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The Finest Golf Clubs Of The World v Revenue and Customs [2005] UKVAT V19347 (21 November 2005)

19347

Appropriate classification of taxpayer's activity - whether taxpayer was acting as an intermediary - appropriate treatment of membership fees paid in advance - time of supply - correct principle for ascertaining the division of unknown future supplies, between standard rated supplies and services outside the scope of UK VAT

LONDON TRIBUNAL CENTRE

THE FINEST GOLF CLUBS OF THE WORLD Appellant

and –

THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS Respondents

Tribunal: HOWARD M NOWLAN (Chairman)

CATHERINE E FARQUHARSON

Sitting in public in London on 10, 11 and 12 October 2005

Eamon McNicholas for the Appellant

Nicola Shaw for the Respondents

© CROWN COPYRIGHT 2005

DECISION

INTRODUCTION

This was an appeal by Finest Golf Clubs of the World Limited ("Finest") against an assessment to output tax of £133, 333 for the periods 12/01 to 06/03. The dispute was essentially about identifying the true nature of the supplies rendered by Finest to its customers (usually described as "its members"); about identifying the appropriate VAT treatment of the supplies, once their nature had been determined; and finally (assuming that Finest succeeded in its first two contentions); about how VAT should be charged when at the time of supply many (or all) of the services would in fact not have been rendered. This would result in there being difficulties in determining whether the services should be treated as ordinary taxable supplies or supplies altogether outside the scope of UK VAT.

THE FACTS AND THE EVIDENCE

Evidence was given by the only witness, Vincent Joseph Deane, the Managing Director of Finest.

The Commissioners of H.M. Revenue and Customs ("HMRC") had initially based their case and arguments on the picture of the company's activities (generally referred to as "the club's activities") derived from a study of Finest's website. There was a very considerable disparity between the impression gained from that website and the nature of Finest's operation and services described by Mr. Deane. Whilst this disparity retained some importance throughout the hearing, and the original description of activities still influenced even the revised arguments presented by HMRC, and whilst Mr. Deane was occasionally reticent in confirming that statements in the website were misleading, we did find all Mr. Deane's evidence reliable. We consider that the correct description of Finest's activities was that portrayed by Mr. Deane in evidence. We will nevertheless summarise shortly the impression gained from the website since it does have continuing relevance to this decision.

When Finest was initially formed the business model that it sought to create was essentially as follows.

It was observed that although very keen and wealthy golfers would often be a member of one or possibly several of the 500 leading golf clubs in the world (amongst the 33,000 total clubs in the world), some would have a great desire to play occasionally at equivalent elite clubs in other parts of the world. It was observed that businessmen might often undertake business trips in the vicinity of one of such clubs, and they might be keen to play at the club in question. Other people, generally the very wealthy, might be on holiday in the vicinity of such a club or might indeed arrange holidays so as to be near such clubs, and they could also be keen to play at such clubs.

We were told that unless you know the right people it is extremely difficult to arrange to play golf, as a non-member, at many of the clubs in the top 500 category. It might be possible to play if you happen to know a member of the club and the member is prepared to introduce you as a visitor, or if you know one of the caddies or can be introduced in some other way. You will then still have to pay green fees or visitors' fees and caddie fees, but at least you will be able to play. But in the absence of such an introduction a non member would be unlikely to be able to play at most of the clubs in this category, in contrast to the position at most of the remaining 32,500 clubs where most would be delighted to welcome non members, prepared to pay the visitors' fees, to play a round at their club.

We were also told that amongst the 500 elite clubs to which access was difficult, there was a smaller list of 10 or 20 clubs regarded as "the Holy Grail", and that many dedicated golfers would wish to have played at least once at some or all of the clubs on this list in their lives. One such course was the old course at St. Andrews where the game of golf had started, but most of the other clubs on this list were specifically identified in the course of the hearing, and said to be the clubs to which non members would be most keen to gain occasional access.

In the light of this background, Finest initially sought to set up a club or contractual framework under which most of the 500 clubs would agree with Finest to become "member clubs of Finest". The relevant clubs would then allow keen and rich individual golfers, who were probably already members of one or more of the clubs in the 500 category, and who had joined Finest "as individual members" to play at their clubs occasionally when in the locality. One of the stipulations was to be that no member of Finest could play at a club of which he was not a member unless the club was at least 500 miles from his "home club" or the place where he lived, so that there would be no concern on the part of the member clubs that "locals" would regularly play at their clubs without being elected to membership in the proper way. The other implication of a golf club joining Finest as a "members club" was that it would be open to playing members of that club to join Finest (on paying the appropriate fee) so that members clubs would enable their own members to enjoy, and pay for, the extended playing facilities at other elite clubs by joining Finest.

The website (which was created in the very early days and had never been modified) accordingly described the business model just described under which most of the 500 top clubs would be members, and members of those clubs would in turn be able to join Finest as individual members and obtain the relevant playing rights. The website then suggested that an individual member would be able to play at the other clubs, not as "the guest of a member", but .. in "a new distinguished, pre-qualified status [as a] VIP member."

The website also described the Secretariat function that would make arrangements for individual members to play at the clubs in question. It described how the Secretariat would organise caddies, carts and tee times, and "inform the Club of your expected time of arrival." It was then said that "Upon arrival at each club, members are welcomed and provided with access to the club's changing rooms, bar, dining room, practice range and other facilities".

The website went on to describe a "concierge service" that "has the capability to provide use of the Club's private jet service, helicopters and the full range of other transportation needs", and Finest's own entertainment facilities that would be available for Finest's members at tournaments.

The website indicated that Finest would "organise tournaments and social events for members detailed in the membership brochure and on the web site".

It finally described "The Eden Club". The Eden Clubhouse was said to "provide a warm ambience, with facilities and services that are typically found within a fine private members' club". Members were said to have "a special place to relax, dine and entertain their own guests, which is attended year round by the General Manager and his staff, who ensure that every wish is catered for". The Eden Club was close to the old course at St. Andrews.

In his evidence, Mr. Deane said that he and his colleagues had initially been somewhat naïve in their early hope that they would be able to create a business model along the lines of the one summarised in the website, and described above.

It very soon emerged that most of the American clubs had constitutions and rules that precluded them from entering into contracts with commercial enterprises, or that at least precluded them from entering into the contracts that would make them members of Finest. And it was admitted that no club anywhere in the world had entered into that (or any other) contract or arrangement of any sort with Finest.

Finest had however evolved a replacement business model under which it would still seek its own individual members (or customers) with a view to enabling them to play at all or most of the clubs originally envisaged. This it would do by using its existing contacts and by building up more contacts with members, caddies, the pro's and others at the most desirable clubs, and by endeavouring to enable its members to play at the desirable clubs "as visitors". The way in which this would be achieved would vary from club to club, both on account of the different rules of different clubs, and the different contacts that Finest might have at such clubs. For instance some clubs would have rules that would insist that if one of their members introduced a non member or visitor to play then the member would actually have to accompany the visitor and play with him. Others would enable their member simply to introduce a visitor without the need to accompany the visitor. And as already mentioned, contacts would be made in all sorts of ways, via members, pro's, caddies, or by knowing special tricks of the trade. For instance it might be very much easier to arrange that a member of Finest could play at a particular club at certain times, or as a "two ball", or "four ball", or by applying for tickets or access at particular times.

It has followed from the above method of operation that although individuals still join Finest, and are described as "members of Finest", they clearly now have no playing rights as such at any club. Finest still operates a seemingly efficient Secretariat service, which members can contact by phone, e mail or fax, and request that the Secretariat service tries to arrange a game of golf for them at some particular time and club. It is however never certain that that can be achieved. The chances of achieving it are much better if the member can be flexible, and ask, say, for a game to be arranged at a particular club "at any time in the following month", rather than at one specific time.

We were told that the approximate success rates for arranging games at particular clubs when requested by members were about 80% and 50% according to whether the member could give Finest a flexible request to play on any of a number of days in the future, or whether the request was more specific.

The following more routine facts can now be summarised, having explained the basic method of operation.

Individual members still join the club, generally now, on a "life-time" basis. Most of the contacts in soliciting new members are by introduction and "word of mouth". New members very often fall into the classification that they are around or older than the age of 55. They are likely to have more spare time and disposable income than they might have had earlier in their lives. They are unlikely to be "internet addicts", such that the company's website is not a significant marketing tool, which may go to explain why it has never been changed, and why it thus now displays a confusing picture of the club.

There are approximately 230 members in the club at present. Approximately 30 join a year. The ideal new member is one who will use the club's services fairly modestly, which tends (it seems) to be the norm amongst existing members. From a long list of arrangements that had been made for members to play at various clubs worldwide it seemed that it was unusual for members to ask the Secretariat service to arrange more than three visits to clubs a year, and some members appeared never to have availed themselves of the services yet.

Finest's membership fees have risen steeply. The joining fee was initially only $10. It has subsequently risen by large steps such that the initial fee was £20,000 in 2003 (at the end of the period presently in contention), and is currently £27,000. That confers "life membership", though there is an obligation to pay annual fees which are presently at the level of about £2,600.

When members join the club there appears to be no contract that they sign that describes what they obtain. They simply sign a form, the prime, if not sole, purpose of which is to bind them to pay their further annual fees. New members will apparently have had all the services described to them by one of the senior marketing employees (in terms that were not described to us), and although a reference was made to their being given "a sort of glossy brochure", it eventually emerged that there was probably no such brochure. It was assumed that most members would not have seen the website, and no-one contended that anything in the website conferred the right to the sort of services that a reader of the website might suppose.

The Secretariat function operates from small leased premises in London. The method of operation was for one key secretary to field most of the initial member contacts and requests, then seek in various ways to fulfil those requests, and then inform the member of whether it had been possible to arrange the requested visits. It would then always follow that if a successful arrangement had been made, the member would have to pay directly all the normal green, caddy and other fees, just like any other visitor to the particular club. The rules of that club would also govern whether the Finest member would only be able to play, or whether he or she might be able to use other club facilities.

We were told that Finest still sought to "arrange tournaments". These however were arranged very much like individual games, in that it might prove possible to arrange that 20 members could play at a particular course on a particular date. If Finest then chose to book the 20 places it would seek to find members to fill the slots, with each member than paying his proportion of the costs involved. The event might be cancelled if there was little interest. If virtually all the places were taken and the event proceeded, Finest might suffer a loss (equal to the places not taken up). Particularly if members brought guests to "tournaments", such events were a valuable marketing tool for attracting new members.

It was admitted that, contrary to further statements in the Website, Finest had no entertainment facilities of its own at any tournaments, and it had no transport facilities, helicopter, jet or cars. Whilst it was fairly unusual for the Secretariat service to be involved in arranging travel facilities for members, occasionally the Secretariat might assist in making such arrangements.

We were not shown pictures of the Eden Club but were told that this was a facility in the car park of the old course at St. Andrews and that its prime function was to provide members of Finest playing at St. Andrews with somewhere to change. The old course at St. Andrews is apparently a public course and there are no other changing facilities. The sub-lease held by Finest (which is about to expire, when it will not be replaced) precludes the serving of hot foot at the Eden Club, though apparently cold food such as sandwiches can be brought over from the nearby hotel. On our revised understanding of matters, no member ever had playing rights as such at the old course, though games might be arranged in the way already described. And the Eden Club was better described as a changing room in the Car Park. The fact that this facility was shortly to be lost on the expiry of the sub lease appeared not to be a serious consideration.

We should mention (since it is of considerable relevance to the VAT treatment) that approximately 10% of the members reside in the UK, and about 10% of the games of golf arranged are arranged at UK courses. Frequently games will be arranged for a resident of one country other than the UK (say the USA) to play in another country also other than the UK (say South Africa). But more relevantly the significant figure is that approximately 90% of the games arranged are for games of golf outside the UK.

It was said that Finest had hitherto always made losses for Corporation Tax purposes.

In the course of cross-examination Mr. Deane was asked how the fee charges were calculated, and whether for instance the current charge of £27000 and the annual fee of £2,600 were calculated by reference to the costs of the Secretariat service. He replied that that was not the case. He had earlier suggested that the fees were pitched at the level of what people could afford, and there was certainly no desire to attract a massive influx of new members who might over burden the capacity of the Secretarial service, and perhaps also the practical chances of actually being able to make the relevant arrangements.

There is some possible relevance to the fact that for a certain period (encompassing the period during which the VAT treatment of Finest is in dispute) Finest had operated a Hong Kong branch office. This was shut down following the SARS scare and problems, but while it operated it was an equivalent fixed place of business with several employees, operating in very much the same way as the London Secretariat office. The reason for opening the Hong Kong office had been the feature at the time that wealthy Chinese and other Far East businessmen were extremely keen on golf, on the kudos attaching to playing at some of the finest golf clubs worldwide, and so there was considerable appetite for membership places.

We were told that most playing arrangements for Far East members were made for them by the local Hong Kong office. Some of the Far East members had been "introduced" by London, but others were solicited locally. Membership payments all had to be cashed in London because of apparent and unexplained difficulties in securing banking facilities in Hong Kong, but most of the money received was said to be sent straight back to Hong Kong to pay local expenses.

Mr. Deane said that the Hong Kong office was regarded locally as a full office in Hong Kong, and that it had been subject to local tax and had paid all its local taxes. He did not know what taxes were thereby involved however and did not know whether the office had merely accounted for payroll tax and the equivalent of National Insurance, or whether it had been subject to tax in any way in respect of its own activities.

Following the closure of the Hong Kong office, Far East members are of course dealt with, as are American and European and indeed all members, through the London Secretariat office.

THE INITIAL VAT TREATMENT OF THE SERVICES PROVIDED

The initial VAT treatment adopted by Finest (which perversely and entirely properly no-one now contends was correct) was to pay VAT on initial subscription and annual fees charged to UK members, and not to pay VAT in relation to the services rendered to non-UK members.

THE INITIAL CONTENTIONS OF HMRC

HMRC initially contended that Finest was providing an overall service consisting of the grant of the total rights encompassed by membership of the club; that Finest belonged in the UK; that the service was accordingly to be treated as "made in the UK"; and that all the services rendered were standard rated services such that VAT ought to have been paid in respect of all initial subscriptions and annual fees.

THE INITIAL CONTENTIONS ON BEHALF OF FINEST

The initial and at all times the fundamental contentions on behalf of Finest were that regardless of the fact that subscribers were described as members, they were simply customers of a perfectly ordinary company; and that, properly appraised, the services rendered by the company to its customers or members were aptly described as the sort of "services of intermediaries" to which article 13 of the VAT (Place of Supply of Services) Order 1992/3121 ("the 1992 Order") applies.

Article 13 provides as follows:

"Subject to article 14 below, where services consist of the making of arrangements for a supply by or to another person or of any other activity intended to facilitate the making of such a supply, being a supply which is not of a description within articles 9 or 10 above or 16 below, those services shall be treated as supplied in the same place as the supply by or to that other person is treated as made".

It was common ground between the parties that none of articles 9, 10, 14 or 16 was of any relevance in this case. It was accordingly contended by Finest, that as the only right that a customer of Finest had in reality was the right to contact the Secretariat service, and request it to do its best to arrange a game of golf at some selected golf club more than 500 miles distant from his home club and residence, the services that the members were receiving were precisely those described in article 13. And if that was right, it followed that because the place of supply of a game of golf at a golf club outside the UK was a supply outside the UK and itself outside the scope of UK VAT (wherever in the world the golfer in question resided), then services rendered entirely in the UK (in the physical sense) in arranging that game were also to be treated for VAT purposes as supplies made outside the UK. Naturally arrangement services related to games played in the UK would again follow the nature of the principal service and be treated as subject to VAT as being services also (along with the game of golf) being supplied in the UK. But Finest was perfectly content to pay VAT in respect of these services.

It was suggested on behalf of Finest that the most sensible and reliable method for ascertaining the split between services that would, on the article 13 basis, be treated as services supplied in the UK and those outside the scope of VAT, when at the time of supply it would not be known where future games for a particular new member paying his subscriptions would arranged and played, was to look to the total ratio of UK games to total games arranged in each current year. It was suggested that we leave detailed matters of allocation to the parties.

THE REVISED CONTENTIONS ON BEHALF OF HMRC

In the light of the evidence given by Mr. Deane, and one conclusion to be drawn from that evidence, namely that anyone reading Finest's website would derive a very misleading picture of the services that Finest provided, HMRC sought our leave to amend their case in its entirety. We immediately gave leave to amend the case, whereupon HMRC advanced essentially three arguments. These were as follows:

(i) For article 13 to apply the person making the arrangements must make them, even if not strictly as agent, nevertheless with the person that provides the service arranged. In this case, the services of golf arranged are supplied by the relevant golf clubs, but the arrangements are made not with the golf clubs but with some sort of further intermediary, either a caddie, member, pro or some other person.

(ii) For VAT purposes there must be some link between services provided and payment received such that the consideration can realistically be said to be "for the services". Apple and Pear Development Council v. Customs and Excise Commissioners [1988] STC 221 was a good example of this principle. In the present case Mr. Deane had admitted that there was little linkage between the consideration charged by way of membership fee (i.e. the £20,000) and the provision of services by the Secretariat office, so that even if those services were "arrangement services" falling within article 13 of the 1992 Order, the consideration was not "for" those services. It therefore either followed that the payment was not for any services at all (such that no VAT was due) or that the fee was for the general rights of Membership. Following Mr. Deane's evidence any general rights of membership were clearly much more limited than had initially been supposed from the website, but it was still suggested that on joining as a member, a member derived a certain cachet; the member had access to the network of contracts built up through the Secretariat service; the member had the ability to participate in tournaments organised by Finest; and the member had the right of access to the Eden Club when playing at St. Andrews.

(iii) The liability for VAT must be determined at the time of supply and the time of supply was plainly when the consideration was received. Even thus if the consideration were paid entirely in return for arrangement services, it would not be possible to tell at the time of supply whether the services would eventually relate to games of golf within or outside the UK; or indeed whether a member would ever call for the services. Some had indeed not done so. Accordingly either article 13 was thereby either ousted altogether, such that the rule for determining the place of supply reverted to one that paid regard solely to where the supplier belonged (i.e. the UK); or one followed the type of approach canvassed but rejected in British Railways Board v. Customs and Excise Commissioners [1977] STC 221, and contended that in this particular case it was appropriate to say that the membership fee was not advance payment for future arrangement services, but a payment for something different. It was simply a payment to have the opportunity in future of accessing the Secretariat service, in the hope of thereby securing a game of golf, but it was not future payment actually for arrangement or intermediary services. In the alternative, if the payment made was advance payment for future arrangement services, there was still no way, at the time of supply, of determining whether any arrangement services called for might derive their character from UK services (i.e. games of golf provided by UK golf clubs) or services rendered outside the UK and falling outside the scope of UK VAT.

THE REVISED CONTENTIONS ON BEHALF OF FINEST

We also gave leave to Finest that if we decided that the services rendered by Finest did not fall within article 13, then Finest could argue in the alternative that whilst the Hong Kong office was in operation, services rendered by that office should be treated as made by a person "belonging outside the UK". This would be on the basis that the UK company, Finest, which operated the Hong Kong office had a fixed place of business in Hong Kong, and one with which Far East services rendered were more closely related than they were with the London office, such that they were to be taken to be supplied outside the UK.

We agreed that we would decide this issue even if on our primary decision it was irrelevant (because we held that article 13 applied to all the services) in case our decision on the article 13 point was overturned.

OUR DECISION

On the most fundamental point, we consider that the right overall analysis of this case is that a person joining as a new member is best analysed as a customer who is paying to receive the services of the Secretariat office, if and when he calls for those services. We see nothing wrong in the company describing its customers as members but we do not think that the VAT treatment is influenced by this terminology and that in reality the members are akin to simple customers. We also decide that there are no other significant rights derived by becoming a member than the one that we have just identified. The "fine club" description contained in the website appears to us to be either pure puff or a description of a structure that Finest had hoped to put in place, but had failed to put in place.

Aside from the expectation of being able to secure individual games of golf the other possible attributes that we should consider in testing the conclusion just summarised are those referred to in the second of the revised contentions of HMRC.

On the first of these points we consider that any element of cachet said to be secured by paying ones subscription fee is illusory because no one is going to know who has subscribed for the Finest arrangement (there being no published list of members). We also find it difficult to regard the provision of cachet, even more so imaginary cachet, as being a service for VAT purposes.

We consider that the arrangement of tournaments is conducted on exactly the same basis as the arrangement of individual games. Finest may arrange for a number of people to play golf simultaneously at a particular club but it is not providing the golf or any different service than is provided when individual games of golf are arranged.

The services of the Eden Club appear again to have been mis-described in the website and we accept Mr. Deane's description that the Eden Club essentially constitutes comfortable changing facilities in a small building in the car park of the old course at St. Andrews where Finest members can not only change but buy some rather limited food and refreshment, perhaps in fact directly provided by a nearby hotel and not by the Club at all. It also appears that very few arrangements have been made for games of golf at the old course, and since on the basis contended by Finest, games arranged anywhere in the UK inevitably involve allocation of those supplies to the UK, and VAT is anyway chargeable, we consider it unnecessary to deal further with the supplies geared to the Eden Club. The feature that the Eden Club facility is shortly to cease to be available also seems to indicate that it is right to treat it as we propose.

We accordingly think it clear in reality that all that members are paying for is the opportunity to avail themselves of the services of the Secretariat function to have games of golf arranged. We cannot support this by any reference to a contract since there appears to be no contract, other than the signature of a document which is essentially a document concerned solely with the payment of future annual fees. We regard the Finest website as a historic presentation of something that it might have been hoped would come to pass, but as a completely irrelevant presentation of the essence of the company's actual services today. This conclusion is entirely in line with the contentions advanced on behalf of Finest.

We decide that article 13 is entirely apt to govern the place of supply of services in the present case. We do not agree with HMRC that it is rendered irrelevant because the arrangement function that Finest performs involves contact with further intermediaries (members, caddies, pros and other intermediaries) and never the golf clubs that will supply the arranged services. Within the wording of article 13 we consider that the services performed by Finest do "consist of the making of arrangements for a supply by … another person" even if the arrangements are made indirectly. Even more clearly we consider that Finest's services fall within the alternative limb of article 13. They are certainly an "other activity intended to facilitate the making of such a supply". "Such a supply" is the primary service to be supplied by the club, and Finest's activity is an activity intended to facilitate this principal supply by the club.

We accordingly reject the first of HMRC's revised contentions.

We do not accept HMRC's second revised contention either. Although Mr. Deane acknowledged that the fee charged for membership was not calculated directly by reference to the costs of running the Secretariat function, we still accept that fee was pitched at as high a level as the very limited market could stand, and that it was applied in meeting the costs of the Secretariat function in its broadest sense, including travelling to clubs, and fostering links with the various intermediaries. .

We reject the argument about absence of linkage first because the fee was certainly paid as consideration for something under a contract and as we have already said we cannot see other services to which it might be attributable. In this case, the feature of the fee being due under statute, as in Apple and Pear was absent; as was any feature of the payment being gratuitous, as in the case of voluntary payments made to Mr. Tolsma when he was playing his barrel-organ in the street (see Tolsma v. Inspecteur der Omzetbelasting Leeuwarden [1994] STC 509).

We are also influenced by the fact that Finest is said always to have made losses for Corporation Tax purposes. Aside from rent paid for the Eden Club, we can only presume that the company's deductible costs for corporation purposes would consist of the direct cost of running the Secretariat function at the small London offices, the costs of making, fostering and preserving the company's vital contacts with its intermediaries at all the top clubs, and marketing costs (i.e. essentially the marketing costs of attracting new customers for the services of the Secretariat function). Accordingly if Finest makes losses and all its costs relate to just the Secretariat function, we find it difficult to see how it can be suggested that the right analysis is that the subscription fees are so clearly attributable to something else that they break the link between the consideration paid and the only real service that the company supplies.

HMRC's final revised contention was that the VAT treatment of the services as arrangement services was undermined by the feature that the services were to be provided in future, and it was impossible to tell at the time of supply (when the subscription fee was paid) whether the future services would derive their VAT nature from primary services (i.e. provision of golfing facilities) within or outside the UK.

HMRC's first contention was that this feature of itself disapplied article 13 altogether. We cannot accept this. It might have been right had article 13 been directed to services of intermediaries for primary services to be supplied outside the UK, because then it would have been impossible to demonstrate at the time of supply that the primary services would inevitably have been supplied outside the UK. But article 13 is not concerned with where the primary services are going to be rendered, nor indeed is it even a requirement that the primary services will be relevant ones for VAT purposes in any jurisdiction at all. Thus in the case of Staatssecretaris van Financien v. Lipjes [2004] STC 1592, the fact that the Dutch yacht broker was arranging private sales that were outside the scope of VAT did not oust the application of the relevant article.

We do not think that it is right, either, to treat the consideration as paid for the right or opportunity to call for future services (in the sense contended for in the second of HMRC's contentions summarised in paragraph 12 (iii) above), so as to treat the supply as something other than the provision of future arrangement services. Although in the British Railways Board case, where this approach was rejected and the initial payment was still treated as an advance payment for rail services, there was not the complicating factor that the rail services might be of two categories, we cannot think that that feature was central to the conclusion that the payment was an advance payment for rail services. And were we to reach the reverse conclusion in this case, the result would be most unrealistic since the major payment for future arrangement services would be held to have some different nature, and then no consideration (or perhaps just the fairly modest annual fees) would be attributable to the only services in reality being provided. Accordingly we prefer to follow the treatment in the British Railways Board case, rather than be deflected by the difficulty of not knowing the nature of the future arrangement services into creating what would seem to us to be a worse anomaly, aside from being wrong.

We accordingly reject the revised arguments on behalf of HMRC and are left with the last remaining question of how to impose VAT at the time of supply, when it cannot be known at that time what the nature of the arranged services, the provision of games of golf by UK and non UK golf clubs, will be. We conclude that the contentions on behalf of Finest are correct and that this should be regarded as a matter of allocation, hopefully to be agreed by the parties. We also agree with Finest that insofar as experience has suggested that approximately 90% of the arranged games are provided outside the UK, then if there is no reason to suppose that this proportion will change markedly in the future, for the present at least, that figure would appear to be a very significant one, in arriving at the allocation. It would follow that approximately 90% of the consideration should be assumed to relate to the provision of future arrangement services that would fall outside the scope of UK VAT, and 10 % would be treated as the consideration for the supply of ordinary UK taxable supplies. Whether the figures are correct is of course a matter for discussion between the parties, and we are not deciding that the figures just assumed are the correct figures.

It is not for us to comment on non UK but EC implications when arrangement services relate, as they will to quite a significant degree, to the arrangement of games of golf in France and other EC countries. Doubtless in certain circumstances, and depending on local rules and registerable limits, that could occasion liability to equivalent tax in other EC countries.

THE HONG KONG QUESTION

The Hong Kong argument was advanced as a secondary argument should Finest fail on its primary contention (which it has not done). Since it was only raised (with our leave) late in the hearing, there was relatively little argument and evidence in relation to the Hong Kong contention and certainly less than we would have thought essential had this been the main point in contention. In particular in order to treat supplies as being more realistically attributable to the Hong Kong office rather than the London office, we would wish to have had more information on the extent to which the office won its own customers and could directly use the data base of contact information, rather than just field local Far East enquiries and periodically pass them through to London. On the basis of our rather vague understanding that the Hong Kong office solicited a reasonable percentage of the Far East customers that it serviced, and that the office could directly use the data base of contact information, rather than having to pass on all arrangement functions in relation to non Asian games of golf to the London office, we decide that supplies made through the Hong Kong office should be treated (if the article 13 decision that we have reached is overturned on appeal) as made by a person treated as belonging in Hong Kong. In making this decision we record that we were told that the Hong Kong office was staffed by six people, including Mr. Parker, one of the senior men in the organisation, and this we feel goes to support our conclusion.

COSTS

We were asked to award costs to Finest in the event that we decided this appeal as we have done. We have some hesitation in doing this because there is no doubt that HMRC were considerably confused in their whole dealings with this case, and in the initial preparations for this appeal, by the very confusing material contained in Finest's website. And we consider that no particular blame is to be attributed to HMRC for that confusion.

We have however decided to award costs in favour of Finest, because in all discussions with HMRC, efforts were made to clarify the real facts, and it was stressed that the real facts rather than the impressions gained from the website should govern the correct VAT treatment.

HOWARD M NOWLAN

CHAIRMAN

RELEASED: 21 November 2005

LON/04/151