United Kingdom VAT & Duties Tribunals Decisions

Rangers Football Club Plc v Revenue and Customs [2005] UKVAT V19159 (24 June 2005)

19159

Withdrawal of Assessment shortly before Hearing; Expenses; scale of expenses; conduct of Commissioners; whether expenses should be on an agent and client, third party paying basis – yes.

EDINBURGH TRIBUNAL CENTRE

THE RANGERS FOOTBALL CLUB PLC Appellants

- and -

HER MAJESTY'S REVENUE & CUSTOMS Respondents

Tribunal: (Chairman): J Gordon Reid, QC., F.C.I.Arb.,

(Members): Mr K Pritchard, OBE., BL., WS

W Ruthven Gemmell, WS

Sitting in Edinburgh on Monday 13 June 2005

for the Appellants Mr Colin Tyre, QC

for the Respondents Miss Gillian Carty, Shepherd & Wedderburn, WS

© CROWN COPYRIGHT 2005.

DECISION

Introduction

This appeal now relates only to expenses. The Respondents ("Customs") have withdrawn the Notice of Assessment appealed against. The issue is whether the expenses to be awarded to the Appellants are to be on a party and party basis, which is the norm, or whether expenses should be on an agent and client, third party paying basis.

Colin Tyre Q.C. appeared on behalf of the Appellants, on the instructions of Deloitte Touche, LLP, London. Gillian Carty W.S, Shepherd & Wedderburn, solicitors, Edinburgh, appeared on behalf of Customs. The Appellants had produced bundles (described as "joint agreed bundle") of documents for the Hearing on 13/6/05, which in the event was confined to the question of expense.

Background Circumstances

The Appellants are a famous Scottish Premier League Football Club. From time to time, players are transferred to and from the Club. Players Agents, as the FIFA Regulations describe them, are usually involved facilitating the or some of the financial arrangements which arise on transfer, such as the transfer fee paid by one Club to another and the personal terms relating to the player himself, such as salary, provision of a car, bonuses, accommodation etc. Under the FIFA Rules a player's agent may not act for both the Club and the player concerned, at the same time. The Appellants pay such agents to act on their behalf to seek out talented footballers. Where this happens, a fee is charged to the Appellants by the player's agent or for example, the agency who employs the agent. The fees charged can be substantial and usually the supplier of the service is registered for VAT. The Appellants set off against their liability to Customs the input tax on these fees rendered by the agent.

Customs appear to have been considering the entitlement of football clubs to deduct such "input tax" in a variety of circumstances. They have raised the question whether such fees paid to agents should properly be deducted as input tax. That was the basic point in issue in this appeal. We have merely sketched out the general background which is perhaps an oversimplification and not to be taken as findings in fact in favour of or against either party. There may be wider issues as to who was actually engaging the services of the agent at the material time, who was rendering the services and to whom, and generally what the proper factual and fiscal analysis was of the arrangements for the supply of services which led the Appellants to deduct "input tax" and Customs to challenge the right to do so. We are relieved from resolving these issues. However, in order properly to understand the issue on expenses it is necessary to say a little more about the background.

Customs' enquiries began by letter dated 30/6/04 (Appellants Bundle page 45 [A/45]). They requested a variety of information from the Appellants. By letter in reply dated 28/7/04 (A/46), the Appellants produced or at least claimed to have produced, copies of all agents' invoices for fees paid to the Club since 1/8/01; it was stated that in all cases the agent acted for the Appellants. The Appellants undertook to provide further information in relation to agents acting for players in subsequent negotiations.

Thereafter, following a visit by a Customs Officer on 26/10/04, who according to a written report passed to us when hearing the motion for expenses, was of the view that despite the existence of contracts between the club and the agent it was clear that the agents were acting for the players and not the club. Notice of Assessment was issued on 1/11/04 in the sum of £708,399 [A/14]. The Appellants appealed to this Tribunal by Notice dated 25/11/04. Customs amended and re-issued the assessment in a lower sum (£419,554) on or about 7/12/04 [A/22A]. The assessment covers the period between 1/8/01 and 30/4/04. By letter dated 27/1/05 [A/125], Customs pointed out that it was for the Appellants to establish the right to deduct "input tax". They set out in that letter a series of questions relating to specific players and sought further documentary evidence. For aught yet seen, these requests seemed reasonable. By letter dated 31/1/05 [A/128], Customs sought further information which they set out in a Schedule. By letters to Customs dated17/5/05 [A/141 & 144], the Appellants provided further information. We do not consider whether the information provided was complete or answered all or some of Customs enquiries. However, Customs' position, as disclosed in their Statement of Case, was that the Appellants made the payments to the agents on behalf of the players in respect of supplies to the players; Customs expressly stated in paragraph 9 of their Statement of Case that they put the Appellants to strict proof of their contentions that they receive services from the agents, that the Appellants engage the agents, and that they have control over the provision of the agents' services.

By Fax letter on Friday 10/6/05, Customs, per Richard Shaw, Senior Lawyer, at Customs Solicitor's Office Tax and Excise Litigation, Salford, intimated to the Tribunal that Customs had given further consideration to the disputed assessments, found them to be inaccurate, and had decided to withdraw them. They reserved the right to seek further information from the Appellants and if appropriate and subject to statutory time limits raise further assessments; Customs agreed to pay the Appellants' reasonable costs in the appeal and invited them to withdraw the appeal, proposing that the Hearing listed for 13^th and 14^th June 2005 be "vacated". Needless to say the Appellants declined to agree. The Chairman of this Tribunal declined to deal with this disputed matter without parties appearing and being represented. Because of, among other things, the lateness of Customs' change of stance, the Tribunal had no choice but to hear parties on 13^th June 2005.

Submissions

Mr Tyre invited us to allow the appeal and to find Customs liable in expenses on an agent/client third party paying basis. He also sought certification that the appeal was suitable for the employment of senior counsel. Certification was not opposed by Miss Carty and she accepted the competency of seeking expenses on the scale proposed.

Mr Tyre informed the Tribunal that there were other similar appeals in London and Manchester involving Arsenal, Chelsea and Manchester United and possibly other Clubs. Some have been sisted, until a decision is issued in one of them. None had been listed for a Hearing, so this appeal would have been the first to determine the issues in this type of case. Mr Tyre submitted that Customs' stance lacked candour; it could not be suggested there was no evidence; the Appellants had produced invoices and contracts before the assessment was raised. He said it was difficult to see why there should be a "lead" case as each case would turn on its own facts. As far as he was concerned, the law was relatively straightforward. Up until the middle of last week, there was no indication from Customs that the assessments were not to be insisted in. Intimation was made informally on Thursday 9^th June. The Appellants' response was to invite Customs to amend the assessment, if they thought necessary, and proceed with the Hearing on the amended assessment. The Appellants were fully prepared and ready to proceed. According to Mr Tyre, Customs' response was that they did not have enough evidence to proceed but would not elaborate on this. Mr Tyre suggested that the proper course would have been to withdraw the assessment without qualification. He did not dispute the competency of doing so. Alternatively, Customs could have sought an adjournment. He submitted that the tactic employed by Customs was to ensure that this Tribunal had no discretion over when this appeal was heard and was to ensure that this appeal was not heard before the appeals in England.

When asked about the form of order the Tribunal should make, Mr Tyre referred us to Yuk Wong Yeung v CC&E 2000 VAT Decision 16889, where in an appeal in which an assessment was withdrawn the Tribunal directed that the "file be marked appeal treated as allowed." In Security Despatch Ltd (see below) an assessment was withdrawn and the Tribunal allowed the appeal.

As for the scale of expenses, he submitted that the scale proposed was awarded to mark a tribunal or court's disapproval of a party's conduct of the case in question. He referred us to KTS Fashions Ltd v CC&E 1991 VAT Decisions 6782, and Security Despatch Ltd v CC&E 2001 VAT Decision 17313. In H&B Motors (Dorchester) v CC&E 1993 VAT Decision 11209 the Tribunal proceeded upon a test based upon a party having "acted disgracefully to such an extent as to make this a wholly exceptional case".

Miss Carty was content that the appeal be allowed and accepted that the appeal was suitable for the employment of senior counsel. She submitted that Customs' conduct was not such as to justify the Tribunal exercising its discretion in favour of the Appellant and awarding expenses on an agent and client basis, third party paying. She informed the Tribunal that after the Assessments had been issued they were reviewed internally as part of standard procedure. She pointed out that Customs sought detailed information in January 2005. The Appellants took several months to produce information. She said that thereafter, Customs consulted internally with their policy division and subsequently in conference with counsel on 8/6/05. Notice that the assessment would be withdrawn was given on 9/6/05 and confirmed on 10/6/05. There was an internal procedure for withdrawing an assessment which had to be followed. Miss Carty, who was not involved at all in the preparation of Customs case, or in the discussions which led to the decision to withdraw the assessment, had some difficulty in providing a rational explanation for Customs' decision to withdraw the assessment. She was plainly constrained by the terms of her instructions from Customs in England. We offered her the opportunity to obtain further instructions but she declined stating that Customs wished to have the matter resolved without further delay.

Discussion

As the law presently stands, it appears that Customs are entitled to withdraw an assessment at any stage of an appeal [see paragraphs 36-41 in Classicmoor Ltd v CC&E 1995 VAT Decision 13336 (Chairman Stephen Oliver Q.C)]. Neither party disputed this. The consequence is first that the appeal falls to be allowed, and second that Customs may, subject to any statutory time limits, issue a fresh assessment. There would not appear to be any need to qualify the withdrawal of the assessment with express reservation of the right to issue new assessments. Neither the Tribunal nor an Appellant can prevent this. This can create a most unsatisfactory situation (as this case illustrates) and Customs' entitlement to withdraw an assessment at any stage and the consequences thereof perhaps requires reconsideration by the Courts or by Parliament.

As for the reason for withdrawing this particular assessment, Miss Carty was unable to provide the Tribunal with any rational explanation. On the face of matters, Customs' position seemed to be that they were dissatisfied with the documentation provided by the Appellants; it had gaps and Customs did not apparently accept that the football agents or more correctly the players' agents were acting for the Club and not the player. Neither Mr Tyre nor Miss Carty suggested that there was a significant issue of law which fell to be resolved and once resolved would determine other similar cases. While we accept Mr Tyre's position on this we have difficulty in accepting Customs' position. It seems to us that the only colourable explanation for the withdrawal of the assessment so late in the day is that Customs perceive that there is an issue of principle (and they may be correct) to be resolved but they wish it to be resolved by an English Tribunal and not a Scottish one. If that is the true explanation, it can only be regarded as an insult to this Tribunal. Moreover, the manner of achieving that aim has been singularly clumsy. There are procedures for transferring cases between Tribunal Centres; an application can be sisted pending the outcome of a similar case in a different jurisdiction where that case is at a more advanced stage. These procedures could readily have been invoked without wasting the time of the Tribunal and the Appellants. However, to do nothing until the last moment, leaving the Tribunal and the Appellants (who have prepared for the anticipated full Hearing) in the dark, and to provide no satisfactory explanation is conduct of which this Tribunal disapproves, to say the least.

The scale upon which an award of expenses is made is plainly within our discretion. We agree that an award on an agent and client basis can be made to reflect a tribunal's or a court's disapproval of a party's conduct. The cases cited to us, while confirming that broad principle, were quite different on their facts. We are in no doubt that Customs' conduct in belatedly withdrawing the assessment, and failing to provide any rational explanation to justify doing so, falls well below the standard the Tribunal has come to expect of Customs. We mark our disapproval by finding Customs liable in expenses on an agent client basis.

We should make it clear that we do not criticise Miss Carty at all for the submissions she made. She was plainly brought in at the last minute and was constrained by the terms of her instructions.

Result

We therefore (i) allow the appeal, (ii) of consent, certify the appeal as suitable for the employment of senior counsel, (iii) direct, in terms of Rule 29 of the Tribunal Rules, that the Respondents pay to the Appellants the costs (expenses) of the Appellants of, incidental to and consequent upon the appeal, as the same, failing agreement, shall be taxed by the Auditor of the Court of Session, and that on an agent and client third party paying basis.

J GORDON REID, QC., F.C.I.Arb.,

CHAIRMAN

RELEASE: 24 JUNE 2005

EDN/04/155