United Kingdom VAT & Duties Tribunals Decisions

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Trader Media Group Ltd v Revenue & Customs [2008] UKVAT V20671 (08 May 2008)

20671

Value Added Tax – Exempt Supplies – Insurance Transactions – Whether Appellant provides services of an insurance intermediary – Yes – VATA Group 2 Schedule 9 – EC Council Directive 2002/92 Article 2(3) - Appeal Allowed

LONDON TRIBUNAL CENTRE

TRADER MEDIA GROUP LTD Appellant

and –

THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS Respondents

Tribunal: DR KAMEEL KHAN (Chairman)

MRS R A WATTS DAVIES MHCIMA, FCIPD

Sitting in public in London on 18 and 19 March 2008

Miss Valentina Sloane for the Appellant

Mr Paul Key for the Respondents

© CROWN COPYRIGHT 2008

DECISION

This is an appeal by the Appellant, Trader Media Group Ltd ("TMG") against a decision of the Respondents ("the Commissioners") that supplies made by TMG to Budget Insurance Services Ltd ("BISL") do not fall within the exemption for insurance intermediary services in item 4 Group 2 Schedule 9 of the Value Added Tax Act 1994 ("VATA").

The decision is contained in a letter dated 31 July 2006 and by a decision on review dated 2 February 2007.

In the decision letter, the Commissioners state:

"… we do not see Autotrader as an insurance broker or agent acting in an intermediary capacity. We view your actions as being facilitation and no more".

The Appellant operated the Autotrader website (www.autotrader.co.uk) which contains an area for customers to seek car insurance quotes.

Factual background

TMG is the representative member of the VAT group in which Trader Publishing Ltd ("TPL"), the taxpayer in dispute, is a member.

TMG is a publishing company which specialises in classified display advertising. It is based in the UK and is majority owned by Guardian Media Group. TMG produces 72 publications with a combined circulation of more than one million copies per week, including titles such as Auto Trader, Bike Trader, Truck Trader and Top Marques.

The main business of TMG is the publishing of classified advertisements which allows members of the public and businesses to sell a wide variety of motor vehicles. Historically, vehicles were advertised in the Auto Trader magazine but TMG now has an online site in addition to the magazine. Normally TMG display website advertising (banner advertising) are placed through media agencies and TMG charges the advertiser a fee. None of those publishing or advertising services is at issue in this appeal.

The online version of the Auto Trader magazine was launched in 1997. The site proved to be very popular. The online site comprises a number of products including the ability to advertise a car for sale, car valuation, details of new cars, financing, insurance and other products.

In respect of insurance products offered, there is an "Insurance Centre" which allows customers using the website to obtain quotes for car insurance from a panel of selected reputable insurers. Initially, the service was simply a reference service to third party insurance providers who remunerated TMG on a tenancy (monthly rate) basis. In 2005, TMG undertook a formal tender process and invited a number of potential partners to submit bids for entering into a partnership type arrangement under which the insurance provider could work with TMG to sell their products.

The bidders were assessed on their ability to do the following (Invitation to Tender Document and evidence of Mr T B White)

(i) ensure that the insurance model offered to users provided the widest possible choice, the best possible price and the most professional user experience;

(ii) provide a scaleable, controllable and increased revenue stream to TMG;

(iii) raise the profile of www.autotrader.co.uk as a number one destination for users seeking motor insurance;

(iv) provide detail and transparency around the revenue being generated i.e. traffic quotes, policies sold and approval for information to be used in conjunction with other marketing initiatives;

(v) ensure the proposed model was compliant with regulatory requirements;

(vi) ensure the design was optimised for external search engines by including provision for display of text to be identified by search engine robots; and

(vii) provide a model optimised for performance which was able to handle large volumes of traffic.

Seven tenders were received and BISL was the successful bidder. One of the names under which BISL trades is Compare The Market. BISL is an independent intermediary dealing with insurers and is authorised and regulated by the Financial Services Authority ("FSA"). It undertakes price comparison to assist users in finding the best possible price for their car, home and personal insurance needs.

A contract was entered into between BISL and TMG to the relationship between the parties. The contract was called, The Insurance Introducer Agreement ("Introducer Agreement").

TMG and BISL were jointly involved in improving the online service and running the Insurance Centre on the Auto Trader website. At TMG the work was mainly undertaken by the Display Advertising Team which is responsible for selling online advertising and administering contracts. The strategic direction of the businesses was undertaken by a partnerships team headed by Mr T B White (the only witness) who joined the company in June 2006.

The Insurance Centre is run by Comparethemarket.com, which has relationships with different insurers. TMG introduces prospective insurance clients from among its customers who use the Auto Trader website with a view to the conclusion of an insurance contract with one of the selected insurers on the panel. TMG is paid on a commission basis once a proposer has entered into an insurance contract with one of the insurers.

TMG and BISL exchange data and collaborate in order to maximise the potential of the insurance business and to provide an improved service to customers and insurers.

How the customer uses the online service

The Appellant provided a computer and projector demonstration of the online service at the hearing. Various printed documents were provided to the Tribunal which illustrated the use of the service.

A brief explanation of how the service works is given below.

A user logs on to the Auto Trader website. There were a number of options in terms of the information available which were contained in links from the home page to other parts of the website or in a drop down menu. For example, a user could click on the "Finance Centre" to access information relating to loans or could click on the "Motoring Centre" to access information about car warranties or MOT tests. Similarly, if a user wished to access information in respect of insurance products, there were a number of routes available to access the Insurance Centre. The Insurance Centre contained information about choosing the best motor insurance policy. It did this by asking standard form questions of the proposer and provided in return information on insurance cover and premiums. There was no negotiation between the parties.

To get a customer to use the Insurance Centre they were invited to press the "get a quote" button. At that stage, they entered into the Auto Trader and Compare The Market branded insurance quotation page which opened up a separate "window" on their computer screen. Questions were asked and answers given in order to provide the information necessary for a quote. The URL or internet address for the quotation process was that of Auto Trader and customers gained access to the questions through the Auto Trader website.

The questions in the proposal form or questionnaire were set by BISL. TMG was not involved in the preparation of these questions but had the power to review and object to questions. The quotation process took about four minutes to complete providing all questions were answered. A number of insurance quotes were provided to the user in a price comparison table for review. At the top of the table was stated that TMG had "teamed up with a range of quality insurance companies to offer you online quotations".

The panel of insurers used at the start of the business was small. TMG made suggestions for the insurance panel based on an understanding of the consumer experience and demographics. The more TMG understood its audience, the more conscious it was to provide customers with the type of insurer who would be competitive in providing quotes (for example, with regard to male drivers under 25).

The user could click on one of the insurance offers in the comparison table if they wished to purchase that product. The purchase could be immediate. An e-mail confirmation of the policy was sent by BISL to the user. The insurance premium could be paid online by making an electronic payment. Insurance policy documentation would follow by post within five working days. The insurance process was done on the Auto Trader website. All communications between the users were done on Auto Trader branded e-mails sent by BISL. The website was easy to use in that the customer needed to input information once to obtain several quotations.

The BISL/TMG agreement

TMG and BISL entered into the Introducer Agreement on 13 December 2005. The agreement was initially for a period of three years. It was an exclusive agreement in that TMG was prohibited from entering into any similar agreements with other insurance brokers. It was drafted by legal representatives of both parties.

Under the terms of the agreement TMG received a fixed commission price per contract. BISL earned income from commission included within the premium charged to customers. There was an understanding between the parties that the commission level paid to BISL could be influenced by TMG in order to make the product more competitive.

A management team monitored the day-to-day activities of the partnership. There were monthly meetings between the parties attended by representatives of both side.

The parties exchanged information to improve the business. They also added and subtracted insurance panel members depending on the business needs generated by sales. Data and site users were monitored to ensure that the products were targeted to maximise buying.

The parties had joint marketing initiatives and the way in which the site was accessed was monitored continually. There were regular customer surveys which were carried out across the website to enhance and develop the BISL propositions and increase traffic. The technology (listings and word placements) was improved to ensure that there were maximum returns.

Ring binders of information were provided to the Tribunal. The ring binders included all correspondence between the parties and the advisers, the law and authorities and a comprehensive witness statement of Mr T B White. Additionally, printouts of the website including the Insurance Centre and all documents were provided under separate cover. The Introducer Agreement between the parties formed part of the information provided.

The witness, Mr T B White, was the head of partnerships at TMG. He provided detailed evidence which lasted approximately for half of one day of the hearing.

The legislation

European Community legislation

Directive 77/388 ("the Sixth Directive") provided for exemption for insurance at Article 13B(a):

"Without prejudice to other Community Provisions, Member States shall exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of the exemptions and of preventing any possible evasion, avoidance or abuse;

(a) insurance and re-insurance transactions, including related services performed by insurance brokers and insurance agents; …"

With effect from 1 January 2007, the Sixth Directive was repealed. The exemption for insurance services is now contained in Article 135(1)(a) of Directive 2006/112 ("Directive 2006/112"). There is no material difference between the wording of the Articles.

Neither the Sixth Directive nor Directive 2006/112 defines "insurance brokers" or "insurance agents" for these purposes. The only definition of insurance brokers and agents is found in the repealed Directive 77/92 which defined insurance brokers and agents in Article 2 as follows:

"1. This Directive shall apply to the following activities falling within Ex ISIC Group 630 in Annex iii. to the General Programme for the abolition of restrictions of freedom of establishment:

(a) Professional activities of persons who, acting with complete freedom as to their choice of undertaking, bring together, with a view to the insurance or re-insurance of risk, persons seeking insurance or re-insurance and insurance or re-insurance undertakings, carry out work preparatory to the conclusion of contracts of insurance or re-insurance and, where appropriate, assist in the administration and performance of such contracts, in particular in the event of a claim;

(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, contract of insurance, or in assisting in the administration and performance of such contract, in particular in the event of a claim".

Directive 72/92 was repealed by Directive 2002/92 of 9 December 2002 on insurance mediation ("Directive 2002/92"). Directive 2002/92 does not have any definition of insurance agents or insurance brokers, referring instead to "insurance intermediaries". Recital 9 to the Directive explains:

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

Article 2(3) of the Directive 2002/92 defines insurance mediation as:

"The activities of introducing, proposing or carrying 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."

Article 2(3) excludes from the scope of insurance mediation the following:

"The provision of information on an incidental basis in the context of another professional activity provided that the purpose of that activity is not to assist the customer in concluding or performing an insurance contract, the management of claims of an insurance undertaken on a professional basis, and loss adjusting an expert appraisal of claims shall not be considered as insurance mediation;"

Article 2(5) defines an "insurance intermediary" as "any natural or legal person who, for remuneration, takes up or pursues insurance mediation".

Domestic legislation

The enabling provision for VAT exemption is found in section 31 VATA which states:

"A supply of goods and services is an exempt supply if it is of a description for the time being specified in Schedule 9 and an acquisition of goods from another Member State is an exempt acquisition if the goods are acquired in pursuance of an exempt supply."

The exemption for insurance is found in Group 2, Schedule 9 VATA (which took effect from 19 March 1997) and provides as follows:

"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 –

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

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

In addition, the exemption extends to some services provided by an insurance intermediary by virtue of item 4 Group 2, Schedule 9, VATA 1994 which states:

"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 reinsurance transaction; and

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

The VAT legislation does not define "insurance broker" or "insurance agent". Note (1) to Group 2 defines "services of an insurance intermediary" as follows:

"For the purpose 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 re-insurance of risk, of –

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

(ii) persons who provide insurance or re-insurance;

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

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

(d) the collection of premiums".

Note (2) to Group 2 defines "acting in an intermediary capacity" as follows:

"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 re-insurance; and

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

Note (7) excludes from the scope of item 4:

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

(b) the collection, correlation and provision of information for use in connection with market research, product design, advertising, promotional or similar activities".

We were referred to the following cases:

SDC Case (C-2/95), [1997] STC 932

Card protection Plan Case (C-349/96), [1999] STC 270

Century Life plc v Customs and Excise Commissioners [2001] STC 38

Skandia Case (C-240/99) [2001] STC 754

CSC Financial Services (Case-235/00), [2002] STC 57

Taksatorringen Case (C-8/01), [2006] STC 1842

Arthur Andersen Case (C-472/03, [2005] STC 508

Abbey National Case (C-169/04, [2006] STC 1136

Dogbreeders (VTD 4295)

British Horse Society Ltd (VTD 16204)

Morganash Ltd (VTD 19777)

Royal Incorporation of Architects in Scotland (VTD 20252)

InsuranceWide.com Services Ltd (VTD 20394)

We were referred to the following HMRC published guidelines:

Business Brief 11/05

Public Notice 701/36

HMRC's Manual V1-7, Ch.17, Section 5

The evidence

The Tribunal was provided with three large agreed ring binders of documents which contained, inter alia, various screen shots of the Auto Trader website. We heard oral evidence from Mr T B White.

We were provided with copy of the invitation to tender document. The tender process took place in 2005. The document gave the background to the Auto Trader business and stated that Autotrader.co.uk aimed to be "the number one online market place for buyers and sellers of motor vehicles and related products and services". The tender document outlined the objectives which TMG had for promoting its insurance business (the actual document was issued by Trader Media Digital (TMD).

The management structure envisaged for the new business had a Head of E-Commerce, Head of Sales, and Commercial Director. When a new partner was selected from the tender process, a Project Manager was appointed with the following duties:

Planning and control of the project (integration, design etc)

Progress reporting to the partners

Resolving issues

Facilitating communications between partners

The Introducer Agreement was the main document signed between TMG and BISL. The contractual terms are not determinative of the nature of a supply for VAT purposes but the contract is instructive in understanding the parties' intention. Let us look at some provisions of that Agreement which were referred to at the hearing.

The Introduction to the Agreement provided at paragraph A the following:

"Auto Trader Digital is the trading division of Trading Publishing Ltd specialising in the online marketing of used vehicles, primarily by means of the website with URL www.autotrader.co.uk ("Auto Trader website"). BISL is in the business of arranging insurance including the vehicle insurance to third parties. BISL and Auto Trader Digital have an existing separate arrangement for the distribution of insurance for commercial vehicles. By this Agreement, Auto Trader Digital and BISL make provision that Auto Trader Digital will provide a hypertext link ("Hypertext Link") in the agreed form on the Auto Trader website at the page for car insurance located at http//www.autotrader.co.uk/CARS/motoring/ins/insurance-centre.isp ("CAR Insurance Page") that will link to the BISL website located at www.comparethemarket.com (the "BISL Quotation Website"). The Hypertext Link will constitute the route by which Auto Trader Digital will trade with Prospective Customers to BISL."

OPERATIVE PROVISIONS

"1.1 This Agreement sets out the basis on which Auto Trader Digital will make provisions to introduce users of the Autotrader Website to the BISL Quotation Website to enable BISL to provide quotations for Products to Prospective Customers.

1.2 Autotrader Digital owns and controls the Autotrader Website that is focused on the use car sector. Pursuant to this Agreement, Autotrader Digital shall include navigation and the Hypertex Link from the Auto Trader Website to the BISL Quotation Website in order to introduce Prospective Customers to BISL.

1.3 BISL owns and controls the BISL Quotation Website comprising inter alia proprietary text and images and providing a comparison table with comparative price indicators for Products that are available for sale to Prospective Customers seeking vehicle insurances.

1.4 When a Prospective Customer enters the BISL Quotation Website they shall be promptly provided with a series of web pages requesting customer details. This process is completed when a selection of insurance quotation results is displayed as per Schedule 1. The display of such a page shall constitute a completed quote ("Completed Quote").

1.5 The BISL Quotation Website also contains links to other websites relevant to the Products offered for sale to Prospective Customers. The sale of Products will be effected via those linked websites.

1.6 Autotrader Digital undertakes that throughout the continuance of this Agreement, the inclusion of the Hypertext Link on the Car Insurance Page of the Autotrader Website shall, subject to clause 1.8, be the only Hypertext Link to a car insurance provider's website and that such Hypertext Link shall be in the location and format as set out in Schedule 2 of this Agreement unless changes thereto have been agreed in writing between the parties.

1.7 BISL acknowledge that Autotrader Digital has other interests outside the used vehicle sector. For the avoidance of doubt, any undertaking in this Agreement shall not preclude Autotrader Digital from entering into insurance-related arrangements with third parties in respect of other areas of its business including, in particular, new vehicles and BISL acknowledge that they are aware of a separate agreement by Autotrader Digital to link from their new vehicle pages to the www.insuresupermarket.com website.

1.8 Autotrader Digital undertakes not to include Hypertext Links from the Autotrader Website to BISL competitors that provide aggregated insurance quotes from various insurance providers on their website ("Aggregator Sites"). For the avoidance of doubt, an Aggregator Site means a website on which a prospective customer is provided with a facility to compare used car insurance available from two or more providers who are not the owner of the website in question. Particular examples of Aggregator Sites include insuresupermarket.com, confused.com and InsuranceWide.com., Autotrader Digital's undertaking shall not preclude Autotrader Digital from displaying advertising for alternative insurance products or for providers other than BISL on the Autotrader Website. For the avoidance of doubt, Autotrader Digital's freedom to include advertising other than for Aggregator Sites shall include hypertext links, banners, buttons, hotspots, skyscrapers and rich media, save that Autotrader Digital shall not include pop-unders or sub-sites within the Autotrader Website to promote third parties' insurance products.

1.9 In the event that advertising permitted pursuant to clause 1.8 hypertext links to a website which subsequently includes or becomes an Aggregator Site, Autotrader Digital shall be afforded 30 days from notice of such change to take down the hypertext link from the Autotrader Website to what has then become an Aggregator Site."

Duties

"3.1 Autotrader Digital will notify BISL of any proposed change to its Car Insurance Page and any other significant change to the form, content or structure of the Autotrader Website within 14 days prior to such change. BISL will notify Autotrader Digital of any prospective change to its Completed Quote page as referred to in clause 1.3 and any other significant changes to the form, content, or structure of the BISL Quotation Website within 14 days prior to such change.

3.2 BISL may use the names, brand names, logos and trademarks of Autotrader Digital on the BISL Quotation Website (in the manner and format as previously agreed by Autotrader Digital) but shall not use any names, brand names, logos and trademarks in any other way nor will BISL indicate to customers or Prospective Customers of the Products that Autotrader Digital is in any way responsible for the sale, arrangement or administration of the products other than as set out in this Agreement.

3.3 Autotrader Digital may use the names, brand names, logos and trademarks of BISL only in the course of introducing Prospective Customers to BISL through navigation and through a Hypertext Link to introduce Prospective Customers to the BISL Quotation Website and only in the manner and format previously agreed in writing by BISL. Autotrader Digital will not use or display such names, brand names, logos and trademarks for any other purpose."

Remuneration

"5.1 BISL undertakes subject to the provision of clauses 6 and 7, to pay Autotrader Digital the sum of £[ ] per month as advanced insurance commissions ("the Advances") for each month or part thereof during the initial 18 month period from the Commencement Date. The parties have agreed that the Advances are in anticipation of the Insurance Commission and Renewal Insurance Commission that would otherwise, but for this payment be due and are in respect of the significant volumes of Prospective Customers being introduced by Autotrader by the Prospective Customers clicking through from the Autotrader Website to the BISL Quotation Website. Furthermore, it is estimated that no fewer than 75,000 Prospective Customers shall be introduced to the BISL Quotation Website via the Hypertext Link and generate a Completed Quote during each calendar month of this Agreement."

Insurance Commissions

"6.1 Further to the payment of the Advances and any reconciliation thereof as set out in clause 7, Autotrader Digital shall further be entitled to payment of insurance commissions calculated by reference to the number of products sold to Prospective Customers that have provided Completed Quotes ("Insurance Commission").

6.2 An Insurance Commission shall be due to Autotrader Digital in the event that the value of products sold and retained in a given month is in excess of £[ ] (Monthly Sales Threshold). If sales of the products in a given month exceed the Monthly Sales Threshold, Autotrader Digital shall be paid an Insurance Commission of £[ ] for each product sold and retained in excess of the Monthly Sales Threshold. For the purposes of this Agreement a product shall be deemed to be sold and retained where BISL has received the full premium or (where premiums payable by instalments) the first instalment of premium payable for that Product and that Product is not cancelled within the cancellation period provided for under the Financial Services Authority Handbook for that product. Reconciliations of Insurance Commission to determine whether any Insurance Commission is due shall be determined pursuant to clause 7.

6.3 Autotrader Digital shall further be entitled to payment from BISL of a renewal insurance commission calculated by reference to the number of Products sold to prospective Customers that are renewed and retained during the continuance of this Agreement where the Monthly Sales Threshold has been exceeded. Subject to the foregoing Autotrader Digital shall be entitled to a renewal insurance commission of £[ ] per Product previously sold to a Prospective Customer that is renewed and retained in any month or part thereof ("Renewal Insurance Commission"). For the avoidance of doubt, any Product renewed after the termination of this Agreement shall not entitle Autotrader Digital to receive a Renewal Insurance Commission. For the purposes of this Agreement a Product shall be deemed to be renewed and retained where BISL has received the full premium or (where premiums payable by instalments) the first instalment of premium payable for that Product and that Product is not cancelled within the cancellation period provided for under the Financial Services Authority Handbook for that Product.

6.4 The parties shall, when conducting a reconciliation of the Advances every three months, contemporaneously conduct a reconciliation of Insurance Commission and Renewal Insurance Commission for the same Reconciliation period to determine whether any Insurance Commission for each of the months in the Reconciliation Period is due to Autotrader Digital or due to be rebated to BISL Reconciliation of Renewal Insurance Commission shall also occur at the same time."

Financial services compliance

"11.1 BISL are authorised and regulated by the Financial Services Authority ("FSA") and shall ensure that the marketing and provision of Products by them shall at all times be fully compliant with the Financial Services and Markets Act 2000, any regulations made thereunder and the FSA Handbook.

11.2 BISL shall at all times ensure that it has and maintains all licences, approvals, authorisations and permissions (including any necessary authorisation from the Financial Services Authority) required to enable it to exercise its rights or perform its obligations under this Agreement. BISL acknowledges that Autotrader Digital is not in the business of selling financial products and is not regulated pursuant to FSMA. Autotrader Digital is merely placing a Hypertext Link on its website in order to introduce Potential Customers to BISL.

11.3 BISL undertakes to promptly inform Autotrader Digital of any changes to the rules and regulations under FSMA or the FSA Handbook that BISL are aware of that could effect the regulatory status of Autotrader Digital or the arrangements pursuant to this Agreement."

Confidentiality

"13.1 Without prejudice to the obligations of the parties contained in the Letter of Agreement dated 29 October 2004 ("the Letter"), which is amended by this Agreement to make the provisions set out in Annex 1 of the Letter applicable to both parties mutates mutandis, both Parties and their employees, agents and representatives will treat any information supplied by the other Party, including any customer database and any details of this Agreement, including but without limitation the Advances, Renewal Insurance Commission or Insurance Commission payment arrangements as strictly confidential ("Confidential Information") and will use best endeavours to preserve such confidentiality. Without prejudice to the generality of the foregoing, all information and data furnished to BISL by customers and potential customers introduced to BISL via the advertisement and/or hypertext link referred to in cause 1.3 shall, as between the parties be the property of BISL and shall for the purposes of the said Letter of Agreement dated 29 October 2004 be deemed to be confidential information of BISL."

General

"20.2 Nothing in this Agreement shall create, or be deemed to create, a partnership or the relationship of employer or employee between the parties.

20.3 This Agreement constitutes the whole agreement between the parties with respect to the subject matter hereof and shall have effect in substitution for all previous agreements and arrangements between the parties hereto with respect to the subject matter hereof (whether or not reduced to writing) all of which shall be deemed to have been terminated by mutual consent. This Agreement may not be modified or amended except by an instrument in writing signed by the duly authorised representatives of the parties. Each of the parties acknowledges that it is not relying on any warranty, representation or undertaking by the other party or any of its officers, servants or agents other than as contained herein."

The provisions above were referred to at the hearing and may be referred to in this decision.

The Buying of insurance using the Insurance Centre : Step by Step

The Tribunal was provided with screen shots of the Auto Trader website which enabled a mock demonstration of the insurance product purchased to be understood by the Tribunal. The process was important in understanding the way in which the product was sold.

In terms of a step by step process these screen shots explained the buying process as follows:-

On accessing the website home page, users were faced with a number of options in terms of information available to them contained in the links from the home page to other parts of the website or in drop down menus. One of these was the Insurance Centre.

The Insurance Centre contained information for choosing the right motor insurance policy, some frequently asked questions relating to the car insurance, an explanation of insurance and how to make claims. The Insurance Centre stated it was "powered" by Compare The Market.com, which was identified at the bottom of the page as the trading name of BISL Ltd, an independent intermediary dealing with selected insurances and authorised and regulated by the Financial Services Authority.

The insurance quotation page was co-branded by Auto Trader and Compare The Market.

Once the proposer had completed the questions and submitted answers a quotation for insurance from various companies was provided.

The questions were similar to those which have to be completed in the proposal form for any motor insurance.

By clicking on a selected insurance quotation in the comparison table, the user would be taken through further details of that particular insurance product and would then be able to purchase the product online.

A premium, given as an annual and monthly instalment figure, would be provided together with excess details, breakdown and legal liability cover.

If the proposer wished to purchase insurance from a company this could be done online by making an electronic payment and a policy document would follow in the post. If the proposer did not wish to purchase at that time a reference number was provided which could be re-accessed at any time. This number was provided by e-mail from the Auto Trader branded website.

HMRC Guidelines : who are agents and brokers

The Tribunal was referred to HMRC Notice 701/36 and HMRC Manual V1-&, Ch 17, which provides HMRC's guidelines on insurance transactions, brokers and agents and insurance related services. These are provided below:-

HMRC Notice 701/36, Clause 9.1 and 9.2 state:-

"9.1 What are insurance brokers and agents?

The Sixth VAT Directive exempts,

"… (insurance) related services performed by insurance brokers and insurance agents."

It is important to view this phrase as a whole and apply the exemption only where insurance related services (as defined in section 8) are supplied by insurance brokers and agents.

Generally speaking, the kind of services covered by the exemption are those that are traditionally carried out by insurance brokers or agents (that is, arranging insurance contracts and performing related follow up services such as amendments to cover and claims handling).

For the purposes of the VAT exemption, however, brokers and agents are defined in terms of what they do rather than what they are and, as well as insurance brokers and agents by profession, it can apply to other intermediaries making supplies of 'related services'."

1.1 Traditional brokers and agents

"If you are an insurance broker or agent by profession, most of the services you supply are likely to be the kind of services covered in section 8 and qualify for exemption.

It does not follow, however, that everything you do will be exempt insurance services; any services you supply which are not closely related to insurance will fall outside the insurance exemption (although they may qualify for exemption elsewhere).

…"

1.2 Other insurance intermediaries

"If you are not an insurance broker or agent by profession, you are not automatically excluded from the exemption. As well as traditional brokers and agents, other intermediaries sell insurance and/or supply services connected to insurance in other ways.

We do not, therefore, restrict the exemption to those who are insurance brokers and agents by profession but allow exemption for other intermediaries supplying services akin to those of traditional brokers and agents.

Such businesses will probably not be supplying only insurance related services and it is likely that the supply of insurance services will not be their main business activity. Insurance related services are often supplied by businesses such as estate agents and solicitors in connection with their principal business activities. Many retailers arrange insurance in connection with the goods they are selling (for example, extended warranties on electrical items or breakdown cover on cars).

Whilst VAT exemption is not conditional upon membership of the General Insurance Standards Council (GISC) (see paragraph 8.2.2), we accept that businesses which qualify for membership of GISC are also likely to qualify as intermediaries for the purposes of the VAT exemption.

Regardless of who is supplying them, however, insurance related services will only be exempt when the supplier is acting in an intermediary capacity (see paragraph 9.2 below for information on what is meant by this)."

Clause 9.2 provides on the meaning of acting in an intermediary capacity.

"The term 'agent' or 'intermediary' by definition means 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 the VAT exemption, insurance brokers, professional insurance agents and other intermediaries must all be acting 'in an intermediary capacity' when supplying a 'related service'."

HMRC's Manual, Volume VI-7, Chapter 17 provides some guidance on the HMRC's view of the treatment of supplies by insurance brokers and insurance agents and interpretation and definition of the terminology used in the legislation.

Paragraph 5120 of HMRC's Manual provides some guidance on the UK regulation of brokers and agents.

"Historically, regimes have existed in the UK for the regulation of intermediaries arranging long term insurance but there has been very little regulation of those involved in the general insurance market.

The Financial Services and Markets Act (FSMA) gave statutory powers to the Financial Services Authority (FSA) with the intention of merging the functions of second-tier regulators under one over-arching regulator.

To comply with the requirements of the EX Insurance Mediation Directive (see VATINS 5110) a regulatory regime for general insurance intermediaries was put in place in the UK with effect from January 2005."

Paragraph 5200 of HMRC's Manual provides guidelines on the definition of insurance broker and agent –

"For the purposes pf the VAT exemption we recognise an insurance agent as anyone who provides insurance related services in an intermediary capacity."

Paragraph 5210 of HMRC's Manual use some guidance from ECJ's decision in Arthur Andersen & Co Accountants C472/03 (Andersen's case) to explain intermediary services -

"This Dutch case concerned the VAT liability of certain 'back office' services supplied by Arthur Andersen to an insurance company. These services included the issuing, management and cancellation of policies, the management of claims and, in most cases, taking decisions that bound the insurer to enter into insurance contracts."

Paragraph 5220 of HMRC's Manual provides guidelines on insurance brokers and agents acting as intermediaries -

"An insurance intermediary for the purposes of Group 2 is someone who acts in the direct chain between an insurer providing insurance and anyone who wants to buy, or has already bought, insurance or re-insurance."

Paragraph 5240 of HMRC's Manual give details of the services of an insurance intermediary -

… "insurance related" (Art.135 1(a) Directive 2006/12)

… related services performed by insurance brokers and insurance agents …

The term "related services" is not defined but it is clear that the services must be related to insurance transactions."

Paragraph 5310 of HMRC's Manual provides details of the borderline between advertising and introductory services -

"The following are indicators that the service may be an exempt supply if insurance related introductory services:

"intermediary is paid per successful take-up of insurance policy and

intermediary is targeting its own customers and

a product of insurer is endorsed by the intermediary."

Contract Documents

Volume 2 of the agreed bundle of documents contains a witness statement of Mr T B White as well as 19 further dividers of relevant information, correspondence, job descriptions, screen shots of the website and information on the Insurance Centre. It is a comprehensive bundle of documents and was referred to at the hearing.

We refer in this decision to part of one of the document in that bundle (Tab 20 called the Differences Between Display Contracts and Partnership Contracts "Display/Partnership Comparison Chart") ). It provides as follows:-

Differences between Display Contracts and Partnership Contracts ("Display/Partnership Comparison Chart")

Standard Ad Agreement	BISL Contract
New Business Media Agencies book advertising	Complete tender process where a number of parties were involved in bidding for the opportunity to partner with Auto Trader
Contract Limited term (typically 1 month) – example attached Payment invoiced 1 month after delivery of ads irrespective of performance Payment based on CPM rate No legal assistance required at point of set up	3 years duration Payment on a commission basis directly related to quote volumes via A/T website Payment based on a commission per sale Involvement of both TMG lawyers and BISL legal representatives to finalise contract Service Level Agreements around website "up/down time" included Account auditing a regular feature
Remuneration Site display advertising, for example banners/or sponsored inks promoting insurance companies such as Churchill or Tesco Insurance are generally placed through media agencies, for an advertising fee. There is no link on this business between fee payment and policy sales.	Auto Trader remuneration was based upon an insurance commission of £35 per policy and £10 commission per renewal.
Product No input into product development – the customer simply clicks the advert and is routed through to the advertiser's website.	The consumer was helped through a full quotation process that was branded with Auto Trader colours/logos at all times culminating in a transaction which lead to the distribution of a policy At all times it was made clear, fair and not misleading to the consumer that the Insurance product itself was provided by BISL. BISL provided Auto Trader specific data to a range of BISL panel member insurers to ensure products were targeted relevantly. This panel was added to with new insurers throughout the agreement following reviews of sales generated, thereby increasing the relevance of the insurance proposition for consumers and driving more sales Pricing – Auto Trader had the ability to influence pricing by agreeing commission levels with BISL A significant amount of Management time was targeted around developing new products through the BISL relationship e.g. the Auto Trader branded motor insurance product with meaningful benefits such as a free 30 day warranty
Marketing None	Creative development required in the form of the design of Insurance Centre and related links The purchase of key words and media space across insurance related Internet sites to drive insurance traffic to the Auto Trader website Marketing planning and implementation resource required
Resource/Regular Meetings Ad campaigns are sold by both an internal and external sales team Campaign meetings are held on an ad hoc basis	Auto Trader provides dedicated resource to managing the day-to-day activity of our relationships with key partners (Insurance and therefore BISL being the flagship product). This resource consists of a Channel Development Manager and Channel Development Executive (Job Description attached) In addition to the above Auto Trader also provide regular resource in the form of Commercial Director – E-Commerce and Head of Financial Services in order to ensure our BISL relationship fits with broader TMG objectives/strategy Since launch on Auto Trader BISL have appointed both Commercial and Marketing Managers Scheduled monthly meetings with BISL to cover critical Business issues (recent meeting minutes attached). All of the above individuals were in attendance as well as the managing director of Compare the Market Auto Trader also provided marketing resource. The attached minutes highlight an initiative whereby Auto Trader wee looking to promote its Insurance Centre offline via Petrol pumps/forecourts across the UK An increasing amount of time is required to support BISL in its negotiation with Insurers/underwriters
MI/Reporting Limited knowledge around performance of ad MI provided by TMG to confirm delivery of ads	BISL – a daily breakdown of quote volumes/sales on a fortnightly basis BISL – profile information provided regularly highlighting customer demographics and policy details (attached) Auto Trader – analysis of the above in order to ensure our marketing activity and product development plans are optimised Auto Trader – provision of site-wide traffic data both existing and forecasted to ensure we maximise seasonal traffic to BISL Collation of consumer research (see below)
Consumer Research None	Regular surveys carried out across www.autotrader.co.uk in order to enhance and develop BISL proposition (see attached example) Usability groups assembled to sense check new website developments aimed at driving traffic to our Insurance pages. This included eye-tracing technology which highlighted how easily users recognised links to Insurance
IT Development/Deployment There is a simple process of uploading advertiser image – this takes approximately half an hour max to complete	The initial development of the current service took around 3 months, including development time from both companies across design, development and execution There was ongoing work to ensure that we maximised traffic and quote volumes. A recent example was the change in how users accessed the Insurance landing page We have recently developed an SEO strategy aimed specifically at Insurance. This work ensures that we are returned favourably amongst search engines such as Google in terms of natural listings
Compliance/Legal None	Auto Trader became an Appointed Representative of BISL with effect from January 2007 The above resulted in additional resource requirements to ensure compliance on a full-time basis Additional costs e.g. auditing requirements will be incurred

The Appellant's case

The Appellant's main contention is that the supplies made by TMG to BISL fall within the VAT exemption for intermediary services in item 4 of Group 2, Schedule 9 VATA. They believe that the services provided fulfil all the criteria for exemption.

Their first point is that TMG is an insurance agent or broker. An agent or broker for these purposes means anyone who provides insurance related services in an intermediary capacity. They say that this is consistent with the Directive 2002/92, HMRC's own interpretation of the exemption, case law and the principle of fiscal neutrality.

The second point is that TMG provides services of an insurance intermediary. TMG introduces people who want insurance with a view to the conclusion of a contract of insurance. This introduction means that they are acting as an intermediary in a chain between the insured and the insurer and are bringing together the parties. The services therefore fall within the definition of insurance intermediary services in Note (1) to Group 2. This means that they are "bringing together, with a view to the taking out of insurance, persons who are or may be seeking insurance and persons who provide insurance". Further, they fall within the definition of "insurance mediation" in Directive 2002/92, which specifically includes activities of "introducing".

The third point is that TMG's activities cannot be excluded as merely the provision of information for advertising services. Its activities fall beyond a passive display of information. The Appellants argue that TMG courts its own customer base, endorses BISL, the quotation process and the panel of selected insurers. It is paid per take up of successful insurers. The active collaboration between TMG and BISL seeks to maximise the match of prospective insurance customers and the selected insurers. The HMRC's guidelines would suggest that TMG's services fall beyond advertising, promotion and constitute introductory services.

Their next submission is that TMG's services are related to an insurance transaction. In all cases where a commission is paid, an insurance contract has been concluded between the customer and an insurer on the selective panel of insurers.

TMG's services are provided in the course of its acting as an "insurance intermediary" within the meaning of Note (2) to Group 2 Schedule 9 which explicitly envisages the possibility of a chain of intermediaries. TMG is acting as one of the intermediaries between a person seeking insurance (the customer using the Autotrader website) and the person who provides insurance (the insurer on the panel).

The Appellant makes the point that the InsuranceWide decision (VTD NV.20394) was concerned with Article 2(1)(d) of Directive 77/92, the definition of an insurance agent, and not with whether the services constitute "insurance mediation services" within the meaning of Directive 2002/92, which replaced the earlier Directive. The UK law now provides a definition of "services of an insurance intermediary" rather than a definition of "insurance broker" or "insurance agent".

The Appellant says that where there is a diversion between European and UK legislation, the taxpayer is to take the interpretation which is to their benefit. They also say that EC Directives provide background to the law and are not determinative of the issues in themselves. The third general point made by the Appellant is that in interpreting provisions of Community law, it is necessary to take account of how the law stands at the date when the provision in question is to be applied (period 2006-2007). This is instructive given Directive 77/92 has been repealed by Directive 2002/92 and the latter appears to have more functional definition of intermediaries which includes anyone who provides insurance related services in an intermediary capacity.

The Respondents' case

The Respondents rely on the recent decision of the Tribunal in InsuranceWide. They say that the issues regarding selling insurance through internet websites and insurance intermediaries were raised and resolved in that case. The main issue was whether InsuranceWide (an entity acting in a broadly similar role to BISL as operator of a comparison website) was making exempt supplies.

They say that in the InsuranceWide case a person operating a comparison website (an aggregator site) was not an insurance agent and did not fulfil any of the other criteria for exemption required under the Sixth VAT Directive and/or the domestic legislation.

They cite the decision as follows:

"In the pre-Wizard phase all the interaction which occurred such as taking telephone calls, dealing with correspondence etc. took place between Cox (the insurer) and the person seeking insurance, InsuranceWide had no part in it. InsuranceWide did not have any legal relations with the persons seeking insurance … 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 isolated from the exemption" (paragraph 76 of the Tribunal Decision)."

This paragraph is central to the Respondents' argument.

The Respondents say that the appeal can only succeed if the Appellant meets four conditions, which have not been met. These are:

(a) If the Appellant is an insurance broker or agent under item 4 Group 2 Schedule 9 VATA 1994

(b) If the Appellant provides services of an "insurance intermediary" pursuant to item 4 (and Notes 1-7) Group 2 Schedule 9 VATA 1994.

(c) If the Appellant's services are related to an insurance transaction or re-insurance transaction under item 4(a) and (and Note 7) Group 2 Schedule 9 VATA 1994.

(d) If the Appellant provides its service "in the course of acting as an intermediary capacity" pursuant to item 4(b) (and Notes 2-7) Group 2 Schedule 9 VATA 1994.

The Respondents say that the relevant exempting provisions must be "interpreted strictly" as required in the case of Taksatorringen (2006) STC 1842 at 1866 (paragraph 36).

It is their view that the Appellants are "nothing more than an introducer" and its role "cannot be properly distinguished from that of an advertiser". The Respondents say that BISL "drove and controlled" the entire intermediary process. They selected the insurers, the types of insurance companies, the terms of the policy, the proposal questions and the quotation process. The process was conducted on the BISL website during the relevant period January 2006 to January 2007.

It is argued that the Autotrader Hypertext Link is similar to a banner advertisement. Autotrader did not take details, names or give information about the policy. It did not get involved with the insurance side of the business. It did not have the skills to do these activities. They also had no power to bind the insurance company, a strong indication that they were not acting as intermediaries.

The Respondents argue that TMG did not know what was happening under BISL site, they only knew that the proposer had left the Auto Trader site and had gone on to Compare The Market site to obtain a quote. All activity required for completion of the insurance transaction took place on that site.

Under the terms of the Introducer Agreement there was only an obligation on TMG to provide a Hypertext Link and some branding. Their involvement was passive.

Further, TMG did not conduct a regulated activity nor were they authorised under the Financial Services Markets Act (FSMA) nor registered with the General Insurance Standards Council ("GISC"). The tender contract only required regulatory compliance for the broker, BISL, and did not see TMG as providing more than a Hypertext Link.

Mr Key, for the Respondents, said that there was no legal relationship between TMG and the proposer, no power to bind and that the bringing together should be more than a physical bringing together. In his view, the "chain" (as suggested by HMRC Manual) only started when BISL, as intermediary, began their work in securing the insurance contract. The period before the BISL involvement, which is to say the period of the Auto Trader introduction, was not part of the chain since it was equivalent to the provision only of a Hypertext Link. The Hypertext Link is not the start of the chain. The chain started when the proposer provided details to BISL at the post-Hypertext stage. The proposer had not given power to Autotrader to do anything so there could be no chain or part of the chain at this point. The relationship at this point was "tangential", a term borrowed from the InsuranceWide case.

Let us turn to the core issues which are to be decided if TMG are to obtain VAT exemption under Schedule 9 VATA. These are:

Is TMG an "insurance broker" or "insurance agent"?

Are the services of TMG that of an insurance intermediary?

Are the services of TMG related to an insurance transaction?

Does TMG provide its services in the course of acting in an intermediary capacity?

It is necessary to start by looking at the role of an insurance agent, insurance broker and the provision of the services of insurance intermediary services since these two requirements are linked. The agent or broker for the purposes of the VAT exemption means anyone who provides insurance related services in an intermediary capacity. There is no definition in present EC legislation or the VATA of an insurance agent or broker. What is clear is that the definition of agent or broker for the purposes of general insurance law, where there are several classes of agents and brokers grouped together as intermediaries, is not directly relevant. While a broker acts for the proposer, the agent is normally the representative of the insurer during the negotiation of any contract of insurance. The intermediary would normally be regulated, meet appropriate standards of qualification and training, and have professional indemnity insurance cover or be provided with such cover by their principal. The basis of the relationship are principles of agency. The agents play an important role in providing underwriting information to insurers. They would also have responsibility to complete proposal forms and keep the insurer informed of any change in the risk.

With the advent of insurance selling through the internet especially in the area of household, automobile and personal, the selling of insurance has become commoditised in the UK based on standard form of contracting, fixed questions in the proposal and little room for negotiation by the proposer. Contracts of adhesion or standard form contracts are used where the proposer has very little room to negotiate the terms and would only see the policy document after the contract of insurance had been completed. The market has moved from the days of the traditional broker. Let us look at definitions used in the tax law.

A definition of "insurance brokers and agents" is provided by HMRC in their Notice 701/36 (May 2002) at paragraph 9.1 earlier cited which states, inter alia,

"For the purposes of the VAT exemption, however, brokers and agents are defined in terms of what they do rather than what they are and, as well as insurance brokers and agents by profession, it can apply to other intermediaries making supplies of "related services"

The definition is a functional one and the professional status of the broker or agent is not conclusive. The role of the agent or broker – "what they do" – must be carefully examined."

The Notice goes on to say at paragraph 9.1.2 (cited earlier) the following:

"We do not, therefore, restrict the exemption to those who are insurance brokers and agents by profession but allow exemption for other intermediaries supplying services akin to those of traditional brokers and agents …

Whilst VAT exemption is not conditional upon membership of the General Insurance Standards Council (GISC), we accept that businesses which qualify for membership of the GISC are also likely to qualify as intermediaries for the purposes of the VAT exemption."

A distinction is drawn between professional intermediaries and other intermediaries. There is an acceptance of the principle that professional status is not determinative of whether or not one is an insurance broker or insurance agent. Further, the concept of the agent and the intermediary seemed to have been used interchangeably and includes others supplying services "akin" to those of traditional brokers. This broadens the definition.

HMRC provides further guidelines on the meaning of the insurance agent and broker. In the HMRC's Manuals for the VI-7 at Chapter 17, HMRC recognises as an insurance agent anyone who provides insurance related services in an intermediary capacity. The Manual is non-binding but does provide a useful insight into the way in which the Inland Revenue sees the exempting provisions.

In the Manual at paragraph VATINS 5245 there are general observations on insurance brokers and insurance agents. It states:

"There is no definition of either insurance broker or insurance agent within the UK or EC VAT law. Whereas the profession of an insurance broker is well recognised, however, this is not so true of an insurance agent and this can sometimes cause problems.

For the purposes of the VAT exemption we recognise an insurance agent as anyone who provides insurance related services in an intermediary capacity. An agent could be a tied agent who sells insurance as his main business or, for example, a typical high street retailer or a car dealer arranging insurance to cover the goods they sell.

Whereas an insurance broker usually acts for the insured, an agent may act for the insurer, the insured or both. The definition of an insurance agent, therefore, is fairly wide.

In order for the services of either an insurance broker or agent to be exempt from VAT, however, the following criteria must be met:

the broker or agent must be acting in an intermediary capacity; and

their services must be insurance related".

It is clear that the HMRC contemplates a very broad category of insurance agent and broker including high street retailers, car dealers, solicitors and estate agents. This accords with Directive 2002/92 which states in its recital that it is intended to provide equality of treatment to all persons and institutions.

Mr Key, for the Respondents, says that to be a broker, agent or intermediary there must be a power to do something on behalf of someone else and this is not the case with TMG. They have no power or authority to bind the insurer or to act on behalf of the proposer, they do not handle claims, collect premiums, prepare policies or deal with administration of the policy. They do not agree the terms of the contract of insurance. Their only obligation is to provide a Hypertext Link to the BISL site. In his view this is the point at which the agency or intermediary relationship comes into play. He sees the relationship in terms of instructions given to someone to act as an agent, perhaps under contracts and with a power to make decisions. This is a more traditional view of the relationship, which finds support in the Taksatorringen case (ECJ) where the power to bind the insurance company and a contractual relationship with an instructing proposer/insured were required for being brokers and agents.

Let us now look at the EC legislation and case law for guidance on the definition of the terms insurance agents and insurance brokers.

EC Directive 77/92 of 13 December 1976 (now repealed) sought to provide measures to facilitate the effective exercise of freedom of establishment and freedom to provide services in respect of the activities of insurance agents and brokers. Article 2 defines agents and brokers as follows:-

"… professional activities of persons who, acting with complete freedom as to their choice of undertaking, bringing together, with a view to the insurance or re-insurance of risk, persons seeking insurance … carrying out work preparatory to the conclusion of contracts of insurance … assist in the administration and performance of such contract".

The need for a professional relationship is clear.

The ECJ in the Arthur Andersen case (2005) pointed out that (at paragraph 32):

"… it cannot be inferred from that case law (Taksatorringen) that the existence of a power to render the insurer liable is the determining criteria for recognition of an insurance agent within the meaning of Art 13D(a) of the Sixth Directive. Recognition of a person as an insurance agent presupposes an examination of what activities in question comprised".

The ECJ indicates that the definition used in that Directive is not determinative in interpreting the terms of Article 13D(a) Sixth Directive.

It is more helpful if one looks at the current Directive 2002/92 which provides a more functional definition of insurance intermediary. The definition is very broad with specific exceptions. It is a definition which is inclusive and so recognises the desire for equality of treatment for "different persons and institutions" involved in the distribution of insurance products (see Recital (9) of the Directive).

The Directive does not provide a definition of agents or brokers but states that the activity of introducing or proposing constitutes "insurance mediation", and a person carrying on such activity is an insurance intermediary. The act of introducing parties with a view to taking insurance is defined as one of mediation. Mediation contemplates a chain of activities which starts with an introduction and which ends with the conclusion of a contract of insurance. The HMRC definition provided earlier also contemplates the "bringing together" of people with a view to the conclusion of contracts. The ECJ in Arthur Andersen supports the idea of both mediation and the chain of people. The Court said that an insurance agent "presupposes an examination of what the activities in question comprise" (paragraph 32) which is "defining of prospects and their introduction to the insurer" (at paragraph 36). Prospecting and introducing are functions performed by the intermediary.

The idea of looking to the activities of the intermediary rather than to a provided definition found favour in the Tribunal decision Royal Incorporation of Architects in Scotland (VTD 21252). In that case the appellant was paid a commission for his successful take up of an insurance policy by its members after it had endorsed an insurance product offered by a particular insurance company. They were treated as insurance intermediaries because they had satisfied HMRC's own guidelines – paid for take up, targeted their customer base and endorsed the insurer's product – even though they did not qualify as an agent or broker under the Sixth Directive.

The InsuranceWide case, another Tribunal decision on the definition of an insurance agent in Article 2(1)(b) Directive 77/92 (now repealed), found that the company in question did not qualify as an insurance agent since it had no authority or contract to act on the insurer's behalf and was in effect acting in its own name. It was also found that the company was not involved in the negotiation of the terms and the price between the proposer and the insurer, which would be required of an intermediary. The Tribunal did not consider, as we have to in this case, the meaning of insurance "mediation services" within the meaning of Directive 2002/92. The use of the term mediation looks to the role and activity of people and business involved in selling insurance and to see if they are contributing to the sale of the insurance product. Contemporary agents and brokers such as internet sellers, estate agents, travel agents and so on may play a more passive role given the standard form questions, fixed contracts and on-line quotation but this does not mean they are not providing a service which is insurance mediation.

Directive 2002/92 Article 2(1)(a) speaks of persons who

"… bring together, with a view to the insurance or re-insurance of risk, persons seeking insurance or re-insurance and insurance or re-insurance undertakings, carry out work preparatory to the conclusion of contracts of insurance or re-insurance and, where appropriate, assist in the administration and performance of such contracts …".

The domestic legislation at item 1 to Group 2 Schedule 9 includes within the scope of intermediary services the "bringing together" of the insurer and the insured. However, there is no simultaneous requirement to provide preparatory work as the Directive seems to suggest. In this sense the domestic legislation is broader and the Appellant will have the benefit of the more broadly defined domestic law (Century Life plc v Customs and Excise Commissioners [2001] STC 38.) A person who provides intermediary services (the bringing together with a view to taking insurance), is by virtue of providing such services, an agent or broker. The role is similar to a match-maker or market maker who brings together prospects and companies.

TMG introduces proposers seeking insurance to BISL with a view to the taking of insurance from one of its panel members of insurers. It is part of the chain between the proposer and the insurer. They are therefore agents or brokers and it is not necessary for there to be a power to bind the company or a contractual relationship with the proposer. The act of introducing or bringing together is sufficient to satisfy the law.

Let us turn now to the second issue for exemption which is the provision of insurance intermediary services or insurance mediation. Mr Key, for the Respondents, has used the InsuranceWide case to support his argument. He said that TMG were not more than an introducer and quoting from the InsuranceWide case (at paragraph 76) "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 one contacting the other". To illustrate their passive role, and quoting from InsuranceWide (paragraph 77), "they were 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". In his words, the Appellants were no more than introducers.

Miss Sloane says that the legislation only requires an introduction with a view to the conclusion of a contract of insurance.

Let us now turn to the meaning of insurance intermediary services. Note (1) to Group 2 defines "intermediary services" as including "the bringing together, with a view to the insurance of risk, of people who are or may be seeking insurance, and persons who provide insurance". Under Directive 2002/92, the term "insurance mediation" is defined to include the activity of introducing, proposing or carrying out other work preparatory to the conclusion of the contract of insurance. Introducing parties involves a sort of match-making whereby they match the insurance needs of policyholders with insurers who are capable of meeting those needs. Inherent in this role is that the intermediary, TMG, will provide buyers from the market or from their database and introduce them through their website to insurers who are appropriate for underwriting that particular risk. The insurers are invited to provide quotations for the risk involved. The quotations are based on information provided by the partner of TMG, the broker, BISL. The information provided by the proposer must be complete and accurate since it forms the basis of the decision to underwrite the risk and determine the premium.

Let us look at our case. Under the terms of the Introduction Agreement with BISL, TMG provides clients from its database which is to say people who are using their website to browse or to buy a car. TMG would introduce these customers to BISL via the Insurance Centre Hypertext Link. There may be other insurance companies who advertise on the Auto Trader website but they would not be part of the Insurance Centre. They would have bought banner advertising which is displayed on the AutoTrader main site and not on the Insurance Centre link.

When a customer enters the Insurance Centre link and clicks on "get a quote" this will bring up quotations from different insurance companies. The link which provides the quotations is, in the words of Mr T B White, a "branded site" which has "positive endorsement from Auto Trader". The Insurance Centre link states at the top that "we have teamed up with a range of quality insurance companies to offer you quotations" (evidence was given by Mr T B White that over 90,000 quotations were provided per month with a take rate at between 2% and 5%). It was pointed out in evidence by Mr White that TMG did have a collaborative role with BISL in the selection of insurance companies (for example, for younger drivers), had a veto over certain insurers on their insurance panel, reviewed data on users and take up of insurance and collaborated with BISL. TMG were involved in monitoring the website, customer research, surveys, tracking technology (how users recognise links) and promoting the service. There were various meetings between the parties and there was a management structure for the joint business. A dedicated resource management team would monitor day-to-day activities of the business. There was a Commerce Director, E-Commerce Director together with a Commercial and Marketing Manager from BISL. Mr White was the Head of Partnerships and involved in a strategic way. There was clearly an infrastructure around the business which was designed to improve the product offered and improve the introduction service offered through the website link.

Mr Key, for the Respondents, said that the quotes were provided by BISL, the terms and conditions for use of the quotation process were those of BISL, the policy documents were received from BISL and all customers of TMG were referred to BISL. In his view the chain started with BISL who did everything with the insurance company including the handling of all moneys paid for premium. Further, he disputes Mr White's knowledge of the business and management in his evidence since Mr White was not employed by TMG before July 2006 and the Introduction Agreement was signed in 2005. In his view the legal relationship of the proposer was with BISL, not with TMG. He drew reference to the case of CSC Financial Services Ltd [2002] STC 57 (Advocate General's opinion) and InsuranceWide case where the intermediary "had no involvement in all the critical time frame." (paragraph 68).

Miss Sloane argued that it is only relevant that TMG provide an introductory service and nothing more to satisfy the legal requirements for being an intermediary. On this point she draws attention to the HMRC's guideline Notice 701/36 at paragraph 83 which explains introductory services as:

"Introductory services bring together people who want to purchase insurance with an insurer or re-insurer. This exemption also covers work preparatory to the conclusion of a contract of insurance or re-insurance.

It is not necessary for a contract of insurance to be concluded for an introductory service to be performed. If the customer decides not to purchase the insurance, or the insurer decides not to underwrite the risk, any work carried out by the intermediary prior to this point is still exempt".

This clearly contemplates the bringing together of people as sufficient with nothing more required. The activity contemplated is the introduction of prospects only.

An illustration of this match-making or introductory service is given by HMRC in their Manual at VATINS 5305 (I understand this guidance is now withdrawn) which states:

"The services of introduction are exempt when they consist in the bringing together of an insurer and a prospective insured with a view to the insurance or re-insurance of risk.

Example:

"An estate agent draws the attention of a house buyer to the possibility of taking out an endowment mortgage. The firm introduces clients to an agent acting on behalf of an insurer.

Where the house buyer agrees, their name is passed by the estate agent to the insurer's agent. The estate agent receives a share of the commission paid by the insurer to the insurer's agent whenever a policy is taken out by one of the referred client.

The estate agent is an insurer's agent for the purpose of item 4, since he is providing introductory services whilst acting in an intermediary capacity. The commission share received by the estate agent is consideration for an exempt supply".

In our case, TMG uses its customer based to make introductions of potential customers to BISL and is paid a commission based on a successful contract of insurance taken up by the customer. There is an introduction by TMG to the broker, BISL, who has a relationship with the insurance company. The relationship with the proposer is initiated by a request made by that party. It starts a chain relationship of selling where TMG and BISL are in the middle and the proposer and insurer are at either ends.

Insurance intermediary services involves a chain of parties acting together as illustrated by HMRC guidance given in paragraph 9.2 of Public Notice 701/36 (cited earlier) which states:

"To be acting in an intermediary capacity a business will be acting somewhat 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 a direct contact with the insured party (or potential insured party) and at the other end there will be a business which has a direct contact with the insurer".

It is clear that the chain starts with the introduction and not with the broker BISL. While the HMRC guidelines do not represent the law, they are instructive in understanding how they see the chain of parties events leading to the conclusion of the contract of insurance and treat the parties in the chain as intermediaries. The domestic implementation of Directive 2002/92 recognises a chain of selling and prospecting. We therefore agree with the Appellant's arguments on this point and concur that their services fall within the definition of insurance intermediary services.

It is important that the services being provided are insurance related and services such as "secretarial services and general computer services supplied in connection with insurance are not covered by the exemption". Also excluded from exemption is market research, product design, advertising, promotional or similar services and the collection, collation and provision of information used with those services (paragraph 8.2.3 Notice 701/36).

Mr Key argues that the services being provided by TMG is only a Hypertext Link introductory service. He draws reference to the Introduction Agreement at paragraph A (cited earlier) which states:

"… By this agreement, (TMG) and BISL make provision that (TMG) will place a hypertext link ("Hypertext Link") in the agreed form under Autotrader Website … that will link to the BISL Website … This Hypertex Link will constitute the route by which (TMG) will introduce Prospective Customers to BISL …".

He argues that the services being provided under the contract cannot be distinguished from that of advertising. To support his contention he draws reference to several clauses in the Introduction Agreement.

The Respondents say that the warranty and undertaking given by Autotrader to BISL in Clauses 1.8 and 1.10 groups them with "other advertisers" and "third party advertisers" which suggests that the relationship is based on advertising only. Further, under Clause 3.1, Auto Trader gives BISL the right to use the "names, brand names, logo and trademarks of Auto Trader Digital on the BISL Quotation Website", which the Respondents see as advertisement endorsement and nothing more. In their view, Auto Trader are only providing the Hypertext Link and branding. They see the banner advertising of other advertisers on the Auto Trader Website as being similar in character and substance to what is being offered to BISL and no distinction should be drawn between other advertisers and BISL advertising on the Auto Trader Website. A literal reading of the various clauses in the contract may support this point. However, the contractual provisions are not determinative of the type of supply being made and it is important to look at all the facts in establishing whether or not a supply has been made (Customs and Excise Commissioners v Reed Personnel Services Ltd [1995] STC 588, see Laws, J at p.591).

The Tribunal does not agree that TMG are only providing advertising. It is helpful to look at the Displays/Partnership Comparison Chart which explains the difference between banner or display advertising and what is contemplated by the Introduction Agreement between the parties. One of the major differences relates to product development. Under banner advertising contracts there is no input into product developments. Under the Introduction Agreement, the website link used to provide quotations is co-branded and both parties are involved in its development, assessment, retrieval of data and channelling and filtering of people to the site. There is a fee paid for insurance take-up which is not the case under banner advertising contract where the fee is unrelated to sales. A significant difference concerns resources and meetings. Banner advertising involves a one-off sale advertising while under the Introduction Agreement there are dedicated resources to manage day-to-day activities of the relationship including monthly meetings and allocated staff. The parties have given a joint undertaking which includes consumer research, compliance, marketing and performance whereas there is virtually no collaboration with banner advertising contracts. The type of business relationship contemplated by the parties under the Introduction Agreement is very different from a simple display advertising contract and involves a more collaborated and joint enterprise type partnership in developing a business over a period of time with an enlarged customer base and the prospect of selling other products. The collaboration and services provided between the parties goes beyond advertising and promotion and we do not agree that TMG services are excluded services for the purposes of the VATA.

Let us now turn to the position under the regulatory regime. Miss Sloane, for the Appellant, makes the point that it is not required that TMG be registered under the GISC or the FSMA 2000. Mr Key says that financial regulatory compliance is a requirement under the Introduction Agreement. He draws reference to paragraph 11.1 and 11.2 Introductory Agreement (cited earlier) which states:

"11.1 BISL are authorised and regulated by the Financial Services Authority ("FSA") and shall ensure that the marketing and provision of Products by them shall at all times be fully compliant with the Financial Services and Markets Act 2000, any regulations made thereunder and the FSA Handbook."

"11.2 BISL acknowledges that Autotrader Digital is not in the business of selling financial products and is not regulated pursuant to FSMA. Autotrader Digital is merely placing a Hypertext Link on its website in order to introduce Potential Customers to BISL"

The Respondents say that the lack of registration under the FSMA 2000 and the GISC by Auto Trader indicates a role which is peripheral, it supports the idea that they are just selling advertising and made no commitment to obtain agent or broker regulatory authorisation.

It is correct that TMG were not registered at the relevant time with the Financial Services Authority (FSA) since they believed they were exempt under Article 72C of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (SI 2001/5444) ("the Regulated Activities Order") which provides:

"There is excluded from Articles 25(1) and (2) the making of arrangements for, or with a view to, a transaction for the sale or purchases of a contract of insurance".

The FSA does treat the introducing of customers to an intermediary for the purposes of arranging insurance cover as insurance mediation. This is under Article 25(1) and 25(2) of the Regulated Activities Order where "making arrangements" for investment deals includes introducing.

The FSA has published in their Handbook, "Parameters Guidelines" on insurance mediation (Chapter 5 of the Parameters Guidelines Manual (PERG)) which gives guidance on when authorisation is required or exempt status is available. It provides the following activities as falling within the regulated environment,

(a) "recommending a broker/insurance undertaking and providing customers with contact details (whether by phone, fax e-mail, face-to-face or any other means of communication) (paragraph 5.15.4);

(b) "providing an insurance undertaking/broker with contact details of customer" (paragraph 5.15.4); or

(c) "a person introducing customers to an intermediary either for advice or to help arrange an insurance policy. An introduction might be oral or written." (paragraph 5.6.4).

Further the HMRC have recognised that authorisation may not be needed in some cases as HMRC Manual VATINS 1200 states:

"In the past our legislation only allowed exemption for insurers who had been granted permission by the UK regulator, the Financial Services Authority (FSA), to carry out contracts of insurance or released from the requirement to gain such permission under the FSMA".

In February 1999, however, the European Court of Justice (ECJ) gave a decision in a long running appeal by Card Protection Plan Limited (CPP). It ruled that the scope of the VAT exemption cannot be restricted exclusively to permitted insurers."

The point is that it is not required to be authorised under the regulatory regime to be a broker or agent if one qualifies for exemption. The financial regulatory regime does recognise introductory services as part of insurance mediation. While the Introduction Contract draws reference to a requirement for authorisation under the regulatory regime, none was required of TMG in this case. That does not preclude their status of being an intermediary for the purposes of the VAT legislation. It cannot be said that because TMG were not registered that they did not see themselves as being brokers or agents. Legal advice would have been sought at the time of contracting on whether it was required to obtain FSA authorisation and there is no evidence that it was required. This position was confirmed by the evidence of Mr T B White.

Let us now look at whether the services of TMG were excluded activities under the VAT legislation as being a mere provision of information or advertising services and not insurance intermediary services.

Certain activities are excluded from item 4 Group 2, Schedule 9 VATA 1994 by Note (7), which states:

"Item 4 does not include –

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

(b) the collection, collation and provision of information for use in connection with market research, product design, advertising, promotional or similar activities."

It is clear that advertising and market research cannot be insurance intermediary services.

The Respondents say that TMG were supplying simply advertising service which is a standard rated supply. They say that the services did not relate to any insurance transaction in any material sense. Further a customer using the website was allowed direct access to the BISL site and the terms and conditions of use on that site were those of BISL. The actual staff who ran the Auto Trader side of the business were all involved in generating advertising revenue, which was the core business of TMG. Mr Key said the customer base of Auto Trader was not being directly targeted since people who bought printed copies of the Auto Trader magazine did not know of the Insurance Centre and those targeted were casual users with no relationship to TMG. The critical chain in their view started with BISL not with TMG. The Hypertext Link is similar to a banner advert such as the RAC advert on the site appearing on the printed materials presented to the Tribunal. The idea of product endorsement, a term used by Mr White in his evidence was, in the view of the Respondents, not a legal word but a word created by the Appellant. If there was a power to bind the insurance company this would be a strong indication that TMG were brokers or agents but no such power was given to TMG.

Mr Key drew reference to the case of Dogbreeders Associates (VTD 4295) which looked at the phrase "the making of arrangements for the provision of insurance". The tribunal in that case said:

"In terms of the commercial sense, it seems to us … that a trader who in the course of his trade recommends to customers the effecting of insurance, directs their attention to a particular insurer, thus providing publicity, promotion and marketing, but not specifically dealing in insurance, does not make arrangements for the provision of any insurers".

Mr Key says that this case bears similarities with that case in the sense that the services provided did not relate to an insurance transaction but was more akin to advertising.

Miss Sloane for the Appellant, based on the evidence of Mr White, said that TMG endorsed both BISL and the quotation process by means of co-branding and the panel of insurers. They were paid for a successful take up of insurance and there was an exchange of information between the parties with a view to providing customers with a good service. Unlike banner advertising, their view is that the customer was guided through an Auto Trader branded process which TMG developed in conjunction with BISL. In their view, there is a difference between passive advertising and actual involvement with the product being sold. In this case, there is the exchange of information, branding, control over the panel of insurers and quotation process, which is based on a relationship which is more than one of simply advertising.

The HMRC guidance for distinguishing between advertising and introductory services in Notice 701/36 is instructive at paragraph 8.3.1 where the following explanation of advertising services is given.

"It is sometimes difficult to distinguish between advertising services, which are specifically excluded from exemption (paragraph 8.2.3) and introductory services.

To qualify as an insurance related service, a business has to play an active part in the sale of the insurance

…

For example –

It is not, for example, sufficient for a business to simply place an advertising leaflet in with its customers' account statements.

To help businesses determine the correct tax treatment for their services, we accept that an insurance intermediary is providing introductory services where the following three criteria are met –

they are paid per successful take-up of an insurance policy;

they are targeting their own customer base; and

the intermediary endorses the product our the insurer.

These criteria should be used only to determine the tax treatment in cases where it is unclear whether the service supplied is an advertising service or an insurance introductory service. In other instances, they may be an indication towards something being an introductory service but they will not necessarily be determinative".

The HMRC Manual VATINS 5310 (cited earlier) gives further guidance between advertising and introductory services it states:

"There may be instances where it is arguable whether services fall within the insurance exemption. This has occurred with some advertising services; for example, whether a service such as mail shotting is an exempt introductory service or a taxable supply of advertising.

The following are indicators that the service may be an exempt supply of insurance related introductory services:

intermediary is paid per successful take-up of an insurance policy; and

intermediary is targeting its own customer base; and

product or the insurer is endorsed by the intermediary.

If you find it difficult to decide whether a supply is one of promotional/advertising services, or one of introductory services, the three tests in the bullet points above should help you reach your decision. It is important to remember, however, that the tests are only guidelines and should not be used to decide cases where the nature of the supply suggest an opposite interpretation."

HMRC believe that the satisfaction of the three indicators listed above are important requirements if a service is introductory services and not advertising.

According to the HMRC's own statement, introductory services means that the intermediary has to target and recommend to those persons who are part of its customer base (in the larger sense of the word to include those people who use the website to look for cars) and are paid some commission according to the take up of insurance. The word customer has to be used in a broad sense. The website can be compared to a shop which customers enter with a view to browsing and looking at goods on display and in that sense people who use the website to browse can be considered part of the customer base. The placing of a Hypertext Link which is managed by both TMG and BISL and similarly branded is clearly designed to attract customers who are using the website to use the insurance service. It encourages those customers to complete a questionnaire to obtain an insurance quotation and eventually to buy insurance.

It is correct to say that passive advertising will not constitute intermediary services. This distinction is borne out by the PERG at paragraph 5.6.4 which states;

"By contrast, the FSA considers that a mere passive display of literature advertising insurance (for example, leaving leaflets advertising insurance in a dentist's or vet's waiting room and doing no more) would not amount to the Article 25(2) activity".

The evidence suggests more than a passive display of information and a more collaborative effort.

HMRC have used the term "facilitation" to describe the services offered by TMG. This term does not appear in the EC or UK legislation. It is unclear what is meant by this term. However, it is possible to characterise the services being provided by the Appellant as a form of facilitation i.e. the bringing together of the insured and helping the proposer through the quotation process as well as analysing data to produce a better and more focussed product. This may be characterised as active facilitation HMRC Notice 701/36 paragraph 10.5 defines a supply of insurance related services as excluding "pure facilitation". We do not believe this is a case of "pure facilitation" since the term denotes a more passive role perhaps involving one action and nothing more after an initial contact.

The legislation does not seem to require a very active role beyond "bringing together" and "introducing" the parties. In this case, a fair deal of work was involved in getting the introduction process functional and focussed. There was a tender process, a three year commission based contract, joint selection of insurance panel, purchase of key words and media spaces across insurance related internet sites, dedicated personnel involvement, meetings and daily breakdowns of quote volumes and sales. There are clear differences between the banner advertising and the business conducted under the Introduction Agreement, with one being passive and one being very active surrounded by an administrative and business infrastructure which show collaboration and clear activity.

The case law is helpful in deciding whether services are removed or incidental to the conclusion of the insurance contract. In Morganash Ltd (VTD 19777) the appellant was instructed by various life assurance companies to carry out telephone interviews with proposers. At the end of the interview, a report containing the information obtained was submitted to the company. No recommendation was made regarding the proposal. The Tribunal decided that while the appellant was not an insurance broker or an insurance agent under the Sixth Directive its activities were within the scope of Article 2(1)(b) Directive 77/92 and, for the purposes of UK law, they were acting as insurance agents. Based on the law at that time, it was said that the work was preparatory to the conclusion of the contract of insurance and therefore insurance related and performed in an intermediary capacity. Like the decision in Morganash, we believe that the services being provided by TMG are intermediary introductory services having a clear nexus to the contract of insurance provided by the insurer.

The Respondents point out that TMG do not provide its services "in the course of acting in an intermediary capacity". They draw reference in the case of Card Protection Plan (1999) STC 270 at 284c-d where it is stated:-

"The limitation of the exemption of "related services" to "insurance brokers and insurance agents" would be deprived of any meaning if any intermediary whatever which is incidentally involved in arranging insurance ipso facto came within the definition".

A commission is paid when an insurance contract has been concluded between a customer introduced by TMG to BISL and underwritten by an insurer on the selected panel. The relationship is in two parts between four parties. First, there is an introduction of the proposer by TMG to BISL and, secondly BISL, armed with the information provided by the proposer obtains quotations from various insurance companies on a panel. The customer ultimately selects one quote from those presented. TMG are not involved in the negotiation of terms or price or in the assessment of risk. However, it is clear that the co-branded website does provide a range of insurers willing to underwrite the risk. There is clearly a connection between the services which are offered and the insurance which is underwritten. If one takes the starting point in the chain as being the person seeking insurance or the proposer and the end of the chain as the insurance company which provides insurance cover, then, in this case, the parties in between would be intermediaries. The legislation clearly contemplates a chain of intermediary between "a person who provides insurance" and "a person who is or may be seeking insurance".

The HMRC have confirmed this position in their Notice 701/36 paragraph 9.2 (cited earlier) which looks at the meaning of "acting in an intermediary capacity" it states:

"The terms "agent" or "intermediary" by definition mean someone acting on behalf of someone else in effecting something with a third party. Whilst we accepts that the insurance exemption is not restricted to traditional brokers and agents, to qualify as "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 the 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 person or business will be acting somewhere in the chain of supply of a contract of insurance. This does not necessarily mean 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 person or business which has direct contact with the insured party (or potential insured party) and at the other end there will be a business which has direct contact with the insurer. In this case, the work of TMG was necessary to the conclusion of the contract and as such related to the insurance contract and was performed in an intermediary capacity. It is not necessary that they could not bind the insurance company since the introduction, for the purpose of the legislation, was sufficient. It is important to define intermediary in terms of "what they do rather than what they are" and it is clear than acting in a chain of supply with the final product being the contract of insurance is acting in an intermediary capacity for the purposes of the VAT legislation.

In conclusion, the Tribunal find that TMG were acting as insurance agents or brokers and provide the services of an insurance intermediary which services were not excluded by the exemption. Those services related to the conclusion of the contract of insurance and TMG provided their services in the course of acting as an intermediary. In Directive 2002/92, there is recognition of a larger group of people and institutions being involved in the selling of insurance products which is not defined by the traditional description of the agent or broker but by a more functional definition of mediation. It is important to ensure equality of treatment for persons and institutions who are covered by the Directive. The ECJ in the Arthur Andersen case said that an insurance agent "presupposes an examination of what the activities in question comprise" (paragraph 32) and that "the finding of prospects and their introduction to the insurer" are the central aspects of an insurance agent (paragraph 36). The idea of finding prospects for the insurers is exactly what TMG does.

The InsuranceWide decision sought to look at the definition of an insurance agent in Article 2(1)(b) of Directive 77/92 (now repealed). In our case, it was necessary to look more closely at the meaning of insurance intermediary services. It is the activities of the business concerned which must be looked at to see if the bringing together or introduction of the parties led to the conclusion of an insurance contract and formed an essential part in the chain leading to the conclusion of such a contract.

For the reasons given above, we agree with the submissions of the Appellant and find that TMG's services constitute insurance related intermediary services which fall within Group 2 Schedule 9 VATA.

The Appeal is allowed. Liberty to apply with regard to the issue of costs.

DR KAMEEL KHAN

CHAIRMAN

RELEASED: 8 May 2008

LON 2006/0937