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Lindsay Cars Ltd v Customs and Excise [2004] UKVAT V18970 (08 March 2005)

18970

EXEMPTION - Insurance transactions - Appellant selling cars as independent dealer - Sales promotion for Northern Ireland - During sales promotion period "on-the-road" price of car increased - Customer provided with free insurance for first year wholly paid for by manufacturer - Additional insurance for a further year procured from insurer by Appellant - Whether for purposes of calculating VAT on sales of cars amount paid by customer to be reduced by amount paid by Appellant for additional insurance - Whether Appellant making supplies of insurance - Yes - Whether supplies made for consideration - Yes - Whether supply ancillary to supply of car - No - Appeal Allowed - EC Council Directive 77/388, Art 13B(a) - VAT Act 1994, Sch 9, Gp 2, item 3

LONDON TRIBUNAL CENTRE

LINDSAY CARS LIMITED Appellant

and –

THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents

Tribunal: STEPHEN OLIVER QC (Chairman)

MRS N J ROBERTS

Sitting in public in Belfast on 25-27 January 2005

Jonathan Peacock QC, for the Appellant

Rupert Anderson QC and Dr Ian Hutton, counsel, instructed by the Solicitor for the Customs and Excise, for the Respondents

DECISION

Lindsay Cars Ltd ("Lindsay") appeals against a decision of the Commissioners contained in a letter of 1 May 2002. That decision confirmed a refusal to make a repayment of VAT in the sum of £96,221.31, subsequently revised to £81,884.34. The repayment had been sought by way of voluntary disclosure that sums had been wrongly accounted for by Lindsay for output tax in relation to insurance provided to customers purchasing cars from Lindsay. Lindsay has contended that the insurance transactions, which will be detailed later, fall within VAT Act 1994 Schedule 9, Group 2 and are therefore exempt from VAT.

Following the commencement of proceedings before the VAT and Duties Tribunals and before the Commissioners had lodged their Statement of Case, this appeal was stood over to await the outcome of litigation involving Peugeot and Citroen. That litigation, Peugeot Motor Company Plc and Citroen UK Ltd v Customs and Excise Commissioners was concluded in October 2003. It is reported in [2003] STC 1438 and we refer to it as "the Peugeot decision".

Lindsay is a Ford main dealership. It deals in new and used cars in Northern Ireland. Incentives to promote sales of certain Ford models include offers of, what is described in advertisements, as "one year free insurance" to customers and offers of "two years insurance". This appeal is concerned with the VAT position of sales of Ford models in the course of promotions of the latter nature, i.e. where the customer obtains the car "with two years insurance".

The Ford Insure arrangements and the September 1999 Promotion – an overview

In October 1998 "Ford" (which included various associated companies) and Norwich Union entered into a ten year agreement that forms the framework of the "Ford Insure" arrangements. The details of this agreement will be summarized later. Norwich Union made an upfront payment of £5 million to Ford by way of advance on commissions. (No commissions were payable in respect of insurance arrangements to which this appeal relates.)

Ford was appointed Norwich Union's agent to enable Norwich Union to provide certain types of Ford Insure policies. One of these was called "customer funded" in the agreement and another "free" insurance. Ford undertook to sell and promote only Norwich Union motor insurance products.

As regards free insurance, Norwich Union authorized Ford (in a document referred to as "the Binding Authority") to delegate its authority to dealers; this delegated authority empowered dealers to accept risks within the scope of certain eligibility criteria. Before and during the September 1999 promotion, with which this appeal is concerned, two Ford models (Kas and Fiestas) were advertised and sold "with one year's free insurance". The cost of the free insurance was borne by Ford and on no occasions and in no documentation was it specified as a separate ingredient in the cost of the car.

A sales promotion for September 1999 was set up at the initiative of the Northern Ireland Ford dealers. Compared with the rest of the UK, insurance cover to an individual in Northern Ireland is expensive. Premiums can however be reduced where the risks are pooled. The Northern Ireland dealers saw the provision of a second year of insurance cover, the cost of which was kept down by pooling the risks, as a sales incentive. They recommended the incentive to Ford. Ford were attracted by the idea because, if effective, it would move their stocks of 1999 models before the Millennium.

Ford and Norwich Union negotiated the terms of the second year cover within the framework of the October 1998 agreement and the Binding Authority. The outcome was an agreement (in late August 1999) by which Norwich Union undertook to provide the second year of insurance to buyers of Ford Fiestas during the promotion period. Ford had the authority to pass on the benefit of that undertaking to its Northern Ireland dealers.

From 1 September 1999 the advertised on-the-road price of a Ford Fiesta was increased from £7,495 to £7,995 and the advertised offer said : "… now with two years insurance (from just 17 years of age)". Subject to one minor exception Lindsay (in common with the other Northern Ireland dealers) was bound to provide the additional second year of insurance to all customers during the promotion period. The relevant paperwork is summarized below. It is sufficient to mention at this stage that the "vehicle order form" identifies the additional second year insurance as a separate item with a separate price ingredient; and in the "customer declaration" relating to the additional insurance, the dealer undertakes to submit the declaration to Norwich Union and to attach a cheque for £564 to the original declaration form. The customer who cancels his or her free insurance gets no reimbursement of premium. The customer who cancels the additional insurance cover is entitled to reimbursement of the premium (subject to a handling charge).

Brief summary of issues in dispute

The Commissioners submit that the customer who purchases a car under the September 1999 promotional deal pays a fixed sum for the car and not different amounts for the car and the insurance. The additional insurance is therefore provided for no further consideration to the customer. The result sought by the Commissioners is for Lindsay to be liable to account for VAT on the full price as consideration for the car. The insurance, the Commissioners say, is funded by Lindsay. The response of Lindsay is that it does provide the customer with the benefit of "additional" motor insurance underwritten by Norwich Union in return for a payment made by the customer. There is thus a supply of insurance by Lindsay.

The second issue is whether, given that there is a separate insurance-related supply by Lindsay to its customer, that supply is to be treated for VAT as forming part of a single supply of goods (i.e. the car) and shares the same tax treatment as the supply of the goods.

The third issue is whether, given that Lindsay makes two supplies (one of the car and the other of the insurance-related services) and that the customer makes payment for those latter supplies, the insurance-related supply is not, as the Commissioners argue, exempt.

Witnesses

We heard oral evidence from Keith Scott, financial director, and David Sandford, sales director, in both cases of Lindsay, from Paul McAfee, Ford's district business development manager with responsibility for Northern Ireland, and from Andy Bode of Norwich Union who was at the time the dealer distribution manager responsible for "Ford Insure" (the insurance programme offered by Ford to purchasers of its cars and underwritten by Norwich Union).

The written agreements

Norwich Union entered into the October 1998 agreement with, Ford, Ford Credit and some associated companies. The purpose of this agreement was for Norwich Union to become Ford's provider of motor insurance branded as Ford Insure and offered by Ford dealers throughout the UK to customers purchasing Ford cars. The Ford Insure programme required Norwich Union to make insurance available to customers in return for premiums paid by them for the insurance. Also covered by the October 1998 Agreement was "free insurance". Norwich Union undertook with Ford to become the provider of what was presented to customers as free insurance. The provision of free insurance was part of a promotional package used by Ford and Ford dealers to promote the sales of selected Ford models to eligible customers. Premiums on free insurance were paid by Ford to Norwich Union and were not borne by the customer as part of the price of the car.

The 1998 Agreement, by clause 2, makes Ford the "agent" of Norwich Union "to make arrangements" on Norwich Union's behalf to enable Norwich Union to carry on the insurance business relating to Ford products including reviewing proposals from potential insureds, issuing policies, dealing with renewals, collecting premiums and settling claims. Ford gives an exclusivity undertaking to Norwich Union (i.e. to act only for Norwich Union) and to treat Norwich Union as its preferred supplier (i.e. always to accept Norwich Union as the insurer unless a competing insurer offers better terms). The 1998 Agreement was to last ten years and it covers "customer funded" and "free insurance". Free insurance is defined as "annual motor insurance provided free of charge to customers of Ford Motors in connection with the purchase of a car by them and in respect of which the premiums are paid by Ford". No commission was to be charged to Norwich Union by Ford under the free insurance programme.

Clause 5.1 of the 1998 Agreement gives Ford authority "to the extent permitted by the Binding Authority" to bind Norwich Union to a "Ford Contract" (i.e. a Norwich Union Ford Insure policy) "issued to an insured". Clause 25 enables Ford, Norwich Union's agent, to appoint sub-agents so long as approved by Norwich Union and those sub-agents may be Ford dealers. The sub-agents (who included Lindsay) had power to bind Norwich Union within the framework of the "Binding Authority".

The Binding Authority of 7 January 1999 between Norwich Union and Ford relates exclusively to free insurance. It authorizes Ford, which term includes authorized sub-agents, to bind Norwich Union to free insurance policies "in the form attached to this Binding Authority" meeting certain eligibility criteria such as the models of Ford motor cars, the ages of the drivers (17-80) and the driving records (including convictions) of insureds and drivers. Other relevant provisions are:

Clause 2.3 which directs that on cancellation of a free insurance policy no part of the premium is refundable and

Paragraph 3.2 of Appendix I which enables the insured to transfer the benefit of free insurance to another Ford model during the period of the free insurance policy, but the insured who cancels his free insurance is entitled to no refund.

The additional insurance initiative

The 1998 Agreement and the Binding Authority were directed at free insurance. Free insurance was used as a promotional device by Ford in Northern Ireland, as it was in the rest of the UK. A particular feature of Northern Ireland which distinguishes it from Great Britain is the high cost of motor insurance in Northern Ireland. All the witnesses were at one on this. Andy Bode of Norwich Union stated that premiums are, depending on individual risk factors, many times higher in Northern Ireland than in Great Britain. The disparity is even more acute where the insured or the driver is under 25. Taking an extreme case of a 17 year old parking his Ford Ka on the road, Mr Bode said, the cost of a year's insurance alone is probably on a par with the cost of the car. Potential customers in the younger range experience difficulties in getting insurance, either at all or at reasonable rates. Ford, through the Northern Ireland Ford Dealers Advertizing Association ("the FDAA"), explored the possibility of a targeted promotion that gave the younger buyers access to affordable insurance. In the summer of 1999 the FDAA observed that, while the free insurance offer on the Fiesta at £7,495 "was drawing retail traffic", the under 25 market "was driven to a high degree by the availability of second and third year insurance". The minutes of the meeting went on to note that "Dealers confirmed that they believed customers would pay for second and/or third year insurance at competitive rates and therefore we were not necessarily seeking additional Ford marketing spend". Ford took up the FDAA's recommendation and set about negotiating terms for additional insurance with Norwich Union. On 27 August 1999 the FDAA coordinator wrote to all the FDAA dealers of Northern Ireland telling them of the outcome of a successful negotiation with Norwich Union. At that time Fiestas were advertized at £7,495 on-the-road with free insurance funded by Ford. The letter stated – "Effective 1 September 1999 Fiesta Finesse will now be advertized with two years insurance at £7,995 on-the-road (year one funded by Ford as now and year two funded by the dealer)". The letter went on to state that "the costs of dealer funded elements will be £564 for the second year". At a later point the letter states –

"The insurance may not be referred to as "free" since we previously advertized these vehicles at a lower on-the-road price without insurance."

A condition attaching to the provision of these new insurance terms (set out in the letter) was that "it must be provided to all retail customers" (excluding Ford employees); the only exemption to the rule was where customers had previously seen the lower price advertized without insurance and were adamant that they wanted to take advantage of the lower offer. (The expression "dealer funded" will be revisited later in this decision).

Pooling and the mandatory nature of additional insurance

Insurance works on the basis of risk pooling. It is not economically viable for an insurance company to offer motor insurance as part of a dealer's promotion unless the terms of the promotion make it mandatory for the dealer to offer the insurance to the customer, prohibiting the dealer from offering any alternative promotional benefit. This is equally applicable whether the promotion consists of free insurance or additional insurance. There was, as noted in the last paragraph, no absolute embargo on the customer being allowed to purchase a car covered by the promotion without additional insurance. The customer's application had to be cleared with Mr McAfee of Ford. We heard of no evidence that this had happened during the course of the September 1999 promotion.

Arrangements for additional insurance

The agreement to provide additional insurance was between Ford and Norwich Union. The dealer and the FDAA were not parties either to the negotiations or to the agreement. The agreement was not reduced to writing. Mr McAfee described it as an understanding the terms of which were evidenced by the contents of the "customer declaration form" (see below). The effect, we find, was Norwich Union's undertaking to provide insurance to the Ford dealers retail customers. Each promotion was the subject of a new agreement.

Attached to the letter of 27 August 1999 (referred to above) was a Schedule prepared by FDAA giving the dealers a break down, for September 1999, of the total on-the-road price of £7,995. This shows that Ford gives the dealer "registration bonuses" of £640.43 for each car sold. The "total sale price including VAT" is shown as £7,226. On top of that are four items on which VAT is not charged. These are road fund licence, registration tax and "petrol and plates" amounting to £204, and the additional insurance charged at £564.

The FDAA letter of 27 August 1999 states that two customer declaration sheets are to be completed, one for the first year's insurance and "one for the second dealer funded year". A further attachment to that letter states that the customer declaration is to be signed and dated by the customer and the dealer is required to send the original declaration form with a cheque for £564 for second year cover. The attachment states that should the customer wish to cancel the policy "refunds will be sent direct to the customer" from Norwich Union.

The Ford Fiesta was advertized in Northern Ireland from 1 September 1999 with a headline – "The great Ford summer drive". The on-the-road price is stated as £7,995 followed by details of instalment credit payments. It concludes with the words "Now with two years insurance (from just 17 years of age)".

The next meeting of the FDAA was held on 22 September 1999. The minute records that the September 1999 promotion has been successful. It goes on to contain a record of the October and November marketing programmes for which a third year of additional insurance was to be provided. This was followed up by a letter from Ford's marketing manager (Simon Kerrell) dated 4 October to the Northern Ireland dealers. This states:

"Effective 1 October 1999, pre 2000 MY Fiesta Finesse 3L … will be advertized with three years insurance at £7,995. Whilst the Fiesta October Windfall campaign provides for two years free insurance … year three is dealer funded via registration bonuses and dealer margin (the cost of the dealer-funded third year is £600)."

The paperwork

We were provided with a number of packs of papers relating to particular sales of Fiestas in the course of the September 1999 promotion and for the later promotion. They varied in some respects and none appeared to contain all the relevant paperwork. We have proceeded on what appear to us to have been the standard paperwork requirement.

A "Vehicle Order Form" contains details of the customer, the model being purchased and the sale or trade-in value of any vehicle taken in return. Under the heading "Vehicle Price Make Up" is the total vehicle price of £7,995 broken down into certain elements, one of which is £564 for "second year insurance". This is to be signed by the customer. One of the two Customer Declarations has at the head the words "Ford Dealer Funded Second Year". There is then a box to be completed by the dealer and this contains details and reference numbers for the dealers: that box concludes with the words –

"Attach cheque for £564 to this original and send to Ford Insure".

The customer box contains personal details of the customer including his or her claims history and names of additional drivers. The Customer Declaration is signed by the customer and sent to Norwich Union.

A separate Customer Declaration is made out for the free insurance programme (one year). This does not contain the words "Ford Dealer Funded" nor does it require the dealer to send any amount to Ford Insure.

The Vehicle Order Form and Customer Declarations are passed to Lindsay's internal accounting team for entry into the accounting system and to enable invoices to be produced. The accounting system automatically transfers that information to the VAT records which form the basis of Lindsay's VAT returns.

The manner in which VAT entries for the September1999 promotion appeared in Vehicle Order Forms and invoices varied. The Vehicle Order Form has an entry for the Vehicle Price Make Up. The sales representative sometimes excluded the £564 for "insurance second year" before computing the "total before VAT"; sometimes the representative included that amount in the total before VAT. Some invoices contained no figure for insurance and showed VAT as an ingredient in an aggregate on-the-road price leaving out only the road fund licence element. Other invoices separated out the "second year insurance" showing VAT as chargeable on the on-the-road price less insurance and road fund licence. Whatever way the Vehicle Order Form was expressed, the customer paid the same on-the-road price. This had two consequences. In the first place, because the invoices did not match the Vehicle Order Forms, the figures on the invoices had to be adjusted downwards to get back to the on-the-road sale price. Secondly, Lindsay accounted for output VAT for more than what they claim they should have done on the grounds that the sale of the additional insurance was an exempt transaction.

Mr Scott of Lindsay attributed the "mistakes", i.e showing a nil consideration for the additional insurance and accounting for an excessive amount of output tax, to the fact that a new accounting system had been implemented in 1999; it had not been working properly and data was not being correctly entered.

Conclusions

Before we address the issues we summarize what we see to be certain essential features of the September1999 promotion.

First, on 1 September 1999 the advertized on-the-road price for 1999 model Fiestas went up by £500 from £7,495 to £7,995. The advertisement, which the day before had stated – "with one year's free insurance", stated – "now with two years insurance". That was the offer for the purposes of the September 1999 promotion.

In the second place the customer had in practice no choice. Payment of £7,995 was required of him if he was to obtain the car. At the same time £500 was, for younger customers, a cheap price to pay for additional insurance in Northern Ireland.

Third, as between customer and Lindsay the deal is inseverable, but on completion of his side of the bargain, the customer obtains two things. Once the full price has been paid he obtains the goods, i.e. the property in the car; once the price has been paid and the paperwork completed he obtains the benefit of the additional insurance, i.e. a service, on the strength of Lindsay's authority derived from the pre-existing agreement between Norwich Union and Ford in relation to the September 1999 promotion.

Fourth, the additional insurance could be surrendered by the customer for cash at any time. For some customers with long and unblemished records the cash-in value might be seen as an advantage; for the younger customer, an extra year of insurance at £564 would, on the evidence before us, be seen as an advantage in its own right. Even if the customer were to cash in the additional insurance, the free insurance on the car for the first year would remain in being.

Fifth, the terms of the September 1999 promotion did not become available to Lindsay until 27 August 1999. This gave Lindsay little time to work out the new regime, to obtain and adjust to the paperwork supplied by Norwich Union, to train its salesmen in the steps required to complete the Vehicle Order Forms and the Customer Declarations and to organize its own invoicing and VAT accounting systems. Moreover, as Mr Scott observed, Lindsay had only recently introduced a new accounting system. The result, to judge from the variations in the paperwork, was that different salesman had different ways of completing the Vehicle Order Forms and showing the VAT ingredients; and the accounts and invoices showed, in some cases, nothing charged for insurance and VAT charged on the whole on-the-road price and, in other cases, £564 charged for insurance and VAT charged on the balance of the on-the-road price. The haste with which the September 1999 promotion was introduced must, we infer, have caused inconsistencies in the records; consequently the records cannot, we think, be regarded as reliable statements of what Lindsay (and Lindsay's customers) intended.

Sixth, despite the inconsistencies, every Vehicle Order Form (i.e all those that we saw) for every Fiesta sold in the course of the September 1999 promotion showed additional insurance as a separate item charged at £564. The Vehicle Order Form states that the customer, who has signed the form, has received a copy of it.

Seventh, the Customer Declaration for the two year insurance programme is signed by the customer after confirmation that its particulars are correct. One of the particulars is a statement of Norwich Union's instruction to Lindsay to attach a cheque for £564 and to send it to Ford Insure (i.e. Norwich Union).

Eighth, the above two features show a clear trail of payment in relation to additional insurance cover. The customer must, we think, know that £564 is an ingredient in the total on-the-road price that he has been charged. And the customer knows that that amount is to be paid on by Lindsay to Norwich Union.

Before we come to the issues, we need to address the significance of the expression "Dealer Funded". The Customer Declarations used throughout the September 1999 promotion for the two year Insurance Programme all contain the words "Ford Dealer Funded Second Year". When introducing the October-December 1999 promotion, Ford's own marketing manager, as noted above, describes the additional insurance as "dealer-funded". One reading of this is that additional insurance is funded by the dealer and therefore there cannot have been a separate consideration provided by the customer. Mr McAfee of Ford and Mr Bode of Norwich Union were examined on what they understood the expression "dealer funded" to have meant. We accept Mr Bode's explanation that it was an expression that he had coined to show the distinction between those policies, such as additional insurance cover, where Norwich Union looks to the dealer for payment and free insurance cover which is paid for by Ford. The expression tells us nothing about where the cost of the additional insurance cover really falls or whether any part of the on-the-road price paid by the customer is really attributable to the additional insurance.

The first issue

The Commissioners argued that, as between Lindsay and the customer purchasing under the September 1999 promotion, there was one contract and one consideration. The transaction was the sale of the car with the benefit of two years insurance. This contention was based on passages in the opinion of the Advocate General (Jacobs) and the judgment of the Court of Justice in Muysen De Winters's Bouw-en Aannemingsbedriff BV v Staatssecretaris van Financien, CJEC Case C-281/91, [1997] STC 665. That is the case where a contract with a builder for the sale of land for transfer when the building was completed provided that, on transfer, interest was payable on the agreed price of the land for the period between contract and transfer. The Court (in paragraph 19) decided that the interest did not constitute consideration for the grant of credit but instead it was part of the consideration obtained for the supply of the land. The Commissioners in the present case pointed to the Advocate General's opinion where he observed that the VAT analysis did not necessarily follow the contractual position in a situation where a supplier wish to reduce the full value of the goods by his financing costs "even if he purports in the contract to pass them on as interest charges distinct from the purchase price of the goods" (see paragraph 24).

We can see no real analogy between the present situation and that found in Muysen De Winters's. There is no question of Lindsay "purporting" to pass on the cost of additional insurance as consideration for insurance distinct from the price of the car. There is a provision of additional insurance procured by Lindsay for the benefit of the customer. We recognize that that additional insurance is provided to promote the sale of the car. But that does not mean that nothing is paid by the customer for the provision of the additional insurance; nor does it mean that the consideration attributable by Lindsay and the customer to the additional insurance can be regarded as the purchase price for the car.

We turn now to the opening step in the argument for Lindsay. The relevant supply made by Lindsay to its customer is, Lindsay say, its provision of access to the additional insurance cover, being cover that Norwich Union undertook with Ford to provide for the purposes of the September 1999 promotion; and the customer provides consideration of £564 to Lindsay for Lindsay's supply. That, we think, is the correct analysis. The customer knows from the advertisement that the advertized price of £7,995 buys him goods in the form of the car and services in the form of insurance; the Vehicle Order Form shows that £564 is attributed to the insurance and a "net sales price" in the region of £6,000 is attributed to the car. And the Customer Declaration for the two year Insurance Programme shows that Lindsay is committed to pay £564 to Ford Insure. Those features are, we think, clear evidence that what the parties "thought they were agreeing to" (to borrow the words of Laddie J in Kuwait Petroleum v Customs and Excise Commissioners [2001] STC 62 at 74b) were Lindsay's supply of access to the additional insurance cover in return for £564 and Lindsay's sale of the car.

The second issue

Given that there is a separate of insurance, does it form part of a single supply of goods (the car) and so share the same tax treatment as the supply of the goods?

This issue arises irrespective of the outcome of the final issue, namely whether Lindsay makes exempt supplies of procuring the provision of additional insurance cover.

The Commissioners and Lindsay rely on principles found in paragraphs 28 to 31 of the judgment of the Court of Justice in Card Protection Plan Ltd v Customs and Excise Commissioners (Case C-349/96) [1999] STC 270, but to different effect. The Card Protection Plan principles can be summarized as follows. In the first place regard must be had to "all the circumstances" in which the transaction takes place (paragraph 28). The "essential features of the transaction must be ascertained", looking at the supplies made by the taxable person to a "typical customer" (paragraph 29). Second, every supply of a service "must normally be regarded as distinct and independent" (paragraph 29). Third, that which comprises a "single service from an economic point of view must not be artificially split" (paragraph 29). Fourth, there is a single supply where "one or more elements are to be regarded as constituting the principal service" and "one or more elements are to be regarded … as ancillary services which share the tax treatment of the principal service" (paragraph 30). Fifth, a service "must be regarded as ancillary to a principal service if it does not constitute for customers an aim in itself, but a better means of enjoying the principal service provided" (paragraph 30). Last, the fact that a single price is charged is not decisive; account must be taken of the customer's intention (paragraph 31).

It seems to us, when all the circumstances of the September 1999 promotion are brought into the reckoning, that the supply of the additional insurance is separate and distinct from the supply of the car. This follows from the essential features of the transaction coming within the promotion. The customer buying in response to an advertisement buys the car and two years insurance. Unlike the pre-September 1999 position the car is not advertized for sale with "free" insurance. The additional insurance is, as we have observed, separately identified in the order form and separately and specifically paid for.

Nor, it seems to us, is the additional insurance merely ancillary to the purchase of the car. It stands as a benefit in its own right as distinct from being a means of better enjoying the Fiesta. The evidence shows that the benefit of insurance at a manageable price to a young Northern Ireland driver, who might otherwise have to pay a premium equal to the value of the car, is that of making affordable or could otherwise be prohibitively expensive. The additional insurance does not just enhance enjoyment of the car; it makes it possible for him to be an owner/driver of a 1999 Fiesta. At the other end of the spectrum is the purchaser with many years experience and a good claims record. For him there is a cash-in value to the additional insurance. To the broad swathe of 1999 Fiesta buyers in pursuance of the September 1999 promotion, who fall in the middle of the spectrum, additional insurance was an incentive by which, in return for a single premium paid in advance, they are protected against any adverse movement in premium over the next year (i.e. before the second year cover starts) and they have the option to transfer their cover to another car or to cash in the additional insurance and recover the £564. For all of them the additional insurance can be described as a distinct supply of a service separate from the supply of the goods (the car).

In reaching this conclusion we have borne in mind the approach of Blackburn J in the Peugeot decision. The Commissioners placed considerable reliance on Blackburn J's; application of the Card Protection Plan tests in that case. That was a case of free insurance where Peugeot and not the dealer bore the cost in the same way that Ford and not Lindsay bears the cost free first year insurance in the present case. We quote from paragraph 106 of the Peugeot decision.

"Subject to one matter, there is nothing to suggest that, when Peugeot/Citroen sold cars (whether to end-users direct or to independent dealers and finance houses in other cases), insurance was dealt with as a wholly separate and distinct matter. The insurance "promise" was clearly part and parcel of the overall sale transaction. In my view it is reasonably obvious, first, that a single supply was involved and, second, that the insurance element of the supply (i.e. the provision of the promise to procure insurance for the end-user at no further cost to him) was ancillary to the supply of the car. It is wholly unreal to suppose in the context of this transaction that the insurance promise could have a real existence independent of the supply of the car or, to use the words of the Court of Justice in Card Protection, was "an aim in itself" rather than "a means of better enjoying the principal service supplied", namely the supply of the new car. (I should add that the principle in Card Protection applies as much to the supply of goods as to the supply of services – see Hartwell [2003] STC 396 at [30] – and, I would add to a mixed supply of both goods and services.)"

Here additional insurance, as distinct from free insurance, was dealt with by Lindsay and the customer as a separate and distinct matter. Although the customer could not in practice buy the Fiesta without additional cover, the additional insurance was separately specified in the Vehicle Order Form and in the Customer Declaration for the "two year Insurance Programme". Lindsay is accountable to Norwich Union for the premium on the additional insurance, in contrast to free insurance where the premium is the exclusive responsibility of Ford. Moreover, for reasons that we have already identified, the provision by Lindsay of its undertaking to procure additional insurance for the customer is neither "at no further cost to him" nor is it ancillary to the supply of the car.

For those reasons we do not consider that the insurance related supply by Lindsay can properly be re-categorized and subsumed into the supply of the car.

Third issue : Are Lindsay's supplies of procurement of insurance exempt supplies?

Article 13B(a) of the Sixth Directive provides:

"Without prejudice to other Community provisions, Member States shall exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of the exemptions and of preventing any possible evasion, avoidance or abuse:

(a) insurance and reinsurance transactions, including related services performed by insurance brokers and insurance agents".

The Commissioners contend that Lindsay's supplies are neither insurance transactions nor "related services performed by insurance brokers and insurance agents". On the question of whether Lindsay's supplies are insurance transactions, the Commissioners rely on the following passages from the judgment of the Court of Justice in Case C-8/01, Taksatorringen of 20 November 2003:

"So far as the term insurance transactions is concerned, the Court has, however, ruled that the essentials of an insurance transaction are, as generally understood, that the insurer undertakes, in return for prior payment of a premium, to provide the insured, in the event of materialization of the risk covered, with the service agreed when the contract was concluded (Card Protection Plan, paragraph 17, …".

The Court has, admittedly, stated that the expression insurance transactions did not cover solely transactions carried out by the insurers themselves but was broad enough in principle to include the provision of insurance cover by a taxable person who is not himself an insurer but, in the context of a block policy, procured such cover for his customers by making use of the supplies of an insurer who assumed the risk insured (Card Protection Plan, paragraph 22 …)"

In the present circumstances, the Commissioners contend, Lindsay is neither an insurer nor does any block policy exist.

It is not in dispute that Lindsay is not an insurer. Does it come within the wider sense of that expression envisaged by the Court in, for example, paragraph 40 of the judgment in Taksatorringen as being a provider of insurance cover which procures cover for its customers by making use of the supplies of an insurer that assumed the risk insured? The context here is not that of a "block policy". We are not aware that that expression has a settled meaning. The description given by the Advocate General of the "block" cover obtained by Card Protection Plan from Continental Assurance Co of London (see paragraph 9 of his Opinion) is that -

(i) to obtain indemnification against financial loss CPP obtained "block cover" via a broker from Continental;

(ii) Card Protection Plan's customers are the named "assureds" on to the policy and when a customer purchases Card Protection Plan's services, his name is added to the schedule of assureds;

(iii) Card Protection Plan pays insurance premium to Continental at the beginning of the policy year with necessary adjustments being made at the end of the year to take account of customers entering and leaving the plan during the course of the year.

(The findings of fact of the VAT Tribunal in Card Protection Plan do not use the term "block cover".)

In the present situation Lindsay, as Ford's sub-agent, has the benefit of an open offer from Norwich Union for the duration of the September 1999 promotion to provide insurance cover to all customers of Lindsay (so long as the particular customer satisfies the eligibility criteria). Lindsay is therefore enabled to procure additional insurance cover for its own customers by making use of Norwich Union's open offer to assume the risks insured. That feature, it seems to us, brings Lindsay's supplies within the Court's description (in paragraph 40) of insurance transaction and makes the arrangement sufficiently similar to the "block policy" obtained by Card Protection Plan.

That determines the matter in Lindsay's favour. For the record, we mention the Commissioners' other argument. Lindsay, they say, does not provide insurance related supplies as an insurance broker or insurance agent. The Commissioners refer to paragraph 44 of the Taksatorringen judgment where the Court states:

"As to … services performed by insurance brokers and insurance agents, it must be stated, as the Advocate General has set out in point 86 of his Opinion, that this expression refers only to services provided by professionals who have a relationship with both the insurer and the insured party, it being stressed that the broker is no more than an intermediary."

Based on this the Commissioners say that insurance related services are those traditionally performed by insurance brokers or agents, such as arranging and administering contracts and claims where there is a legal relationship with the insurer and the insured party. A promise to procure insurance is, by contrast, not such a service and in the present circumstances no relevant legal relationship is created. As a result, say the Commissioners, even if Lindsay is procuring insurance for consideration and that "supply" is not ancillary to the provision of the car, it is not exempt.

The Commissioners further rely on the opinion of the Advocate General (Maduro) in Case C-472/03, Arthur Andersen & Co accountants. As we read the Arthur Andersen opinion, it contains nothing that disqualifies Lindsay from the status of an insurance agent. In that case the issue was whether or not the activities undertaken by Arthur Andersen were exempt under Article 13(B)(a). The facts were that an insurance company, Universal Leven, and Arthur Andersen signed an agreement under which Arthur Andersen undertook, in return for remuneration and with the aid of qualified personnel who were experts in insurance, most of the work relating to Universal Leven's insurance activities. Arthur Andersen's activities included the taking of decisions that were binding on Universal Leven. The insurance risk remained with Universal Leven. In paragraphs 31-34 of his Opinion, the Advocate General noted that classification as insurance broker and agent was not simply dependent on their internal activities but was also dependent on their direct relationship with the insured. In the case of Arthur Andersen, that relationship was indirect. In addition, acting in the name of the insurer was not, in his opinion, an essential element for the activities of brokers and agents. Their activities had to be supplementary to those of insurers, which was not the case with Arthur Andersen. On that basis Arthur Andersen's activities could not be exempt under Article 13(B)(a).

Here, it seems to us, Lindsay's role is not that of sub-contractor to either the insurer or the insured, Norwich Union. Lindsay has the benefit of Norwich Union's undertaking to insure Lindsay's customers who buy cars in the course of the September 1999 promotion. Lindsay's relationship with the particular customer is legal and "structural"(our word). Lindsay is legally committed by the advertisement to provide the customer with additional insurance cover. Lindsay's structural role is found in the arrangements by which insurer and insured are brought together. In this latter respect Lindsay obtains and checks the eligibility of the customer. Lindsay is obliged to complete the paperwork for the additional insurance and to pay over a cheque for £564. Given that Lindsay complies with all those requirements, Norwich Union provides additional insurance cover to the customer. On that basis Lindsay would, were the matter to become relevant, satisfy the Advocate General's suggested tests and qualify as an insurance agent.

For all those reasons we are satisfied that Lindsay supplied a separate insurance related supply in relation to each sale that took place during the course of the 1999 promotion. The insurance related element, to which a consideration of £564 was attributed by all parties, was therefore exempt.

We have concentrated on the circumstances of the September 1999 promotion. The promotion or promotions for the rest of the year 1999 differed in one main respect, namely that the additional cover extended for a further two years beyond the first year of free insurance. We did not understand the Commissioners to distinguish sales under the promotions for the rest of 1999 from sales under the September 1999 promotion. Our decision on the transactions in the course of the September 1999 promotion is, therefore, equally applicable to the transactions that took place in the course of the promotions in the rest of 1999.

We allow the appeal and award Lindsay an amount equal to their costs. If the amount of costs cannot be agreed between the parties, the matter should be referred back to the Tribunal.

STEPHEN OLIVER QC

CHAIRMAN

RELEASED: 8 March 2005

LON/02/434