United Kingdom VAT & Duties Tribunals Decisions

20394

EXEMPT SUPPLIES – Insurance transactions – Appellant connected persons seeking insurance to the insurers via its website – Whether an insurance agent – No – Whether an insurance intermediary – Yes – VAT Act 1994 Group 2 Item 4 – EC Council Directive 77/388 Art. 13B(a) – Appeal dismissed

MISDECLARATION PENALTY – Appeal allowed

LONDON TRIBUNAL CENTRE

INSURANCEWIDE.COM SERVICES LIMITED Appellant

and –

THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS Respondents

Tribunal: MISS J C GORT (Chairman)

MR JOHN BROWN CBE FCA ATII

Sitting in public in London on 26-27 April and 25, 26, 27 and 30 July 2007

Mr Roderick Cordara QC instructed by BDO Stoy Hayward LLP appeared on behalf of the Appellant

Mr Paul Key instructed by the Solicitor's Office appeared on behalf of the Respondents

© CROWN COPYRIGHT 2007


 


DECISION

1. This appeal concerns four decisions of the Respondents which were originally separate appeals, but which, on 27 April 2007, were consolidated by the Tribunal. The decisions appealed against were:-

(1) Decisions contained within two letters dated 27 May 2005 by which the Commissioners decided that:

(i) the Appellant's supplies were outside the VAT exemption contained in Schedule 9, Group 2, Item 4 of the Value Added Tax Act 1994 ("VATA")

(ii) the Appellant was required to notify and be registered with effect from 1 May 2000 and was liable to account for and pay VAT on all taxable supplies from 1 May 2000 onwards. An assessment dated 31 May 2005 was issued by the Commissioners to the Appellant in the sum of £261,842 VAT and £18,980.93 default interest for the period between 1 February 2003 and 31 October 2004.

(2) A decision contained within a letter dated 23 November 2006 by which the Commissioners imposed a misdeclaration penalty in the sum of £20,378 in respect of the tax period 01/04. Following a reconsideration by the Commissioners this sum was reduced to £16,303.40 by reason of mitigation under section 70(1) of the VATA.

(3) A decision which is also contained within the same two letters dated 27 May 2005, together with a letter dated 20 July 2005, by which an assessment dated 20 July 2005 was issued in the sum of £143,139, together with default interest of £21,600. In the course of the hearing of this appeal the Appellant ("InsuranceWide") had been given leave to appeal out of time in relation to this matter, the notice of appeal being dated 22 February 2007.

(4) A decision contained within a letter dated 16 April 2007 further to an assessment dated 3 April 2007 in the sum of £264,495 together with default interest in the sum of £20,583.76. This decision related to the periods 01/05 to 01/07. The appeal is also against a decision contained in a letter dated 17 April 2007 to impose a misdeclaration penalty in the sum of £24,913.

2. It was agreed by the parties that all four appeals raised broad issues, but that each should be looked at in the context of its own specific facts. The principal issue for the Tribunal to decide is whether the supplies made by InsuranceWide fall outside the VAT exemption contained in Schedule 9, Group 2, Item 4 to the VATA which exempts the provision by an insurance agent or broker of the services of an insurance intermediary. The Tribunal was invited to deal with the issue as one of principle, and not to deal with matters of quantum. It is common ground that if InsuranceWide succeeds on the main issue then all the other issues fall away.

Background

3. InsuranceWide was formed in 1999 by David Harrison and his son James Harrison, both of whom had considerable experience in the insurance business, with the intention of being a conduit for the sale of insurance via the internet. In effect it provides a comparison service to individuals for insurance cover from various insurance companies. This is done via an on-line computer website. It receives commission from the insurers based on the number of contracts of insurance that eventuate from the introductions.
4. Since its inception the business has evolved from being linked to, and receiving commission from, only one insurance provider, namely Cox Insurance Holdings Plc ("Cox"), to the present situation where it now receives commission from all of the major direct insurance underwriters as well as the traditional UK insurance providers, and receives commission from approximately 98% of the entire UK online insurance market.

The Legislation

5. Article 13B of the Sixth VAT Directive provides as follows (inter alia):

"… Members States shall exempt the following …

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

(We were referred to the Directive in its earlier manifestation not the recast Directive because the cases cited refer to the earlier version and so we have continued to refer to it in that way but bear in mind that the correct reference is now to Article 135(1)(a) not Article 13B.)

6. Schedule 9, Group 2, of the VAT Act 1994 provides that the following (inter alia) are exempt supplies:

"Item No.

…

4. The provision by an insurance broker or insurance agent of any of the services of an insurance intermediary in a case in which those services –

(a) are related (whether or not a contract of insurance or reinsurance is finally concluded) to an insurance transaction or a reinsurance transaction; and

(b) are provided by that broker or agent in the course of his acting in an intermediary capacity.

NOTES

(1) For the purposes of item 4 services are services of an insurance intermediary if they fall within any of the following paragraphs –

(a) the bringing together, with a view to the insurance or reinsurance of risks, of –

(i) persons who are or may be seeking insurance or reinsurance, and

(ii) persons who provide insurance or reinsurance;

(b) the carrying out of work preparatory to the conclusion of contracts of insurance or reinsurance;

(c) the provision of assistance in the administration and performance of such contracts, including the handling of claims;

(d) the collection of premiums."

"(2) For the purposes of item 4 an insurance broker or insurance agent is acting 'in an intermediary capacity' wherever he is acting as an intermediary, or one of the intermediaries, between –

(a) a person who provides insurance or reinsurance and

(b) a person who is or may be seeking insurance or reinsurance or is an insured person."

…

"(7) Item 4 does not include –

(a) the supply of any market research, product design, advertising, promotional or similar services."

7. Section 63 VATA provides that:

"(1) In any case where, for a prescribed accounting period –

(a) a return is made which understates a person's liability to VAT or overstates his entitlement to a VAT credit, or

(b) an assessment is made which understates a person's liability to VAT and, at the end of the period of 30 days beginning on the date of the assessment, he has not taken all such steps as are reasonable to draw the understatement to the attention of the Commissioners,

and the circumstances are as set out in subsection (2) below, the person concerned shall be liable, subject to subsections (10) and (11) below, to a penalty equal to 15% of the Vat which would have been lost if the inaccuracy had not been discovered.

(2) The circumstances referred to in subsection (1) above are that the VAT for the period concerned which would have been lost if the inaccuracy had not been discovered equals or exceeds whichever is the lesser of £1,000,000 and 30 per cent of the relevant amount for that period.

(4) In this section "the relevant amount", in relation to a prescribed accounting period, means –

(a) for the purposes of a case falling within subsection (1)(a) above, the gross amount of VAT for that period; and

(b) for the purposes of a case falling within subsection (1)(b) above, the true amount of VAT for that period.

(5) In this section "the gross amount of tax", in relation to a prescribed accounting period, means the aggregate of the following amounts –

(a) the amount of credit for input tax which (subject to subsection (8) below) should have been stated on the return for that period, and

(b) the amount of output tax which (subject to that subsection) should have been so stated.

(10) Conduct falling within subsection (1) above shall not give rise to liability to a penalty under this section if –

(a) the person concerned satisfied the Commissioners or, on appeal, a Tribunal that there is a reasonable excuse for the conduct, or

(b) at a time when he had no reason to believe that enquiries were being made by the Commissioners into his affairs, so far as they relate to VAT, the person concerned furnished to the Commissioners full information with respect to the inaccuracy concerned."

8. Section 70 VATA provides that:

"(1) Where a person is liable to a penalty under section 60, 63, 64 or 69A or under paragraph 10 of Schedule 11A, the Commissioners or, on appeal, a tribunal may reduce the penalty to such amount (including nil) as they think proper.

(2) In the case of a penalty reduced by the Commissioners under subsection (1) above, a tribunal, on an appeal relating to the penalty, may cancel the whole or any part of the reduction made by the Commissioners.

(3) None of the matters specified in subsection (4) below shall be matters which the Commissioners or any tribunal shall be entitled to take into account in exercising their powers under this section.

(4) Those matters are –

(a) the insufficiency of funds available to any person for paying any VAT due or for paying the amount of the penalty;

(b) the fact that there has, in the case in question or in that case taken with any other cases, been no or no significant loss of VAT;

the fact that the person liable to the penalty or a person acting on his behalf has acted in good faith."

9. Section 71(1) VATA provides as follows:

For the purpose of any provision of sections 59 to 70 which refers to a reasonable excuse for any conduct –

(a) an insufficiency of funds to pay any VAT due is not a reasonable excuse

(b) where reliance is placed on any other person to perform any task, neither the fact of that reliance nor any dilatoriness or inaccuracy on the part of the person relied upon is a reasonable excuse.

We were referred to the following cases:

Staatssecretaris van Financien v Arthur Anderson & Co. Accountants cs (C-472/03) [2005] STC 508

Taksatorringen v Skatteministeriet (C-8/01) [2006] STC 1842

Card Protection Plan v Customs & Excise Commissioners (C-349/96) [1999] STC 270

CSC Financial Services v Customs & Excise Commissioners (C-235/00) [2002] STC 57

College of Estate Management v Customs & Excise Commissioners [2004] UKHL 53

Customs & Excise Commissioners v BAA Plc [2002] EWCA Civ 1814

Commissioners of HM Customs & Excise v Civil Service Motoring Association [1998] STC 111

Morganash Ltd [19777]

Smarter money v The Commissioners for HMRC [19632]

WHA Ltd v Customs & Excise Commissioners [2004] EWCA Civ 559

Re Forsakfingsaktiebolaget Skandia (C-240/99)

Litster and others v Forth Dry Dock Engineering Company [1988] UKHL 10

Donald Ford (Financial Services) v The Commissioners of HM Customs & Excise (2432)

Barclays Bank Plc v The Commissioners of HM Customs & Excise (6469)

Countrywide Insurance Marketing Ltd v The Commissioners of HM Customs & Excise (11443)

Curtis Edington & Say Ltd v The Commissioners of HM Customs & Excise (11699)

C & V (Advice Line) Services Ltd v The Commissioners of HM Customs & Excise (17310)

Winterthur Life UK Ltd v The Commissioners of HM Customs & Excise (17572)

Expert Witness Institute v Customs & Excise Commissioners [2001] EWCA Civ 1882

Teletech UK Ltd v The Commissioners of HM Customs & Excise (18080)

Volker Ludwig v Finanzamt Luckenwalde (C-453/05)

Century Life v Commissioners of HM Customs & Excise [2001] STC 38

Appropriate Technology Ltd v Commissioners of HM Customs & Excise (5696)

Royal Incorporation of Architects in Scotland v HMRC (20252)

The Evidence

10. The Tribunal was provided with a large agreed bundle of documents, which contained inter alia various screenshots of InsuranceWide's websites. We heard oral evidence from Mr David Harrison over an extended period.
11. At the outset InsuranceWide reached an agreement with Freeserve (now Orange) to be appointed its sole designated provider of insurance products. At that time Freeserve offered users free access to the internet through dial-up modem connections. People looking for insurance on the homepage would be referred to InsuranceWide alone and would then be guided by InsuranceWide through the appropriate online forms to the relevant insurance product. InsuranceWide paid Freeserve 25% of all commissions earned on successful policy sales.
12. Freeserve wanted to offer its users an enhanced degree of choice, and as Cox had already developed an interactive website which was operational in 1999, InsuranceWide developed trading arrangements with Cox by means of a service agreement dated 17 September 1999. Cox was a publicly quoted company that owned Equity Red Star, a syndicate which underwrote motor and household business, and which operated a panel of insurers. This was described by Mr Codara as `the Cox phase' which commenced in late December 1999. (We bear in mind that the different phases described by Mr Cordara are not co-extensive or co-terminus with the periods of the different assessments.) At the initial stage of the Cox phase a person logging on to the InsuranceWide website would be put through to Equity Red Star for a quote, merely passing through the InsuranceWide website to Equity Red Star.
13. The 1999 agreement shows that at that stage InsuranceWide was called "InsuranceCity.com Services Limited". It is immaterial that at some stage there was a change of name. In the preamble to the agreement with Freeserve it is stated that "Whereas: … InsuranceCity has agreed to operate a website offering the ability to arrange a number of competitive insurance products …." There was a back to back agreement with Cox which remained in its original form for somewhat over a year, but endured in an altered form for some five years. In the initial phase, which lasted until early 2001, Cox provided the logistical support and an administrative infrastructure to InsuranceWide. In particular, telephone calls made to the number given on the InsuranceWide website would be answered by a member of Cox's staff but in the name of InsuranceWide and documents relating to insurance issued in the name of InsuranceWide was signed by the managing director of Boncaster Limited ("Boncaster") a wholly-owned subsidiary of Cox. Boncaster acted on behalf of Equity Red Star, and administered both Cox's Helpline and InsuranceWide's Helpline. The relationship with Boncaster was revealed on InsuranceWide's notepaper which at its foot was endorsed:

"All InsuranceWide.com products and services are arranged and administered by Boncaster Limited …"

It was accepted by Mr Harrison that InsuranceWide did not have authority to bind Cox. It was also acknowledged that InsuranceWide did not at any stage handle claims or collect premiums or prepare insurance policies. InsuranceWide did not employ staff to deal with such administrative matters.

14. The contract with Cox states in its preamble:

"(A) InsuranceCity has entered into the Freeserve Link Agreement under which InsuranceCity has agreed to facilitate the making of certain initial Insurance Services available for certain uses of the Freeserve website by way of a "hotlink" provided by Freeserve to the InsuranceCity website."

15. Clause 9 of the initial agreement provides (in part):

"… the parties agree that InsuranceCity shall procure that Requests in respect of Exclusive Insurance Business are only referred to the relevant Panels of Insurers and Cox shall use reasonable endeavours to procure that such Panels of Insurers act in good faith with a view to maximising the value of the Exclusive Insurance Business. InsuranceCity is restricted during the term of this agreement from allowing any other person whomsoever to offer to provide such Exclusive Insurance Business utilising the InsuranceCity Website."

Clause 10.1 of the agreement provides:

"It is the intention of the parties to this agreement that in accordance with this Clause 10 (New Insurance Services), InsuranceCity will facilitate the making available of Insurance Services … that are either additional to those listed in paragraphs 1 to 4 (both inclusive) of Schedule 1 (Insurance Services) or form Insurance Services that are not already being offered under paragraphs 1 to 4 (both inclusive) of Schedule 1 (Insurance Services) during the course of this agreement. …"

16. Clause 19 of the agreement provided that Cox should procure that there were maintained at all times all such books, data, information, accounts and records as are reasonably necessary, and also that it would issue or procure the issue of, reports within ten business days of the end of each calendar month in a form agreed between the parties, containing such statistical information as were reasonably required by InsuranceCity.
17. The second phase of InsuranceWide's business was what Mr Harrison referred to as the "Decision-Tree" phase. This emerged in late 2000 when InsuranceWide recognised that certain categories of business were not being written because the companies on Cox's panel only dealt with a limited number of categories of risk. InsuranceWide therefore moved from acting purely for Cox's panel of insurers to acting on behalf of a number of potential insurers. InsuranceWide signed agreements with all those insurance companies whose products it was identifying on its website. We were shown a screenshot taken in October 2001 of the Freeserve 'money-insurance' website where below the heading "Insurance" was stated:

"Quote and buy from leading insurers via InsuranceWide.com".

The categories of insurance shown on the screen were motor insurance, travel insurance, building and contents insurance, and lifestyle insurance. Under travel insurance were subheadings, including one for backpacker insurance. A user clicking on 'backpacker insurance' would be taken to a co-branded website of InsuranceWide.com and a company called Insureandgo. Insureandgo is itself an insurance intermediary not an ultimate insurer. At this time each sector of insurance was linked by InsuranceWide with only one broker, therefore the user was not given a choice of insurer. Throughout its existence the principal remuneration for InsuranceWide remained commissions based on the insurance contracts made as a result of its internet connections. However it also at all times received income from advertisers on its website, such income has been accepted by InsuranceWide as being subject to standard-rated VAT.

18. From September 2000 to May 2002 when the Decision-Tree came into operation, a business plan was drafted which described InsuranceWide's business as:

"InsuranceWide is unique in combining the benefits of instant low cost quotes and claim processing with comparative pricing and access to a wide range of specialised products.

"The InsuranceWide system employs a panel of insurers offering a standard policy wording where only the cost differs."

Additionally it provided:

"All additional insurance providers are being selected for their high level of customer service and innovative insurance policies. All will adopt the InsuranceWide look and feel for their sites providing a common standard of excellence."

The document describes its strategic aims as being inter alia "to develop new products and align with new distribution partners and insurance providers". With the introduction of other insurers, as agreed by Cox, the level of commission received by InsuranceWide varied according to its agreement with each particular insurance company. The range was from 5% to 20%. In addition, a signing-on fee was agreed with each new provider and there was a volume agreement for additional commission for any premiums generated above a pre-determined threshold. With the introduction of insurance providers other than Cox came the introduction of co-branding on the website, for example InsuranceWide's name would appear on the right hand side of the screen and on the left hand side would appear the name of the particular insurance provider, such as Insureandgo or Compucover. Mr Harrison described InsuranceWide's activities at this stage as moving from acting as an agent for just one group of insurers to being in a position comparable to an insurance broker acting on behalf of a number of potential insurers, with the possibility of recommending one or more of a number of insurers to potential insureds.

19. The third phase, which ran from about March 2002, is defined by the introduction of a system known as the InsuranceWide Wizard ("the Wizard") which was also known as the "Motor Wizard" as it was at this stage only used in connection with motor insurance, although it later was used more widely. InsuranceWide had developed technology to automate the selection process. It obtained and recorded the essential information required by underwriters and applied that information at high speed and in large volumes to guide each prospective customer through to the most appropriate insurer or insurers best suited to his individual circumstances. InsuranceWide had established a series of rules with the insurers which set out what they could or could not quote for effectively. These criteria were put into the Wizard, and InsuranceWide would hold a series of monthly meetings with the insurers to ensure that these rules were kept up-to-date. InsuranceWide had established its own dedicated research department which trades as "Every User Counts" whose job it is constantly to monitor insurer websites to ensure inter alia that the insurers own stated rules are those that they actually apply in practice.
20. At this stage a person logging on to InsuranceWide's website had the possibility of providing information to the Appellant by means of an on-line questionnaire. The answers to the questionnaire provided InsuranceWide with a profile of that person's requirements. Based on this information the Wizard identified a number of potentially suitable insurers. InsuranceWide then provided the person with the name of the insurer it considered to be the most suitable and a shortlist of three other potentially suitable insurers, together with a direct link to each insurer's website. The list and the links were provided by email from InsuranceWide and/or directly via its website. The person seeking insurance had a free choice as to whether to proceed to each insurer's website or not. If the person seeking insurance proceeded to an insurer's website, then (on entering that website) the person seeking insurance had to complete a separate set of questions in order to receive a quotation from the insurer for the provision of insurance. Such quotation may (or may not) have resulted ultimately in an insurance contract being formed.
21. The Wizard was primarily used for motor insurance, where there were many options available, and it enabled InsuranceWide to direct a user more accurately to the relevant insurers. Where there were only a limited number of insurers dealing with a particular area it was unlikely that the Wizard would be used. However, even within motor insurance there were specific specialised areas where the Wizard was not used, for example: young drivers, student drivers and specialised car insurance. In this initial phase of the Wizard its use did not lead to a quote on the website, the customer had to go to the external website of the insurer or an intermediary to obtain a quote.
22. The Wizard provided the customer with the tools to compare a shortlist of selected insurers, knowing that all those selected would be able to quote and would be competitive. It was then up to the customer to decide whether he chose to have such additional benefits as a courtesy car, windscreen cover or any of the other additions to the policy that would alter the final price of the policy chosen. It was considered to be a more helpful approach than trying to quote the cheapest price on the minimum information input by the customer. Between 2002 and 2004 no quotes or indicative prices were available on InsuranceWide's website, these not being available until InsuranceWide introduced a system called "InsuranceWidePlus" in 2004-2005, the next phase which is dealt with below. InsuranceWide chose not to offer direct quotes, in part because the insurers did not like their prices to be exposed in direct competition, and in part because a customer might choose the cheapest price which would be based on standardised information, but when the insurer had the full information relating to the customer's specific circumstances, the actual offer might differ considerably from the initial quotation. InsuranceWide's technology gave it the ability to compare the market on price alone, and it could therefore establish in what fields the insurers were most competitive. It would be asked for advice by the underwriters on the sustainability of the prices they were demanding for their products.
23. The fourth phase was the introduction of InsuranceWidePlus which was made available in late 2004. The aim of this system was to enable the transfer of the data input by a customer into the InsuranceWide website directly to the insurers' systems. This simplified the system for the customer by requiring him only to enter his data once. This newer Wizard software generated a results page on-screen for the customer which set out his profile in brief and referred him to a short list of insurance companies, for each of whom InsuranceWide was authorised to act. Insurers were selected for their relevance to the customer's stated insurance profile and risk, and were set out in order of preference. An e-mail was simultaneously sent to the customer's e-mail address setting out the same information and containing direct links to the insurer's website. This e-mail to the customer also contained the necessary references and links to InsuranceWide's terms and conditions and its privacy policy which are published on its website. (We will refer to those later.) The customer was then able to click through from the e-mail directly to the chosen insurer's site and an insurance application form. Any customer choosing to link to an insurer's website by this method was automatically identified to the insurer as an InsuranceWide customer.
24. The final phase was the introduction of InsuranceWideConnect. This was introduced in 2006, and by March 2007 almost all the insurers with whom InsuranceWide did business had integrated it into their systems. InsuranceWideConnect was essentially the same as InsuranceWidePlus, except that the technology involved in InsuranceWidePlus had not been completely successful. At the time of the hearing it was only available for motor insurance and life insurance. The aim throughout had been to produce a system which enabled a customer to complete only one application form which could then be transmitted to all the relevant insurers as necessary, and this InsuranceWideConnect was able to effect. This system is only used for motor and life insurance. As with the previous systems, no prices were displayed beyond the highest and the lowest in any given range.
25. There is no documentary evidence which makes entirely clear the nature of InsuranceWide's involvement in the renewal of policies in the early stages, however we were told by Mr Harrison that InsuranceWide maintained a database of all those who had purchased insurance via its website and part of this database was a record of when those policies were due for renewal, and reminders would be sent out shortly before renewal was due. The commissions for renewal were said to be a cost effective part of InsuranceWide's business. When contacting the insured prior to renewal, InsuranceWide would invite the insured to use its website to obtain further comparative quotes. Mr Harrison believed that insurance companies themselves would not be sending out reminders in those cases where InsuranceWide itself was. We have difficulty in accepting this, because it would obviously be in the insurance companies' interest to retain its clients rather than to lose its clients to some other company as they might through InsuranceWide obtain a better rate from another company.
26. InsuranceWide's terms and conditions make clear that where there is co-branding the co-branded website is operated by a different entity, as is the telephone. InsuranceWide's terms and conditions state:

"IMPORTANT: As explained below, our own terms and conditions do not constitute a contract between you and InsuranceWide.com in connection with the purchase of insurance products or services and we accept no responsibility whatsoever (whether in contract, negligence or any other course of action) for the insurance providers websites including the sale of such products or services."

Later on in the document it states:

"We do not represent, warrant or endorse the suitability of any insurance products or services, nor the accuracy or reliability of information concerning any insurance products or services."

There is a further disclaimer in the following terms: "IMPORTANT: WE RECOMMEND THAT BEFORE PURCHASING INSURANCE YOU SHOULD TAKE INSURANCE ADVICE APPROPRIATE TO YOUR NEEDS BY CONTACTING AN INDEPENDENT INSURANCE BROKER."

27. The particular terms and conditions cited above applied from October 2002, there was no evidence as to what the terms and conditions were prior to that date. Mr Harrison was extremely unhappy with the wording of the terms and conditions which had been suggested by InsuranceWide's lawyers. He did not accept that they were an accurate statement of InsuranceWide's role at any time. However in cross-examination it emerged that this was his personal view, and he was not in giving that answer speaking on behalf of the corporate entity. A new privacy policy was introduced by InsuranceWide in October 2004. New Terms and Conditions dated 7 October 2004 state specifically:

"We do not sell insurance or enter into insurance contracts. We are not an insurance company, broker or intermediary. We do not act as an agent for you or for the Insurer. We simply provide a referral service."

It was uncertain whether this was introduced following the new requirements of the Financial Services Authority ("FSA") or whether it was because of the introduction of InsuranceWidePlus. Different terms and conditions were introduced on 30 June 2005, which was after the introduction in January 2005 of the FSA regulations. Those terms and conditions drop the words 'InsuranceWide is not an insurance intermediary' but state inter alia that InsuranceWide provides insurance information of a general nature and again contain a disclaimer. They also state:

"We do not sell insurance or enter into insurance contracts. We are not an insurance company, provider or broker. In the case of the InsuranceWidePLUS (IWPLUS) section of our site we provide indications of the approximate insurance premium that may be payable in relation to insuring a risk as you have described in the forms you complete. We pass your information to the relevant Insurer and conclusion of any insurance contracts is a matter for you and the Insurer. We do not guarantee that you can actually purchase insurance at the price indicated or at all."

This is followed by a further disclaimer. The terms and conditions subsequently changed again, and we have seen a document dated 15 June 2006. This was followed by the introduction of a further new privacy policy on the 4 August 2006 which is still effective.

28. InsuranceWide's website not only had straightforward advertisements for insurance companies displayed on it, it also had sponsored links where the sponsor's name was displayed in a box and carried a third form of advertising in the shape of banner advertisements. A visitor to the site could click on any of the names displayed in any of the three different forms and get taken directly to that advertiser's website. The fact that an advertiser's name appeared on the site did not mean it would be given preference in terms of the quotes produced by InsuranceWide.
29. The contracts for advertising on InsuranceWide's website were for shorter periods than the contracts for introducing the insurers. Advertising was usually rewarded on the basis of a cost per click. The evidence was uncertain with regards to some of the documentation as to whether the particular contracts were for advertising or were for the introduction of insurance business. For example, there is a letter dated 16 April 2003 from InsuranceWide confirming the details of an agreement between InsuranceWide and Tesco for various links to be created from InsuranceWide's website to Tesco. This letter describes the size and images of all the links, which by the agreement will be maintained for a period of one month only. There is a signing-on fee agreed to be paid each month and a set fee of £17.63 for each insurance policy purchased by users via the links during the term of the agreement. That fee is expressed to be inclusive of VAT. An agreement dated 23 December 2003 between InsuranceWide and Direct Line Insurers Plc consists of one page only and provides inter alia that Direct Line will pay InsuranceWide a consideration for each insurance policy purchased by users via the Links during the term of the agreement, together with a signing-on fee/monthly fee as set out in a schedule. In this case payment is expressed as specific amounts in relation to specific policies, rather than being on a commission basis; these payments are expressed to be exclusive of VAT. 30. We were shown a business agreement which had been sent by the Equine and Livestock Insurance Co Limited ("E&L") under cover of a letter 8 June 2005 to InsuranceWide which is headed "General Insurance Terms of Business Agreement for Insurance Intermediary". The covering letter states that the agreement was issued to all brokers that hold agencies with E & L. A contract with Endsleigh entered into July 2003 was also produced. In that contract there was a commission schedule which states:

"The 'Agent' will be paid commission on premiums net of IPT for the following products … in accordance with the term of this contract outlined in Clause 2, Endsleigh with effect from 01/06/2003 will guarantee InsuranceWide a motor renewal retention rate of 50%. The commission rate of 3% will be paid on Motor Renewal cases."

30. Whilst InsuranceWide did not rely directly on the perception of others as to what it did, the Tribunal was invited by it to take these matters into account, in particular the various letters from insurance companies with regard both to alterations they had made to ensure that they were compliant with the requirement of the FSA and the requests for information as to InsuranceWide's FSA status. The new legislation had come into force on 14 January 2005, and InsuranceWide had on 6 November 2004 been granted permission under Part IV of the Financial Service and Markets Act 2000 by the FSA to act as an intermediary. The permissions relate to: "Arranging (bringing about) deals in investments", "making arrangements with a view to transactions in investments", and "agreeing to carry on a regulated activity". An e-mail dated 13 December 2004 to InsuranceWide from the RAC asks InsuranceWide to ensure that from the 14 January 2005 it does not:

1 Advise any person on the merits of an insurance contract;

2 Persuade or encourage any person to take out an insurance contract;

3 Conclude an insurance contract on behalf of RAC or any other person;

4 Collect premiums or any money from any person on behalf of RAC;

5 Assist any person in the completion of an application form for an insurance contract …………;

6 Send the Application Form to RAC on behalf of any person;

7 Introduce any person to RAC for advice or to help arrange the insurance contract; or

8 Fill in a claims form on behalf of a policyholder and send it to RAC or otherwise make a claim on behalf of a policyholder.

The e-mail also states:

"To make certain of both your and our compliance with the Directive, we need to ensure that your role in the Agreement is limited to the display, in your product(s), of RAC literature or advertisements promoting an insurance contract."

31. InsuranceWide had been highly commended by the Insurance Times at their awards in 2002 for their "broker/intermediary innovation of the year". In its description of itself in relation to that award InsuranceWide stated that it was "One of the first pure online insurance intermediaries." It described the MotorWizard in the following terms:

"

Provides a single point of access to rates for the entire motor insurance market.

Enables them to obtain and compare competitive quotations quickly and efficiently.

Enables access to immediate cover online.

"

The MotorWizard benefits insurers because it:

Allows them to accurately profile the type of enquiries they wish to receive.

Significantly improves the insurers conversion rates.

Reduces the number of quotes declined.

Substantially reduces costs of acquisition policy."

This was relied on by InsuranceWide as demonstrating its involvement in the negotiating process. The fact that by using the Wizard insurers found that there was a higher conversion ratio than on their own website was also said to show that InsuranceWide was itself involved in the negotiation process. InsuranceWide saw its role as preparing for a dialogue between the potential insured and the insurer, which was critical to the making of a contract, but this was done by them using a computer, rather than a broker. During the Cox period a firm quote for insurance was given on the screen by InsuranceWide, but when the Wizard was introduced no firm quote appeared, although indicative quotes were given. In the proposal in relation to InsuranceWideConnect there was a paragraph relating to price which says:

"It is important to note, however, that prices are not displayed to the customer on the InsuranceWide's site. Customer's (sic) will only be displayed a price on visiting the insurance provider's own website."

32. On the final day of the hearing the Commissioners proposed a re-amendment to the Statement of Case which, whilst it was not consented to by Mr Cordara, was not opposed by him. That proposed re-amendment, which we allowed, was to insert as a new paragraph 43 the following:

"Further or alternatively, the Appellant's supplies consist of supplies of market research, product design, advertising, promotional and/or similar services within the meaning of Note 7 to Schedule 9, Group 2 of the VAT Act 1994; and such supplies are not exempt."

The Appellant's case

33. Mr Cordara relied on Clause 9.1 of the Cox agreement as encapsulating a relationship between an insurer and an agent. He submitted that, following the end of what is called the Cox period, InsuranceWide moved from acting as agent for just one group of insurers to being in a position comparable to an insurance broker, acting on behalf of a number of potential insurers, with the possibility of recommending one or more of a number of insurers. It was not, however, his case that InsuranceWide acted as a broker. He contended that InsuranceWide comes within items 4(a) and (b) of Schedule 9, Group 2 of the VATA, and that the evidence showed that InsuranceWide are within Note 1(a) and (2) to item 4 in that InsuranceWide brings together with a view to the insurance or reinsurance of risks of persons seeking insurance or reinsurance and persons who provide insurance or reinsurance. It also complied with the requirement of Note (2) in that it acted as an intermediary between the persons who provide insurance or reinsurance and the person who is or may be seeking insurance or reinsurance.
34. Several of the cases relied on by Mr Cordara are concerned not with insurance but with financial services where the concept of negotiation is the relevant one to be considered. Mr Cordara relied on the way InsuranceWide described itself, (set out in paragraph 32 above) as evidence of its involvement in the negotiation process. He submitted that all InsuranceWide needed to demonstrate was that it was in a meaningful sense introducing or prospecting for business. However, his case went further than that, and he submitted that InsuranceWide was involved in the negotiation process, if only by reducing the number of quotes that had to be declined: in other words, by cutting out pointless enquiries which will not lead to the formation of a contract.
35. Mr Cordara relied on Clause 10 of the Cox agreement to show that InsuranceWide was an intermediary facilitating the making available of insurance services. He also relied on Clauses 19.2 and 20.1 of the agreement by which Cox promised InsuranceWide it would maintain all the books, data etc., and that it would procure the issue of reports every ten days of relevant statistics as being the classic hallmarks of an intermediary relationship. He submitted that a mere advertiser or a mere software supplier would have no basis for enquiry as to those, but an intermediary would. He also relied on the fact that in various letters from insurers mention was made of conversion rates escalating, which, he submitted, was the best evidence of the fact that InsuranceWide are acting in an intermediary capacity.
36. It was InsuranceWide's case that the nature of its business never changed albeit that its technological basis changed, and its client base changed. Mr Cordara pointed to the fact that InsuranceWide made constant value judgments on an informed underwriting basis of the products which its customers, the insurance companies, were asking them to promote.
37. It was also InsuranceWide's case that it was well within the Sixth Directive, as well as the UK legislation. The case of Arthur Andersen was relied on, in particular paragraph 36 of the judgment where the Court said:

"Furthermore, as the Commission of the European Communities stated in its written observations and as the Advocate General pointed out in para 32 of his opinion, essential aspects of the work of an insurance agent such as the finding of prospects and their introduction to the insurer are clearly lacking in the present case. …"

It was submitted that if the Tribunal was persuaded that InsuranceWide were paid commission by its clients, the insurers, for the finding of prospects and the introduction to the insurers of those prospects, then InsuranceWide must succeed. Paragraph 32 of the judgment in the Arthur Andersen case was also referred to by Mr Cordara:

"However, as the Advocate General points out in paragraph 31 of his opinion, it cannot be inferred from that case law that the existence of a power to render the insurer liable is the determining criterion for recognition of an insurance agent within the meaning of article 13B(a) of the Sixth Directive. Recognition of a person as an insurance agent presupposes an examination of what the activities in question comprise."

38. It was accepted by Mr Cordara that InsuranceWide never had the power to decide whether or not business would be accepted, but it was his case that it was a conduit for that process. InsuranceWide introduced the customer, presented the insurer and its wares to the customer, and presented a quotation or group of quotations, sometimes indicative, other times firm, and in doing so was performing a classic intermediation function. Mr Cordara also relied on Arthur Andersen for the fact that in paragraph 38 the Court used the CSC case as an analogy. With regard to the question of whether or not it was safe to look at the cases involving financial services, it was submitted that that was what the European Court itself did when it referred to CSC.
39. Referring to the CSC case itself, Mr Cordara pointed out that it did not, like the Arthur Andersen case, involve someone who went out and found prospective clients. He relied on paragraph 39 of CSC where the Court said:

"It is not necessary to consider the precise meaning of the word 'negotiation', which also appears in other provisions of the Sixth Directive, in particular Art 13B(d)(1) to (4), in order to hold that, in the context of Art 13B(d)(5), it refers to the activity of an intermediary who does not occupy a position of any party to a contract relating to a financial product, and whose activity amounts to something other than the provision of contractual services typically undertaken by the parties to such contract. Negotiation is a service rendered to, and remunerated by a contractual party as a distinct act of mediation. It may consist, amongst other things, in pointing out suitable opportunities for the conclusion of such a contract, making contact with another party or negotiating, in the name of and behalf of a client, details of the payment to be made by either side. The purpose of negotiation is therefore to do all that is necessary in order for two parties to enter into a contract, without the negotiator having any interest of his own in the terms of the contract."

40. The definition of "negotiation" in that passage encompassed "pointing out suitable opportunities for the conclusion of such a contract", and "making contact with another party", which, it was submitted, was what InsuranceWide did. The fact that InsuranceWide was remunerated by insurers was said to be a powerful indicator of its role as intermediary.
41. Mr Cordara further relied on Arthur Andersen for paragraph 32 of the opinion of the Advocate General where he himself referred to the comments of Advocate General Fennelly in the case of CPP, saying that:

"The authors of the Sixth Directive described persons whose main professional activity comprises of bringing together of insurance undertakings and persons seeking insurance."

Advocate General Maduro, the Advocate General in Arthur Andersen, said at paragraph 33, following his citation of the CPP case:

"The activity of an insurance agent should therefore be viewed as a supply of services on a professional basis, which begins and ends in itself and which thus has an independent substance distinct from the business of the insurer."

42. Another European case relied on by Mr Cordara was Volker Ludwig, which was also a financial services case. In that case the Court concluded that there did not have to be a contractual link between a negotiator and a party at either end of the chain, instead you had to look at the very nature of the services rendered. This point was also made by the Court of Appeal in the case of BAA where the Court applied the reasoning found in CSC, and at paragraph 30-31 the Vice Chancellor said:

"I do not accept that there is any relevant inconsistency between the decision of this Court in CSMA and the decision of the Court of Justice in CSC when read in the light of the respective facts … both recognised that negotiation is an exercise preliminary to and connected with the relevant transaction. In both the negotiator was remunerated by commission. In neither is it suggested that a negotiator should be able to have set the terms of the relevant transaction.

It is true that the Court of Justice in CSC went further than this Court in CSMA in excluding services typically provided by one or other party to the relevant transaction and in requiring a distinct act of mediation. But both that exclusion and that requirement are consistent with the actual decision of this Court in CSMA. …"

43. We were also referred to paragraph 38 of Volker Ludwig where the Court refers to CSC, and states:

"The concept of negotiation does not therefore necessarily presuppose that a negotiator, as sub-agent of the main agent, enters into direct contact with both parties to the contract in order to negotiate its terms, provided, however, that its activity is not limited to dealing with some of the clerical formalities related to the contract."

The Court concluded that a taxable person who had no contractual link with any of the parties to a credit agreement to the conclusion of which he had contributed, and the fact that he did not establish direct contact with one of those parties, did not preclude that taxable person from providing a service of negotiation of credit.

44. It was submitted that in the present case InsuranceWide contributed by pointing out opportunities for the conclusion of contracts, and that was all that it needed to do to come within the exemption. Mr Cordara also referred to the case of Volker Ludwig for dicta at paragraph 19 to the effect that the fact that one is paid by commission is an indicator that one has a role as an intermediary.
45. The Tribunal was referred to a large number of tribunal cases by Mr Cordara, including a decision in the Scottish tribunal in the case of Smarter Money Ltd, heard on 30 May 2006. In that case, which concerned an internet introductory service, introducing customers to potential lenders where there was no direct input by the taxpayer into any actual concluded contract, the appellant was held, in the context of financial services, to be conducting intermediary services and was therefore exempt. The final tribunal case relied on was also a Scottish case, the Royal Incorporation of Architects in Scotland, which was heard on 27 June 2007. That case concerned the issue of whether or not the appellant was an insurance intermediary in circumstances where it received payments based on the value of take up of professional indemnity insurance. The tribunal allowed the exemption.
46. With regard to the question of whether or not the Appellant was a mere advertiser, it was submitted that the insurers would not share the type of information which they did share in this case with a mere advertiser, but it was highly important for them to share it with an intermediary who had an ongoing concern to promote the sales of their business. Furthermore a clause in one of the contracts allowed for the repayment of commission previously paid to InsuranceWide if a client reduced his cover or cancelled the policy. It was submitted that this would not happen if InsuranceWide were a mere advertiser. It was however logical commercially to claw back commission on an individual deal from an intermediary. Mr Cordara also relied on the fact that InsuranceWide was only paid on results, i.e. when a contract was signed, which was not the case where an advertising contract was concerned.
47. Mr Cordara submitted that in this case the concept of agent and intermediary marched hand in hand. He acknowledged that the English sense of an agent was not the same as the European sense, but it was submitted that both words ultimately had a European meaning which was the one which must be applied. Whilst Article 2.1(b) of Council Directive 77/92 was not said to be critical, nonetheless it was submitted that InsuranceWide fell within it, but hypothetically it was asked by Mr Cordara, how could InsuranceWide be introducing the insurers or intermediaries to its client base if it did not have authority to do so? The insurers gave InsuranceWide authority to effect introduction on their behalf to potential clients, which could not be done other than with legal authority, which was of itself sufficient to render InsuranceWide an insurance agent. Secondly the fact that commission was paid was a classic indicator of status as a commercial agent who was rewarded if he made a successful introduction. Thirdly, the insurers shared confidential information with the Appellant in order that InsuranceWide might put their name forward for the particular areas of business which were of greater interest to them, which was a manifestation of the fact that InsuranceWide had authority to represent them. Also, during the Cox phase, the Decision-Tree phase and the WizardPlus phase, InsuranceWide actually showed firm quotes on either the website or on a co-branded website. In doing so InsuranceWide was clearly acting as an agent. InsuranceWide pointed out opportunities, and CSC (as approved by Arthur Andersen) was relied on for the proposition that it was possible to be an insurance agent whose function was introductory. InsuranceWide was said to be an agent in the sense that it had principals. The principals gave InsuranceWide authority to represent their wares and to solicit custom on their behalf. Mr Cordara submitted that it was not a prerequisite of being an agent (see Arthur Andersen), that InsuranceWide should have the power to bind, as was the case in both the United Kingdom and the EU legislation. The test to be applied was whether or not InsuranceWide was acting on behalf of the insurance companies or intermediaries for a consideration. If it was acting on their behalf for a consideration, then it was an insurance agent.
48. Finally Mr Cordara referred us to HMRC Public Notice [701/36/02], in particular to paragraph 9.1.1 which is headed `Traditional Brokers and Agents' and describes an insurance broker as somebody who will "normally act for the insured (or potential insured) party in negotiating insurance contracts on their behalf, and an 'insurance agent' as someone who will "often be tied to particular insurers arranging and administering policies on their behalf." He then referred us to paragraph 9.2 which is headed 'Acting in an intermediary capacity' and which states as follows:

"The term 'agent' or 'intermediary' by definition mean someone acting on behalf of someone else in effecting something with a third party. Whilst we accept that the insurance exemption is not restricted to traditional brokers and agents, to qualify as an 'insurance agent', UK law requires a person to be acting as an intermediary between an insurer and an insured party (or a potential insured party). This means that, for the purposes of a VAT exemption, insurance brokers, professional insurance agents and other intermediaries must all be acting 'in an intermediary capacity' when supplying a 'related service'.

To be acting in an intermediary capacity a business will be acting somewhere in the chain of supply of a contract of insurance. This does not necessarily mean that they will have direct contact with the insurer or the insured party because there can be more than one intermediary in a chain. It does mean, however, that at one end of the chain there will be a business which has direct contact with the insured party (or potential insured party) and the other end there will be a business which has direct contact with the insurer."

49. It was submitted by Mr Cordara that in this passage the Commissioners are equating `agent' and `intermediary', because, unless one is a gratuitous intervener in the business of others, anyone who intermediates between insurer and assured, and is paid by one or other side, is going to be an insurance agent in the relevant sense, because he is acting as a paid intermediary on behalf of one side or another. All those features which Mr Cordara had relied on as showing that InsuranceWide was an agent were features of both acting as an intermediary, or being an intermediary, and being an agent. In the present case in Mr Cordara's words, it was not possible to unpick the two.
50. We were also referred to Directive 2002/92/EEC which in the preamble says:

(1) Insurance and re-insurance intermediaries play a central role in the distribution of insurance and re-insurance products in the Community.

(9) Various types of persons or institutions, such as agents, brokers and 'bancassurance' operators, can distribute insurance products. Equality of treatment between operator and customer protection requires that all these persons or institutions be covered by this Directive.

(11) This Directive should apply to persons whose activity consists in providing insurance mediation services to third parties for remuneration, which may be pecuniary or take some other form of agreed economic benefit tied to performance.

(20) If the intermediary declares that he is giving advice on products from a broad range of insurance undertakings, he should carry out a fair and sufficiently wide-ranging analysis of the products available on the market. In addition all intermediaries should explain the reasons underpinning their advice.

51. We were invited to consider that this exemplified the European approach and we were then referred to the Directive itself which states:

Article 1

"1. This Directive lays down rules for the taking-up and pursuit of the activities of insurance and re-insurance mediation by natural and legal persons which are established in a Member State or which wish to become established there.

Article 2

…

3. `Insurance mediation' means the activities of introducing, proposing or carrying out other work preparatory to the conclusion of contracts of insurance, or of concluding such contracts, or of assisting in the administration and performance of such contracts, in particular in the event of a claim.

5. `Insurance intermediary' means any natural or legal person who, for remuneration, takes up or pursues insurance mediation.

Mr Cordara's purpose in referring to this Directive was to support his submission that introducing is sufficient in itself to be an act of mediation.

The Respondents' case

52. It is the Respondents' case that the supplies made by InsuranceWide fall outside the VAT exemption and are therefore taxable. It was submitted that the appeal fails because:-

(1) InsuranceWide is not an "insurance broker or insurance agent" (see Schedule 9, Group 2, item 4 to the VATA 1994);

(2) InsuranceWide is not providing the services of an "insurance intermediary" (see Schedule 9, Group 2, item 4 (and Notes 1 and 7) to the VATA 1994);

(3) InsuranceWide's services are not "related" (in the material sense) to an insurance transaction (see Schedule 9, Group 2, item 4(a) (and Note 7) to the VATA 1994); and

(4) InsuranceWide does not provide its services "in the course of [its] acting in an intermediary capacity" (see Schedule 9, Group 2, item 4(b) (and Notes 2 and 7) of the VATA 1994).

It was contended by the Commissioners that the Appellant must satisfy each and every one of the above four conditions.

53. On the facts it was submitted that the difficulty experienced by Mr Harrison in identifying whether a contract was providing or obtaining advertising or alternatively obtaining the services which InsuranceWide classified as exempt was because analytically in VAT terms there is no real distinction between the two. Mr Key described the different permutations for the person seeking insurance in the following way. In Permutation 1 a person who had clicked on to InsuranceWide's website could continue by clicking one of four options and in each case will be taken to an external website. In that instance InsuranceWide had done nothing to categorise itself as an intermediary or acting in an intermediary capacity. It was the Respondents' case that in that context InsuranceWide was not acting as either an insurance agent or an insurance broker. It would be clear to the user that they were being taken to an external website, and that ultimately any quote would come from an external provider. The second permutation was where instead of the user being taken to a purely external website, he is given the impression that InsuranceWide is involved in that external website. However, the terms and conditions make it clear that in fact the external website, although branded as InsuranceWide, is being operated by another entity, as are the telephone helplines. In the Cox period, it was quite clear that it was Cox that was providing the external website, albeit that it is co-branded. Again it was submitted there was a distinction without any material difference.
54. The third permutation described by Mr Key was when the Wizard was introduced. With the Wizard he accepted that there was interaction between the website user and the InsuranceWide website as opposed to the customer being connected to the insurer purely by clicking on the relevant link. It was submitted that this again was a distinction without material significance and that the critical element of the transaction for tax purposes occurred when the person seeking insurance followed the link to go to the external website. It was the Commissioners' case that InsuranceWide did not act on behalf of either the insurer or the person seeking the insurance in the course of the arrangement and negotiation of the insurance contract, InsuranceWide did not broker the insurance contract and it did not mediate between the parties in the formation of the insurance contract. In the Commissioners' view an intermediary in its proper sense is a person or entity which stands between the person seeking insurance and the person providing insurance, not merely as an advertiser does, but at the critical time leading up to the insurance, namely the obtaining of quotations and negotiation of policy terms. At this stage InsuranceWide could not be described as an intermediary, its relevant activities were outside that critical phase. It was submitted that a true external intermediary website would obtain core details which would enable not merely an indicative quote but a definite quote capable of acceptance by the person seeking insurance to be provided. This distinction was said to be critical and to be the rational basis for any distinction between advertising and intermediary services.
55. The fourth permutation described by Mr Key is the InsuranceWide Plus/Connect permutation. It was again submitted that a number of critical features were missing; in particular there was no opportunity for a definitive quote capable of acceptance to be provided on the InsuranceWide website; the critical phases of the steps leading to the conclusion or making of an insurance contract all take place away from the InsuranceWide website; the live quote, whilst it is provided to InsuranceWide, is not known or available to the person seeking insurance until he moves to the external website, and the critical negotiation of the terms of the policy, any new information that the insurer may require, the offer by way of a definitive quote and the acceptance all take place directly between the person seeking insurance and the external entity. It was the Commissioners' case that InsuranceWide did not do enough either to enable it to be regarded as an insurance agent or broker, or to be regarded as an intermediary. It was submitted that what InsuranceWide was doing was no different in substance from the sort of analysis that was performed by a competent advertiser in a serious marketing campaign. Insofar as it was InsuranceWide's case that intermediating came in when the Wizard software was introduced, it was therefore evident that it was not acting as an intermediary during the pre-Wizard periods.
56. With regard to the issue of renewal letters, it was submitted by Mr Key that it was clear that the obligation to send out renewal letters were obligations which fell to be performed by Cox at the Cox stage. With regard to other periods, InsuranceWide did not have the infrastructure, the capacity or staff to deal with renewals. There was nothing in any of the contracts to show that InsuranceWide was being remunerated for issuing renewal documents, and provision of services without consideration is not a supply for VAT purposes. Finally it was submitted that matters relating to renewal were in any event outside the relevant timescale.
57. With regard to the misdeclaration penalties, the Commissioners' case was that there was no reasonable excuse for InsuranceWide's misdeclarations, clear public notices and guidance were available, but no advice was sought from the Commissioners by InsuranceWide as to their liability. There was no reasonable excuse for the Appellant's misdeclarations and therefore the appeal should be dismissed.
58. Turning to the Commissioners' case on the law, whilst it was recognised by Mr Key that Council Directive 77/92 was not of itself determinative or definitive in relation to interpreting the meaning of "insurance agent" for VAT purposes, he submitted that it was nonetheless something which the Tribunal was entitled to take into account. In particular Mr Key invited the Tribunal to take account of various features of what would in the United Kingdom be called an agent which are referred to in Article 2.1(b) of the Directive which provides:

"Article 2

1. This Directive shall apply to the following activities …

(b) professional activities of persons instructed under one or more contracts or empowered to act in the name and on behalf of, or solely on behalf of, one or more insurance undertakings in introducing, proposing and carrying out work preparatory to the conclusion of, or in concluding, contracts of insurance, or in assisting in the administration and performance of such contracts, in particular in the event of a claim."

In determining what is an insurance agent, the Advocate General in the case of Arthur Andersen, had deemed it more worthwhile to turn to the definition given by the Court of Justice in the case of Taksatorringen, where at paragraph 44 of the judgment the Court says:

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

59. Whilst the Court in Arthur Andersen leaves open the question as to whether one must necessarily construe "insurance agent" or "insurance broker" in the Sixth Directive in the same way as it is in Directive 77/92, it took comfort from the fact that its own conclusion that the Appellant was not an insurance agent accords with Council Directive 77/92.
60. The Appellant in the case of Arthur Andersen failed because there was an absence of finding and introducing customers and therefore the entity was not an insurance agent. Mr Key pointed to the positive aspects of the case and relied on three particular passages. The first is paragraph 31 of the Advocate General's opinion where the Advocate General refers both to Council Directive 77/92 and to the case of Taksatorringen where the Court of Justice ruled that the type of activities envisaged by the provision "involves the power to render the insurer liable in respect of an insured person". Arthur Andersen itself had relied on that passage because it had the power to render the insurer liable. The Advocate General continued:

"This conclusion is based on the premise that the classification of a person as an insurance agent stemmed from the fact that this person has the power to render the insurer liable vis-à-vis the insured person. However, it follows from the aforementioned art 2(1)(b) that a person may be classified as an 'insurance agent' even when acting 'solely on behalf of' of the insurer. It is clear that where he is not acting 'in the name' of the insurer, he does not have any power to render the insurer liable in respect of a third party. An insurer is not rendered liable in respect of the policyholders by the declarations of an agent who does not act 'in the name of the insurer' and who is thus not legally his representative. Accordingly, the power to render the insurer liable cannot be the decisive criterion for classifying a person as an insurance agent. It will not be sufficient, per se, to make a taxable person an insurance agent within the meaning of art. 13B(a) of the Sixth Directive. Other conditions must be fulfilled."

In a footnote to the Advocate General's opinion there is a reference to paragraph 45 of the judgment in the case of Taksatorringen which makes reference to paragraph 91 of the opinion of Advocate General Mischo where, for the action of a party on behalf of an insurer to qualify him as an insurance agent, it is specified that:

"… he must be party to a contract or an authorisation and act 'in the name and on behalf of, or solely on behalf of, one or more insurance companies', meaning that he must have the power to render the insurance company liable vis-à-vis the insured".

61. It was recognised by Mr Key that these remarks were made in a very different context from the present one, the Tribunal was not invited to make definitive rulings as to what is or is not an essential criterion in ultimate terms for an insurance agent, save as it relates to the present appeal. The Tribunal was invited to consider whether it is sufficient for an entity to find and introduce customers to have them regarded as an insurance agent, it was the Commissioners' case that this was not so.
62. Mr Key further directed us to paragraph 41 of the Advocate General's opinion in Arthur Andersen where again there is a footnote, which on this occasion refers to several other EC cases, and Mr Key cited in particular the judgment in the case of Starekassernes Datacenter (SDC) v Skatterministeriet (Case C-2/95) [1997] STC 932 in which the Court of Justice held, in the context of financial transactions, that "since point (3) of article 13B(d) of the Sixth Directive must be interpreted strictly, the mere fact that a constituent element is essential for completing an exempt transaction does not warrant the conclusion that the service which that element represents is exempt."
63. The next matter in relation to Arthur Andersen addressed by Mr Key is at paragraph 36 of the judgment where the Court said as follows:

"The essential aspects of the work of an insurance agent such as the finding of prospects and their introduction to the insurer are clearly lacking in the present case."

It was submitted that it was not open to the Appellant to use Arthur Andersen as the basis for saying that because its limited activities satisfied the criterion which was regarded as one of the essential elements in Arthur Andersen, therefore its supplies were exempt; more was needed.

64. Whilst the phrase or word "intermediary" does not appear at all in the Sixth Directive, it was acknowledged by Mr Key that it is a concept which emerges from the European cases and is essential even at a European level. In paragraph 24 of his opinion, the Advocate General in Arthur Andersen, after citing paragraph 44 of the judgment in Taksatorringen (set out above), continues:

"This definition places the emphasis … on the external action of the insurance agent, that is his position as a mediator between the policyholder and the insurance company, necessarily implying the existence of relations with both of these parties."

At paragraph 28 he continues:

"The decisive aspect, in my view, lies in the fact that a relationship between an insurance agent and a policyholder necessarily implies the existence of an agent's own declarations adopted as such and addressed to the policyholder before whom he presents himself as an insurance agent acting on behalf and possibly in the name of the insurer."

65. The Advocate General concludes that on the facts of the case before him Arthur Andersen cannot be considered to be in a legal relationship with both the insurer and the insured. Therefore, Mr Key submitted, whilst InsuranceWide did have a relationship with both parties, it did not have a relevant legal relationship and therefore was not acting as a mediator between the two. We were also referred to paragraph 36 of his opinion where the Advocate General cites paragraph 39 of the judgment of the court in CSC Financial Services Ltd, which is set out above at paragraph 40 and to the Advocate General's opinion in CSC Financial Services Ltd for a definition of negotiating, where at paragraph 39 he said:

"The idea of 'negotiating' refers to 'settling', 'giving way' and 'dealing'. In short the idea of managing one's own rights and interests in order to arrive at an agreement."

66. Mr Key invited the Tribunal to consider that the tribunal cases on which the Appellant relied were of marginal or of very limited relevance because they dealt with different and distinct factual situations, and because the line of cases relied on by Mr Cordara were cases in which financial services were under consideration rather than insurance services. It was submitted that it was not appropriate to read across from those cases to the insurance exemption because they derived from different words in the underlying core Directive.
67. Further with regard to the question of whether or not InsuranceWide was an intermediary, it was submitted that InsuranceWide had no involvement at all in the critical time frame, namely from the moment that the insurer starts dealing with someone who is seeking insurance. InsuranceWide could not go from the person seeking insurance to the insurer, and either find a binding quote or discuss terms, and it could not discuss any queries which the potential insured party may have with the insurer and revert back to him with information which the insurer had provided, which it was submitted, is what an intermediary does. In the present case the critical stage happened after the person seeking insurance had been put in touch with either an external broker an intermediary or with the direct insurer. The following elements were said to be missing:

(1) There was no real giving of advice or recommendations

(2) InsuranceWide does not deal with general or policy-specific queries

(3) In the early stages no quotes at all are given, quotes first arise under InsuranceWide Plus and InsuranceWide Connect. Even these are not binding quotes, they are indicative quotes. It is the insurer or other intermediary who provides a binding quote direct to the person seeking insurance with no role played by InsuranceWide.

(4) InsuranceWide does not provide assistance with the application made by the person seeking insurance.

(5) InsuranceWide does not have the ability to influence or vary the terms of the quote provided by the insurer, having a passive role rather than an active one. It was the Commissioners' case that an active role was essential both for the concept of an insurance agent and insurance broker and also for the concept of acting as an intermediary or in an intermediary capacity.

(6) InsuranceWide is not involved in the renegotiation of terms or in claims handling or policy administration or policy renewals. It was the Commissioners' case that matters after the contract were not relevant.

Decision

68. The first issue to be decided is what is meant by the word `agent' both in the law of England and Wales and in the European Union, and whether there is any material difference between the domestic legislation and Article 13A of the Sixth Directive. Secondly we must consider the concept of an intermediary, and what is meant by `providing the services of an intermediary'. We must also consider what, if any, is the distinction between an agent and an intermediary, bearing in mind Mr Cordara's suggestion that in its Public Notice 701/36/02 the Commissioners equated the terms 'agent' and 'intermediary', and his submission that, in the present case, it was not possible (to use his phrase) 'to unpick the two'. We were asked to look at the concepts of 'agent' and 'intermediary' in relation to each of the periods identified by Mr Cordara and decide in relation to each period whether or not the InsuranceWide is properly within the exemption. There is a presumption that the VATA complies with the Sixth Directive, so the words of Group 2 of Schedule 9 must be applied and construed in the light of Article 13B(a). The United Kingdom legislation is less restricted than the European legislation and the taxpayer is allowed to rely on it, the United Kingdom never having been infracted in respect of the relevant provisions. We bear in mind that the exemptions in the Sixth Directive must be interpreted strictly, being exceptions to general principles of taxation. We will, however, take account of the distinction made by Lord Justice Chadwick in the case of Expert Witness Institute that a 'strict' construction is not to be equated with a 'restricted construction'.

Issue 1 : The definition of an agent both in domestic and in European law was considered by the Tribunal in the case of C & V (Advice Line) Services Ltd. At paragraph 54 Stephen Oliver (as he then was) said:

"It is not suggested that C&V is an insurance broker. Nor, I think, would C&V properly be described as an insurance agent as that expression is used at least in England and Wales. This is because any agency characteristics that it obtains under the Service Agreement have nothing to do with the making of the FLP policy contracts with the policyholders or with the acceptance and settling of claims under those policies … In a normal sense an agent who acts within its authority has the capacity to contract with third parties on behalf of his principal. His acts, falling within his authority, are imputed to and bind his principal. …"

The tribunal then considered the European position and found that the concept there was wider. This conclusion was reached after considering the Insurance Intermediaries Directive (Council Directive 77/92) (the Sixth Directive itself having no definition of an insurance agent) and the cases of Century Life and Card Protection Plan in the European Court. However, we bear in mind that at this stage the cases of Arthur Andersen and Taksatorringen had not been decided. The tribunal stated at paragraph 57:

"The opening words of Article 2.1(b) cover the situation of the insurance agent as he will be recognised in England and Wales, i.e. the agent who has power to bind his principal to a policyholder. But the concluding words stand on their own and are not qualified by that requirement. The concluding words i.e. '… or in assisting in the administration and performance of such contracts, particularly in the event of a claim', cast the net wider. This was recognised by Jacob J in the Court of Appeal in Century Life at 44g-h."

The Tribunal then went on to conclude that the appellant, C&V, was an agent for the purposes of the Sixth Directive.

69. In the case of Arthur Andersen the court only tangentially considered the concept of an agent and its conclusions are mainly negative. However it did (in reliance on the case of Taksatorringen) state that it was required by case law for recognition as an insurance agent to have a relationship with both the insurer and the insured parties. The court described the activities of the appellant in that case as being in part 'the setting and payment of commission for insurance agents, the maintenance of contact with them, the handling of aspects relating to reinsurance and the supply of information to insurance agents and to the tax authorities' which, the court said, were 'quite clearly not part of the activities of an insurance agent'.
70. The court in Taksatorringen endorsed the words of the Advocate General's opinion in that case at paragraph 91 where he said:

"As far as the activities described in art 2(1)(h) of Directive 77/92 are concerned, which by para 2 of that article correspond to those of an insurance agent, the wording itself of the Community legislation does not refer to assistance given in the administration and performance of insurance contracts, particularly in the event of a claim, as being an ancillary activity, as this form of assistance is prefaced by the conjunction 'or', and thus within the same category as the introduction, proposing and carrying out of insurance contracts. In order for this assistance to be provided by an insurance agent, however, it must be given within the context of a contract or an authority to act and 'in the name and on behalf of, or solely on behalf of, one or more insurance undertakings'. There must therefore be a power to bind the insurance company in relation to the insured person who has submitted a claim …"

It is therefore the opinion of the European Court that, contrary to the decision of the Tribunal in C&V, Directive 77/92 does require that to be an agent there must be a power to bind the insurance company, however the court left open the question of whether or not it was necessary to construe 'insurance agent' in the VAT Directive in the same way. Whilst that Directive is not determinative or definitive (as Mr Key acknowledged) in relation to interpreting the meaning 'an insurance agent' for VAT purposes, VAT concepts being separate and freestanding, we are nonetheless entitled to derive assistance from it, and, in particular, from the way the European court has viewed it, and we do so.

71. We have carefully considered all the different stages in the present case, and do not find that InsuranceWide was acting as an insurance agent at any stage either in the European or in the United Kingdom: at no stage did it have power to bind the insurance company, which is one of the indicia of an agent (see paragraph 45 of the case of Taksatorringen set out at paragraph 61 above). InsuranceWide at all times specifically disclaimed being an agent and in a letter dated 4 March 2005 sent to HMRC, BDO Stoy Hayward stated that InsuranceWide was 'entirely independent' and that its recommendations were 'solely based on the best insurer for that particular risk', which is what the evidence before us showed to be the case. It might be expected that an agent would not be so detached. In addition InsuranceWide did not have any role to play in negotiating the terms of any of the insurance contracts which eventuated. InsuranceWide itself sends out reminders to the insured parties when their insurance is due for renewal. These reminders are sent out in its own name, and the insured parties are invited to visit InsuranceWide's own website again. We can only conclude that this is in order that the insured might view other options and possibly renew with a different insurance company which we consider to be evidence that InsuranceWide was acting on its own behalf and not on behalf of the insurers, as an agent would. It also was presumably in InsuranceWide's mind that, whilst making such a return visit, the insured might click on one of the other banners or other companies' names thereby generating further income for InsuranceWide. We accept that what happens after a person seeking insurance has been directed through to the insurer's website and taken out a contract of insurance is only tangentially relevant, but we consider it powerful evidence that InsuranceWide was not acting as an agent on behalf of any of the insurers.
72. We have looked with particular care at the 'Cox period', when InsuranceWide was bound to refer people seeking insurance to the Cox panel of insurers, and where the terms of the agreement with Cox superficially make it appear to be an agent, but at that stage all that InsuranceWide was doing when people clicked on to its own website was to pass them through to members of the Cox panel of insurers, and it was no more than a conduit for those seeking insurance to reach the insurers. At that stage InsuranceWide was not holding discussions on a regular basis with the insurers as it did later on, and had no role beyond that of an introducer. In our view it was not doing sufficient to bring it within the concept of an agent. At the Decision-Tree phase, Mr Harrison said InsuranceWide was moving from acting as an agent for just one group of insurers to acting on behalf of the number of potential insurers "with the possibility of recommending one or more of a number of insurers". We have underlined recommending because we do not in fact understand from the rest of the evidence that that is what InsuranceWide was doing. It was weeding out those companies which would not meet the requirements of the potential insured, and was doing no more than offering up the names of insurance companies which might be able to meet his needs. There was no suggestion that any particular insurance company was being 'recommended', albeit the name of one company would be put forward above the names of three others. Indeed the companies' own terms and conditions, which are set out above, specifically state that InsuranceWide does not endorse the suitability of any insurance products or services as it might be expected an agent would. Whilst we acknowledge that a company's terms and conditions are not definitive of its tax status, nonetheless we consider it relevant in this case that InsuranceWide chose to describe its activities in the way that it did, and, in particular, that in October 2004 it specifically disclaimed acting as an agent for either the insurer or the person seeking insurance. We consider that to be an accurate description of its position.
73. Although the fact that we do not find InsuranceWide to be at any stage an insurance agent, either under the Directive or the national legislation, and therefore that is sufficient to conclude this appeal, nonetheless we will go on to consider other issues in the appeal in case we are wrong in this conclusion.
74. Turning to the concept of an `intermediary', both parties relied on the opinion of the Advocate General in the case of Arthur Andersen where he said that to be an intermediary an agent must occupy a position as a mediator between the policyholder and the insurance company, which necessarily implied the existence of relations between those parties. Both parties also referred to Volker Ludwig, where at paragraph 23 negotiation was described by the court as "… in effect a service rendered to and remunerated by a contractual party as a distinct act of mediation. In that regard the purpose of such an activity is to do all that is necessary in order for two parties to enter into a contract." Mr Cordara says this is exactly what InsuranceWide does. Mr Key submits that InsuranceWide has no involvement at all in what is the critical timeframe, namely the moment when the insurer starts dealing with the potential insured. In effect we are being asked to decide whether, to be acting as an intermediary it is necessary for an insurance agent to be involved in some way in the settling of the specific terms of the contract made between the two parties or is it sufficient, as Mr Cordara submits, for it to have introduced the parties, to have detailed relations with the insurance companies, to be paid on commission only when a successful contract is signed, and to be the recipient of confidential information from the insurer? In effect the Commissioners rely on the European legislation and Mr Cordara relies on the VATA, although it is his case that InsuranceWide complies with both.
75. In the pre-Wizard phase all the interaction which occurred such as taking telephone calls, dealing with correspondence etc. took place between Cox and the persons seeking insurance, InsuranceWide had no part in it. InsuranceWide did not have legal relations with the persons seeking insurance and in the early stages specifically disclaimed any role as an intermediary in its Terms and Conditions. Its role was not that of a mediator between the parties, as was said by the Advocate General in Arthur Andersen to be necessary to qualify as an intermediary. During the pre-Wizard phase InsuranceWide was in our judgment nothing more than an introducer and its role at that time cannot be properly distinguished from that of an advertiser in that via its website it had no interaction with either party beyond making the one aware of the other and providing a means of the one contacting the other. Its activities during that period did not come within either the requirements of the Directive or the VATA, but came within those described in Note 7(a) to Group 2 of Schedule 9 of the VATA as a supply of 'advertising…or similar services' and as such are excluded from the exemption.
76. In respect of the periods after the introduction of the Wizard, Mr. Key submitted that InsuranceWide was still not an intermediary as it had only a passive role, it was not dealing with queries and was not acting on behalf of either party 'in the course of' the arranging of the insurance contract. It did not provide a definitive quote that was capable of acceptance and when live quotes were given to InsuranceWide they were not passed on to the person seeking insurance. However, the VATA does not require that to be an intermediary an agent has to be so involved. Note (1) only requires that he satisfy one of the sub-paragraphs (a) – (e). After the introduction of the Wizard InsuranceWide's activities went beyond that of being a mere promoter of, and introducer to, the insurance companies, which no longer all belonged to the Cox group. It conducted regular negotiations with a range of insurance companies about the nature and price of their products, and, by use of its software, it was able to save the insurers time in that it excluded inappropriate or unsuitable applications. It also saved the would-be insured time by referring him only to appropriate insurers. This was more particularly the case after the introduction of the InsuranceWidePlus and the InsuranceWideConnect phases when there was no longer a need for the person to fill in more than one form as the form completed on InsuranceWide's website could be put through directly to the relevant insurer. The fact that the quotes were given to InsuranceWide but not shown to the seeker of insurance of itself shows that InsuranceWide was doing far more than would a mere advertiser. It had to make a positive decision to select from the quotes shown to it those most suitable for the person's needs and only once it had done this did it pass the person on to the relevant insurance companies. We find that by reason of the above, from after the introduction of the Wizard, InsuranceWide was acting within the compass of the exemption provided by the VATA. We find that, despite its disclaimer in its terms and conditions, that it was as a matter of law acting as an insurance intermediary, that its services were related to an insurance transaction in the course of its acting in an intermediary capacity, that it was bringing together the relevant parties with a view to insurance within Note (1)(a) and (b) and also that it was carrying out work preparatory to the conclusion of contracts of insurance within Note (1)(c).
77. Whilst in the circumstances it is not necessary to decide whether or not InsuranceWide also comes within the European concept of an intermediary given that we have found that InsuranceWide does come within the provisions of the VATA, nonetheless in the event that this matter goes further we consider it appropriate to do so. In our judgment InsuranceWide, from after the introduction of the Wizard, on the basis of the activities set out in the preceding paragraph, does sufficient to bring it within the provisions of Article 13B(a) to the extent only that it provides services related to insurance and reinsurance transactions. We have of course already determined that it at no time is an insurance agent. We must also consider Mr. Cordara's submission that in effect there is no difference between the concept of an agent and an intermediary, for which he relies in particular on Public Notice 701/36/02. We accept that the Public Notice itself does equate the two concepts, however the VATA clearly distinguishes them and we must be guided by the legislation. A further submission made by Mr Cordara was that if InsuranceWide did not come within the exemption it would be at a competitive disadvantage vis-à-vis off-line insurance agents and brokers. Given our finding that it is not an agent, we do not consider that this is a relevant consideration.
78. With regard to the misdeclaration penalty, we informed Mr Cordara that it was not necessary to address us on that issue. The matters in issue are very technical, and the fact that the Commissioners felt it necessary to re-amend the Statement of Case at a late stage in the proceedings shows that it was not a straightforward case, as does the plethora of authorities to which we referred. We therefore announced our decision to allow the appeal on that matter only in the course of the hearing.
79. This appeal is dismissed. Liberty to apply with regard to the issue of costs.

MISS J C GORT

CHAIRMAN

RERELEASED: 8 November 2007

LON/06/221

This case was originally released on 15 October 2007 and was subsequently amended under the slip rule and released.