Tax cases - End of the road

The long running appeal by Eastbourne Radio Cars Association has now been concluded at the House of Lords.

In order to refresh readers' memories, the case concerned an unincorporated body whose members were private hire car drivers in Eastbourne. Each driver paid a joining fee and a proportion of the association's expenses, which included the salaries of employees who dealt with advertising and arranged work by telephone or radio contact.

The association was registered for VAT purposes and fell within section 94(2), VAT Act 1994. Following a revision of its constitution in 1994, an attempt was made to cancel the VAT registration on the grounds that the sums paid by members were not consideration for services supplied, but should be regarded as collective funding for the members' own employment of staff and for their obtaining other facilities.

Customs refused this application, and this decision was upheld by the VAT tribunal. Subsequently, the High Court found for the association, but this was reversed by the Court of Appeal. The appeal then proceeded to the House of Lords.

In that judgment it was observed that section 94(2)(a) did not of itself mean that an association would automatically be making a taxable supply. However, it did mean that it was carrying on a business and could be within the scope of VAT. The legislation did not mean that the activities of an association should be excluded from VAT merely because it was unincorporated and not a legal person.

In order to determine whether the association was making a taxable supply to its members, there had to be something more than simply a contractual arrangement for obtaining goods and services jointly and sharing their expense. Normally an association would have a set of rules which constituted a mutually binding contract between the members, and provisions of a rule-making power for the terms and conditions upon which the members might enjoy the benefits of membership.

In the instant case there was an association, and the right of any member to the services provided by the employees engaged for the purposes of the association was governed by the rules or bylaws made under the rules. The member enjoyed those services in return for the payment of a subscription into the funds of the association.

The fact that the contracts of employment stated that the employee was engaged, not on behalf of the association, but on behalf of the members of the association for the time being, and that the payment of subscriptions was on the basis of simply dividing the expenses of the association among the members, did not alter the character of the transaction as a supply by the association to its members. Accordingly the appeal was dismissed.

(Eastbourne Town Radio Cars Association v Commissioners of Customs and Excise, House of Lords, 4 April 2001.)

VAT and Students' Union

The University of Leicester Students' Union sold, among other items, soft drinks. The union claimed repayment of output tax on these sales on the ground that the sales were exempt under Group 6 of Schedule 9 to the VAT Act 1994 as being goods or services closely related to supplies of education. Customs disagreed; however, the VAT tribunal ruled that the union was an integral part of the university, thus it was an eligible body under Group 6 and was a party to the supply of education within the meaning of item 4(a). Customs therefore appealed to the High Court.

Mr Justice Rimer did not accept the tribunal's ruling. He said that soft drinks sold by the students' union were not supplied by an eligible body making the principal supply of education, thus they were not a supply exempt from VAT. It was clear from the university's charter that the union was not an integral part of the university, and the union was, furthermore, separately registered for VAT. Thus soft drinks sold therefrom could not be regarded as being sold by the university. The appeal was allowed.

(Commissioners of Customs and Excise v University of Leicester Students' Union, Chancery Division, 23 March 2001.)

A misconceived argument

The claimant, a French body, representing among others producers of advertising films, contended that an administrative instruction was contrary to the Sixth Directive.

As a result of French law reflecting Article 9(2)(e) of the Sixth Council Directive, French suppliers of advertising services were relieved of the obligation to charge VAT when the services were supplied to a customer outside the European Community or in another Member State.

However, the administrative instruction provided that the exemption was limited to services supplied directly to the advertiser, so that when they were supplied through an agency there was no exemption, wherever the agency and advertiser were situated.

The European Court of Justice held that the French Government's argument that Article 9(2) constituted an exception to the rule in Article 9(1), and so was to be construed narrowly, was misconceived. The object of Article 9 was to avoid non-taxation and conflicts of jurisdiction, and in consequence Article 9(1) did not take precedence over Article 9(2) (see Dudda v Finanzamt Bergisch Gladbach [1996] STC 1290.

The particular purpose of Article 9(2) was to establish a special régime applicable to services between taxable persons where the cost of the services was included in the price of goods.

It followed that the criterion applied by Article 9(2) for determining the place in which services were deemed to be supplied was the nature of the services in question. Accordingly, Article 9(2)(e) applied not only to advertising services supplied directly and invoiced by the supplier to a taxable advertiser, but also to services supplied indirectly to the advertiser and invoiced to a third party who in turn invoiced them to the advertiser.

(Syndicat des Producteurs Indépendants v Ministère de L'Economie, des Finances et de l'Industrie, European Court of Justice, 15 March 2001.)

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