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United Kingdom VAT & Duties Tribunals Decisions
You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> Burghill Valley Golf (a Partnership) v Customs and Excise [2004] UKVAT V18876 (10 December 2004)
URL: http://www.bailii.org/uk/cases/UKVAT/2004/V18876.html
Cite as: [2004] UKVAT V18876
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- This is an appeal by Burghill Valley Golf Club, an unincorporated partnership which is not registered for VAT, Burghill Valley Members Club Limited ("BVMC"), a non-profit making company limited by guarantee, which is not registered for VAT, and Burghill Valley Visitors Club Limited ("BVVC"), a non-profit making company limited by guarantee, which is not registered for VAT, against assessments to penalties imposed under s.69(1)(c) of the Value Added Tax Act 1994 for failure to comply with a requirement imposed under paragraph 7(2) of Schedule 11 to the Act to produce certain documents. Two of the assessments are dated 9 February 2004 and one is dated 16 January 2004. The amount of the penalties is £500 each.
- The Golf Club is at Tillington Road, Burghill, Hereford.
- The grounds of appeal were:
"1. Schedule 11, para 7(2) VAT Act 1994 sets out the power to obtain information (including documents) as follows:-
"Every person who is concerned (in whatever capacity) in the supply of goods or services in the course of furtherance of a business … shall … (b) produce … any documents relating to the goods or services or to the supply".
The expressions "supply", "goods", "services" and "in the course or furtherance of a business" clearly have the same meanings here as they have for the purposes of the 1994 Act generally.
"Every person … to whom such a supply is made … shall … (b) produce … documents relation to the goods or services or to the supply".
2. The Appellants contend that documents such as external advice letters and letters of engagement are not documents relating to goods or services or to the supply. What clearly is envisaged by para 7(2) is documents such as contracts, invoices, written agreements and the normal documents which an Officer would be expected to be able to look at in order to form a proper trail of information for input tax recovery and output tax liability. External advice letters and internal minutes meeting notes may comment on supplies but they cannot be said to relate to supplies.
3. The Appellants further contend that there is no concept of motive/purpose. It is clear that in other authorities dealing with tax planning/tax avoidance the motive of the taxpayer is irrelevant. Lord Tomlin in Duke of Westminster v IRC [1935] 19 TC 490 (HL) said "Every man is entitled, if he can, so to order his affairs so that the tax attaching under the appropriate Act is less than it otherwise would have been".Therefore, the question of motive is not relevant.
, a decision of the Court of Justice – and of Article 8.1 of the European Convention on Human Rights, which protects the privacy of correspondence.
As to Landlord and Tenant law, in the case of Chapman v Honig [1963] 2QB 502 Pearson LJ at p520 said:"Motive is disregarded as irrelevant. A person who has a right under a contract or other instrument is entitled to exercise it for a good reason or a bad reason or no reason at all".
VAT is a transaction tax. The question is what particular transaction has or has not taken place, not what someone's motive was by entering into those transactions.
The provisions of Article 4(1) of the Sixth Directive, suggest that the purpose of a transaction is irrelevant to its treatment for VAT purposes – a view which has been accepted in such cases as BLP Group plc v Customs and Excise Commissioners Case No C-4/94 [1995] STC 424
The ECJ is in the process of examining the scope and nature of the "Halifax doctrine". Clearly, if the Appellants' arguments are upheld that there is no such doctrine then it would be wrong for the Commissioners to be entitled to see documents which relate to a doctrine that may be held not to exist in UK law.
4. It can therefore be seen that the penalty is invalid in that it relates to documentation that the Commissioners have no entitlement to see.
5. In addition, in relation to a complex area of law the Appellants contend that they have a reasonable excuse in not complying with the Penalty Notice until the Tribunal has been able to determine if the Documents are ones which the Commissioners are entitled to see.
6. The Appellants contend that the Tribunal, in considering the Penalty Notice, is competent to determine the reasonableness and proportionality of the Commissioners' demand.
7. Where penalties are issued the penalty demand must be specific and strictly construed. In the current matter the Commissioners are complainer, judge, jury and executioner without any external reference until the appeal stage is reached.
8. The Commissioners must properly and accurately specify in respect of what they say a penalty has been incurred.
9. The Commissioners have, in the Notices issued, set out several clauses as a series of separate requirements to produce documents and provide information. The Commissioners then on 8 October 2003 decided that the Appellants had failed to comply with the Notice and were therefore liable to penalties.
No attempt has been made to specify which requirements are said not to have been met.
10. The Appellants contend it is incorrect for the Commissioners to issue a blanket statement that the Appellants have failed to comply and that they are accordingly liable to a penalty.
11. Where a penalty is sought to be imposed the person upon which the penalty is imposed is entitled to know in what respect it is alleged they have failed to comply. In this case, the penalty issued on 8 October 2003 makes no attempt to specify in what form or manner the Appellants failed to comply.
12. The Appellants therefore contend that the penalty notice issued is invalid and cannot and should not be enforced." - The appeal is made under section 83(n) of the VAT Act 1994. The notices were all issued on 8 October 2003 and the Notice of Appeal was dated 6 November 2003.
- The facts in this case are not in dispute and we take them from the Statement of Case as follows:
"1. The Burghill Valley Golf Club is formed of the playing members. We refer to it as "the Club".
Notes (2A) and (2B) to Group 10 provide:
2. The land and buildings at Burghill Valley Golf Club are owned by a partnership of Mrs Barnett and Mrs Read. This partnership is registered for VAT. It is referred to in this Decision as "the partnership". Mrs Barnett is President of the Club.
3. Burghill Valley Members Club Limited "BVMC") is a non-profit-making company limited by guarantee set up on 26 March 2001. Its directors are Thomas Moon and Elizabeth Williams, both senior members of the Club.
4. Burghill Valley Visitors Club Limited "BVVC") is a non-profit-making company limited by guarantee set up on 26 March 2001. It is not registered for VAT. Its directors are also Thomas Moon and Elizabeth Williams.
5. Mr Keith Smith is employed as a general manager by the partnership and acts on behalf of BVVC and BVMC as those two companies have delegated their day to day management to the partnership.
6. The substantive dispute between the Commissioners and the Appellants concerns the application of the exemption from VAT provided for by section 31 of, and Item 3 of Group 10, of Schedule 9 to, the Act ("the sporting exemption") the relevant provision of which are set out below. The sporting exemption implements Article 13(A)(1)(m) of the Sixth Directive and is one of the exemptions "for certain activities in the public interest".
7. The Commissioners considered whether attempts made by Burghill Valley Golf Club to structure its affairs to take advantage of the sporting exemption had been successful. The Commissioners decided that it had not.
8. The Commissioners' Statement of Case stated that they had penalised the Appellants because the Appellants had failed to produce documents demanded by the Commissioners. They produced some documents, but they had failed to produce:
(i) external advice from their tax advisers;
(ii) engagement letters and fee notes from their tax advisers;
(iii) a list of the documents for which they claimed legal professional privilege.
9. Having sought documents on a voluntary basis without success, the Commissioners issued formal demands and, following the refusal, on legal advice, of the Appellants to produce the documents referred to above, the Commissioners imposed penalties under section 69 of the Act.
10. This appeal is concerned with the question whether the Commissioners had, under paragraph 7(2) of Schedule 11 of the Act power to demand the documents referred to in paragraph 8 above. If they do we shall have to consider whether the Appellants have a reasonable excuse for not complying with that demand.
11. The partnership's VAT return for the period 03/01 showed an unusually high sum claimed as input tax and an unusually low sum declared as output tax. This prompted the Commissioners to make enquiries. They found that the activities at Burghill Valley Golf Club had been restructured in order (apparently) to take advantage of the sporting exemption which provides exemption for:
"The supply by an eligible body to an individual, except, where the body operates a membership scheme, an individual who is not a member, of services closely linked with and essential to sport or physical education in which the individual is taking part.""(2A) Subject to Notes (2C) and (3), in this Group "eligible body" means a non-profit-making body which –
(a) is precluded from distributing any profit it makes, or is allowed to distribute any such profit by means only of distributions to a non-profit-making body;
(b) applies in accordance with Note (2B) any profit it makes from supplies of a description within Item 2 or 3; and
(c) is not subject to commercial influence.
(2B) For the purposes of Note (2A)(b) the application of profits made by any body from supplies of a description within Item 2 or 3 is in accordance with this Note only if those profits are applied for one or more of the following purposes, namely -
(a) the continuance or improvement of any facilities made available in or in connection with the making of the supplies of those descriptions made by that body;
(b) the purposes of a non-profit-making body." - In a letter dated 23 September 2002, the Commissioners set out their understanding of the position at Burghill Valley Golf Club from the information and the documents they had received thus far. In that letter, the Commissioners explained that they understood that certain arrangements had been put in place in an attempt to take advantage of the sporting exemption, involving the partners, BVMC and BVVC and needed more information to reach a concluded view on the correct VAT analysis of the arrangements. The letter set out the Commissioners' understanding of the arrangements as follows:
- There were three main issues at which the Commissioners' enquiries were directed:
- The letter went on to explain that, in order to answer the questions set out above, the Commissioners needed to see the documents set out in Annexes One, Two and Three to the letter so that they could decide what the contractual relationship was, whether profits were in reality being distributed, looking at all the facts so that they could decide whether other rules restricting the sporting exemption applied in this case.
- In a letter dated 13 December 2002 the Appellants, through their advisers, responded to the Commissioners, saying that the sporting exemption did apply, the arrangements were in accordance with the Commissioners' Business Briefs and would give them "a level playing field" when compared with other golf clubs. The Appellants provided some of the documents sought by the Commissioners but declined to provide others on the basis that the Commissioners did not have the power to demand them. The Appellants also explained that:
- By letter dated 8 January 2003 the Commissioners repeated their request for the outstanding documents to be provided.
- By letter dated 2 April 2003 the Appellants stated that the Commissioners did not have the power to demand the information sought, that it was a matter for a VAT Tribunal chairman to make an order under rule 20 of the Tribunal rules and that, in any event, the Commissioners had sufficient information to make a decision (or might even have made a decision already).
- By letter dated 15 August 2003 the Commissioners sent to each of the Appellants a formal notice to produce documents.
- By a letter dated 12 September 2003 the Commissioners wrote to the Appellants' advisers at their request setting out a table of the documents that had been sought by the Commissioners and listing the ones that had already been produced.
- By notice dated 19 September 2003 the Commissioners sent to each of the Appellants a further notice to produce documents. The notice sought production of documents initially requested in the Commissioners' earlier letter which the Appellants had not produced. They fall into four categories:
- On 8 October 2003, the date specified by the Commissioners for the production of the documents, officers of the Commissioners attended the Appellants' premises and the Appellants handed over all documents sought except external advice, engagement letters and fee notes, and a list of documents for which legal professional privilege was claimed. The reason given for the refusal to hand over these categories of documents was that it was done "under legal advice".
- The Commissioners then summarised the Appellant's case set out in the Notice of Appeal as follows:
- The Commissioners, in their Statement of Case, contended that paragraph 7(2) of Schedule 11 permits them to demand the external advice from the Appellants' advisers (insofar as it is not covered by legal professional privilege), the engagement letters and fee notes from the Appellants' tax advisers and a list of the documents for which they claim legal professional privilege.
- The Commissioners went on to say that they have a duty of care and management of the tax and must be entitled to see documents that will assist in forming a view as to the correct VAT analysis of the arrangements entered into by the Appellants. The Commissioners contended that paragraph 7(2) gives them the power to do that. They are entitled, they say, under that paragraph to see documents that relate to services being supplied and being received by the Appellants or allegedly being supplied or received. The Appellants had not disputed that there had been some restructuring at the Burghill Valley Golf Club and this had been carried out to take advantage of the sporting exemption. It was also clear that, following Kennemer, it is necessary to look at the economic substance of the case to decide whether profits are being distributed and whether, therefore, the sporting exemption applies. It is also clear from Halifax, Black Queen, and BUPA Purchasing Limited that purpose can be relevant to the correct VAT analysis.
- The Commissioners contended that the Appellants' external advice, engagement letters and fee notes may well cast light on the economic substance and the purpose of the arrangements put in place at Burghill Valley Golf Club because:
- In response to the points made by the Appellants, the Commissioners contended that:
(1) there is no such limitation in paragraph 7(2) of Schedule 11 and no justification for reading in such a limitation. The wording of the provision is clear and there is no basis for saying that the documents demanded are not covered by it for the following reasons: - Whatever the outcome in Halifax the Commissioners said that it cannot be suggested that they cannot reasonably demand documents that go to purpose during the whole time that the case remains finally undecided. The decision on Halifax that is available is the Tribunal decision which holds that purpose can be relevant to the VAT analysis.
- There is no reasonable excuse because the Tribunal has already decided (in Interleasing) that external advice can be demanded and that demands can be made of connected parties.
- The Commissioners have not failed to specify the manner in which the Appellants have failed to comply with the notice to produce. It is clear from the Commissioners' letter of 12 September 2003 which documents had not been provided. It is also clear from the Appellants' letter of 8 October 2003 that they knew in what way they had not complied with the notices to produce. The failure to comply was deliberate under legal advice. Mr Allen's submissions were in two parts: first a reply to the Statement of Case as follows:
- "The appeal in this case was issued against a notice of demand to produce documents and provide information originally issued on 15 August 2003 and then re-issued on 19 September 2003. This notice is in seven parts as follows:
- The Appellants appealed against these notices to the Tribunal. It is to be noted that on 4 February 2004, the Commissioners issued a further notice of demand to produce documents and provide information. These notices were in exactly the same form as previously issued and asking for identical information as has been requested before.
- Whilst the Commissioners have at various stages stated that the Appellants fully knew what documents were required from them, this not the case as why would the Commissioners send a letter of 12 September 2003 outlining what they required and then by notice of 19 September 2003 ignore the documentation that had already been received. Such an error is further compounded (if it is an error) by the issuing of a further notice in February 2004 still demanding documents with an increased penalty in relation to each failure and yet apparently now by the statement of case, the Commissioners contend that they never intended to ask for these documents and that the Appellant should have known that they were not required despite the clear and explicit terms of the notice issued upon them"
- At paragraph 7 of the Commissioners' Statement of Case, they accept that they have now made their decision. At paragraph 13, they state that the reason for issuing of the notices was they needed more information to help them reach a concluded view on the correct VAT analysis of the arrangements and this is reinforced at paragraphs 14, 15, 28, 29 and 30. What is clear throughout the Commissioners' Statement of Case is that they contend that it was necessary for them to issue the notices upon which the penalties are based so that they could obtain the documents in order to reach a decision. However, the Commissioners have now reached a decision and unless the Commissioners accept that the decision is not to best judgment, then it is clear that the notices need never have been issued.
- The fact that the decision has now been issued means that there is no real necessity for this case to continue. The Commissioners must, by the mere fact that they have issued decisions, have all the information before them necessary to do so and therefore it is clear that the documents in question cannot be relevant to the appeal that has been lodged in relation to the Commissioners' decision.
- It is submitted that the Commissioners' analysis at para 15 of the Statement of Case regarding the ECJ decision in Kennemer C-1750/00 is incorrect. Paragraph 21 of the ECJ decision in Kennemer states that "in order to determine whether … an organisation meets the conditions [of a non-profit-making body] … account must be taken of all of its activities, including those which it provides by way of extension to the services covered by the provision." The final clause of this paragraph demonstrates that the ECJ's reference to activities is in relation to the services provided by an organisation to members and non-members. Further clarification of "activities" is provided in paragraph 27 where the ECJ elucidate on Article 13A(1) of the Sixth Directive by stating that "an organisation is to be classed as being non-profit-making … by having regard to the aim which the organisation pursues". Thus, documentation in relation to dealings with third parties such as tax advisers, engagement letters and fee notes from tax advisers and a list of legal professional privilege documents are not relevant.
- Paragraphs 27-30 of the statement of case are denied. The Commissioners' duty of care and management is not a sufficient reason for it to require external advice, engagement letters/fee notes and a list of legal professional privilege-related documents.
- It is submitted that the Commissioners' statement of case does not interpret the Tribunal decision in Interleasing correctly. At paragraph 20(3) of the Statement of Case, the Commissioners state that Interleasing held that external advice-related documents can be demanded. However, paragraph 79 of Interleasing states that "I leave open for further argument, if the parties are unable to agree on the matter, the question whether all of the documents listed in the notices may properly be required by the Commissioners".
- The Tribunal in Interleasing also states that an interpretation of paragraph 7(2) of Schedule 11 of VATA 1994 must respect Article 8.1 of the European Convention on Human Rights (its protection to the right to respect for private life of correspondence). In paragraph 80 of Interleasing, the Tribunal again emphasises the importance of the right to privacy accorded by the European Convention on Human Rights. Paragraph 80 of Interleasing states "I would need some persuasion that the provisions in Article 8.2 were sufficient to enable the Commissioners to demand all of the documents listed in the notes."
- It is submitted that documentation relating to external advice, engagement letters and fee notes from the Appellants' tax advisers cannot be disclosed as the status of such documents equate to a confidential privileged bond between the parties. Moreover, the Appellants ask the Tribunal to consider paragraph 79 of Interleasing, which suggests that the legal professional privilege right accorded to the lawyer-client relationship may be used for other professional relationships.
- In assessing the Appeal, the Appellants also ask the Tribunal to consider the Glasgow University case (University Court of the University of Glasgow (No 2) (and related appeals), EDN/01/164 (TD 17744)). The Tribunal observed that "any person upon whom a penalty is sought to be imposed is entitled to know in what respect it is alleged they have failed to comply so that they might have an opportunity of considering their position and it will not suffice … to issue a wide ranging demand and then in effect say because everything that the Commissioners might have thought could have been produced was not produced that there has been a failure to comply."
- The Commissioners have not accurately specified the reasoning behind the penalties imposed. The Commissioners' generalised reasoning in paragraphs 28 and 30 of the statement of case was rejected in the Glasgow University case. The vague reasoning behind the penalties in the Notices also contravene Article 6 of the European Convention on Human Rights. Article 6(1) states that "everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law". The Appellants cannot be expected to comply with the Commissioners' demands when a satisfactory reading has not been evident. As the Glasgow University Tribunal held, the penalty notice cannot, and should not, be enforced: the same is applicable in this case.
- It is submitted that the Commissioners' analysis of Kennemer in paragraph 28 is incorrect based on the same submissions provided in paragraph 2 of this reply.
- The Commissioners' arguments in paragraph 29(1) of the Statement of Case are based on a misreading of the Kennemer decision. The test provided in Kennemer does not include investigating the motive behind a restructuring, which would then allow one to view whether tax advice was based on VAT savings. The Kennemer test is based on the services provided by the organisation rather than the documentation relating to tax advice received by the organisation.
- The Commissioners' Statement of Case (at paragraphs 28, 29(1) and 30(2)) suggests that the Halifax case is relevant as the case implies that the purpose of an analysis of a VAT scheme via Paragraph 7(2) of Schedule 11 of VATA 1994 is relevant. However, as was held in the Glasgow University case, the Halifax case is only relevant where the facts of the case suggest that the purpose of the VAT scheme was concerning tax avoidance.
Secondly new submission on the dispute. - It is clear from reading the Commissioners' Statement of Case that there are certain key arguments upon which they rely. One of the most important of these is that of intention as under Halifax and BUPA and Black Queen which are under appeal to the High Court and currently stood over pending the Halifax and BUPA appeals. Therefore, there is no decided case law in this area at all. It is therefore in the Appellants' contention wrong to expect the Tribunal to determine this matter until the ECJ has determined the relevance of intention to these provisions. Hence the Appellants contend this matter should be stood over pending the ECJ cases referred to above.
- In addition, the mere fact that it will need the determination of ECJ cases to show whether such documents as the Commissioners now set out as being required, points to the fact that there must be a reasonable excuse in this case. If at this stage, it cannot be said with any certainty that the Court can even determine whether these documents are properly to be handed over as a subject of a notice, then how can the Appellant?
- In addition, the Appellant contends that the Commissioners' case should be struck out as it is asking the Tribunal to rule on a hypothetical position. The Commissioners have throughout argued that they should have documents disclosed to them on the grounds that they were necessary to reach a decision in this matter. The Commissioners have now issued a decision and hence, the fundamental basis of their notice to produce has been removed. It is therefore irrelevant for the Tribunal to decide whether these documents should or should not be disclosed because the Commissioners have now made their decision and unless they are prepared to argue that it was not the best judgement, then clearly these documents were not required.
- What is also clear in this case, is that a careful analysis is required of the Human Rights Act 1988 and the Convention for the Protection of Human Rights and Fundamental Freedoms.
- The Appellant relies in full on the detailed grounds as set out in its Notice of Appeal.
- Mr Wilken for the Commissioners said that the issues in this appeal are:
- Mr Wilken's submissions were as follows:
- If BVGC/BVMC and BVVC are correct on their construction of paragraph 7(2), the second issue – that of reasonable excuse, does not arise.
- If, however, BVGC/BVMC and BVVC are wrong on their construction of paragraph 7(2), it falls to consider whether BVGC/BVMC and BVVC have a reasonable excuse for not providing the documents.
- Given that the request arises from BVGC/BVMC and BVVC's own actions in restructuring, it is difficult to see how the nature (whether complex or otherwise) of that restructuring can be said to be a reasonable excuse.
- Further, it appears that the decision not to disclose the documents was reached on DM's advice. Again it is difficult to see how taking and acting on advice can be said to be a reasonable excuse.
- Under section 69 VATA, a failure to comply with a requirement under Schedule 11 VATA can be subject to a penalty.
- Under section 69(8) VATA, a person subject to penalty for a failure to comply with a Schedule 11 VAT requirement, will be absolved from such a penalty if he can establish that there is a "reasonable excuse" for the failure.
Paragraph 7(2) – Construing the provisions - The Commissioners submit that paragraph 7(2) is to be given a broad construction for eight reasons.
- First, the language is suggestive of a broad power to request documents. The requirement is that the document must "relate" to the goods, services or supply. Thus, there is no requirement that the document be directly connected or, indeed, closely related to supply. If the paragraph had the construction now contended for by BVGC/BVMC and BVVC, the draftsman would have used the words "directly connected".
- Second, the power expands to "any documents". Thus, there is no limited category of documents that are to be provided. Again that suggests that the power is a broad one.
- Third, the language is that the documents must relate to supply. The paragraph does not say in whose view the documents must so relate. The "authorised person", however, is the person requesting the documents.
- Therefore:
- Fourth, the purpose of paragraph 7(2) must be to enable the Commissioners to gather the information that will assist them in reaching a decision whether a particular supply is subject to VAT and if so, at what rate.
- Account must therefore be taken of the zero rating provisions at Schedule 8 VATA and the exemptions at Schedule 9 VATA – those obviously raise wider issues of fact than merely the physical documentation of the supply, goods or services. It follows that, as a matter of construction, the factual issues raised by Schedule 8 and 9 VATA are facts relating to the supply, goods or services.
- Put another way, there is nothing to suggest that the Commissioners cannot use paragraph 7(2) to address the issues raised by Schedules 8 and 9 VATA.
- Therefore, once account is taken of Schedules 8 and 9 VATA, paragraph 7(2) cannot have the narrow interpretation now contended for by BVGC/BVMC and BVVC.
- Fifth, the Commissioners are under an obligation to collect VAT. As a matter of policy, the Commissioners' powers to investigate and recover VAT should not be unduly restricted (see EMI v Spillane [1986] STC 374 at 380).
- Sixth, the draftsman could have placed procedural hurdles in the way of the exercise of para 7 VATA powers, but elected not to do so. That means that Parliament did not intend the power to be limited and that, therefore, a broad construction should be adopted.
- Seventh, the Commissioners accept that the HRA is engaged. The relevant Article is not, however, Article 6 (the issue not being one of fair trial) but Article 8 (a power to obtain documents axiomatically relating to correspondence).
- Article 8 does not, however, assist as:
- Eighth, that Rule 20(3) of the Tribunal Rules permits disclosures in an appeal does not assist as:
- The Commissioners therefore submit that BVGC/BVMC and BVVC's construction of paragraph 7(2) is incorrect.
- It therefore follows that the Commissioners had the power to demand the documents they did.
- Further, the documents requested related to the supply, goods and services at issue for the reasons set out at Annex 1 to the Skeleton.
- In addition:
- BVGC/BVMC and BVVC contend that the complexity of the issues raised by the restructuring amount to a reasonable excuse.
- As submitted in outline above, that complexity is entirely of BVGC/BVMC and BVVC's making. Thus, BVGC/BVMC and BVVC contend that because they have done X, they have a reasonable excuse for not disclosing the documents relating to what X was and why they did it. That is logically circular.
- Further, it is difficult to see how a party's own actions, deliberately conceived and implemented on advice, can amount to a reasonable excuse for that party's conduct.
- There are four final issues raised by the Appellants.
- First, the Appellants contend for a new type of privilege as protecting these documents, that privilege not being legal advice privilege.
- It is well established that privilege only extends to the documents passing between a solicitor and his/her client (see Three Rivers District Council v Governor and Company of the Bank of England [2003] EWCA Civ 474). No privilege attaches to documents from other advisers (see para 26).
- Three Rivers is Court of Appeal authority predating but not cited in Interleasing. Therefore, even if the comments in Interleasing were more than speculation (which they are not), Interleasing would be per incuriam and this Tribunal would be bound by Three Rivers.
- Second, there is some suggestion that the ambit of paragraph 7(2) may fall to be determined in Halifax. That is incorrect.
- Third, there is also some suggestion that the Commissioners' arguments are premised on Halifax. That is also incorrect. The Commissioners contend that the documents setting out the reasons for and the means by which the restructure occurred "relate" to the supply. Therefore, paragraph 7(2) applies.
- Fourth, criticism is made of the Commissioners' reasoning in imposing the penalty. That criticism is flawed for three reasons:
- In summary, the Commissioners submit that the issues should be answered:
- We come to our conclusions.
We find Mr Wilken's lucid analysis persuasive. In particular we agree that para 7(2) of Schedule 11 should not be narrowly construed, but given a broad construction for the reasons given by Mr Wilken in paras 14 and 15 and 19 to 30 of his submissions. The question of reasonable excuse does not, therefore, arise.
The appeal is dismissed and there will be no direction as to costs.
18876
Production of documents – VAT Act 1994 Schedule 11 para 7(2) Legal professional privilege – whether applicable; European Convention on Human Rights – Art 8
LONDON TRIBUNAL CENTRE
BURGHILL VALLEY GOLF CLUB (a Partnership)
BURGHILL VALLEY MEMBERS CLUB LIMITED
BURGHILL VALLEY VISITORS CLUB LIMITED Appellants
- and -
THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents
Tribunal: Peter H Lawson (Chairman)
Mrs L M Salisbury
Sitting in public in London on 8 September 2004
Leslie Allen, Solicitor, for the Appellants
Sean Wilken, Counsel, for the Respondents
(a) Members of the Club pay an annual subscription, plus green fees in return for the right to play golf. Non-members are able to play golf on a "pay-as-you-play" basis;
(b) The annual subscriptions and the green fee income from members of the Club are treated as income of BVMC. BVMC's constitution is such that it is not permitted to distribute profit and it is thus treated as making exempt supplies of sporting services to the members of the Club under the sporting exemption;
(c) "Pay-as-you-play" income received from non-members is treated as income of BVVC. BVVC's constitution is such that it is not permitted to distribute profit and it is thus treated as making exempt supplies of sporting services to the members of the Club and to non-members under the sporting exemption;
(d) On 13 July 2001 the partnership entered into a number of agreements both with BVMC and BVVC. Under these agreements the partnership agreed to provide a number of things to BVMC and BVVC. These included:
(i) the use of the golf course;
(ii) the use of facilities (the hospitality area, i.e. bar, restaurant, lounge and shop areas);
(iii) management services for administering the two companies;
(iv) an agency service of collecting fees and subscriptions; and
(v) the service of repair and maintenance of the clubhouse.
(e) In return BVMC and BVVC agreed to pay various amounts to the partnership. In broad terms these amounts were:
(i) for the use of the golf course: the greater of £45,000 or 43% of turnover per annum;
(ii) for the use of the facilities: £6,000 per annum (BVMC) and £2,000 per annum (BVVC);
(iii) a management fee for administration: £6,000 per annum (BVMC) and £2,000 per annum (BVVC);
(iv) for the agency service of collecting fees and subscriptions: £3,000 per annum (BVMC) and £1,000 per annum (BVVC); and
(v) for the repair and maintenance of the clubhouse: the reasonable costs incurred by the partnership in providing these services.
(a) who makes the supplies to the members of the Club? Do BVMC and BVVC, and not the partnership, make supplies of sporting services to the members of the Club (in the case of BVVC, to non-members)?
(b) are BVMC and BVVC non-profit-making bodies for VAT purposes?
(c) do the detailed rules restricting VAT exemption for sports clubs apply in this case?
(a) members of the Club do not pay green fees but a subscription;
(b) there is no agreement for use of the golf course – a formal lease had been granted;
(c) other than the changing area, the clubhouse had been retained by the partnership. There was no agreement for the service and repair of the clubhouse;
(d) the partnership received sums as agent of BVMC and BVVC in accordance with contractual arrangements.
(a) external advice from Davies Mayers, VAT advisers, for the year up to 13 July 2001, excluding documents covered by legal privilege (which the Commissioners asked to be listed) and documents already provided to the Commissioners;
(b) engagement letters and fee notes from Davies Mayers VAT advisers in relation to work done or to be done before 13 July 2001;
(c) minutes of meetings at which the arrangements set out in the Commissioners' letter above were discussed, approved or ratified;
(d) copies of bank statements dated 13 July 2001 or later in so far as they relate to supplies of goods or services.
(i) the Commissioners do not, under paragraph 7(2) of Schedule 11 to the Act, have the power to demand the documents in question and the penalty, therefore, must be invalid. Their power, the Appellants allege, does not extend to demanding to seeing external advice and letters of engagement, but only to contracts, invoices and the normal documents which an officer would expect to look at on a visit;
(ii) there is no concept of motive or purpose in VAT and there is no reason, therefore, for the Commissioners to seek documents that reveal motive or purpose;
(iii) in any event, the Appellants have a reasonable excuse because this is a complex area of law and they are justified in not complying with the notice until the Tribunal has been able to determine whether the Commissioners have the power to demand the documents in question;
(iv) the penalty is invalid in that it fails to specify with precision in respect of which failure the Appellants are being penalised.
(i) engagement letters and fee notes might indicate that the arrangements at BVGC were, and were seen by those involved, to be a tax avoidance scheme. The Appellants' advisers were to be paid by reference to the VAT savings made. These points are relevant to the application of the sporting exemption because they cast light on the purpose of the Appellants and hence on whether BVVC and BVMC are truly non-profit-making bodies entitled to an exemption from VAT for activities in the public interest;
(ii) external advice from the Appellants' tax advisers is relevant for the same reasons;
(iii) a list of documents for which the Appellants claim legal professional privilege is necessary so that the Commissioners could consider whether they agree that the documents do attract privilege.
(a) the purpose of the legislation is to give the Commissioners the power to see documents to enable them to check whether traders have accounted for tax properly. The documents demanded by the Commissioners here would assist them in doing that. If the Appellants' interpretation of paragraph 7(2) were correct, the Commissioners would not be entitled to see any documents that would help them in deciding, in a sporting exemption case, whether a body was subject to "commercial influence", for example (see Note (2A)(c) to Group 10 of Schedule 9) because such influence is not likely to be evidenced in the normal documents that an officer would expect to look at to form a paper trail to establish input tax entitlement or output tax liability.
(b) the documents could be the subject matter of an application for disclosure in the Tribunal as they would meet the relevance test. That being so, they must be documents that relate to services or supplies within paragraph 7(2);
(c) the power to demand documents in paragraph 7(2) could have been limited to documents that are required to be kept by paragraph 6 of Schedule 11 and regulations made thereunder (see, for example, regulation 31 of the VAT Regulations 1995). It was not;
(d) a predecessor of paragraph 7(2) has been held to encompass documents other than books and accounts (including invoices): Commissioners of Customs and Excise v Ingram [1948] 1 All ER 927.
(a) external advice;
(b) engagement letter and fee notes;
(c) minutes of all meetings;
(d) accounting documents and evidence of payment;
(e) publicity material;
(f) calculation of charges;
(g) legal professional privileges.
In addition, it sets out under severability that each notice is a separate requirement to produce documents and provide information."
(a) Did the Commissioners have power to demand the documents they did under paragraph 7(2) of Schedule 11 VATA?
(b) If so, do the Appellants have a defence to the penalty that has been imposed, having a reasonable excuse under section 69(8) VATA for not providing the documents that were demanded?
(i) This appeal arises from BVGC/BVMC and BVVC's decision to restructure their business in an attempt to take advantage of a VAT exemption.
(ii) Although it is clear that the restructuring was a deliberate act taken on and according to advice, BCGC/BVMC and BVVC have declined to provide information relating to the restructuring.
(iii) As a result, the information set out in Annexe 1 remains outstanding and BVGC, BVMC and BVVC have incurred penalties against which they now appeal.
(iv) There are two issues in the appeal.
(v) The primary dispute between the parties would appear to be over the proper construction of paragraph 7(2) of Schedule 11 VATA.
(vi) In essence, BVGC/BVMC and BVVC contend that paragraph 7(2) is to be narrowly construed, permitting access only to information and documents that relate directly to the supply.
(vii) On this interpretation:
(1) The Commissioners would only be able to obtain invoices, contracts and documents directly evidencing the paper trail supporting the transaction;
(2) The NTPs in this case would be invalid.
(viii) The Commissioners contend that there is no warrant in the words or context of paragraph 7(2) for such a limited construction. Further, such a limited construction would considerably curtail the Commissioners' investigatory powers in carrying out their statutory function of collecting VAT.
(ix) Further, it must be borne in mind that, in this case, the documents and information sought all flow from a deliberate decision, on advice, by BVGC to restructure its affairs and to enter into the arrangements with BVMC and BVVC on 13 July 2001.
(x) Thus, the Commissioners' position is that:
(1) Paragraph 7(2) of Schedule 11 of the VAT Act is to be given a broad construction;
(2) The NTPs were valid.
(a) the only possible candidate decision maker is the authorised person acting for the Commissioners;
(b) thus it is for the authorised person acting for the Commissioners to decide that documents or a class of documents relate to the supply, goods or services and then to invoke paragraph 7(2);
(c) VATA, in leaving the question of which documents to request to the authorised person, has therefore granted the authorised person the ability to determine what does or does not relate to the goods, supply or services;
(d) whether a document "relates" to goods, services or a supply must be a question of fact and degree covering a range of documents. That which may relate to the transaction in one case may not do so in another;
(e) the authorised person will therefore be exercising his or her judgment to determine on the facts of the case what does or does not relate to the supply, goods or services;
(f) that fact dependent exercise of judgment suggests that BVGC/BVMC and BVVC's narrow interpretation (which leaves no room for the application of the power to the facts of the particular case) is wrong.
(a) there is nothing in the HRA that prevents the state from investigating individuals;
(b) Article 8(1) is expressly qualified by Article 8(2) which permits interference with a person's correspondence where it is in the economic well being of the country;
(c) requests for documents to assist in the recover of tax is in the economic well being of the country (see Funke v France [1993] 16 EHRR 297 at para 57);
(d) there is nothing in paragraph 7(2) that is axiomatically incompatible with the Article 8. Paragraph 7(2) is a widely available statutory provision and the exercise of powers under it are therefore in accordance with the law;
(e) the remaining grounds on which paragraph 7(2) could be impugned would be those of proportionality and justification. Those will vary from case to case. As such:
(i) the Commissioners' argument that paragraph 7(2) contains a broad power to be applied to the facts of individual cases is strengthened;
(ii) the Commissioners accept that the exercise of paragraph 7(2) power could be successfully challenged on the facts of a given case on the basis that it was disproportionate;
(iii) the question or otherwise of proportionality cannot constitute grounds for saying that paragraph 7(2) per se is contrary to the HRA.
(a) the two provisions (para 7 VATA and Rule 20(3) of the Tribunal Rules) serve differing purposes. The one seeks information as and when the Commissioners are seeking to make a decision. The other seeks information so that the Tribunal can decide whether that decision was correct;
(b) if the Commissioners were confined to the Rule 20(3) disclosure (that is to disclosure within an appeal), the Commissioners might well have no alternative but to decide that transactions were subject to VAT on less information and seek the information to support the assessment in the appeal – that, after all, would maximise the collection of VAT;
(c) at the time when the para 7 VATA power is exercised, whether or not there will be an appeal is speculative. Further, there could be cases in which no appeal occurs. Therefore, to say that there may be the future possibility of an application under Rule 20(3) of the Tribunal Rules does not assist in deciding the scope of para 7(3) VATA;
(d) Rule 20(3) of the Tribunal Rules is clearly a provision contained in delegated legislation. Absent special circumstances, provisions in delegated legislation cannot be used as an aid in construction of or to trump provisions in primary legislation.
(a) the underlying dispute between BVGC/BVMC and BVVC is whether BVGC is a non-profit making body for the purposes of the exemption. As is clear from Kennemer Golf Club v Staatsecretaris van Financien [2002] STC 502 (AG's Opinion at paras 45-47; ECJ Judgment at paras 25-27), the purpose for which the body was set up is a relevant fact in that dispute;
(b) in particular, whether or not the entity is in fact a conduit for the covert distribution of profits is relevant (see also De Vere Golf and Leisure Limited v The Commissioners of Customs and Excise [(18078) at para 132);
(c) in any event, the Commissioners, as a decision making body, are required to take all relevant facts into account. To take an obvious example, if a person is deliberately engaged in an attempt to avoid tax, that is an obvious relevant fact that the Commissioners should know. Conversely, that the transaction was entirely innocent would be relevant to the merits of any given case.
(d) the contents of the tax planning advice are clearly relevant. A tax planner would preface any advice with a summary of the facts giving rise to that advice. Further, if the restructuring had no underlying substance but was merely a mechanism to seek to take advantage of the VAT exemption, one would expect the advice:
(i) to be addressed to the other companies (as they would be taking the advantage of the transaction;
(ii) set out the roles of all the bodies involved not merely the non-profit making business;
(iii) set out that which the respective entities could and could not do;
(iv) give advice as to the VAT implications of the restructuring.
(a) the Appellants and DM clearly knew at all times what was required, their position being that they would not disclose that which was required on advice;
(b) there is nothing in the VATA that requires detailed reasoning from the Commissioners as to why the documents are required;
(c) the letter of 12 September 2003 specifies precisely what had been disclosed and what had not been disclosed. The NTPs were served on 19 September 2003 on the back of that letter. It is common ground that documents remain outstanding under the NTPs. This appeal is against those NTPs.
(a) Yes; and
(b) No.
LON/03/1054