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You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> Satis Italsempione S. A. v Revenue & Customs [2006] UKVAT V19683 (08 August 2006)
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Cite as: [2006] UKVAT V19683
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Satis Italsempione S. A. v Revenue & Customs [2006] UKVAT V19683 (08 August 2006)

    19683

    VALUE ADDED TAX – Cancellation of registration from date after registration – Intra EU supplies of transport using UK VAT number – Place of Supply and Reverse Charge meant taxable person whilst register – no power to deregister or cancel from date after registration – appeal allowed

    LONDON TRIBUNAL CENTRE LON/2005/0715

    SATIS ITALSEMPIONE S.A. Appellant

    - and -

    THE COMMISSIONERS FOR HER MAJESTY'S

    REVENUE AND CUSTOMS Respondents

    Tribunal: ADRIAN SHIPWRIGHT (Chairman)

    SANDI O'NEILL

    Sitting in public in London on 13 June 2006

    Alun James, Counsel, instructed by Vantis, for the Appellant

    Amanda Tipples, Counsel, instructed by the Acting Solicitor for HM Revenue and Customs, for the Respondents

    © CROWN COPYRIGHT 2006


     

    DECISION

    Introduction

  1. This is an appeal against the Respondent's ("HMRC") decision to cancel the Appellant, Satis Italsempine S.A.'s ("Satis") registration for VAT with effect from 21 April 2005.

  2. This decision, as was agreed between the parties, is a decision in principle. It is made on the assumption that all the supplies in question related to intra-EU transport.

    3. The Issue

  3. The issue in this case is whether HMRC's decision to cancel Satis's registration for VAT was within HMRC's power to do so. The burden is on Satis to establish that it was not within HMRC's power to do so if Satis is to succeed.

  4. This raises a number of further questions including the following:

    5. (1) Could HMRC properly deregister Satis under paragraph 3 Schedule 1 VATA?
    (2) Could HMRC cancel Satis registration from 21 April 2005 under paragraph 13 Schedule 1 VATA?

    These are considered later in this decision.

    The Law

    The Legislation

    UK Legislation

  5. The relevant UK legislation dealing with registration and cancellation includes paragraphs 1, 3 and 13 Schedule 1 VATA.

  6. In so far as is relevant they provide as follows.

    7. "1 A person who makes taxable supplies but is not registered under this Act becomes liable to be registered under this Schedule—
    (a) at the end of any month, if the value of his taxable supplies in the period of one year then ending has exceeded [the relevant limit]; or
    (b) at any time, if there are reasonable grounds for believing that the value of his taxable supplies in the period of 30 days then beginning will exceed [the relevant limit].
    3 A person who has become liable to be registered under this Schedule shall cease to be so liable at any time if the Commissioners are satisfied in relation to that time that he—
    (a) has ceased to make taxable supplies; or
    (b) is not at that time a person in relation to whom any of the conditions specified in paragraphs 1(1)(a) and (b) and (2)(a) and (b) above is satisfied.
    13…
    (3) Where the Commissioners are satisfied that on the day on which a registered person was registered he was not registrable, they may cancel his registration with effect from that day".
  7. Section 8 VATA imposes the "reverse charge" in respect of certain services specified in Schedule 5. This includes paragraph 9 which reads:

    8. "The services in question do not fall within paragraph 1 to 8 of the Schedule." Intra-EU transport does not fall within paragraphs 1 to 8. It does fall within paragraph 9.
  8. Paragraph 10 of the Schedule provides:

    9. "Section 8(1) shall have effect in relation to any services—
    (a) which are of a description specified in paragraph 9 above; and
    (b) whose place of supply is determined by an order under section 7(11) to be in the United Kingdom,
    as if the recipient belonged in the United Kingdom for the purposes of section 8(1) (b)."
  9. The place of supply here is determined by The Value Added Tax (Place of Supply) 1992. Articles 10 and 14 of the Place of Supply Order provide:

    10. "10 Subject to article 14 below, where a supply of services consists of the intra-Community transport of goods, it shall be treated as made in the Member State in which the transportation of the goods begins.
    14 Where a supply of services –

    (a) falls within articles 10 to 13 above;…

    (aa) consists of the valuation of, or work carried out on, any goods which are then dispatched or transported out of the member state where those services were physically carried out; or

    (b) consists of ancillary transport services provided in connection with intra-Community transport of goods,

    And the recipient of those services makes use, for the purpose of supply, of a registration number, then, notwithstanding any provision of this Order to the contrary, the supply shall be treated as made in the member State which issued the registration number if, and only if, the supply would otherwise be treated as taking place in a different member State".

    EU Directive

  10. The relevant provisions of the Sixth Directive include Article 28b C. This

    11. provides:

    "1 By way of derogation from Article 9(2)(b), the place of the supply of services in the intra-Community transport of goods shall be determined in accordance with paragraphs 2, 3 and 4. For the purposes of this Title the following definitions shall apply:

    -"the intra-Community transport of goods" shall mean transport where the place of departure and the place of arrival are situated within the territories of two different Member States.

    The transport of goods where the place of departure and the place of arrival are situated within the territory of the country shall be treated as intra-Community transport of goods where such transport is directly linked to transport of goods where the place of departure and the place of arrival are situated within the territories of two different Member States;

    -"the place of departure" shall mean the place where the transport of goods actually starts, leaving aside distance actually travelled to the place where the goods are,

    -"the place of arrival" shall mean the place where the transport of goods actually ends.

    2 The place of the supply of services in the intra-Community transport of goods shall be the place of departure
    3 However, by way of derogation from paragraph 2, the place of the supply of services in the intra-Community transport of goods rendered to customers identified for purposes of value added tax in a Member State other than that of the departure of the transport shall be deemed to be within the territory of the Member State which issued the customer with the value added tax identification number under which the service was rendered to him…."

    The Authorities

  11. The Respondent produced a bundle of authorities which contained copies of the

    12. following matters:

    Sections 3, 7, 8, 9 and 83 of the Value Added Tax Act 1994 ("the 1994 Act")

    Schedule 1 of the 1994 Act

    Schedule 5 of the 1994 Act

    Value Added Tax (Place of Supply of Services) Order 1992

    De Voil Indirect Tax Service at paragraph V2.146
    De Voil Indirect Tax Service at paragraph V3.183
    W H Payne & Co v C & E Commrs (1995) V & DR 490
    Berkholz v Finanzamt Hamburg-Mitte-Altstadt (Case 168/84) [1985] ECR 2251, ECJ

    C & E Comrs v DFDS A/S (Case C-260/95) [1997] STC 384, ECJ

    C & E Comrs v Chinese Channel (Hong Kong) Ltd [1998] STC 347, Moses J
  12. We were also provided with extracts from Notice 741 (sections 7 and 8) and paragraph 11.1 et seq of section 11 Chapter 2 of the VAT Manual. Written notes on the transitional provisions were provided after the hearing.

  13. We asked whether there were any problems arising from the registration being made under the 1983 Act and the purported cancellation under the 1994 Act. Counsel produced notes on this aspect after the hearing for which we are grateful. It was concluded no difficulty arose here. We agree.

    14. Common Ground

  14. It was common ground that paragraphs 1-19 of HMRC's Statement of Case set out the factual background and should be treated, in effect as if they represented a Statement of Agreed Facts. We have done so.

  15. The relevant paragraphs of the Statement of Case are as follows:

    16. (1) The Disputed Decision

    (1) By a letter dated 6 May 2005 the Respondent informed the Appellant that the Appellant's VAT registration was invalid. The Respondent informed the Appellant that the registration was invalid because:
    a. there are no grounds for registration under the paragraphs 10(1) and 10(2) of schedule 1 of the Value Added Tax Act 1994 ("the 1994 Act"), as there are no human and technical resources in the United Kingdom to create a business establishment under paragraph 10(3) of Schedule 1 to the 1994 Act. There are no staff present in the United Kingdom to either receive or make supplies; and
    b. Inovat Limited, in not entering into agreements/processing invoices for or on behalf of the Appellant, does not create a branch or agency in the United Kingdom under paragraph 10(4) of schedule 1 to the 1994 Act.
    (2) By a notice dated 10 May 2005 the Respondent informed the Appellant that its VAT registration was cancelled from close of business on 31 January 2005.
    (3) By a further letter dated 6 June 2005 the Respondent informed Inovat Limited, the Appellant's UK Tax Representative, that the Appellant's VAT registration would be cancelled with effect from the date of his [i.e. its officer's] visit, namely 21 April 2005.
    (4) The Appellant has appealed the Respondent's decision to cancel its registration for VAT with effect from 21 April 2005. The Appellant is entitled to appeal the Respondent's decision pursuant to Section 83(a) of the 1994 Act.

    (2) Background and Chronology

    (5) The Appellant, Satis Italsempione SA, is a company that was incorporated in Switzerland on 12 January 1963. The incorporation number for the Appellant in Switzerland is 545/1976.
    (6) The Appellant's representative is Vantis Numerica, 66 Wigmore Street, London W1U 2HA (Ref: Vaughn Chown).
    (7) The Appellant was registered for VAT on a voluntary basis with effect from 1 January 1993 with VAT No 626-2618-43. The application form (Form VAT 1) described the Appellant's main business activity as "Transport Services", identified 100 Chalk Farm Road, London NW1 8EH as the Appellant's principal place of business in the United Kingdom and was signed, on behalf of the Appellant, by Mr Lewis of L G Secretaries Limited on 10 March 1993.
    (8) On 23 April 1993 the Appellant completed form VAT ITR appointing L G Secretaries Limited as its UK Tax Representative with effect from 1 January 1993. This form stated that the Appellant's principal place of business was Casella Postale 498, 6830 Chiasso, Via Livio 7. This is an address in Switzerland.
    (9) On 22 September 1994 the Repsondent (Officer J A Howe) visited 66 Wigmore Street, London and interviewed Mr David Goldman, the Appellant's Tax UK representative.
    (10) On 23 March 1999 the Respondent (Officer P Johns) visited 66 Wigmore Street, London and interviewed Mr David Goldman and Vaughn Chown, as the Appellant's UK Tax representatives. The purpose of this visit was for the Respondent to obtain the following information requested from the French Tax Authorities on 10 December 1998 pursuant to Directive 77/388/EEC, namely "a summary from the company L G Secretaries Ltd of the [Appellant's] transport invoices made out to the French customer Sarl Bois France 2000 from 1 January 1996 to the date of inspection". Mr Johns' simplified visit report dated 23 March recorded:
    a. that he had not found any irregularities; and
    b. he expressed his conclusions in the following terms "Swiss based co. registered here to buy in transport and resell on. Only VAT reclaimed is tax rep charges remainder reverse charge items netting off. However, is capable of larger turnover in year. Reg 26(2) VATA 1994 allows reclaim here."
    (11) On 1 January 2003 L G Secretaries Limited changed its name to Inovat Limited.
    (12) On 21 February 2003 Inovat Limited completed and returned a VAT Questionnaire for the Appellant stating that it, as the Appellant's VAT Agent, prepared and completed the Appellant's VAT returns.
    (13) On 21 April 2005 the Respondent (Officer R Pelan) visited 66 Wigmore Street, London and interviewed Mr D Surajbalu. In the report of his visit Officer Pelan recorded "This business based in Switzerland. No business address in UK. Mr Surajbalu works for 'Inovat' (625-9648-08) part of Intrust Group, which [compiles] with VAT returns from list of sales/purchases sent by S I Sempione from Switzerland.
    (14) None of the supplies are within the scope UK VAT, freight transport services moving goods Switzerland to Germany, France, Italy and vice versa… Input tax and output tax usually all reverse charges on invoices from freight forwarders in France, Germany etc. Checked returns 4/03 to 1/05 and list customers, and sample sales/purchases 10/04. Only non reverse charge input tax bill from Inovat. Purchase invoices addressed to company's Swiss address, and sales invoices raised in Switzerland. Why this company is registered in UK mystery, all supplies outside scope. Business has neither "human and technical resource" in UK or agency via Inovat, who merely submit returns. The reverse charge should not apply as no establishment in UK to receive services under VAT Act 1994 s(9(5) and registration only possible if under Schedule 1 para 10(2) if under para 10(2) …".
    (15) On 6 May 2005 the Respondent wrote to the Appellant in the terms set out in Paragraph 1 above. By a notice dated 10 May 2005 the Respondent informed the Appellant that its VAT registration was cancelled from close of business on 31 January 2005.
    (16) On 1 June 2005 Inovat Limited wrote to the Respondent stating that "both the VAT registration unit [in Newry] and the visiting officer [in 1999] accepted the VAT registration as valid… The VAT registration is not therefore invalid. It was implemented at the time of VAT registration by Newry who were satisfied with the information provided. The business was subsequently visited by an officer of [the Respondent] and the VAT registration was accepted at that time too. Nothing has changed…".
    (17) On 6 June 2005 the Respondent wrote to the Appellant explaining that "the fact that the registration of [the Appellant] was accepted by Newry, visited by an officer and 1999 and [Inovat Limited] manages its VAT affairs is unfortunately not confirmation that the VAT registration is valid".
    (18) By a letter dated 5 July 2005 the Inovat Limited informed the Respondent that "the [Appellant's] business was using the UK VAT number for both intra community purchases and sales up to the date of [the Respondent's recent letters]. It is requested that any action taken to cancel the VAT number is deferred to take this into account …" . By a letter dated 15 July 2005 the Respondent informed Inovat Limited that such use of the UK VAT number in respect of the business was incorrect.
    (19) By a letter dated 28 July 2005 Inovat Limited wrote to the Respondent stating that the Appellant had recently been approached to supply warehouse storage services to a UK customer and would be raising monthly invoices of £1,000 per month and, amongst other things, sought confirmation that the Appellant could maintain its existing VAT number in order to recover the VAT charged by the UK supplier and to charge VAT to the customer. By a letter dated 5 August 2005 the Respondent informed Inovat Limited that, as the original VAT registration number was invalid, this number could not be re-allocated and, in relation to registration on the basis of intended supplies, it would be necessary for Inovat Limited/the Appellant to contact the Respondent's office at Newry.

    The Evidence

  16. A bundle of documents was produced. No objection was taken to any of these documents and they were all admitted in evidence. This included Witness Statements for Mr Vavassory and Mr Pelan. They did not give oral evidence and were not cross-examined.

    17. Findings of Fact

  17. We find as facts the matters set out at paragraph 15.

  18. We also make the following findings of fact:

    19. (a) There was no evidence to show that all the supplies made by Satis were EU supplies. Accordingly, we made no findings of fact as to the place of supply. It was agreed by the parties that this decision in principle should proceed on the basis that the supplies were all supplies of intra-EU transport.
    (b) We confirm that Satis was registered on a voluntary basis from 1 January 1993 and remains registered. It was purportedly deregistered with effect from 21 April 2005.
    (c) Satis has used its UK VAT registration number for the purpose of obtaining the intra – EU transport supplies in question.

    The Submissions of the Parties

    Satis submissions in outline

  19. Mr James, on behalf of Satis, contended that:

    20. (a) Paragraph 3 Schedule 1 VATA was inapplicable as provided there was a VAT number there were taxable supplies which were always above the relevant thresholds. Accordingly, the power to deregister was not engaged.
    (b) Paragraph 13 Schedule 1 VATA did not apply to the circumstances of this case. Satis had bona fide sought registration and had been given it.
    (c) Satis has at all relevant times made taxable supplies. This was because once Satis had a UK VAT registration number section 8 VATA applied and imposed a reverse charge.
    (d) This was because the services received by Satis were "relevant services" within Schedule 5 VATA supplied, supplied by a person outside the UK to a person who belongs in the UK for the purpose of its business.
    (e) Paragraph 10 Schedule 5 VATA deems a person to belong in the UK for the purposes of section 8, where, as here, the services fall within paragraph 9 Schedule 5 VATA and the place of supply is determined to be in the UK by virtue of an order made under section 7(11) VATA.
    (f) Paragraph 10 deems the place of supply to be the place of departure, except where paragraph 14 applies.
    (g) Paragraph 14 applies where intra Community transport supplies are involved and the recipient of those services makes use, for the purpose of the supply, of a registration number, then notwithstanding any provision of the Order to the contrary, the supply shall be treated as made in the member state which issued the registration number if, and only if, the supply would otherwise be treated as made in a different member state. This was the case here.
    (h) The transport regime is a pragmatic regime dependant on the VAT number. Once there is a VAT number there are taxable supplies over the relevant thresholds so that deregistration under paragraph 3 is not possible.

    HMRC's Submissions in outline

  20. Ms Tipples submitted on behalf of HMRC in essence that there was a cancellation of Satis's registration from 21 April 2005 under paragraph 13 Schedule 1 VATA.

  21. In more detail, it was contended:

    22. (a) There was no entitlement for Satis to be registered at the start in 1993. At most, it was a voluntary registration on the basis of insufficiently precise information;
    (b) Accordingly, paragraph 13(3) Schedule 1 VATA gave jurisdiction to cancel the registration in those circumstances;
    (c) HMRC took no action till April 2005 and so only cancelled the registration from 21 April 2005.
    (d) Satis's argument was wrong as it was circular. It depended on Satis's registration to say it was making taxable supplies and so could not be deregistered as it was making taxable supplies because it had a Registration number.
    (e) Satis was not making taxable supplied so Satis ceased to be liable to register under paragraph 3. It should not be allowed to continue to be registered.

    Discussion

    Introductory

  22. Essentially two questions arise in this case. These are:

    23. (1) Could HMRC properly deregister Satis under paragraph 3 Schedule 1 VATA?
    (2) Could HMRC cancel Satis registration from 21 April 2005 under paragraph 13 Schedule 1 VATA?

    We will consider each of these matters in turn.

    Ceasing to be liable to register and paragraph 3.

  23. Under paragraph 3 of Schedule 1 a person ceases to be liable to be registered if the person has ceased to make taxable supplies or the value of the person's taxable supplies falls below the relevant threshold.

  24. Satis's business is "to buy in transport and resell it on" for a consideration. To the extent that we have not already done so we find this as a fact. This involves a supply of services to Satis and by Satis.

  25. The effect of section 8 VATA is to impose a reverse charge where "relevant services" are supplied by a person who belongs outside the UK to a person who belongs in the UK for the purpose of a business carried on by him. It is not specified in the legislation where the business has to be carried on. We have assumed for the purposes of this decision in principle that all the supplies in question related to intra-EU transport. These are relevant services falling within paragraph 9 of Schedule 5.

  26. The relevant services are supplied to a person who is registered under VATA namely Satis. At the relevant times Satis was "a recipient who is registered under [VATA]". In so far as we have not already done so we find this as a fact.

  27. Such a recipient of relevant services is deemed to belong in the UK where "the place of supply is determined by an order under section 8(11) to be in the UK."

  28. The VAT (Place of Supply Order 1992 is expressed to be made under the predecessor to s7(11) VATA. It is treated as made under section 7(11) by paragraph 2 Schedule 2 Schedule 13 VATA.

  29. By Article 10 which is subject to Article 14 of the Order the place of supply prima facie is in the member state where the transport begins. However, where the recipient makes use of a registration number supplied by a member state for the purpose of the supply the supply is then to be treated as taking place in the member state which issued the registration number by virtue of Article 14.

  30. Accordingly, the supplies are treated as taking place in the UK with the consequence that the reverse charge applies. It was common ground that the turn over limits were exceeded.

  31. Consequently, we find that Satis had not ceased to be liable to be registered within paragraph 3 of Schedule 1.

    32. Cancellation and paragraph 13

  32. HMRC purported to cancel the registration of Satis as from 21 April 2005. It was common ground this was not the date of registration.

  33. Paragraph 13(3) provides that where HMRC are satisfied that "on the day on which a registered person was registered he was not registrable, they may cancel his registration with effect from that date." (emphasis supplied).

  34. Given that 21 April 2005 was not the date of registration prima facie paragraph 13(3) does not apply. The effect purports to be from 21 April 2005, not the date of registration. If the cancellation had been from the date of registration then in our view, as currently advised, it would have been valid as the supplies made after that date would not have had the benefit of a VAT registration number so that arguments about section 8 would not arise. Subject of course to further argument we consider that the effect of paragraph 13(3) is to make the registration void ab initio (i.e. where there was no valid registration) rather than something that is avoided as from a particular date (compare paragraph 13(2)) (ie "voidable"). We note that there is no time limit or similar restriction in paragraph 13(3) so that HMRC could issue a further notice of cancellation as from the date of registration.

  35. Prima facie in the current circumstances there is no power under paragraph 13 for HMRC to cancel the registration. The issue then is whether the words "with effect from that date", (ie the day of registration) can be construed to mean that date or as from some later date decided on by HMRC. In our view, there is no need or authority for extra words to be read in to paragraph 13. Very specific words were used which make the registration void not voidable. We see no reason to give them other than their ordinary meaning.

  36. We conclude that as the notice of cancellation referred to a date other than the date of registration that notice is invalid as it does not conform with the power given in paragraph 13. A further notice might fall within paragraph 13 if HMRC issued a notice cancelling the registration from the date of registration. This is not the case before us.

    37. Conclusion

  37. We have found that:

    38. (a) there is no power in the current circumstances to deregister Satis under paragraph 3 Schedule 1 VATA; and
    (b) there is no power to cancel the registration from 21 April 2005 under paragraph 13 Schedule 1 VATA only from the date of registration.
  38. Accordingly, the appeal is allowed with costs.

    39. ADRIAN SHIPWRIGHT

    CHAIRMAN
    RELEASE DATE:8 August 2006

    LON/2005/0715

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