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You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> Burrows v Revenue & Customs [2007] UKVAT V20454 (09 November 2007)
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Cite as: [2007] UKVAT V20454
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Saffron Burrows v Revenue & Customs [2007] UKVAT V20454 (09 November 2007)
    20454
    VAT – PLACE OF SUPPLY – the Appellant supplied acting services for the production of a film, Perfect Creature in New Zealand – the Appellant's acting services related to artistic, cultural and entertainment activities – no requirement that the supplies had to be made before a live audience – the Appellant's supplies were physically carried out in New Zealand – the application of the words of article 9(2)(c) to the facts produced a construction that the place of supply was New Zealand – this construction met the purposes of article 9(2) and 9(2)(c) – satisfied the requirements of legal certainty, produced a rational solution, avoided distortion of competition and supplied no incentive for the Appellant to move her place of business – the place of supply of Appellant's supply of acting services was New Zealand – Appeal allowed

    LONDON TRIBUNAL CENTRE

    SAFFRON BURROWS Appellant

    - and -

    HER MAJESTY'S REVENUE and CUSTOMS Respondents

    Tribunal: MICHAEL TILDESLEY OBE (Chairman)

    SHAHWAR SADEQUE MBCS (Member)

    Sitting in public in London on 10 & 11 September 2007

    Mitchell Moss of Dorsey and Whitney for the Appellant

    Matthew Barnes, counsel instructed by the Solicitor for HM Revenue & Customs, for the Respondents

    © CROWN COPYRIGHT 2007

     
    DECISION
    The Appeal
  1. The Appellant was appealing against an assessment for unpaid VAT in the sum of £18,616 plus interest issued by the Respondents on 11 April 2005.

  2. The assessment was for output tax due on fees paid by Perfect Creature (NZ) Limited to the Appellant, an actor based in the United Kingdom, for acting services in the film, Perfect Creature, which was shot in New Zealand.

    3. The Dispute
  3. The dispute concerned the place of supply of the Appellant's services. The Appellant contended that the Appellant's acting services were cultural, artistic or entertainment activities which fell within article 9(2)(c) of the EC Sixth Directive (77/388/EC). The Appellant's acting services were physically carried out in New Zealand. Thus the place of supply of the Appellant's services was New Zealand, in which case no output tax was due on the fees.

  4. The Respondents submitted that the Appellant's acting services were not cultural, artistic or entertainment activities because she was supplying those services in connection with a film. Thus article 9(1) of the EC Sixth Directive determined the place of supply of the Appellant's services which was where she had her permanent address, namely the United Kingdom.

    5. The Legislation
  5. Article 9 of the EC Sixth Directive (77/388/EC) provides as follows so far as is relevant to this Appeal:

  6. The place where a service is supplied shall be deemed to be the place where the supplier has established his business or has a fixed establishment from which the service is supplied or in the absence of such a place of business or fixed establishment, the place where he has his permanent address or usually resides.

  7. However:

    8. c) the place of the supply of services relating to:
    - cultural, artistic, sporting, scientific, educational, entertainment or similar activities, including the activities of the organisers of such activities, and where appropriate supply of ancillary services,
    shall be the place where those services are physically carried out.
    The Hearing
  8. The Chairman declared at the outset of proceedings that his daughter was a professional actor but her position would not be affected by the outcomes of the decision. The parties raised no objections to the Chairman sitting.

  9. The Appellant put forward an alternative argument if its principal argument on the provisions of article 9(2)(c) failed. The parties agreed that the alternative argument, which was that the Appellant's supply of services constituted supplies of intellectual property rights and or of advertising services, should lie on the file. The factual basis for the alternative argument contradicted the agreed factual premise adopted by both parties for the principal argument which was that the Appellant made a single supply of acting services.

  10. We heard evidence from Maria Dawson and Andrew Prodger for the Appellant. Ms Dawson was employed by the Appellant's agent as Head of Legal Affairs and Company Secretary. She gave evidence about the Appellant's contract with Perfect Creature (NZ) Limited and about the acting profession generally. Mr Prodger was an Assistant General Director for Equity, the Actors' Union, who gave evidence about the acting profession and the film industry. We received in evidence an agreed bundle of documents.

    11. The Evidence
  11. The Appellant was an established professional actor who had performed in films, television and theatre. The Appellant resided in the United Kingdom.

  12. In March 2004 the Appellant contracted with Perfect Creature (NZ) Limited to perform the role of Lilly in the film, Perfect Creature, which was described as a vampire action movie. The contract required the Appellant to render acting services in the role of Lilly which was to be supplied in New Zealand where the filming would take place. The Appellant received a fee[1] for her services. Under the contract the Appellant was obliged to participate in rehearsals, wardrobe fittings and filming. The Appellant could also be recalled to re-shoot scenes or dub her voice and carry out other post production activities. As part of the contract the Appellant was required to publicise the film when it was released, attend at premieres and promotional events and give interviews in several different countries.

  13. In May 2004 the Appellant arrived in New Zealand for the filming and remained there until August 2004. The Appellant carried out a further half day of dialogue work in Los Angeles.

  14. The place of business for Perfect Creature (NZ) Limited was New Zealand. The company was a special purpose vehicle set up to produce the film. Perfect Creature (NZ) Limited was a consortium of various production companies and organisations including, amongst others, New Zealand Film Commission and Sensible Films. The consortium members financed the film in return for shares of the distribution rights in the film. Under their contracts the Appellant and the other actors assigned irrevocably the intellectual property rights in their performances in the film to Perfect Creature (NZ) Limited. The assignment enabled Perfect Creature (NZ) Limited to exploit the intellectual property rights by selling the film to distribution companies which then released the film in cinemas or in DVD and other media formats to the general public.

  15. Perfect Creature (NZ) Limited chose the Appellant for the role of Lilly through a casting process, which involved a casting agent and the Appellant's representative. The Appellant would have been selected on the basis of being the right person to deliver the role of Lilly in an artistic way which developed the story line as perceived by the producer for the film. Under the contract the Appellant worked to the director of the film who ensured that the Appellant applied her acting skills to portray the story for the film.

  16. There were no fundamental differences in the practical and legal arrangements for an actor's supplies of acting services for a film and for a stage production. Whether it was for a film or the stage, the actor would have an agreement with a production company governing the provision of acting services. Under the agreement the actor would assign the rights in her performance to the production company which would enable the company to sell the production to distribution companies or theatres. The actor would be expected to attend rehearsals and turn up at locations specified by the production company. In both film and theatre the actor would work to the artistic direction of a director.

  17. The essential distinction for an actor between a film and a stage production was that generally on a film set the actor was performing to a camera whereas on stage the performance was to a live audience.

  18. The making of a film was a time consuming process. As a rule about three to five minutes of film footage was the product of one day of filming. Also a substantial period of time may elapse after the actors have completed their performance and the release of the film, so as to allow for editing and marketing of the film.

  19. The film, Perfect Creature, was sold to several distribution companies which had separate rights in various parts of the world. The film was released in 2006, some two years after the Appellant completed her acting assignment in the film.

  20. The distribution companies for Perfect Creature included:

    21. (1) Magna Pacific: theatrical rights in New Zealand.
    (2) Magna Pacific: DVD in Australia.
    (3) Jiant Pictures/MK Network: all media in New Zealand.
    (4) Festive Films: all media in Singapore.
    (5) Twentieth Century Fox of Germany: theatrical rights in Germany.
    (6) Twentieth Century Fox Film Corporation: theatrical rights in USA.
  21. Ms Dawson stated that a distinction of acting services based upon whether they were supplied for a film or a stage production would produce anomalies. Some stage productions were recorded for broadcast or release on DVDs or in cinemas. Other stage productions would be filmed in the absence of an audience. She considered that United Kingdom actors would be at a disadvantage if they were required to charge VAT on supplies of acting services for a film physically carried out in a place outside the United Kingdom. In her view it would provide an incentive for film production companies to employ actors outside the United Kingdom which would prevent United Kingdom actors from competing on an equal footing with actors not based in the United Kingdom .

  22. Ms Dawson added that it was the practice of the acting industry not to invoice for VAT on behalf of actors performing in films outside the European Union.

    23. Summary of the Parties' Representations
    Appellant's Representations
  23. The Appellant considered that the key issue in this Appeal was whether acting in a film was cultural, artistic, or entertainment activities within the meaning of article 9(2)(c) of the Sixth Directive. The Appellant submitted that article 9(2)(c) must be construed according to its clear words. If a supply of services fell within those clear words there was no need to refer to the policy behind it. However in this Appeal the clear meaning of the words and the policy led to the same result. According to the Appellant the policy behind article 9(2)(c) was to stop tax avoidance, settle potential conflicts of jurisdiction and aid the simple incidence of VAT.

  24. The Appellant contended that there was no distinction between film acting and theatrical acting. Acting in a film fell clearly within the definition of cultural, artistic or entertainment activities and such a construction met the policy objectives of article 9(2)(c) of the Sixth Directive.

    25. The Respondents' Representations
  25. The Respondents submitted that the place of supply of the Appellant's services was determined by article 9(1) of the Sixth Directive. The Appellant resided in the United Kingdom which was the place from which she supplied her acting services for the production of Perfect Creature.

  26. The Respondents contended that article 9(2)(c) did not apply because:

    27. (1) The supply of acting services for the purpose of recording a film did not fall within the definition of cultural, artistic, entertainment activities. The Respondents considered that supplies of acting services in themselves were not necessarily cultural, artistic entertainment activities. The supplies had to be interpreted in the context in which they were delivered. In this Appeal the acting services were supplied for a film which was fundamentally different from those acting services supplied for a theatre production. An actor playing a role in a film was not actually taking part in the supply of cultural, artistic, or entertainment services because it was not to an audience unlike a performance in a theatre. The filming of the actor's role was simply part of the process which may lead to the cultural, artistic, or entertainment experience of the finished film.
    (2) In any event the terms of article 9(2)(c) must be read as referring to live performances. The Respondents' interpretation was based upon the purposive construction of article 9(2)(c) which was to resolve potential disputes between Member States about certain services supplied between taxable persons where the cost of the services was included in the price of goods. Article 9(2)(c) did not apply to the Appellant's services because the price paid by the final consumer of the complete service, the film, did not necessarily happen in the State where the filming took place. Thus by reading the words live performance in article 9(2)(c) it ensured that article 9(2)(c) only applied where the place of supply of cultural, artistic, entertainment activities corresponded with the place where the final consumer paid for the activity. Where there was no correspondence between the places of supply of the services and their consumption, the provisions of article 9(1) of the Sixth Directive applied. The Respondents' construction of articles 9(1) and 9(2)(c) resolved potential conflicts between Member States about the determination of the place where taxable transactions were effected.
    Reasons for Decision
    Preliminary Matters
  27. We were advised that this Appeal was a test case for the Appellant who frequently acted in films outside the United Kingdom, and for the acting industry as a whole in the United Kingdom. In consequence the advocates at times supported their submissions with examples which, although interesting, did not directly relate to the facts of the Appeal. We reminded the parties that our responsibility was to apply the law to the facts found in this case and make our decision on that basis not on the circumstances of hypothetical examples.

  28. Article 9(2)(c) of the Sixth Directive has been incorporated into United Kingdom Law by virtue of the VAT (Place of Supply of Services) Order 1992. The parties accepted that there were no significant differences between Article 9(2)(c) and the terms of the 1992 Order. In those circumstances we have referred throughout the decision to the European legislation rather than the domestic legislation.

  29. Respondents' counsel submitted that Advocate General's opinion in decided cases of the European Court of Justice was not binding on the Tribunal. In his view what counted was the actual decision of the European Court not the Advocate General's opinion. We accept counsel's basic proposition that it was the Court's decision which was binding upon us. We consider, however, that the Advocate General's opinion often threw light on the reasoning of the Court of Justice and was persuasive, particularly where the Court followed the Advocate General's recommendations.

    30. Facts Found
  30. The parties agreed that the Appellant made a single supply of acting services. We found that the acting services were made to a production company, Perfect Creature (NZ) Limited, for the purposes of producing a film. The Appellant physically carried out her acting services in New Zealand except for one half day of dialogue work which took place in Los Angeles. Under the contract the Appellant applied her skills as an actor to play the role of Lilly in a story about vampires which was described by viewers as good original vampire action movie.

  31. The Appellant was resident in the United Kingdom. Perfect Creature (NZ) Limited acquired the Appellant's intellectual property rights in her performance in the film, and presumably the rights of the other actors.

  32. The production company, Perfect Creature (NZ) Limited, was based in New Zealand. The company sold the film rights to distribution companies which in turn sold them on in various formats to retailers, cinemas and broadcasting companies from where the public paid to see the film and or own a copy of it. Virtually all the parties, including the public, and transactions involved in the chain of supply of the film rights starting with Perfect Creature (NZ) Limited were outside the European Union. Only one of the nine distribution companies, Twentieth Century Fox of Germany, held distribution rights within the European Union, which were theatrical rights for Germany.

  33. We are satisfied that the legal and practical arrangements for an actor supplying acting services for a film were essentially the same as for her acting services supplied for a theatrical production. In both instances the actor was supplying acting services to a production company. Further the purpose of supplies of acting service for a film and theatre productions was the same, namely, to interpret the role creatively under direction so as develop the story for the film or the play.

  34. We find that the charging of VAT on United Kingdom actors on their supplies for a film physically carried out outside the United Kingdom would prevent United Kingdom actors from competing on an equal footing with actors not based in the United Kingdom.

  35. We placed no weight on Ms Dawson's evidence about the current practice of representatives not to invoice for VAT on behalf of their actors performing in films outside the European Union.

  36. Equally we did not consider it relevant to our deliberations that the Appellant appeared not to account for New Zealand sales tax (the equivalent to VAT) on her invoices to Perfect Creature Limited. This issue was only raised by the Respondents during the hearing. The Appellant had been unable to investigate this issue fully. In any event we considered a detailed examination of the reasons for apparently not accounting for New Zealand sales tax would deflect from the dispute under Appeal.

    37. The Relationship between Articles 9 (1) and 9(2)(c) of the Sixth Directive
  37. In their skeleton arguments Counsel described article 9 (1) as the normal rule for determining the place of supply of services and article 9(2)(c) as an exception to the normal rule. The characterisation of article 9(2)(c) as an exception, however, did not mean that the article should be construed restrictively.

  38. The European Court of Justice has considered the relationship between articles 9(1) and 9(2) on several occasions and its position was summed up in RAL (Channel Islands) and others v Commissioners for Customs and Excise (Case C -452/03 [2005] STC 1025:

    39. "23. Article 9 of the Sixth Directive contains rules for determining the place where services are deemed to be supplied for tax purposes. Whereas article 9(1) lays down a general rule on the matter, article 9(2) sets out a number of specific instances of places where certain services are deemed to be supplied. The object of those provisions is to avoid, first, conflicts of jurisdiction which may result in double taxation, and, secondly, non-taxation
    24. In respect of the relationship between the first two subparagraphs of article 9 of the Sixth Directive, the Court of Justice has already held that article 9(1) in no way takes precedence over article 9(2). In every situation, the question which arises is whether it is covered by one of the instances mentioned in article 9(2); if not, it falls within the scope of article 9(1)".
  39. Thus the starting point in this Appeal was to consider whether the Appellant's supplies of acting services were covered by article 9(2)(c), only if they were not would the residual regime of article 9(1) be applicable.

    40. Is the Appellant's supplies of acting services covered by article 9(2)(c)?
  40. The Respondents contended that the Appellant's acting services did not fall within the provisions of article 9(2)(c) because they were not cultural, artistic, or entertainment activities, and in any event they were not performed before a live audience.

    41. Contextual Interpretation Argument
  41. The Respondents' first argument depended upon the proposition that acting services in themselves were not necessarily cultural, artistic, or entertainment activities. It was the context in which the acting services were supplied which determined whether the acting services fell within the definition of cultural, artistic, or entertainment activities. Thus acting in a film was not caught by the provisions of article 9(2)(c), whereas acting for a live theatre production met the requirements of article 9(2)(c).

  42. The authorities of Dudda v Finanzamt Bergisch Gladbach (Case C-327/94) [1996] STC 1290 and RAL (Channel Islands) and others cited by the parties were decided on different facts from this Appeal and did not directly deal with the Respondents' contextual interpretation of the provisions of article 9(2)(c). Dudda concerned the issue of whether the services of a sound engineer were ancillary to cultural or entertainment activities. The nature of the disputed issue required an examination of the relationship between the sound engineer's services and the principal event. RAL (Channel Islands) and others looked at the question of whether a gaming machine constituted entertainment activities.

  43. We consider the factual issues in Dudda and RAL (Channel Islands) were more problematical than the factual issue of this Appeal because they were concerned with activities which were at the margins of cultural, artistic or entertainment activities. In this Appeal the Appellant was supplying acting services not some ancillary service. In Dudda the German government referred to academic commentaries on the use in its tax legislation of the term 'artistic' or 'entertainment' activity, which listed actors, musicians, singers, performers, entertainers, conductors, quiz masters and members of similar professions as 'artists', while classifying as 'entertainment' the activities of entertainers, compθres, cabaret singers, pop singers, variety artists and circus performers. The lists attracted no adverse comment from the Advocate General in Dudda.

  44. The Oxford English Dictionary defined artistic as having or revealing creative skill; cultural as relating to the arts and to intellectual achievements; and entertainment, the action of entertaining. In this case the Appellant applied her skills as an actor to play the role of Lilly in a story about vampires which was described by viewers as a good original vampire action movie. We are satisfied that the Appellant's acting services when viewed objectively would certainly meet the definition of artistic activity since they involved her creative skills as an actor. Equally we consider that her supplies of acting services fitted the requirements of cultural and entertainment activities. Her acting was related to the arts and provided entertainment to those who watched the film.

  45. In RAL (Channel Islands) the Advocate General, M Poiares Maduro, formed the view that the essential purpose of the activity should, be the decisive factor to be taken into consideration in characterising a given activity as cultural, artistic or entertainment within the meaning of art 9(2)(c). The purposes of the Appellants' acting were to interpret the role creatively so as develop the story which would entertain or give a cultural experience to others.

  46. We found no merit in the Respondents' first argument about the context for the acting services being the determining factor for whether the acting was a cultural artistic or entertainment activities. The argument was not supported by the evidence given at the hearing which demonstrated that acting retained its fundamental character of the actor applying her skills under direction to interpret a role creatively regardless of the context in which the services were supplied. Specifically we found no distinction between supplies of acting services for a film and for the theatre. In both the actor employed her skills to perform roles and supply services to a production company.

  47. Further the Respondents' application of a contextual interpretation of acting services to decide whether they were cultural artistic or entertainment activities. undermined the principle of legal certainty. It would result in conflicting categorisations of acting services throughout the community because the type of categorisation would depend upon the context rather than the nature of the activity supplied. Moreover it would have the potential of determining the category in accordance with the artistic quality of the acting services. In Dudda the Advocate General firmly rejected the contention of the German and Italian governments that Member States have a discretion with regard to the definition of the various categories of services mentioned in art 9(2)(c). The principle of legal certainty dictated a uniform Community interpretation. This principle applied with particular rigour to rules which have fiscal consequences, so that individuals can identify their obligations. We suggest that the Advocate General's reasoning applied equally to refute the Respondents' proposition of a contextual interpretation of acting services.

    48. Live Performance Argument
  48. The Respondents' second argument was that the terms of article 9(2)(c) should be read as referring to live performance. The actual wording of article 9(2)(c) did not include the wording live performance. Article 9(2)(c) used the words where those services are physically carried out. In this Appeal the Appellant physically carried out her acting in New Zealand.

  49. The source of live performance was the Respondents' Notice 741 Place of Supply of Services. At paragraph 5.1.1 of the March 2002 edition the Respondents cited the services of an actor or singer performing before a live audience as an example of service supplied where performed. In paragraph 5.3 the Respondents gave the example of entertainment services which do not involve performance before a live audience as an example of services that were not supplied where performed. The terms of Notice 741 carry no legal force. The origin of the Respondents' interpretation of article 9(2)(c) to include live performance was unclear.

  50. The VAT and Duties Tribunal in British Sky Broadcasting [1994] (Decision Number 12394) endorsed the Respondents' view expressed in Notice 741 that entertainment services which did not involve performance before a live audience were not covered by the provisions of article 9(2)(c). However, the Tribunal's endorsement must be treated with caution because the Tribunal determined its decision on the premise that article 9(2)(c) was an exception to the general rule and as such must be interpreted strictly, which was at odds with the construction of article 9(2)(c) adopted subsequently by the Court of Justice.

  51. Equally we did not consider the Tribunal decisions in Chichester Cinemas (Decision Number 19344) and The Corn Exchange Newbury (Decision Number 20268) as relevant to this Appeal. They were concerned with the meaning of the word performance not what constituted artistic, cultural and entertainment activities. Further the Tribunals were considering whether the requirements of an exemption under schedule 9 of the VAT Act applied. The terms of which were required to be construed strictly.

  52. In RAL (Channel Islands) the Advocate General considered the appellants' argument that gaming machines were not entertainment activities because the provision of slot gaming machines did not involve any entertainment provided by an entertainer. The customer entertained himself by using the slot machine largely in the same way that a person used a mobile telephone. The Advocate General rejected the argument pointing out that it was the purpose of the gaming machine which was the decisive factor in characterising a given activity as 'entertainment' within the meaning of article 9(2)(c). In the Advocate General's opinion the appellants' argument in RAL that entertainment required some form of physical individual performance by the entertainer was immaterial. Each slot gaming machine was an automatic device of the operator, programmed to be substituted for the physical performance of a natural person standing face to face with the customer and dealing cards at random for him. Such substitution did not impinge on the entertainment character of the activity performed by the machine for the customer.

  53. In Dudda the Advocate General acknowledged at paragraph 44 of his opinion that artistic, entertainment, and cultural services would normally be directly consumed at the place of provision, through the simple fact of the presence of the consumer at the performance. He, however, excluded from his analysis questions arising from the provision of artistic or entertainment services for recording purposes. Such services were ultimately consumed by the public only after the distribution of discs, cassettes or other media which can be classified as goods for the purpose of turnover tax.

  54. The Advocate Generals' analyses cited above cast doubt on the Respondents' contention that the terms of article 9(2)(c) should be read as referring to performances before a live audience. In RAL (Channel Islands) the decisive criterion for determining classification of an activity as artistic, cultural or entertainment was the purpose of the activity. The Advocate General's proposition that a machine could stand in the place of a live performer questioned the correctness of the Respondents' view. In Dudda the Advocate General's observation that the services would normally be consumed at the place of provision left open the possibility that article 9(2)(c) could apply to services which were not totally consumed at the place where they were performed.

  55. We consider the Respondents' assertion that the terms of article 9(2)(c) should be read as referring to live performances placed an unwarranted restriction on the interpretation of the plain wording of the article which was the place of the supply of services relating to cultural artistic and entertainment activities shall be the place where the services are physically carried out. Under a construction of the ordinary meaning of article 9(2)(c) the place of the Appellant's supplies would be New Zealand which was where she physically carried out her acting services.

    56. The Purposive Argument
  56. We are, however, not giving full consideration to the subtleties of the Respondents' argument by focussing solely on the literal articulation of its position that the terms of article 9(2)(c) should be read as referring to live performances. Respondents' counsel was also contending within his argument on live performances that the construction of article 9(2)(c) had to be consistent not only with the wording of the provision but also with the objects of the Sixth Directive of which it was part. Appellant's counsel suggested in his skeleton argument that where the activity fell within the relevant words of article 9(2)(c) there was no need and no basis to consider the policy behind the article. He did, however, go onto consider whether the Appellant's interpretation of article 9(2)(c) met the purposes of the Sixth Directive.

  57. We are satisfied that when interpreting a provision of Community law it was necessary to consider not only the wording of that provision but also the objects of the rules of which it was part.

  58. The seventh recital in the preamble to the Sixth Directive sets out the scope of article 9(2) in the light of its purpose:

    59. ".. the determination of the place where taxable transactions are effected has been the subject of conflicts concerning jurisdiction as between Member States, in particular as regards supplies of goods for assembly and the supply of services; ... although the place where a supply of services is effected should in principle be defined as the place where the person supplying the services has his principal place of business, that place should be defined as being in the country of the person to whom the services are supplied, in particular in the case of certain services supplied between taxable persons where the cost of the services is included in the price of the goods".
  59. The Court of Justice in Dudda reached the following conclusions about the purposes of article 9(2) and article 9(2)(c):

    60. "23. The overall purpose of article 9(2) of the Sixth Directive is accordingly to establish a special system for services provided between taxable persons where the cost of the services is included in the price of the goods.
    24. There is a similar purpose underlying the first indent of article 9(2)(c) which lays down that the place of the supply of services relating, inter alia, to artistic and entertainment activities and ancillary services is the place where those services are physically carried out. The Community legislature considered that, in so far as the supplier provides his services in the state in which such services are physically carried out and the organiser of the event charges the final consumer value added tax (VAT) in the same state, the VAT charged on the basis of all those services the cost of which is included in the price of the complete service paid for by the final consumer must be paid to that state and not to the state in which the supplier of the service has established his business".
  60. In RAL (Channel Islands) the Court of Justice held that Dudda was not authority for restricting the application of article 9(2)(c) to transactions between taxable persons. In this respect the Court affirmed the reasoning of the Advocate General at paragraph 33:

    61. "I would mention, finally, that the application of article 9(2)(c) in the present case does not collide with the judgment in Dudda [1996] STC 1290, [1996] ECR I-4595. None of the interveners at the hearing perceived any such contradiction and neither do I. At paragraph 23 of the judgment in Dudda the Court of Justice stated that 'the overall purpose of article 9(2) of the Sixth Directive is accordingly to establish a special system for services provided between taxable persons where the cost of the services is included in the price of the goods'. That statement by the Court of Justice should however be understood in the light of the particular facts of Dudda, which involved exclusively taxable persons. The supply under analysis there took place only between taxable persons, but neither a literal nor a teleological reading of the Sixth Directive gives support to the conclusion that article 9(2)(c) is not applicable to supplies of services relating to entertainment activities occurring between a taxable person and a final consumer".
  61. The Respondents considered that the decisions in Dudda and RAL (Channel Islands) supported their argument about live performances. In effect the Respondents were asserting that article 9(2)(c) only applied to acting services when the place of supply of those services coincided with the place of the final consumer. Thus the cost of the acting services was a cost component of the price of goods sold to the final consumer which conformed with the general principle that VAT should be charged at the place of consumption. In this Appeal the Respondents contended that the final consumers of the Appellant's acting services were the cinema goers and the purchasers of the DVD of the film. The evidence showed that the film rights in Perfect Creature were distributed throughout the Far East, Australasia, North America and Germany. The place of consumption of the film was not restricted New Zealand where the Appellant physically carried out her acting services. Thus where there was a mismatch between the place of supply of the acting services and the place of final consumption of those services, the provisions of article 9(2)(c) did not apply which meant that the place of the supply of acting services was determined by the residual rule of article 9(1).

  62. We consider the Respondents' interpretation of the Dudda and RAL (Channel Islands) decisions in respect of the purposes of articles 9(2) and 9(2)(c) flawed. The seventh recital in the preamble to the Sixth Directive did not use the word final consumer. According to the seventh recital the function of article 9(2) was to establish a more rational basis for the taxation of supplies of specific services based upon the place of the recipient of those supplies rather than the place of the supplier's business establishment. The seventh recital used the words recipient of the supplies not final consumer.

  63. The factual basis for the decision in Dudda was that the sound engineer physically carried out his services in the same place as the recipient (the events organiser) and the final consumer. The Court of Justice in Dudda did not consider the situation where the final consumer did not consume the supplies in the same place as where they were physically carried out. The Advocate General made this clear in paragraph 43 of his opinion when he excluded from his analysis questions arising from the provision of artistic or entertainment services for recording purposes, which services were ultimately consumed by the public only after the distribution of discs, cassettes or other media. The RAL (Channel Islands) judgment was that the provisions of article 9(2)(c) were not precluded on the ground that the recipients of the services concerned were final consumers. Thus the words recipient of the supplies in the seventh recital can include final consumers but was not restricted exclusively to final consumers.

  64. The Respondents' argument on the mismatch between the place of supply of the acting services and the place of final consumption of those services failed to address the specific purposes and regime for article 9(2)(c). In Dudda the Court found that article 9(2)(c) created a specific regime for determining the place of the supply of services relating to artistic, cultural and entertainment activities which was the place where those services were physically carried out. The Advocate General in paragraph 37 of his opinion identified the reason for the specific regime which was that the article 9(2)(c) services comprised essentially the application and realisation of the personal qualities, knowledge or skills of the supplier. The supplier of those services could easily move her central management unit to low-tax locations if her services were not deemed to be supplied at the place where those services were physically carried out. The Advocate General in Ral (Channel Islands) at paragraph 32 of his opinion also identified distortion of competition and removal of the incentive to move to low tax regimes as part of the purposes of article 9(2)(c).

  65. We consider that the Respondents' reliance on the place of the final consumer negated the very structure of the specific regime of article 9(2)(c). Their reliance rendered otiose the key determining criterion of the specific regime which was the place where those services were physically carried out. In effect the Respondents were reconstructing article 9(2)(c) by substituting the place where those services were physically carried out with the place of the final consumer.

  66. In this case the Appellant did not supply her acting services to the consumers who attended the cinema or purchased the DVDs. She supplied her services to the production company, Perfect Creature (NZ) Limited, which in turn sold on its rights in the production to distribution companies. The Appellant physically carried out her acting services in New Zealand. The recipient of her supplies was Perfect Creature (NZ) Limited, whose principal place of business was New Zealand. The cost of the Appellant's acting supplies was included in the price of the sale of rights in the film by Perfect Creature (NZ) Limited to distribution companies. Thus on this analysis New Zealand was the place where the Appellant's services were supplied and received.

  67. We find that the Appellant supplied her acting services in New Zealand. We are satisfied that our finding was consistent with the wording of article 9(2)(c) and with the purposes for articles 9(2) and 9(2)(c). Our finding met the requirements of legal certainty by applying the criterion of where the services were physically carried out to determine the place of taxation. This criterion was readily identifiable, and avoided artificial categorisations of acting services for taxation purposes which corrupt the ordinary meaning of the words and lead to considerable dispute about the correct basis for taxing acting supplies. It produced a rational solution from the point of view of taxation since the Appellant's supplies were subject to the taxation regime of the country in which the recipients of those services were established. It has no undesirable consequences in terms of distortion of competition and relocation of the Appellant's place of business. The Appellant would have no incentive to move her place of business from the United Kingdom which would have been the case if the provisions of article 9(1) had determined the place of supply.

  68. The Appellant also advanced the argument that article 9(1) was not applicable because if article 9(1) fixed the place of supply in the United Kingdom Perfect Creature (NZ) Limited could only recover the VAT by means of a reclaim under the 13th Directive which was a slow and cumbersome procedure and contrary to the purposes of the VAT scheme. We did not consider this to be a persuasive argument in support of the Appellant's case because the Appellant's entitlement to a 13th Directive reclaim only arose if the provisions of article 9(2)(c) did not apply.

    69. Conclusion
  69. We followed the ruling of the Court of Justice that article 9(1) did not have precedence over article 9(2)(c), the wording of which should not be construed restrictively. The correct approach was to consider whether the facts of this Appeal were covered by the provisions of article 9(2)(c); if not, they would fall within the scope of article 9(1).

  70. We found that the Appellant's acting supplies for the production of the film, Perfect Creature, were supplies related to cultural, artistic and entertainment activities. We came to that conclusion by examining what was being supplied, the purpose of the supplies and applying the ordinary meanings of acting, cultural, artistic and entertainment.

  71. We decided that there were no fundamental differences between acting supplies for a film and acting supplies for a theatre production. Our decision was supported by the evidence which showed that the nature of the acting supplies and their legal and organisational arrangements were the same for both film and theatre productions. We concluded that to classify acting supplies according to the context in which they were supplied would offend the principle of a legal certainty and lead to conflicting categorisations of acting services throughout the European Union.

  72. We found that the Appellant physically carried out the acting supplies for Perfect Creature in New Zealand. The Appellant made the supplies to the production company, Perfect Creature (NZ) Limited, which had its place of business in New Zealand. The cost of the Appellant's acting supplies was included in the price of the film rights sold by Perfect Creature (NZ) Limited.

  73. We held that on a construction of the ordinary meaning of the words used in article 9(2)(c) that the place of the Appellant's supplies of acting services was New Zealand. The acting supplies related to cultural, artistic and entertainment activities, and they were physically carried out in New Zealand.

  74. We decided that our construction of the ordinary meaning of the words used in article 9(2)(c) met the purposes of articles 9(2) and 9(2)(c). We found that the purpose of article 9(2) was to establish a special regime for supplies of services between taxable persons where the cost of the services was included in the price of the goods. We decided that the words recipient of the supplies in the seventh recital can include final consumers but was not restricted exclusively to final consumers In essence article 9(2) provided a more rational solution for locating the place of the supply of services rather than the one provided by article 9(1). The services covered by article 9(2)(c) comprised the application and realisation of the personal qualities, knowledge or skills of the supplier who could easily move her central management unit to low tax locations. The specific purpose of article 9(2)(c) was, therefore, to prevent distortion of competition and remove the incentive to move to low tax regimes.

  75. We considered that the Respondents' reliance on the place of the final consumer negated the very structure of the specific regime of article 9(2)(c). Their reliance rendered otiose the key determining criterion of the specific regime which was the place where those services were physically carried out.

  76. We held that our finding that the Appellant supplied her acting services in New Zealand met the requirements of legal certainty and produced a rational solution in that the Appellant's supplies were subject to the taxation regime of the country in which Perfect Creature (NZ) Limited, the recipient of those services, was established. Our finding avoided distortion of competition and provided no incentive for the Appellant to move her place of business from the United Kingdom which would have been the case if the provisions of article 9(1) had determined the place of supply.

    77. Decision
  77. We decide that the provisions of article 9(2)(c) applied to the Appellant's supply of acting services to Perfect Creature (NZ) Limited, not the provisions of article 9(1). We hold that the place of supply of the Appellant's acting services was New Zealand. We find that there was no legal basis for the assessment in the sum of £18,616 plus interest issued by the Respondents on 11 April 2005. We, therefore, allow the Appeal. We order the Respondents to pay the reasonable costs of the Appellant.

    78. MICHAEL TILDESLEY OBE
    CHAIRMAN
    RELEASE DATE: 9 November 2007

    LON 2005/1273

Note 1   We have not specified the amount of the fee to protect commercial confidentiality. The amount of the fee was not in dispute between the parties.    [Back]

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