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Cite as: [2005] UKVAT V19344

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Chichester Cinema At New Park Ltd v Revenue and Customs [2005] UKVAT V19344 (21 November 2005)

19344

Whether the business of a cinema falls within the cultural service exemption of item 2(b) of Group 13, Schedule 9 to VAT Act 1994 - whether admission to a cinema is admission to a "theatrical, musical or choreographic performance"

LONDON TRIBUNAL CENTRE

CHICHESTER CINEMA AT NEW PARK LIMITED Appellant

and –

THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS Respondents

Tribunal: HOWARD M NOWLAN (Chairman)

SHAHWAR SADEQUE MBCS

ROY L JENNINGS FCA FTII

Sitting in public in London on 17 October 2005

Mrs Anne Lindsay of Deloitte & Touche LLP for the Appellant

Robert Kellar for the Respondents

DECISION

INTRODUCTION

This was a case raising one relatively narrow point of interpretation, in relation to which there was no relevant authority and little extraneous guidance. The issue was whether Chichester Cinema at New Park Limited ("Chichester Cinema") was rendering standard rated or exempt supplies for VAT purposes, and this depended entirely upon whether the admission of the public to cinemas constituted "a supply of a right of admission to……… a theatrical, musical or choreographic performance … .."

THE FACTS

Chichester Cinema is a guarantee company set up with the prime object of "advancing the education of the public in the knowledge, understand and appreciation of the art of film". As a guarantee company Chichester Cinema has no shareholders to whom profit might be distributed and it intends simply to apply profit (were there to be any) in furthering its cultural and charitable objectives.

Chichester Cinema is a registered charity.

Chichester Cinema fosters its main object by showing films deemed by its Board to be of special cultural significance. It accordingly ranks as an "art-house" cinema. It occasionally shows more main-stream films but this is principally directed to trying to boost revenue and diminish the losses that the company currently makes. Nothing in the appeal hinged on the showing of these occasional main-stream films.

There are a number of somewhat unusual aspects to the presentation of films by Chichester Cinema which set it apart from more common cinemas run on a more commercial basis. Showings of films are often accompanied by lectures and discussion groups; the cinema operates on a relatively "club" like basis, virtually with a membership; and it promotes other related functions. For instance it arranges trips to film festivals, courses in film craft and lectures and other events that will enhance the appreciation and understanding of the art of film.

The Board and employees of Chichester Cinema give their services either gratuitously or for remuneration below a commercial level. Chichester Cinema enjoys some financial support from donations, grants from the UK Film Council and various local authorities, and subscriptions from "Friends". Notwithstanding this it appears that the company is currently trading at a loss and reference was made to certain staff remuneration being in arrears.

Evidence was given by the only witness, Mr. Jonathan Ingrams, but we will not summarise this evidence because it essentially supported the facts just summarised and none of it had a strict bearing on the only point that we were required to decide.

THE LAW AND THE EC DIRECTIVES

The liability of Chichester Cinema to account for VAT in respect of all ticket sales entirely depended on whether, as Chichester Cinema contended, its supplies fell within Item 2, Group 13 of Schedule 9 to the Value Added Tax Act, 1994 ("VAT Act 1994).

The relevant provision reads as follows:

"2. The supply by an eligible body of a right of admission to -

(a) a museum, gallery, art exhibition or zoo; or

(b) a theatrical, musical or choreographic performance of a cultural nature ."

Before turning to the equivalent provision of the relevant EC directive that preceded the enactment of this provision into UK domestic law, we should say that it was accepted on behalf of The Commissioners of H.M. Revenue and Customs ("HMRC") that Chichester Cinema did rank as an "eligible body" for the purposes of the above provision, and also that all of the films shown by Chichester Cinema were "of a cultural nature". It was for this reason that many of the facts referred to in argument, and revealed in Mr. Ingrams' evidence, were of very limited relevance because it became clear that the case entirely turned on whether the admission to cinemas to watch films involved "the supply of a right of admission to ….a theatrical, musical or choreographic performance …"

Article 13 of the sixth Council Directive of 17 May 1977 required Member States to exempt certain specified services from VAT "under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of such exemptions and of preventing any possible evasion, avoidance or abuse".

One of the described services was:

"(n) certain cultural services and goods closely linked thereto supplied by bodies governed by public law or by other cultural bodies recognised by the Member States concerned."

Annex H to the Directive contained, in its words, a "List of supplies of goods and services which may be subject to reduced rates of VAT", and Category 7 in that Annex read as follows:

"7. Admission to shows, theatres, circuses, fairs, amusement parks, concerts, museums, zoos, cinemas, exhibitions and similar cultural events and facilities"

THE ARGUMENTS ON BEHALF OF CHICHESTER CINEMA

The arguments on behalf of Chichester Cinemas, in disputing the contention of HMRC that "theatrical, musical and choreographic performances" meant live performances and so excluded cinema films were as follows.

It was argued that, as a matter of ordinary language, a cinema audience paid to see a performance, and nothing in the relevant Item 2 required the performance to be live.

Referring to the primary definition of "performance" in the Oxford English Dictionary, namely:

"The performing of a play, of music, of gymnastic or conjuring feats, or the like, as a definite act or series of acts done at an appointed place and time; a public exhibition or entertainment"

it was suggested that in order to avoid circularity the word "performing" in the above definition had to bear the wider meaning of "carrying out a command or duty". Accordingly "performance" meant "the carrying out … of a public exhibition or entertainment", which clearly included the showing of films.

It was argued that the expression "live performances" supported the contention that performances as such did not necessarily have to be live.

It was argued that it was so clear that performances included cinema performances that if Item 2 had intended to exclude cinema from the exemption it would have needed to do this expressly.

It was argued that from the perspective of the person watching a play or film, there was little distinction between the cultural content (and the general experience) of the two. Albeit that there was a different method of delivering the performances, both involved acting, and this Tribunal would occasion an illogical result (which we should seek not to do) if we decided that the different method of delivery of what might be substantially similar performances, having a similar cultural content, were to be treated differently within the cultural exemption from VAT.

It was suggested that many films could contain all of theatrical, musical and choreographic performances, but that all films would contain at least one. In relation to the word "theatrical", reference was again made to the definitions in the Oxford English Dictionary, which were:

"1. Pertaining to or connected to the theatre or "stage", or with scenic representations.

2. Representing or exhibiting in the manner of an actor.

3. Having the style of a dramatic performance."

It was suggested in relation to these definitions that the first could not be relevant because this related to venues, i.e. theatres, as such. Item 2 (a) in Group 13 plainly referred to "venues", i.e. museums, galleries, art exhibitions and zoos", but Item 2 (b) referred to the nature of performances, as distinct from venues. Accordingly the appropriate definition of "theatrical" was the wider one referring to "having the style of a dramatic performance". All films could be said to have such a style and accordingly they were theatrical performances. And since Item 2 (b) did not refer to the way in which such "theatrical performances" were to be delivered, whether live or on film, both must be included.

It was accepted on behalf of Chichester Cinema that in the present case there was nothing in the European Directive that could directly influence the interpretation of the relevant passage of domestic legislation, but nevertheless it was instructive to note that the purpose of the exemption for cultural services appeared to be directed to the benefit of the consumer or user, it was argued that consistency was desirable, and it was drawn to our attention that the Notes accompanying the Directive had certainly contemplated that "cinema" could be included by the Member States in the categories of exempt cultural services, and that we might be marginally influenced by these factors.

THE CONTENTIONS ON BEHALF OF HMRC

We will not summarise the arguments advanced on behalf of HMRC. This is partly because we have decided this case in favour of the interpretation put on the relevant expression by HMRC, and the reasons for our decision will to a considerable extent simply repeat some of HMRC's contentions. It is also because we consider the point of interpretation to be a relatively straight forward one. When it is admitted that the expression has no particular VAT connotation or meaning, and no particularly special meaning when addressing points of statutory construction, as opposed to interpretation as a matter of perfectly ordinary usage, we find the points on which we were addressed, concerning various canons of construction, interesting but not essential to our decision.

OUR DECISION

We have reached our decision with some regret because of several factors that are not strictly material to the decision.

There is no doubt that Chichester Cinema operates a very worthy venture, and one to which a considerable number of people give their time and effort voluntarily. There is no doubt that it is aiming to promote culture, and viewed from the perspective of audiences attending theatre and cinema, and thereby enjoying a fairly similar cultural experience, we can see that Chichester Cinema will find our decision somewhat anomalous, in the distinction it creates between audiences at the two types of entertainment. Finally there have been a number of misunderstandings in the past as to how Chichester Cinema should apply VAT. At one stage Chichester Cinema obtained a repayment of the VAT that HMRC now seek to recover, so that Chichester Cinema faces the unfortunate fact that it will now have to pay VAT that it thought it had recovered, and could retain. And this will impose a significant burden on an enterprise which already struggles to continue its business, notwithstanding the support that it receives from donors and benefactors.

We record however that none of these factors can influence our decision, though they do explain why we reach the decision with some regret. We also record that no legal argument remote from the central VAT contention was advanced in relation to the point that the VAT in dispute had initially been repaid to Chichester Cinema.

We will set out our decision by first giving our interpretation of the relevant phrase, without argument. We think that points of interpretation of this nature are not particularly susceptible to extensive argument, and that they are usually resolved by simply reading the phrase concerned, and concentrating on what is the most realistic interpretation of the phrase.

Having done that, we will, for completeness, give our supporting reasoning by dealing with the definitions or the words and phrases "performance", "theatrical", "theatrical performance" and then the two related phrases "musical performance", and "choreographic performance".

We will then summarise other matters that either influenced our basic interpretation, or the reasons why we felt that we had to ignore other points in reaching our decision.

The most natural interpretation of the entire phrase.

We think that the natural interpretation of the phrase "admission to theatrical, musical and choreographic performances of a cultural nature" is that it refers to live performances of theatrical works, whether in the theatre or open air or in some other venue, live concerts and musical shows, and live ballet and dance shows. It seems to us not to be an apt expression to refer to attendance at the cinema to watch a film. There is at the least a thread running through the whole phrase which connotes live performance, and since cinema is such a well known medium, often referred to in the phrase of "having a love of theatre and cinema" (where the two are referred to and distinguished), we find it unrealistic to say that the slightly different medium of cinema is encompassed in the relevant statutory phrase when the element of "live performance" that runs through the whole phrase is absent.

Performance.

"Performance" is a word with two different and common meanings, albeit that they are related.

In relation to "theatre", or indeed in relation actually to making films, "performance" is a word that refers to "acting in a theatre or in making a film", and the implicit notion is that it refers to current or live performance. In relation to film therefore, it is more apt to refer to the performance at the time of the making of the film.

We think that it could very often be said, on leaving a theatre, that "that was a great performance". It could equally be said in relation to a film that a particular actor "had given one of the greatest performances of his career". On leaving a cinema however, it would be far more natural to refer to the film as "a great film". References to "performance" might refer naturally to the performance of one of the actors, but we think that it would be very unnatural to leave a cinema and refer to the film show as having been "a great performance".

In relation to cinema, we think that the more usual expressions are to refer to the film "now showing", or "next showing", or to the notion that "The main film will start in five minutes". "The performance will re-commence in three minutes" refers naturally to the announcement in the interval at the theatre where a live performance will re-commence.

The other wider meaning of "performance" is to do something, or satisfy some obligation, as in the phrases "to perform a contract", or "the due performance of one's obligations". We think that it is unnatural to adopt this meaning and to say that when coupled with the word "theatrical", "performance" simply means "doing something theatrical".

Theatrical

"Theatrical" is again a word with two meanings, again somewhat related.

In relation to the "theatre", in other words the venue, it means "appertaining to the theatre", and quite naturally one would often refer to a play or the acting of particular actors in a play as being "great theatrical performances".

"Theatrical" has its secondary meaning of "representing or exhibiting in the manner of an actor", or "having the style of a dramatic performance". This meaning more commonly refers to the behaviour of someone who is not an actor, since it has the connotation of "like an actor". A politician or a public speaker could be said to "perform in a theatrical manner", which means "as if he was acting". It could have a slightly derogatory connotation to it, and it may sometimes denote an element of criticism or even ridicule. When used to contrast the performance of one public speaker, as against that of another, it might be complimentary, with the connotation of "not being so boring".

We consider "theatrical" however to be a very inappropriate word to use in referring to the performance of a film actor in creating a film. One might say that an actor gave "an excellent performance", or "a dramatic performance", but if the reference was to a "theatrical performance" we think that it would more naturally refer to an example of "over-acting", or possibly to an actor playing the part of someone (for instance, the politician again) acting in a theatrical manner. We find it difficult to imagine anyone referring to the cast in a film acting "in a theatrical manner".

Theatrical performance.

We observe first that we consider it to be more important in this decision to concentrate on this composite phrase, than to dwell separately on the two words "theatrical" and "performance" in isolation. This is because the statutory phrase does effectively refer to "theatrical performances", "musical performances" and "choreographic performances". And each word influences the meaning of the other in this composite phrase.

In this context we consider it unsustainable to say that films involve "theatrical performances". It is argued on behalf of Chichester Cinema that we should adopt the wider, and we think less natural meaning of both the words "theatrical" and "performance" in this case. In other words, rather than interpret the phrase "theatrical performance" to mean a live performance in a theatre, we should adopt the wider meaning of the word "performance" which is simply "doing something". And we should adopt the wider meaning of "theatrical" which means "having a dramatic content" or "doing something in the style of an actor". Thus the composite phrase means "doing something in a dramatic manner", or "doing something in the style of an actor". So it is argued that in creating a film all the actors put on a dramatic performance, or that they perform like actors.

We consider this to be a very strained interpretation, and to be untenable. The actors in a film did not perform "like actors" when creating the film. They were actors. And the word "theatrical", we have already said, is an inapt word to refer to the memorable or dramatic performances of film actors in creating the film. Thus to claim that non-live showings of the film to audiences are "theatrical performances" seems to us to be untenable.

We thus think that manifestly the most natural meaning of the phrase "theatrical performance" is of a live performance of theatre, whether at a theatre, in the open or possibly at other venues.

Musical performances and choreographic performances.

We consider that the same connotations of live performance apply to "musical performances" and "choreographic performances". Again someone attending a concert could easily say that he had attended a "musical performance". But someone leaving the film of "My Fair Lady", whilst possibly saying that "My Fair Lady was an excellent musical", would be extraordinarily unlikely to say that he had attended a "musical performance". Even more clearly someone leaving a Fred Astaire movie might say that the film had had a choreographic content (a very unlikely expression in itself), but they would hardly say that they had just come out of a "choreographic performance".

Other factors that have influenced our decision.

Insofar as we are influenced by anything in this case other than what we think is the plain ordinary meaning of the statutory phrase, we are very influenced by several factors connected with the interplay between the European Directive, and in particular the Annex, and the choice of words adopted in the domestic legislation.

The European Directive required the Member States to enact that "certain" cultural services were to be made exempt services for VAT purposes, but it left the States with a discretion as to which services to select. Manifestly the supply of cinema films was one of the services included in the Annex, along with the services rendered at circuses, fairs and in amusement arcades, that the Member States could include in their domestic provisions, treating them as exempt cultural services. And equally clearly the Member States had a choice here and could choose which of the services to include.

Much the strongest inference to be drawn from this background is that the UK chose deliberately to include various of the services, but it chose to ignore and leave out the services at circuses, fairs, amusement arcades and cinemas. When cinemas were specifically mentioned in the Annex, but were not specifically included in the domestic legislation, but three expressions which were not naturally apt to apply to cinemas (or for that matter amusement arcades) were adopted in the domestic legislation, we think that much the most obvious construction is to assume that these other services were deliberately omitted.

The phrase "theatre and cinema" is after all a natural phrase. It might often be included in the list of a person's interests. So when the phrase draws a distinction between theatre and cinema, and when the draftsman of the UK legislation has omitted "cinema" and three other types of service that were specifically referred to in the relevant Annex, we repeat that the natural inference is that cinema was deliberately excluded. To say moreover that it was implicitly included and clear words such as "other than cinema" would have been needed to exclude it seems again to be untenable.

Accordingly we conclude that cinema was deliberately left off the list of cultural services that were to be given exempt status, and we find this very supportive of our purely linguistic interpretation set out above.

Factors that we must ignore.

We consider that if phrases are truly ambiguous, then it can be desirable and sensible to give them a construction that achieves any of a number of desirable objectives. Those will include a construction plainly in accordance with the policy of the legislation, a construction that minimises anomalies, and a construction that produces a sensible result.

In the present case however we consider that none of these points can be relevant because we think that the domestic legislation is not remotely ambiguous. We have also said that we infer that the draftsman of the UK legislation deliberately omitted cinema from the category of exempt cultural services. In the light of that, it is self evident that we cannot look to matters of policy, about which we know nothing, and with which we should not concern ourselves, in order to try to overturn what we judge to have been the intention of the draftsman.

Conclusion.

We accordingly decide that the phrase "theatrical, musical or choreographic performances of a cultural nature" does not apply to the showing of films and to the supplies made by Chichester Cinema.

COSTS

No order was requested by HMRC in respect of its costs, and none is made.

HOWARD M NOWLAN

CHAIRMAN

RELEASED: 21 November 2005

LON/04/266