First-tier Tribunal (Tax)

[2010] UKFTT 606 (TC)

TC00847

Appeal number: TC/2009/10584

EXEMPTION – estate agent finding purchaser for units in a Jersey property unit trust to which a property had been transferred to avoid stamp duty land tax – whether exempt intermediary services in relation to the transfer of the units within Item 5, Group 5, Sch 9, VAT Act 1994 – yes – appeal allowed

FIRST-TIER TRIBUNAL

TAX

JOINER CUMMINGS Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS Respondents

TRIBUNAL: JOHN F AVERY JONES CBE (TRIBUNAL JUDGE) DAVID E WILLIAMS CTA

Sitting in public at 45 Bedford Square, London WC1 on 18 November 2010

Andrew Seidler and Mr Steve Sutton, RSM Tenon Limited, for the Appellant

Sarabjit Singh, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1.     Joiner Cummings (a partnership) appeals against an assessment to VAT made on 21 January 2009, for period 07/06 which was upheld on review on 19 March 2009.  The Appellant was represented by Mr Andrew Seidler and Mr Steve Sutton, and the Respondents (“HMRC”) were represented by Mr Sarabjit Singh.

2.     The issue in this appeal is whether the Appellant’s services in starting to find a buyer of land in the UK (which was subsequently transferred to a Jersey Property Unit Trust in exchange for units) and ending in finding a purchaser of the units was an exempt supply of intermediary services under Item 5 of Group 5 of Schedule 9 to the VAT Act 1994, as the Appellant contends, or effectively a taxable supply of estate agency services, as HMRC contends.

3.     Witness statements of Mr Kevin Joiner, partner in the Appellant, and Mr Alan Ross, director of Tax Services of Tenon Limited, were agreed, and we had two bundles of documents.  We find the following facts:

(1)  On 31 January 2006 Glen Kingsway Limited Partnership (“GKLP”), acting through its general partner Glen Kingsway Limited (“GKL”), appointed the Appellant, a partnership which carries on the business of estate agency and surveying  principally of commercial buildings, to act for it in finding a purchaser of its property, 22 Kingsway, London WC1 (“the Property”).

(2)  On 13 February 2006 GKL informed the Appellant that it might use a Jersey Property Unit Trust in order to avoid stamp duty land tax for the purchaser and a change in the fee arrangement was to be made if SDLT was saved.

(3)  A Unit Trust Instrument (“the Unit Trust”) was entered into 20 March 2006 by two Jersey trustees.  On the same day the Property was transferred to the trustees of the Unit Trust and 57m units in the Unit Trust were issued to GKLP.  On 21 March 2006 a further 250,000 units were issued to Glen Electric Limited for £250,000.  The register of unitholders states: “Pursuant to the terms of a Jersey Security Agreement made between (1) [GKLP] (acting through its general partner [GKL] (‘the General Partner)) and (2) Allied Irish Banks plc (‘the Bank’) [GKLP] (acting through its General Partner) has granted in favour of the Bank a security interest or security interests over all units in the Unit Trust held by [GKLP].”  A similar statement is made in relation to Glen Electric Limited’s units.  We did not have any evidence about the nature of these security interests, including whether they are in addition or in substitution for any charge over the Property that may have previously existed.

(4)  The Unit Trust instrument contains the following provisions:

“2.1 Declaration of Trust

(a)  The Trust shall be constituted out of the consideration [the Property and cash] for the creation and issue of Units in accordance with Clause 3.1.

…

(c)  The Trustees shall hold the Trust Investments [the Property and cash] upon trust for the Unitholders (in proportion to the number of Units held by them and subject to the provisions of this Instrument).

2.2 Nature of Trust

(a) The interest of each Unitholder in the Trust Investments shall be represented by the Units for the time being held by it.  Each Unit shall constitute an equal undivided share of the Trust Investments.

(b) No Unitholder shall, except as provided in this Instrument, be entitled to any interest in individual assets and/or property [the Property and any other real property] in the Trust Investments save for any Income (and, without limitation, no Unitholder shall be entitled to any interest in the Property) otherwise than to receipt of Income therefrom….

2.3 Object of Trust

(a) The object of the Trust is to accept the contribution of the Property pursuant to the terms of the Contribution Agreement [we did not see this but infer that it provided for the transfer of the Property for the issue of 57m units, see clause 3.1 below] and, subject to Clause 2.3(b) below, to hold, maintain, protect and preserve such Property and any Property acquired, as Trust Investments, with a view to maximising the Income and Capital returns to Unitholders….

2.4 Trustee Restrictions

Notwithstanding any other provisions of this Instrument, whilst any Units are subject to a security interest, mortgage or charge, in favour of a Secured Party [Allied Irish Banks plc (see (3) above) is within the definition], the Trustees shall (unless the Secured Party shall otherwise agree in writing) be subject to and shall observe the following restrictions

(a) The Trustees shall not acquire any Property other than the Initial Property [the Property];

(b) The Trustees shall not develop, alter, assign or dispose of the Initial Property….

 3. Issue and redemption of Units

3.1 Initial Issue of Units

The Trustees shall create and issue 57,000,000 Units in accordance with the terms of the Contribution Agreement and this Instrument as the first issue of Units of the Trust.  The Trustees may create and issue the Additional Units subject to, and in accordance with, the provisions of the Contribution Agreement.

3.4 Redemption of Units

Subject to the provisions of the Applicable JFSC [Jersey Financial Services Commission] Restrictions and subject as hereinafter provided, the Trustees may, with the prior written consent of any Secured Party, following receipt by the Trustees or their authorised agent of a request in such form as the Trustees shall agree with a holder of a Unit (‘the Applicant’) together with the appropriate Certificate redeem all or any portion of the Units registered in the name of the Applicant at the redemption Price for Units or procure the purchase thereof at not less than such Redemption Price and in such manner, at such times and on such terms and conditions and generally as the Trustees shall, in their absolute discretion, think fit provided that:

(a) on any such redemption, the Trustees shall have the power with the approval of an extraordinary Resolution or with the approval of the Trustees and the agreement of the Applicant, and in all cases with the prior written consent of any Secured Party in respect of such Units, to divide in specie the whole or any part of the assets comprised in the Trust Investments and appropriate such assets and/or property in the satisfaction or part satisfaction of the Redemption Price.

10.1 Winding up

…

10.2 The Trust shall be terminated at any time in any of the following events:

…

(c) with the consent of any Secured Party an Extraordinary Resolution of Unitholders requiring the winding-up of the Trust provided that any Secured Party is given at least 10 prior days’ written notice by the Trustees or any Unitholder before any such Extraordinary Resolution is to be passed or considered.

10.4 Rights on termination

(a) On termination of the Trust, the Trust Investments which are available for distribution to Unitholders shall be distributed to the Unitholders in proportion to the number of Units held.”

(5)  We find from the terms of the Unit Trust and the way it was used that the units in the Unit Trust fall within the terms of Item 6(e) of Group 5 of Schedule 9 to the VAT Act 1994 as being “units or other documents conferring rights under any trust established for the purpose, or having the effect of providing, for persons having funds available for investment, facilities for the participation by them as beneficiaries under the trust, in any profits or income arising from the acquisition, holding, management or disposal of any property whatsoever.”

(6)  The transfer of the Property to the Unit Trust resulted in only a minor change in the nature of the work carried out by the Appellant which continued without interruption.

(7)  On 10 April 2006 surveyors acting for Land Securities plc wrote to the Appellant offering to purchase all the units in the Unit Trust.  The offer was accepted and on 28 April 2006 all the units owned by GKLP and 240,000 of the units held by Glen Electric Limited were transferred to LS Kingsway Limited, a member of the Land Securities group, and 10,000 units were transferred by Glen Electric Limited to College Green (Jersey) Limited.  The total consideration was £58.5m plus the cash remaining after expenses of the £250,000 introduced by Glen Electric Limited.  The register of unitholders records the release of the two Jersey Security Agreements.

(8)  On 30 April 2006 or 2 May 2006 the Appellant invoiced GLP for its fee without VAT.  Its fee note starts “receiving your instructions to secure a purchaser for the units and benefit of the freehold interest in [the Property]”.  The Appellant conferred with the GKL’s advisers and took its own advice in deciding after the transaction that its services were exempt from VAT.  There was no element of VAT planning involved.

(9)  On 10 October 2006 the Property was transferred to LS Kingsway Limited, we assume on winding-up the Unit Trust.

4.     The following are the relevant provisions of Group 5 of Schedule 9 to the VAT Act 1994:

“5 The provision of intermediary services in relation to any transaction comprised in item …6 (whether or not any such transaction is finally concluded) by a person acting in an intermediary capacity.

 6  The issue, transfer or receipt of, or any dealing with, any security or secondary security being—

…

(e)     units or other documents conferring rights under any trust established for the purpose, or having the effect of providing, for persons having funds available for investment, facilities for the participation by them as beneficiaries under the trust, in any profits or income arising from the acquisition, holding, management or disposal of any property whatsoever.

Notes

(5)     For the purposes of item 5 “intermediary services” consist of bringing together, with a view to the provision of financial services—

(a)     persons who are or may be seeking to receive financial services, and

(b)     persons who provide financial services,….

(5A)     For the purposes of item 5 a person is “acting in an intermediary capacity” wherever he is acting as an intermediary, or one of the intermediaries, between—

(a)     a person who provides financial services, and

(b)     a person who is or may be seeking to receive financial services….

(5B)     For the purposes of notes 5 and 5A “financial services” means the carrying out of any transaction falling within item …6.”

5.     Mr Seidler and Mr Sutton, for the Appellant, contend:

(1)  The position of the unitholders is different from the owner of the Property, being subject to the terms of the Unit Trust Instrument (another type of property unit trust, the Enterpise Zone Property Unit Trust (EZPUT) did give the unitholders a direct interest in the underlying property).

(2)  The Appellant’s services fall squarely within Item 5 of Group 5.  It did not matter that the Appellant initially started to perform estate agency services because the transaction they concluded was one involving a transfer of units. In facilitating such a transfer the Appellant drew on its professional knowledge of the relatively small pool of potential purchasers for a property of this type, and of the even smaller pool to whom a purchase of units backed by such a property would be suitable.

6.     Mr Singh for the Respondents contends:

(1)  In CSC Financial Services v Customs and Excise Commissioners, Case C-235/00 the ECJ concluded that:

“33.  It follows from the foregoing that the words ‘transactions in securities’ [in art 13B(d)(5) of the Sixth Directive: ‘transactions, including negotiation, excluding management and safekeeping, in shares, interests in companies or associations, debentures and other securities’] refer to transactions liable to create, alter or extinguish parties' rights and obligations in respect of securities.”

(2)  The effect of the Unit Trust Instrument was not to confer rights on GKLP.  While it was not denied that units were issued there was no real change.  Before the transfer to the Unit Trust GKLP was owner the Property; after it (to quote his skeleton) “GKL dressed up what it already had in a different way to try to avoid the purchaser of the Property paying stamp duty.”

(3)  Even if (1) were wrong, the Appellant did not bring together parties with a view to the provision of financial services, but acted in the normal way an estate agent acts in bringing together parties with a view to the sale of the Property, which is not within Item 5 of Group 9.

7.     The ECJ recently said in HMRC v Loyalty Management UK Limited, Case C-53/09:

“39      It must also be recalled that consideration of economic realities is a fundamental criterion for the application of the common system of VAT (see, first, as regards the meaning of place of business for the purposes of VAT, Case C‑260/95 DFDS [1997] ECR I‑1005, paragraph 23, and Case C‑73/06 Planzer Luxembourg [2007] ECR I‑5655, paragraph 43, and, secondly, as regards the identification of the person to whom goods are supplied, by analogy, Case C‑185/01 Auto Lease Holland [2003] ECR I‑1317, paragraphs 35 and 36).”

Although this was not relied upon by Mr Singh this appeal seems to be an attempt by HMRC to push the boundaries of economic reality.  We do not consider that one can go as far as they contend without breaching the principle of legal certainty.

8.     Mr Singh’s first contention is that nothing changed when the Property was transferred to the Unit Trust.  But unless the Unit Trust is regarded as a sham, which is not contended, the rights of the unitholders are different from those of an owner of the Property.  The rights are those set out in the trust instrument which include that the Property is held by the trustees upon trust for the unitholders (clause 2.1(c)); that, except as provided in the instrument, no unitholder is entitled to any interest in individual assets (and in particular in the Property) save for any income (clause 2.2(b)) and the Unit Trust would have received the substantial rental income that arose between 21 March and 10 October 2006; that the transfer of the Property in specie to a unitholder on redemption of its units is at the absolute discretion of the trustees and requires an Extraordinary Resolution of unitholders and the prior written consent of any Secured Party before the trustees have any power to do so (clause 3.4); and that the winding-up of the Unit Trust requires an Extraordinary Resolution of the unitholders after giving notice to the Secured Party before the distribution of the trust investments in specie (clause 10.2).  In other words GKL in its capacity as general partner of GKLP would need to request the trustees to convene a general meeting of unitholders on the requisite notice (or obtain Glen Electric Limited’s consent to short notice), give Allied Irish Banks plc at least 10 days’s notice, then pass an Extraordinary Resolution (for which it had the necessary 75% holding), obtain the consent of Allied Irish Banks plc, and then ask the trustees to transfer the Property to it, which the trustees could do if in their absolute discretion they thought fit.  That is in our view sufficiently different from  GKL being the owner of the Property for us to conclude that both the legal position and the economic reality changed when the Property was transferred to the Unit Trust.

9.     Mr Singh’s second contention was that the Appellant started to provide normal estate agency services and there was only a minor change in the nature of their work when they changed to finding a purchaser for the units.  Having decided on the first issue that the units were really units and not effectively the Property, we consider that it follows that the nature of the Appellant’s services was to find a purchaser of the units, which they did and the purchaser did pay the consideration for the units.  The transfer of units “conferring rights under any trust established for the purpose, or having the purpose of providing for persons having funds available for investment, facilities for the participation by them as beneficiaries under the trust, in any profits or income arising from the acquisition, holding, management or disposal of any property whatsoever” (item 6) is included in financial services (Note (5B)).  The Appellant therefore carried out financial services.  Reading that into Note (5) Intermediary services “consist of bringing together, with a view to the provision of transfers of units—(a) persons who are or may be seeking to [receive the transfer of units] and (b) persons who provide [the transfer of units].”  That is what the Appellant did.  By Note (5A) a person is acting in an intermediary capacity “wherever he is acting as an intermediary…between (a) a person who provides [the transfer of units] and (b) a person who is or may be seeking to receive [the transfer of units].”  That is also what the Appellant did.  Accordingly the Appellant’s services fall within Item 5.  We agree that in so doing the Appellant was not doing anything very different from a normal estate agent but it was in fact acting as an intermediary and in an intermediary capacity in relation to the transfer of units rather than in relation to the Property.  That is not surprising since virtually the whole value of the units was represented by the Property.  We see no ground for implying that financial intermediaries must be acting in the normal manner of financial intermediaries dealing in different financial products.  There are a range of financial products, some of which are property based which require property expertise.  What matters is whether the Appellant falls within the wording of Item 5 purposively construed, which we consider it does, and that this represents the economic reality of the situation.

10.  Accordingly we allow the appeal.

11.  This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

JOHN F AVERY JONES

TRIBUNAL JUDGE

RELEASE DATE: 25 November 2010