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Civil Service Pensioners Alliance v Customs and Excise [2004] UKVAT V18911 (21 January 2005)

18911

VAT — exemption — pensioners' alliance — whether a trade union or professional body — no — whether an organisation "with the aims of a trade union, philanthropic or civic nature" within EC 6th Directive article 13A(f) and (l) — no — VATA 1994 Schedule 9 Group 9.

MANCHESTER TRIBUNAL CENTRE

CIVIL SERVICE PENSIONERS ALLIANCE Appellant

- and -

THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents

Tribunal: J David Demack (Chairman)

Sitting in public in London on 26 November 2004

Mr John Amos, deputy general secretary of the Alliance, for the Appellant

Mr Owain Thomas of counsel instructed by the Solicitor for HM Customs and Excise for the Respondents

DECISION

This is the second time the Civil Servants Pensioners Alliance ("the Alliance") has appealed to these tribunals against a decision of the Commissioners of Customs and Excise that its membership subscription income is liable to VAT. Its first appeal was dismissed (see (1994) Decision No. 13024), the tribunal holding that the subscriptions were not exempt either under Schedule 9 Group 9 item 1(a) or (d) of the Value Added Tax Act 1983 or under article 13A1(1) of the EC Sixth VAT Directive.

Subsequent to that decision, the domestic legislation, which had previously made no provision for exemption for the services supplied by organisations of a philanthropic or civic nature, was amended to provide it. The Alliance then sought a ruling from the Commissioners that its services to members qualified for exemption. By letter of 27 June 2000, the Commissioners accepted that they did so. Later, the Commissioners reconsidered their position, and on 12 July 2002 withdrew the earlier ruling. There followed an exchange of correspondence between the parties which culminated in the Commissioners informing the Alliance by letter of 23 May 2003 "that the element of your subscription which does not relate to the magazine should be treated as standard rated". The letter took account of the tribunal decision in National Federation of Post Office and British Telecom Pensioners (2001) Decision No. 17980, where the tribunal decided that the Federation was not a non-profit making organisation whose objects were political and in the public domain, so that its supplies to members did not qualify for VAT exemption. The Alliance now appeals against the Commissioners' decision of 23 May 2003.

The facts differ but little from those found by the tribunal in the Alliance's 1994 appeal. Nevertheless, it is necessary that I deal with them in full. I take them from an agreed bundle of copy documents, additional documents provided by the Alliance, and the parol evidence of Mr Brian Sturtevant, the Alliance's general secretary.

The Alliance is an independent, non-party political action group founded in 1952 by a group of civil service pensioners. Its objects, as set out in article 2 of its Constitution, are:

"(a) To maintain and improve the purchasing power of all pensions from Civil Service and related schemes;

(b) To initiate and participate in action which will benefit pensioners

(c) To promote the economic and social well-being of pensioners

Such objects may be pursued in collaboration with other organisations of public service pensioners or by affiliation to, or accepting affiliation of any organisation whose objects include any related to those of the Alliance.

In pursuance of these objects, the will seek by political campaigning to persuade the Government and other authorities to accept its policies but it shall not affiliate to any political party to assist it in that process."

I observe that when the tribunal dealt with the Alliance's earlier appeal the final word in clauses (b) and (c) was "members" rather than "pensioners".

Article 3 indicates that membership is open to:

"(a) pensioners who are in receipt of benefits from:

(i) the Principal Civil Service Pension Scheme (PCSPS) and its successors, or

(ii) pension schemes analogous to the PCSPS and its successors operated by fringe bodies such as Research Councils, or by other Non-Departmental Public Bodies, or

(iii) a pension scheme operated by a Civil Service Trade Union;

(1) active and former members of such pension schemes as defined in Rule 3 (a) above, who remain entitled to benefits and are within 10 years of their pension age;

(2) the spouse or partner of a member as defined in Rule 3 (a) or (b)

(3) the surviving spouse or surviving partner of a member as defined in Rule 3 (a) or (b) above."

The Alliance presently has about 68,000 members, while there are some 550,000 civil service pensioners, and about 20,000 pensioners in related schemes.

The Alliance functions through an executive council, and maintains pressure on central government on behalf of its members. In recent years, as directed by its annual general meeting and its council, it has become heavily involved in campaigning for significant increases in the basic state retirement pension, improvements in health care for all pensioners, free long term care for all pensioners, free transport for all pensioners and maintenance of the post office network.

The Alliance has about 100 groups throughout England and Wales, with autonomous branches in Scotland, Northern Ireland and Malta. The groups have a large measure of autonomy. It is affiliated to the Public Service Pensioners' Council, the National Pensioners Convention and AGE (the European Older People's Platform), is a member of the National Council on Ageing, and of Age Concern, England through its membership of that Council's Retirement Forum. It is recognised by the Cabinet Office as representing the interests of civil servant pensioners, and regularly corresponds with and meets representatives of that Office in dealing with members' problems.

The Alliance reports its activities to its groups and branches through circulars, and to its members in its quarterly magazine, "The Pensioner".

As mentioned in the previous decision of the tribunal, the Alliance provides help and advice on all pension matters, free advice on insurance and financial matters, free legal advice, a will making service, funeral planning and discounts on holidays.

Against that factual background, the exemption of which the Alliance claims the benefit is to be found in items 1(a) or 1(e) of Group 9 of Schedule 9 to the Value Added Tax Act 1994. Item 1 provides exemption from VAT in relation to the "supply to its members of such services and, in connection with those services, of such goods as are both referable only to its aims and available without payment other than a membership subscription by any of the following non-profit making organisations".

There then follows a series of five subparagraphs setting out the bodies to which the exemption applies. The first of them relied upon by the Alliance, subparagraph (a), relates to "a trade union or other organisation of persons having as its main object the negotiation on behalf of its members of the terms and conditions of their employment". The second, subparagraph (e), relates to "a body which has objects which are in the public domain and are of a political, religious, patriotic, philosophical, philanthropic or civic nature". It is common ground that the Alliance's objects are not of a religious, patriotic, philosophical or civic nature.

Although the provisions referred to in the last preceding paragraph are separately set out in the domestic legislation, they derive from the same subparagraph of the Sixth Directive, namely article 13A(1)(l). That sub-article provides an exemption from VAT for the

"supply of services and goods closely linked thereto for the benefit of their members in return for a subscription fixed in accordance with their rules by non-profit making organisations with aims of a political, trade union, religious, patriotic, philosophical, philanthropic or civic nature, provided that this exemption is not likely to cause distortion of competition."

Dealing with the Alliance's various claims in the order in which Mr Owain Thomas, counsel for the Commissioners, dealt with them, I first consider whether the Alliance can bring itself within the ambit of the exemption which relates to a trade union or other organisation "having as its main object the negotiations on behalf of its members of the terms and conditions of their employment".

Mr Thomas submitted that the Alliance did not qualify for exemption under that provision. He observed that in the Institute of Motor Industry v Commissioners of Customs and Excise (Case C-149/97) [1998] STC 1219 at paragraph 20 of its judgment, the Court of Justice of the European Communities ("the ECJ") held that:

"The expression 'trade-union' in that provision [article 13A(1)(l)] means specifically an organisation whose main object is to defend the collective interests of its members – whether they are workers, employers, independent professionals or traders carrying on a particular economic activity – and to represent them vis-à-vis the appropriate third parties, including the public authorities."

Mr Thomas submitted that the Alliance's members did not fall within any of the categories of persons highlighted by the ECJ as qualifying for exemption. He maintained that the court could easily have extended the definition to include bodies which represented retired employees, or industrial or professional pension groups, but chose not to do so. He further submitted that the reference to "third parties" and "relevant decision makers" was clearly a reference to the employment relationship between employer and employee, which gave rise to the negotiations which trade unions ordinarily conducted on behalf of employees with employers or employers' organisations.

Having observed that since 1989 the Trades Union Congress had been successfully encouraging UK trade unions to organise pensioner sections, and that the unions belonged to the same umbrella organisations as the Alliance, Mr John Amos, the Alliance's deputy general secretary who represented it, maintained that the definition of the "aims of a trade union nature" must be widened to include the protection and promotion of pensioner interests. He submitted that para. 20 of the judgment of the ECJ in the Institute of the Motor Industry case should not be read as restricting the exemption to "workers, employers, independent professionals or traders carrying on a particular activity". He contended that the ECJ decision was confined to the facts of that particular case: the list was illustrative rather than exhaustive, and the widely disparate categories brought within the term indicated that the court saw the exemption as necessary for groups of a particular structure, i.e self-help organisations of members collectively supplying services to themselves, such as the Alliance.

Mr Amos further submitted that the restriction in the UK legislation to trade unions or other organisations of persons having as their main object the negotiation of terms and conditions of the employment of their members appeared to be ultra vires article 13A(1)(l), and should be disregarded.

As Mr Thomas correctly pointed out, any exemption from VAT provided for must be construed strictly: any derogation from that rule would be inconsistent with the general rule that in principle VAT is charged on every supply of goods and services for valuable consideration. He cited paragraph 51 of the opinion of the Advocate-General (Cosmas) and paragraph 19 of the judgment of the ECJ in the Institute of the Motor Industry as confirming the Commissioners' view of the matter. I need not rehearse those citations for, in my judgment, they take matters no further. I should, however, make mention of the decision of the tribunal in the Alliance's earlier appeal where the tribunal, chaired by the President of these tribunals, His Honour Stephen Oliver QC, said of a similar claim by the Alliance:

"Specifically the Alliance is not an organisation that consists 'wholly or mainly of workers'. It consists mainly of pensioners. Nor do its principal purposes include the regulation of relations between workers and employers or employers' associations. Its main purpose is to look after the interests of civil service pensioners so far as their pension rights are concerned. Nor is it 'another organisation of persons having as its main objects the negotiation on behalf of its members of the terms and conditions of their employment' see item 1(a) … [T]he Alliance has not satisfied us it negotiates [terms and conditions of employment] …"

The tribunal arrived at that conclusion on the basis of the Sixth Directive, rather than domestic law.

I am quite satisfied that the decision of the earlier tribunal was correct, and consider that its conclusion is merely confirmed by the judgment of the ECJ in the Institute of the Motor Industry case. In my judgment, there is nothing in the Alliance's claim that the domestic legislation requirement that the trade union exemption provided by article 13A(1)(l) must be the organisations main object in ultra vires the Sixth Directive.

Mr Thomas identified a number of qualities as arising in relation to the Alliance's claim to be entitled to exemption under item 1(e) of Group 9, namely:

(1) whether the Alliance had objects 'in the public domain';

(2) whether it had objects of a 'political' nature; and

(3) whether it had objects of a philanthropic nature.

In relation to the first of those questions, Mr Amos observed that the exemptions in article 13A(1)(l) were for certain activities "in the public interest": there was no requirement in the Sixth Directive for objects to be in the "public domain". He submitted that if 'public domain' meant anything other than 'in the public interest', it appeared to be ultra vires the Sixth Directive. However, he added, in their Information Sheet 11/99, the Commissioners said that 'objects in the public domain' meant objects which were directed outside the particular organisation and beyond the members themselves to the general community, i.e. to a significant part of the population apart from the members (see paragraph 30 of the tribunal decision in the National Federation of Post Office and British Telecom Pensioners decision). If the two terms were synonymous, and the Alliance met the 'public interest' test, it must also met the 'public domain' test.

Mr Thomas submitted that the Alliance's objects were not in the public domain. Its actual main object was the furtherance of its members' interests, and its activities were primarily guided by those interests. That was not to say that the Commissioners took the view that the Alliance's activities could only be of benefit to its members since engaging in campaigns which did, in fact, benefit its members had the indirect consequence, if those campaigns were successful, of benefiting other pensioners in similar situations, depending on the nature of the campaign. However, the Commissioners did not accept that the Alliance engaged in campaigns and involved itself in activities capable of benefiting non-Alliance pensioners meant that, overall, its objects were in the public domain. There was a division in the exemption between the organisations whose primary object was the provision of services to members, and those organisations whose objects were, on the contrary, in the public domain.

In order for an organisation such as the Alliance to benefit from the exemption, it must be a trade union or similar organisation pursuant to the provisions of items 1(a), (b) or (d). However, and despite being an organisation which primarily existed to serve the interests of its members, Mr Thomas submitted that it did not meet the description of a body which could qualify under that head.

Mr Thomas noted that the tribunal in the English Speaking Union of the Commonwealth v Commissioners of Customs and Excise (1980) Decision No. 1023 said this of the provision in question:

"So far as I am aware, the words "in the public domain" appear in no other statute or statutory provision. The word "domain" is derived from the Latin "dominicum" meaning "that which pertains to a lord". But according to the Shorter Oxford English dictionary the word "domain" now extends also to a "sphere of thought or activity; field, province". In my view such extended meaning is the one to be attributed to section 45(3). In my judgment the words "objects which are in the public domain" are those aims and objects which are regarded as matters of concern and interest to the public generally as opposed to matters of advantage for the subscriber other than the right to participate in its management or receive reports on its activities."

Mr Thomas observed that, when looking at the Alliance's stated objects (as to which see paragraph 25 above), it was not enough simply to refer to its constitution; it was necessary to look at the way in which the organisation operated in practice. That was consistent with the following approach taken by the Advocate-General (Jacobs) in Kennemer Golf & Country Club v Staatssecretaris van Financiën [2002] STC 502 at 510 (paragraph 47):

"When assessing those aims, therefore, it is necessary but not sufficient to look at the organisation's express objects as set out in its statutes. It is also necessary however to examine whether the aim of making and distributing profit can be deduced from the way in which it operates in practice."

Mr Thomas further submitted that the overall context of the exemption should be borne in mind when considering whether a particular organisation fell within the category capable of benefiting from the exemption pursuant to item 1(c). As the Advocate-General said at paragraph 49 of his opinion in the Institute of the Motor Industry case:

"The fact that Article 13A(1)(l) lists a whole series of adjectives describing the types of aims which those bodies may pursue (political, trade union, religious, patriotic, philosophical, philanthropic or civic) does not, in my view, mean that the Community legislature intended in that way to include all organisations set up in the interests of their members provided that they were non-profit-making and not likely to distort competition, as the Commission maintains. Rather it sought to determine which organisations of a non profit making nature and not likely to distort competition qualify for exemption from VAT". (Emphasis added by Mr Thomas).

And the ECJ added, at paragraph 18 of its judgment, "It must also be remembered that the aim of Article 13A of the Sixth Directive is to exempt from VAT certain activities which are in the public interest" (emphasis added by Mr Thomas).

Mr Thomas also submitted that there was a contradiction at the heart of the Alliance's case: the position was that the Alliance was an organisation that had as its primary aim the provision of services to its members and, as such, it might only benefit from the exemption if it were a trade union or similar organisation within item 1(a). He contended that the categories of body which provided services to their members, and which were permitted to benefit from the exemption, were necessarily narrowly drawn; and the Alliance did not fall within them. And the fact that it was an organisation which primarily provided services to its members also meant that it did not fall within item 1(e), for that item was directed to organisations which did not primarily exist for the benefit of their members. The fact that some of its objects were expressed more widely than previously did not affect that. In pursuing the interests of pensioners more widely, the Alliance was still in fact pursuing the interests of its own members.

I accept the argument advanced by Mr Thomas, and adopt it. All I need say of the argument advanced for the Alliance is that any benefits which it may obtain for pensioners in general, as opposed to its own members, are incidental.

I then turn to consider whether the Alliance has aims of a political nature. Mr Amos observed that 'political' was not defined in the 1994 Act, but the Oxford English Dictionary defined it as "Of, belonging, or pertaining to the state …, its government and policy, especially in civil and secular affairs" and "relating to, concerned or dealing with politics or the science of government". He added that the Charity Commissioners' booklet "Political Activities and Campaigning by Charities" said that "The expression "political purpose" is not confined to party politics but includes the promotion of any change in the law." And in VAT Notice 701/5 it was said that the everyday meaning was "campaigns for or against legislative and constitutional change or campaigns in local or central government elections". Further, at paragraph 35 of the tribunal decision in the National Federation of Post Office Pensioners case, it was noted that the Commissioners "did not submit that the term 'political' must relate only to membership organisations seeking election, i.e. political parties. The Commissioners accept, for example, that organisations whose primary or overall aim is to change the law through the political process (or prevent such a change) could benefit from the exemption".

Mr Amos submitted that it could be seen from any of the definitions he had offered that politics was not the sole preserve of party politicians or of governments, but extended to all those who sought to influence the political process. To achieve improvements in line with any of the Alliance's objects, it had to convince politicians at whatever level to change their policies and any relevant laws: that reality was recognised in rule 2 of the Alliance's Constitution, and all of its campaigning was directed to that end. Mr Amos noted that the 1994 tribunal accepted as fact the Alliance was "an independent non party political action group" (see paragraph 2 of the decision). Consequently, he submitted that the Alliance's aims should be recognised as being of a political nature.

Mr Thomas maintained that the question of whether an organisation had objects of a political nature should be decided on the basis of its main or overall objectives. He submitted that it was necessary, first, that its objectives, as expressed in its constitution, were political and, secondly, that it must in practice pursue a political aim as its main or overall objective. However, the Commissioners accepted that "political" was not confined only to membership organisations seeking election i.e. political parties.

Mr Thomas submitted that the Alliance's overall or main object was not political. He observed that the Alliance objected to the Commissioners' approach in seeking to ascertain the "main" or "overall" object of an organisation. However, for the purposes of the exemptions in article 13A(1)(l), that approach was directly supported by the ECJ decision in the Institute of the Motor Industry (see paragraph 20). The fact that the decision related to trade unions could not plausibly be said to alter the validity of the approach in relation to any of the other organisations listed in the same provision of the Sixth Directive. He also submitted that there was no obvious reason why a different approach ought to be adopted to different categories of organisation, where the aim of the test was to ascertain whether their objects fell within the meaning of the various terms used. That approach was accepted by the tribunal in the National Federation of Post Office Pensioners case (see paragraphs 32-39 and 55-56), and should be followed in the instant case.

Again, I propose to adopt the argument advanced by Mr Thomas, it being the tried and tested approach.

In relation to the final question before me, namely whether the Alliance has philanthropic aims, Mr Amos observed that at paragraph 12.2 of Customs Notice 701/5, "philanthropic" is given an everyday meaning of "to do good work for the direct benefit of the general community or a particular section of the community or designed to promote the well being of mankind". He submitted that objects (b) and (c) of the Alliance's constitution were aimed at securing improvements for pensioners at large. Therefore, it did good work for the benefit of all the 11 million state pensioners in the UK: its objects should be recognised as being of a philanthropic nature.

Mr Thomas submitted that I should adopt a similar approach to the third question as he had suggested should be adopted to the second: it was necessary that the overall or main purpose of the organisation be philanthropic. He observed that the same question had been raised in the Alliance's earlier appeal, and had been answered (paragraph 28) as follows:

"We cannot construe the objects of the Alliance as 'aims of a philanthropic nature'. It exists for the benefit of its members to pursue objects designed to promote the interests of its members".

And, as the tribunal had opined at paragraph 54 of its decision in the British Telecom Pensioners case:

"While campaigning on behalf of pensioners is an activity which could be said to be in the public domain, the Federation's aims are not philanthropic as they clearly serve the interests of its members and possibly pensioners in general but not others. They cannot be said to be marked with a desire to promote the wellbeing of mankind by serving one's fellow men in general".

Yet again, I adopt the argument advanced by Mr Thomas. I am quite satisfied that the overall or main purpose of the Alliance is not philanthropic.

I dismiss the appeal.

DAVID DEMACK

CHAIRMAN
Release Date: 21 January 2005

MAN/03/0410