He regarded the provisions of the lease as irrelevant with regard to the

Community definition of immoveable property, but the Court did not go so far as to hold

that the lease was not relevant. Thirdly, the Court did not consider the situation where

structures made up using prefabricated components are leased for a defined and essentially

temporary purpose. It did not need to do so; the structures under consideration in

Maierhofer were buildings similar to prefabricated houses, let for the purpose of housing

asylum seekers, and there is no indication anywhere in the reports of the case to suggest that

the letting was for an essentially temporary purpose.

[54] The most recent decision of the Court of Justice on the meaning of the expression

“the leasing or letting of immoveable property” in article 135(1)(l) of the VAT Directive is

found in Leichenich v Peffekoven, supra. That case involved the letting of the houseboat for

use as a restaurant and discotheque; it was thus on its facts clearly very different from both

Maierhofer and the present case, and for that reason perhaps insufficient attention was paid

to the statements of principle in the case in submissions to the Upper Tribunal. The Court

noted at paragraph 20 that the situation of the houseboat should be examined not in an

isolated manner but taking account of its integration into its site. The houseboat had no

system of propulsion and had been immobilized for many years. It was attached to the

riverbed by anchors and to the bank by chains and ropes, and those measures could not be

removed without effort and considerable cost. It was not necessary for construction to be

“indissociably incorporated into the ground” to be regarded as immoveable property

(paragraph 23). The Court continued, in a passage that is in my opinion of critical

importance in the present case:

Page 33 ⇓

“24 By the terms of the leasing contract which is concluded for a duration of five

years and which shows no wish of the parties to confer an occasional and temporary

character to the use made of the houseboat, the latter is used exclusively for the

permanent operation of a restaurant-discotheque. Moreover, the houseboat has a

postal address and telephone line and is connected to the water and electricity mains.

25 Taking account of the houseboat’s link with the elements that constitute its

site and of the fact that it is fixed to those elements, which render it, in practice, a

part of that space taken as a whole, and taking into account also the contract which

allocates the houseboat exclusively and permanently to the operation, on that site, of

a restaurant-discotheque, and taking account of the fact that the latter is connected to

the various mains, it must be held that the whole constituted by the houseboat and

the elements which compose the site where it is moored must be regarded as

immoveable property...

26 The European Commission correctly observes that, having regard to the

objective envisaged by the contracting parties and the function allocated by them to

the houseboat, it is, for those parties, immaterial, from an economic point of view,

whether it is a building incorporated into the ground in a fixed manner, for example

by piles, or a simple houseboat such as that at issue in the main proceedings”.

[55] Two features of the foregoing analysis seem to me to be important. First, the Court

clearly accepts that the terms of the contract governing the placing of the structure on the

land are an important factor in determining whether property is immoveable for the

purposes of the relevant legislation. Thus in paragraph 24 there is a reference to “the terms

of the leasing contract” and to its duration, and to an important inference from those terms:

that there was no wish of the parties to confer “an occasional and temporary character” on

the use made of the houseboat. In paragraph 25 there is a further reference to the contract,

and to the fact that it allocated the houseboat exclusively and permanently to the operation

of a restaurant-discotheque. In paragraph 26 there is a reference to the function allocated by

the parties to the houseboat; it is obvious that that allocation must have been through the

terms of their contract. Consequently it is apparent that the Court rejected the approach

taken by the Advocate General in Maierhofer, to the effect that “subjective criteria” such as

the intended duration of the attachment should not be taken into account. The Advocate

Page 34 ⇓

General’s approach appears to treat contractual arrangements as “subjective”, with the

result that they must be rejected; regard should only be had, he thought, to “objective

criteria”, and in particular the attachment of the structure to the ground: whether it was

“firmly fixed to or in the ground”.

[56] Secondly, the Court of Justice in Leichenich v Peffekoven accepted that the temporary

or permanent character of the attachment of a structure to the ground may be an important

factor in determining whether it is to be regarded as moveable or immoveable. Once again

this is contrary to the Advocate General’s view in Maierhofer, where the intended duration of

the attachment is rejected as a criterion. In the opinion of the Court of Justice in the latter

case it is stated (at paragraph 33) that the term of the lease is not decisive for the purpose of

determining whether the buildings at issue are moveable or immoveable property, but that

is not an assertion that it is irrelevant.

[57] At a general level, it appears to me that the Advocate General’s analysis in Maierhofer

is open to significant criticism. He treats the terms of a lease as a “subjective” criterion, and

he refers to intention (apparently of the parties to a contract) to be a “notoriously fickle”

criterion. Furthermore, he states that “subjective” criteria raised problems of verification.

The terms of a lease, however, are normally an objective fact; they will almost invariably be

recorded in a document signed by the parties or their representatives. Furthermore, the

meaning of those terms will inevitably be determined objectively. Scots law (and for that

matter English law) invariably treats the meaning of contractual provisions as a matter to be

determined objectively, without regard to the subjective intentions of any one party. While

that is a matter of domestic law, and it is clearly not conclusive as to the autonomous

meaning given to the expression “the leasing or letting of immoveable property” in article

135 as a matter of Community law, I have great difficulty in understanding how a contract

Page 35 ⇓

could be construed on anything other than an objective basis. There are inevitably two (or

sometimes more) parties to the contract, and for a proper judicial determination of the

meaning of any provision of the contract the subjective view of any one party cannot,

logically, be decisive: the only construction that can bind both parties is the objective

construction placed by the court on their agreement. That agreement is itself an objective

fact. Once this is accepted, the relevant “intention” must be the objective intention of the

parties as evidenced by their contract, properly construed. I am accordingly of opinion that

as a matter of Community law, when a lease or other contract is construed for the purposes

of a provision such as article 135(1)(l), an objective approach must be adopted in

determining the intention of the parties.

[58] Intention of this sort may obviously give rise to doubtful cases, but those are

resolved by a court, which will apply well-established principles of contractual

interpretation, including the principle that intention must be determined objectively.

Almost any legal distinction can give rise to doubtful cases, and the mere existence of such

cases cannot mean that intention is a “fickle” criterion. Finally, the reference to problems of

verification seems remarkable; the terms of the lease will, as I have already noted, normally

be contained in a written document, and their meaning is inevitably ascertained on an

objective basis. For these reasons, I have no hesitation in adopting the approach taken by

the Court of Justice in Leichenich v Peffekoven in preference to the approach adopted by the

Advocate General in Maierhofer.

[59] Leichenich v Peffekoven is the most recent statement by the Court of Justice on the

interpretation of the provisions of article 135(1)(l). Although the facts of the case are plainly

different from those of the present case (unlike the facts of Maierhofer, which present obvious

similarities), I am of opinion that it is the principles laid down in Leichenich that should be

Page 36 ⇓

applied in the present case. In any event, for the reasons that I have stated, I find the

approach in that case to be more coherent than that found in the Advocate General’s opinion

in Maierhofer; moreover, I consider that the acceptance in Leichenich that the terms of the

parties’ contract are relevant to the question of whether the structure has been incorporated

into the ground in such a way as to become immoveable seems to accord with common

sense. The same is true of the acceptance in the latter case of the relevance of the fact that

attachment to the ground may be for a merely temporary purpose. In relation to the

purpose of the annexation, I note that paragraphs 94 and 95 of the Buergerliches Gesetzbuch

expressly have regard to the question of whether attachment to the ground is for a

permanent or merely temporary purpose. The same is true of the Scots law of accession,

“purpose” being understood in an objective sense: see Gordon, Land Law, paragraphs 5-12 –

5-14. While these are clearly not conclusive so far as the autonomous meaning of

Community legislation is concerned, they appear to me to recognize a rather obvious point:

that if a structure is attached to the ground for a specific and temporary purpose, that is a

relevant consideration in determining whether it is a fixture, or is to be treated as

immoveable property.

[60] I should mention one further case, the decision of the Upper Tribunal in UK Storage

Co (SW) Ltd v Revenue and Customs Commissioners, [2013] STC 361. In that case it was held

that self-storage units which rested on the ground under their own weight and were not

fixed to the ground did not fall within the exemption for the leasing of immoveable property

contained in article 135(1)(l) of the VAT Directive. I have no criticism to make of the

decision in that case, but I cannot agree with the reasoning of the Upper Tribunal that led to

that result. The Upper Tribunal purported to follow Maierhofer, but added a gloss on the

reasoning of the Court of Justice in two respects, both of which are clearly identified by the

Page 37 ⇓

judge of the Upper Tribunal in the present case. First, at paragraph [21], the Upper Tribunal

in UK Storage adopted what the Upper Tribunal in this case described as a “sequential”

approach. They suggested that in applying Maierhofer it was necessary to ask two questions:

first, were the storage units fixed to or in the ground? and secondly, if so, could the units be

(a) easily dismantled and removed or (b) easily moved without being dismantled? The

Upper Tribunal in UK Storage held that for the storage units to be classified as immoveable

property the answer to the first question must be “yes” and the answer to both parts of the

second question must be “no”. In my opinion such a gloss is not justified by the wording of

the legislative provision under consideration in Maierhofer, what is now article 135(1)(l) of

the VAT Directive, which merely refers to the “leasing or letting of immoveable property”.

The primary distinction inherent in that definition is that between moveable and

immoveable property; that is a fairly straightforward distinction, on an issue that is likely to

have parallels in all of the national legal systems, and in my view it should be approached

directly without any recourse to elaborate glossing. It is noticeable that in Maierhofer itself

the Court of Justice approached the issue as a single question. As the judge of the Upper

Tribunal points out in the present case, the means by which a building is kept in position on

its site, and the ease or difficulty of moving or dismantling and moving it, are interrelated

issues, and ought to be considered together.

[61] Secondly, in UK Storage at paragraph [26] the Upper Tribunal adopted an unduly

restrictive interpretation of the expression “fixed to or in the ground” that is used by the

Court in Maierhofer at paragraph 35. They held that if units were not fixed to the ground but

rested on their own weight and could feasibly be moved, the units were not fixed to or in the

ground; an active connection such as a physical fastening was required. The word “fixed”,

however, as the judge of the Upper Tribunal in this case indicates, has a range of meanings,

Page 38 ⇓

including stationary and unchanging or stable in position. A building might be firmly fixed

in position through nothing more than downward compressive force, without any fastening.

Examples of this would include a dry stone wall, and also certain older buildings that rest

on the ground without anything like a modern foundation. Nevertheless, in these cases the

wall or building would be treated as immoveable property. I agree with the Upper Tribunal

in the present case on this issue; I do not think that “fixed” necessarily requires an active

connection. Furthermore, in UK Storage the Upper Tribunal followed the views of the

Advocate General in Maierhofer in holding that the test for fixing to the ground was solely

based on “objective characteristics of the units”. As I have indicated, I do not agree with

that formulation of the test, which is, I think, incompatible with the views expressed by the

Court in Leichenich v Peffekoven.

Approach of the First-tier and Upper Tribunals

[62] In the present case the First-tier Tribunal purported to follow the decision in

Maierhofer, and held that the primary question was whether the building or units were

“fixed to or in the ground”. On that issue, the primary argument was, the judge thought,

whether the building supplied by the taxpayer should be regarded as a whole or as a series

of individual units. She held that the relevant question is whether the prefabricated

components and therefore the individual units were fixed to or in the ground and whether

those components and units could be easily dismantled or easily moved; it was wrong to

consider the structure as a whole. In agreement with the judge of the Upper Tribunal, I am

of opinion that that approach is erroneous. It purports to be based on a construction of

paragraph 35 of Maierhofer, to the effect that when the Court of Justice refers to “the letting

of a building constructed from prefabricated components fixed to or in the ground in such a

Page 39 ⇓

way that they cannot be either easily dismantled or easily moved”, what is referred to is

inevitably the individual components rather than the totality. That seems to me to attach

undue significance to the use of the plural pronoun (a pronoun that in English at least is

used to cover the singular as well as the plural). Furthermore, the approach of the First-tier

Tribunal fails to recognize the fact that in Maierhofer the Court did not even address the

question of whether a building formed from prefabricated components should be

considered as a series of individual components or as a unity; the criterion adopted at

paragraph 35 was whether the building was fixed to or in the ground in a particular manner.

[63] The First-tier Tribunal went on to consider the application of Maierhofer in the event

that the correct criterion was the structure as a whole. The judge held that attachment by

friction clamps was not sufficient to hold that the building as a whole was fixed to or in the

ground, as the clamps were only required for the purpose of assembling the building. The

levelling beams resting on compacted stone were held not to be an integral part of the

building, and the foundation trenches were held not to be the equivalent of the concrete base

on sunken foundations in Maierhofer. Nor was the connection to main services sufficient to

cause the building to be fixed to or in the ground. Finally, the judge considered the last part

of the analysis put forward in UK Storage, the ease or otherwise of moving and dismantling.

On this matter she held that it was a straightforward matter to disconnect the individual

units from the ground and remove them from the site. This part of the reasoning is in my

opinion incorrect for the reasons given by the Upper Tribunal; the sequential approach is

wrong in itself.

[64] As will be apparent from the foregoing discussion, I am of opinion that the Upper

Tribunal was generally correct in its analysis of the present case. I disagree with its

approach on one single issue, namely the relevance of the taxpayer’s contractual

Page 40 ⇓

arrangements with its customer. Apart from that matter, I am in agreement with the Upper

Tribunal that a sequential approach should not be used in the construction of

article 135(1)(l), and that the expression “fixed to or in the ground” used in Maierhofer does

not require an “active” connection between the building or structure and the ground. I

further agree that Maierhofer is not authority for the proposition that the moveable or

immoveable character of a building constructed from prefabricated components should be

decided by examining whether individual components are fixed to or in the ground; the

issue is whether the building as a whole is fixed to or in the ground.

[65] That leaves the single point of disagreement. For the reasons stated at

paragraphs [54]-[59] above I am of opinion that the contractual arrangements between the

taxpayer and its customer may be important in determining whether there is a leasing or

letting of immoveable property. That proposition was in my opinion clearly accepted by the

Court in Leichenich v Peffekoven. The judge of the Upper Tribunal referred to that case in

support of his rejection of a sequential approach and as authority for the importance of the

ease or otherwise of dismantling and moving a structure. He also referred to the case as

supporting the view that the objective facts relevant to whether property is moveable or

immoveable may include the period of let in the lease agreement. It does not appear,

however, that the arguments put to the judge included the detailed considerations to which

I have referred previously. The critical aspect of Leichenich v Peffekoven is in my opinion the

acceptance by the Court of Justice of the importance of the contractual arrangements

concluded by the taxpayer. It is those contractual arrangements that I consider to be of

decisive importance in the present case. It is on this point alone that I disagree with the

reasoning of the Upper Tribunal. I now turn to the application of the relevant legal

principles to the facts of the present case.

Page 41 ⇓

Application to the present case

[66] The crucial issue in the present case is whether the supply of goods and services by

the taxpayer to the Ian Ramsay Church of England School was an exempt supply because it

fell within the exemption contained in Group 1, item 1 of Part II of Schedule 9 to the Value

Added Tax Act 1994, read against the background of article 135(1)(l) of the VAT Directive,

or was an ordinary commercial supply of goods and services falling within the VAT regime.

Two general principles favour the inclusion of the taxpayer’s commercial activities within

the VAT regime: the presumption that all economic activity should fall within the VAT

regime unless it is specifically exempted, and the consequent rule that exemptions from the

VAT regime should be restrictively construed. A further general consideration is that the

activities of the taxpayer are clearly entrepreneurial in nature: they involve the construction

and hiring of structures made from prefabricated components which are removed at the end

of the period of hire and reused by the taxpayer. The decision of the Court of Justice in Case

C-326/99, Stichting ‘Goed Wonen’ v Staatssecretaris van Financiën, supra, supports the view that

the exemption for the leasing or letting of immoveable property is justified on the ground

that the activities of a landlord are typically the classic activities of a rentier, not an

entrepreneur: see paragraph [47] above. It is, moreover, clear that the exemptions found in

article 135 must be given a Community meaning to ensure the uniform application of the

system of VAT throughout the European Union: ibid. These factors provide support at a

general level for the argument that the taxpayer’s activities are fully commercial and

therefore fall within the VAT regime. In this connection it is perhaps also significant that the

exemptions from the VAT regime other than the leasing of land predominantly cover public

services; in those cases it can be said that the commercial aspects of the activity are

Page 42 ⇓

subordinate to the notion of public service, which justifies the exemption from the VAT

regime.

[67] Nevertheless, the foregoing considerations are of a general nature, and I cannot

regard them as conclusive. Of greater importance are the two central aspects of the service

provided by the taxpayer: first, the nature of the service provided by the taxpayer, and in

particular the supply by it of a structure that was attached to some extent to the land and

was relatively difficult to remove, and secondly, the definition in the contract between the

taxpayer and its customer of the service that was to be provided.

[68] The first of these was treated as decisive by the Upper Tribunal, largely because the

second does not appear to have been as fully argued as it was before the Court. On this

issue, I find myself in agreement with the analysis by the Upper Tribunal. The structure

provided by the taxpayer should in my opinion be considered as a totality, having regard

both to the physical nature of the building that was provided and the manner in which that

building was attached to the ground. The building was substantial: it was required to

provide classroom and laboratory accommodation for the Ian Ramsay School, and was

made up of 66 modular units, together with four landings and steps, a disabled ramp to the

ground floor, two landings, and stairs to the first floor. It was placed on levelling beams

which were themselves located on concrete foundations, and those foundations were

constructed in trenches dug into the ground. There was, however, no significant attachment

between the structure and the foundations; bolts were provided, but these were designed to

prevent movement during construction and not to provide long-term stability. Long-term

stability was provided by the downward compressive force of the structure. The building

was obviously connected to the standard services, including electricity, gas and water, and

normal plumbing connections were also provided. Against that background, I agree with

Page 43 ⇓

the Upper Tribunal that the building must be regarded as a single integrated building, both

physically and functionally, and that the focus should be on the building as a whole, not the

individual components. For this purpose I agree that the levelling beams should be

regarded as part of the building, and that the concrete foundations should also be regarded

as part of the total structure provided by the taxpayer. The lack of a form of attachment

such as the bolts considered in Maierhofer is not, I think, of critical importance; the scale of

the structure and the compressive force exerted by it are in my opinion sufficient for it to be

considered as attached to the ground.

[69] Furthermore, it was clear that the building, considered as a whole, could not be

removed without considerable effort. In Maierhofer the buildings under consideration could

be dismantled at any time by eight persons in ten days. In the present case, it was found by

the First-tier Tribunal that dismantling of the building would take a total of 98 man-days,

which is slightly longer. It was accepted by both parties that the dismantling process was

fairly involved and relatively lengthy. In this respect the case cannot be considered

comparable to cases such as UK Storage, supra, or University of Kent v Customs and Excise

Commissioners, [2004] BVC 2215, where the units were separate from one another and were

not integrated into a larger building; in those cases the question of ease of dismantling had

to be considered against the time and effort taken to remove a single unit rather than to

dismantle the building as a whole. For these reasons, I agree with the Upper Tribunal that

this is a case where the relevant structure, the whole building supplied by the taxpayer,

could not be removed easily or quickly. Consequently, when the scale of the structure, its

degree of attachment to the ground, and the ease with which it could be removed are taken

together, if other considerations are left out of account, I am of opinion that the structure

could properly be considered to be fixed to or in the ground in such a way that it constituted

Page 44 ⇓

immoveable property for the purposes of article 135(1)(l) and the corresponding provision in

United Kingdom domestic legislation, Group 1, item 1 of Part II of Schedule 9 to the Value

Added Tax Act 1994.

[70] Nevertheless, I am of opinion that one further consideration is of crucial importance

in deciding whether the structure constituted immoveable property for the purposes of this

legislation. This is the underlying legal relationship that governed the supply by the

taxpayer and the relationship between the taxpayer and its customer. That relationship is

obviously found in the contract concluded between the taxpayer and its customer. In

Leichenich v Peffekoven it was accepted that the terms of the contract that governs the placing

of a structure on land are an important consideration in determining whether that structure

is immoveable for the purposes of article 135(1)(l): see paragraph [55] above. It was further

accepted that the temporary or permanent character of the attachment of a structure to the

ground may be an important factor in determining whether the structure is to be regarded

as moveable or immoveable: see paragraph [56] above. Furthermore, it is established by a

series of decisions of the Court of Justice that in applying the legislation governing VAT a

court must take proper account of the context, both legal and factual, in which an exemption

from VAT may apply, and must take proper account of the purpose of the exemption: see

paragraph [45] above. In a case such as the present, involving the leasing of property, the

legal and factual context obviously includes the terms of the contract under which the

property is supplied. Furthermore, the underlying purpose of the exemption is to exclude

from VAT transactions that amount to the collection of a rent and thus are not truly

“economic” in nature; in giving effect to that purpose a court must take account of that

contract and its terms. For all these reasons, the contractual terms must be of fundamental

Page 45 ⇓

importance in determining the application of the relevant legislation, both at a domestic and

at an EU level, to the present case.

[71] In the statement of agreed facts and the findings in fact of the First-tier Tribunal it is

narrated that the Ian Ramsay School required the units provided by the taxpayer to provide

temporary classroom and laboratory accommodation because part of their existing

permanent building had been condemned. The units hired were accordingly envisaged as a

temporary provision, to provide accommodation during the period that it would take to

reinstate a permanent building containing the requisite classrooms and laboratories. The

structure was originally hired for a period of 24 months, but in the result the period of hire

was extended to 32 months. Nevertheless, this emphasizes that the hire was for a limited

period of relatively short duration.

[72] Furthermore, it appears that the supply of structures for temporary purposes is a

standard aspect of the taxpayer’s business. Documentation was available to show the use

that had been made of the prefabricated units before and after the supply of the building for

the Ian Ramsay School. It was apparent from this that the individual modules and other

components are repeatedly reused in a series of structures. These structures may obviously

be provided for a wide range of purposes, and the Court was not given a full account of the

taxpayer’s business. Nevertheless, it is obvious that a major use of such components is the

provision of temporary staff and storage accommodation during the performance of a

building contract. As with the provision of temporary school accommodation, that is

plainly a supply of limited duration. Indeed, it is probably fair to observe that the supply of

temporary accommodation is of the essence of the taxpayer’s business; as a matter of

commercial common sense it is obvious that structures composed of prefabricated

Page 46 ⇓

components are unlikely to be satisfactory as long-term accommodation, except perhaps for

very limited purposes. If a structure is supplied for a temporary and limited purpose,

however, that seems antithetical to the notion that it is “immoveable”; temporary structures

are designed to serve a limited purpose and then to be removed. Perhaps more

significantly, when structures are provided on that basis, the supply can be seen as

contributing added value to economic activity. That is the fundamental rationale for the

imposition of the VAT regime: see paragraphs [48] and [49] above. Supply of this nature is

quite different at both a conceptual and a practical level from the typical letting of

immoveable property, where the landlord draws a rent for allowing the occupation and use

of its property, rather than adding value through active participation in economic activity.

[73] Counsel for the taxpayer emphasized the practical difficulty that the taxpayer would

have if the present structure were to be regarded as immoveable for the purposes of the

VAT legislation. In some cases the structure supplied by the taxpayer to a customer is

relatively small and clearly rests on its own weight, without integration into the ground; in

such cases the structure would almost certainly be moveable, by analogy with cases such as

UK Storage. VAT would then be chargeable. At the other extreme, in cases such as the

present, there would be a degree of integration into the ground with the result that the

structure was exempt from VAT. Drawing a distinction between these categories would

frequently be difficult. The difficulty of drawing a distinction is not necessarily a reason for

holding that no distinction exists, and in these two extreme cases the degree of integration

into the ground is clearly very different. Nevertheless, the fundamental feature of the

taxpayer’s activities is the provision of temporary structures, and that applies equally to the

provision of a single unit resting on its own weight and to the provision of a complex

structure such as the present. In both cases the activity can be considered “economic” in

Page 47 ⇓

nature, in the sense in which that word is used in the application of VAT; it involves the

hiring of units and other components for a limited period to serve limited purposes, and

then reusing the units for similar purposes. In my opinion this consideration is decisive; it

negates the view that what is supplied by the taxpayer amounts to “immoveable” property

for the purposes of article 135(1)(l) or is a “right over land” or a “licence to occupy land” for

the purposes of Group 1 of Part II of Schedule 9 to the Value Added Tax Act 1994.

[74] That is sufficient to hold that the present appeal should be allowed. I should observe

that I do not regard the ownership of the land on which the structure is erected as decisive;

that seems clear from the discussion of the relevance of landownership in Maierhofer, at the

point when the Court of Justice considered the second question put to it by the German

court: see paragraphs 36 et seq, and in particular paragraphs 39 and 40. The critical question

is whether the structure hired by the taxpayer is to be regarded as forming part of the

immoveable property, or is a right over or licence to occupy land, and that must in my

opinion be determined by two main factors, the degree to which the structure can be

considered integrated into the land and the contractual arrangements under which the

structure is supplied. Those two factors may point in different directions, as occurs in the

present case. In that event a court or tribunal must consider the supply of the structure as a

whole and in context, and decide how the statutory test should apply. When it does so, it is

important that the court should have regard to the fundamental purposes of the imposition

of VAT on “economic” transactions and the exemption for the “leasing or letting” of

immoveable property. In the present case, the contractual arrangements between the

taxpayer and its customer demonstrate, especially through their limited and temporary

nature, that they are properly considered as a component in economic activity, and thus fall

within the fundamental purpose of the VAT regime. That in my opinion takes the present

Page 48 ⇓

transaction outside the purpose of the leasing exception. That is sufficient to negate any

inference that the structure became immoveable property or involved a right or licence over

land.

[75] For the foregoing reasons I agree that the appeal should be allowed.

Page 49 ⇓

FIRST DIVISION, INNER HOUSE, COURT OF SESSION

Lord President

Lord Drummond Young

Lord Bannatyne

[2018] CSIH 49

XA81/17

OPINION OF LORD BANNATYNE

in the appeal by

SiBCAS LTD

Appellants

against

THE COMMISSIONERS FOR HER MAJESTY’S REVENUE AND CUSTOMS

Respondents

Appellant: Simpson QC; Anderson Strathern

Respondents: Roxburgh; Office of the Advocate General

13 July 2018

Introduction

[76] I am grateful to your Lordship in the chair for his exposition of the legislation; the

facts and circumstances of the case; the analysis of the authorities; and the analysis of the

decisions of the First Tier Tribunal and the Upper Tribunal. I am in full agreement with

these findings, reasoning and conclusion.

[77] As observed by your Lordship, this case raises an issue of some importance and in

these circumstances I would wish to add a few remarks of my own.

Page 50 ⇓

Errors in law of the First Tier Tribunal

[78] I consider that the approach of the First Tier Tribunal to the issues before it to be

unsound for the reasons set out by your Lordship.

[79] In respect to the errors in law of the First Tier Tribunal, I would wish to make the

following further observations.

[80] First, in considering whether a structure is movable or immovable, the first question

is to identify the structure. Where, as in the present case, individual units are supplied,

which are then functionally or structurally linked together, then it is the structure as a whole

which is relevant and not as the First Tier Tribunal concluded the individual units.

[81] In my view, the First Tier Tribunal failed to read paragraph 35 of the judgment of the

court in Maierhofer v Finanzamt Augsburg-land [2003] STC 564 in the context of the preceding

paragraphs. On a sound reading of this section of the judgment it is clear that it is the

building as a whole which is being considered and not the individual components. It is

equally clear on a reading of Advocate General Jacobs’ opinion, as a whole, that his advice

related to the building as a whole and not as regards the individual units.

[82] Second, a further question in the present case, in respect to identification of the

structure, was this: were the foundations and levelling beams part of the structure? The

First Tier Tribunal, as a matter of fact, found as follows: the site on which the school was

constructed did not, on its own, have adequate load-bearing capacity for a school.

Accordingly, the foundations and levelling beams were necessary for the structure as a

whole to be erected. In these circumstances, the foundations and levelling beams were

integral to the structure and thus formed part of it.

[83] The explanation given by the First Tier Tribunal, for concluding to the contrary, is

given at paragraph 81:

Page 51 ⇓

“When the appellant left the site, the foundation trenches and stone remained. The

units, steel beams and flitch plates had simply been removed in turn by the appellant

and were then taken away and used elsewhere. For the same reasons, I do not find

that they can possibly be an integral part of the units.”

This reasoning is unsound. The relevant question is: whether the foundations and levelling

beams were required while the structure was in position? That question is not answered by

noting the foundations remained after the structure was removed and that the levelling

beams were removed with the structure. The First Tier Tribunal erred in law in this finding.

[84] Third, the First Tier Tribunal’s error of approach regarding whether the foundations

and steel beams formed part of the structure fed into its failure to answer correctly this

question: what is the proper meaning of the word “fixed” as used by the court in the case of

Maierhofer? The First Tier Tribunal applied a narrow construction to this word and in

essence held that in order for a structure to be fixed to the ground then there required to be

an “active connection” such as the bolts which attached the walls to the foundations in

Maierhofer. I can find no basis for the view reached by the First Tier Tribunal in relation to

this issue in any of the case law to which this court was referred. In order to be fixed to the

ground, I am persuaded that there is no necessity for any such “active connection”.

[85] Fourth, in considering whether the supply involves the leasing or letting of

immovable property, I believe a holistic approach must be taken, in which all the

circumstances of the supply are considered.

[86] Fifth, I am of the view that as a direct result of taking a holistic approach, the

sequential approach suggested in UK Storage Company (SW) Ltd v Revenue and Customs

Commissioners [2013] STC 361 at paragraph 21, namely: asking first whether “the structure”

was fixed to or in the ground and, if so, going on to ask whether the structure could be

easily moved or dismantled and moved is the wrong approach.

Page 52 ⇓

[87] In Maierhofer, in his opinion, Advocate General Jacobs, at paragraph 43, advises that

the term “immovable property” in Article 13B(b) (of the Sixth Directive):

“... covers buildings constructed from prefabricated materials such as those in issue

in the main proceedings if they are firmly fixed to or in the ground.” (emphasis

added)

In the judgment of the court in Maierhofer, the word “firmly” is not used, rather the court, at

paragraph 33, says this:

“Such buildings made of structures fixed to or in the ground must be regarded as

immovable property.”

The court then goes on at paragraph 33 to give guidance as to factors which are relevant in

considering the question of whether a structure is “fixed to or in the ground”. It opines at

paragraph 33, as follows:

“In that connection, it is significant that the structures cannot be easily dismantled or

easily moved ...”.

Given the above guidance, I agree with the observations of the Upper Tribunal at

paragraph 46, that:

“The means by which a building is kept in position on its site, and the ease or

difficulty of moving or dismantling and moving it, are interrelated issues.”

The issues of fixity to the ground and the ease of moving or dismantling are not separate

questions to be considered one after another. Rather, the issue of the ease or otherwise of

moving or dismantling gives content to the phrase “fixed to or in the ground”.

The determinative question

[88] Having held that the First Tier Tribunal has erred in law, there is then the question,

on a proper approach, did the supply in the present case amount to a lease of immovable

property?

Page 53 ⇓

[89] I agree with your Lordship in the chair that the above is the correct question, in that

it is the relevant wording in the Directive, and not the more restrictive question; was the

structure fixed to or in the ground?

[90] As a starting point, it is, I believe, important to understand the purpose or objective

of the exemption.

[91] The reason for the exemption I consider is identified by the court in Stichting Goed

Wonen v Staatssecretaris van Financiën [2001] ECR I-6856 at paragraphs 52 and 53, here the

court opines as follows:

“52. Although the leasing of immovable property is in principle covered by the

concept of economic activity ... it is normally relatively passive activity, not

generating any significant added value. Like sales of new buildings following their

first supply to a final consumer, which marks the end of the production process, the

leasing of immovable property must therefore in principle be exempt from taxation

...

53. ... The common characteristic of the transactions which [are excluded] from

the scope of the exemption is indeed that they involve more active exploitation of

immovable property, thus justifying supplementary taxation, in addition to that

charged on the initial sale of the property”. (emphasis added)

The importance of the purpose of the exemption in interpreting Article 13B(b) of the Sixth

Directive is emphasised by the court in Belgium v Temco Europe SA [2004] ECR I-11237 at

paragraph 18 where it states:

“That provision (the exemption under Article 13B(b)) must therefore be interpreted

in the light of the context in which it is used, and of the objectives and the scheme of

the Sixth Directive, having particular regard to the underlying purpose of the

exemption ...”.

It was the core submission of Mr Simpson that on standing back and looking generally at the

appellants; they were not passive exploiters of immovable property. Rather, the position is

as he argued: each hire of the units involved added value, as with the hire of any other

movable property. The appellants’ business model is the repeated hires of individual units

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which are intended to be formed into various different structures depending on the terms of

the contract. Thus it appears to me that the common characteristic of the transactions which

are excluded from the scope of the exemption is present in the supply by the appellants.

[92] I do not think, as argued by Ms Roxburgh, that the observations of Advocate General

Jacobs in Maierhofer, at paragraph 41, provide an answer to the above submission by

Mr Simpson. These remarks must be understood in their context. Advocate General Jacobs

considers the position of the German Government that the buildings in issue could be

dismantled at the end of each lease and re-erected and that this was active rather than

passive exploitation and should not escape VAT. He rejects that argument, however, he

does so because on the facts in Maierhofer the “sequence of events” suggested by the German

Government, namely: the removal and re-erection of the structures was “hypothetical”.

[93] Such a sequence of events in the present case is not hypothetical, rather as submitted

by Mr Simpson it is the most likely sequence of events. This is I think a critical difference

between the present case and Maierhofer. In the present case it would seem to me to

undermine legal certainty were consideration of the likelihood of what would occur to the

units did not form part of the consideration of the issue before the court.

[94] For these reasons, I agree with your Lordship that, in a case such as the present one,

where the contract goes beyond mere leasing of a building or land, the purpose or objective

of the exemption is one which is of significance in determining the issue before the court.

[95] Other factors which may be of relevance in approaching the issue in a holistic

manner, are these.

[96] First, regard can be had to the nature and terms of the contract between the parties

(see: Leichenich v Peffekoven and others [2013] STC 84 at para 24, where: “the term of the

leasing contract, which is concluded for a duration of five years, and which shows no wish

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of the parties to confer an occasional and temporary character to the use made of the

houseboat” was said by the court to be a relevant factor in holding that the houseboat

should be regarded as immovable property for the purposes of the exemption.

[97] Further, in Maierhofer at paragraph 33, the court considers the relevance of the “term

of the lease”. The court holds that the “term” is not “decisive” but it does not hold that it is

an irrelevant consideration.

[98] I am persuaded that not merely the term of a lease may be a relevant consideration in

determining the issue before the court but more generally the whole terms of the contract of

supply may be a relevant consideration in determining the issue before the court.

[99] The terms of the contract are an objective criterion in that the court approaches the

issue of construction of a contract by seeking to establish the intention of the parties by

answering this question: “What is the meaning of what the parties have said? Not, what did

the parties mean to say?” (see: Lord Simon of Glaisdale in Wickman Machine Tools Ltd v

Schuler AG [1974] AC 235 at 263).

[100] Accordingly, the terms of the contract of supply are a relevant consideration in

understanding the nature of the supply.

[101] I consider that in the present case that it follows from the above that the issue of

whether any interest in land was conveyed or leased in terms of the contract between the

parties was a relevant one.

[102] The answer to the above question is no, for the reasons set out by your Lordship.

The question for the court then becomes, in terms of the contract, what was in fact supplied

and the answer to that is as your Lordship states at paragraph [38], namely:

“The supply was of a structure which was always intended to be a temporary one,

albeit lasting at least two years, on top of land which was, and remained throughout,

the property of the school.”

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It is necessary to caveat the relevance of the terms of the contract of supply. The terms of the

contract would have to give way to the substance of the transaction, if the terms did not

reflect the substance. Advocate General Jacobs emphasises in his opinion in Maierhofer at

paragraph 49 that:

“... it is settled case law that it is the inherent nature of the activity in question which

governs its tax status and not the form of the arrangement between the parties”.

[103] As regards the substance of this transaction a relevant factor is this: is the structure

fixed or in the ground? This question is interrelated, as I have already said, to the question:

can the structure be easily dismantled/easily moved?

[104] In considering these interrelated questions in the present case, it is noteworthy, as

observed by your Lordship, that the design of the structure, as a whole, is an indicator that it

is inherently movable. This is a structure which can be detached from its foundations

relatively easily (see the finding-in-fact of the First Tier Tribunal at paragraph 91). It can be

contrasted with the structure in Maierhofer, which is described by the court at paragraph 13,

in this way:

“The building stood on a concrete base erected on concrete foundations sunk into the

ground. The walls, which were made of panels, were secured to the foundations by

bolts. The roof framework was covered by tiles.”

The mode of construction and in particular the nature of the foundations and the attachment

of the building built thereon to the foundations, strongly indicates in Maierhofer an

immovable structure.

[105] In considering whether a structure is easily moved or dismantled, the time and effort

required to move or dismantle and move the structure is a relevant consideration.

However, it must be borne in mind that the aim in considering such factors is to decide the

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extent to which the structure is fixed to or in the ground and therefore where in the

spectrum of movable/immovable the supply should be placed.

[106] I can understand how in the Maierhofer case, given the nature of the foundations and

the attachment of the building to the foundations, the number of man hours was thought to

be an important factor in deciding that what was supplied was immovable.

[107] However, the number of man hours in the present case, when viewed in the context

of the nature of the construction’s connection to the ground is, I believe, a much less

significant factor.

[108] The final relevant matter is the connection of the construction to the site in this sense:

connections to mains services, such as: telephone; gas; electricity; water; or connections to

imported services, such as electricity through an electrical generator or water through, for

example a bowser.

[109] Once more, as explained by your Lordship, these services were easily disconnected

and had not been installed in such a manner as to indicate the structure was immovable.

[110] It appears to me in the present case both form and substance clearly indicate that this

is a supply which is movable. In reaching that conclusion I have found the phraseology of

Attorney General Jacobs in Maierhofer, namely: a consideration of the inherent nature of the

activity to be of significance. On standing back, a consideration of the inherent nature of the

supply in the present case clearly indicates the supply of a movable. I consider contrasting

the supply in Maierhofer and the present case clearly indicates that the supply in the instant

case is movable. Thus the supply in Maierhofer was not of individual units which were then

to be put together to form a single structure as in the present case; the buildings erected in

Maierhofer were attached to the ground in a much more significant manner than in the

present case and in one which suggested strongly that it was not a temporary structure

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unlike in the present case and Maierhofer was a case where the sequence of events, which

applied in the present case, was merely hypothetical.

[111] For all of the foregoing reasons, I agree with the decision of your Lordship that the

appeal should be allowed.