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TMI Blog1999 (2) TMI 657X X X X Extracts X X X X X X X X Extracts X X X X ..... time for consideration. 11 February 1999. Lord Steyn. My Lords, for the reasons contained in the speeches of my noble and learned friends, Lord Hope of Craighead and Lord Millett, which I have had the privilege of reading in draft, I would allow the appeal. LORD GOFF OF CRAIGHEAD. My Lords, I have had the advantage of reading in draft the speeches prepared by my noble and learned friends, Lord Hope of Craighead and Lord Millett. For the reasons they give I, too, would allow the appeal. LORD HOPE OF CRAIGHEAD. My Lords, Redrow Group Plc. ( Redrow ) is a member of a group of companies almost all of which are involved in constructing new houses for sale in the private sector. The group has the benefit of group registration for the purposes of value added tax, and Redrow is the representative member of the group. This appeal relates to a sales incentive scheme which Redrow operates in order to expedite sales of its homes to prospective purchasers, most of whom have to sell their existing homes before they can proceed to purchase a new home. It is also intended to provide the prospective purchasers with a financial incentive to purchase their homes from Redrow. The schem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ived are acquired and received in connection with the business activity of the taxable person, that is to say for the purpose of being incorporated in its economic activity. Redrow has the benefit of a finding of fact by the value added tax tribunal which is in its favour on this point. The tribunal held that the fees paid to the estate agents were part of Redrow's cost components in the sale of its homes. On the facts it is beyond dispute that this expenditure was in connection with Redrow's business activities. The critical question is whether the expenditure was incurred in the supply by the estate agents of services to Redrow. Section 3(2)(b) of the Act provides that anything which is not a supply of goods but is done for a consideration is a supply of services. Article 6(1) of the Sixth Council Directive (77/388/E.E.C.) contains a definition in terms which are no less wide. It states that supply of services shall mean any transaction which does not constitute a supply of goods within the meaning of article 5. There is no doubt that the work done by the estate agents was the supply of services on which they were obliged by section 2(1) of the Act to charge value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, against their initial impression on reading the facts in this case, that the services which the estate agents were supplying were the services which an estate agent ordinarily supplies when a house is to be sold and that they were being supplied to the prospective purchasers and not to Redrow. As Peter Gibson L.J. [1997] S.T.C. 1053, 1060 puts it, objectively these services could be seen to be directly attributable to the sale by the prospective purchaser of his own house and not the sale of a new house by Redrow, even though the estate agent's supply benefited Redrow by facilitating Redrow's sale. But the B.L.P. case was concerned with a point which seems to me to be entirely different from that which arises here. In that case services had been supplied to B.L.P in connection with the sale of shares, which was an exempt supply. The argument that they had been used for the purposes of B.L.P.'s taxable transactions had to look beyond the direct and immediate link with the exempt supply to the ultimate aim of the sale, which was to raise funds to pay off debts. In the present case there is no problem of allocation of that kind. It is agreed that all the supplies whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as Redrow who paid for the services which were supplied. I do not see how the transactions between Redrow and the estate agents can be described other than as the supply of services for a consideration to Redrow. The agents were doing what Redrow instructed them to do, for which they charged a fee which was paid by Redrow. The word services is given such a wide meaning for the purposes of value added tax that it is capable of embracing everything which a taxable person does in the course or furtherance of a business carried on by him which is done for a consideration. The name or description which one might apply to the service is immaterial, because the concept does not call for that kind of analysis. The service is that which is done in return for the consideration. As one moves down the chain of supply, each taxable person receives a service when another taxable person does something for him in the course or furtherance of a business carried on by that other person for which he takes a consideration in return. Questions such as who benefits from the service or who is the consumer of it are not helpful. The answers are likely to differ according to the interest which various ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and which have borne value added tax. It is important to appreciate that the present appeal is not concerned with the attribution of input tax, but with the prior question whether the services in respect of which the taxpayer claims to be credited with input tax are supplied to the taxpayer at all. If they are supplied to the taxpayer, it is not disputed that the input tax is attributable to its taxable supplies. The facts The taxpayer is the representative member of a group of companies almost all of which are involved in constructing new houses for sale in the private sector. Most prospective purchasers of a Redrow home have an existing home to sell and cannot proceed with the purchase unless and until they have a buyer for their existing home. To deal with this problem the taxpayer operates a sales incentive scheme. The scheme has two objectives: (i) to expedite the prospective purchaser's own sale; and (ii) to provide the prospective purchaser with a financial incentive to buy a Redrow home. To achieve these objectives the taxpayer chooses an agent (and takes care to choose the more effective agents); instructs him to value the prospective purchaser's exist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agent's fees in full; (10) if the prospective purchaser finds a buyer through the scheme, but does not complete the purchase of a Redrow home, the taxpayer has no liability to pay the estate agent. To cover this eventuality, the taxpayer advises the agent to enter into a separate agreement for his fees with the prospective purchaser. The taxpayer deducted input tax in respect of the agents' fees. The Commissioners disputed the deduction. They considered that the services supplied by the agents are supplied to the individual purchasers and not to the taxpayer and raised an assessment accordingly. The value added tax tribunal allowed the taxpayer's appeal. The Tribunal concluded that on the evidence the agents' services are supplied to both the taxpayer and the individual purchasers. The Tribunal added, however, that not every agent instructed by the taxpayer makes a supply of services to it for value added tax purposes. In any particular case it is necessary to await events and see to whom the agent has made the supply; it is only if the taxpayer becomes liable to pay the agent's fees that the agent's services are supplied to it. It can then proceed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son acting as such. Article 4(1) defines taxable person as any person who independently carries out an economic activity. Article 6(1) defines supply of services as any transaction which does not constitute a supply of goods. The Directive is given effect in the United Kingdom by the Act of 1983. Section 1 of the Act charges tax on the supply of goods or services in the United Kingdom. Section 2 confines the scope of the tax to any supply (other than an exempt supply) of goods or services which is a taxable supply made by a taxable person in the course or furtherance of any business carried on by him. Section 3(2)(a) excludes from the meaning of the word supply anything done otherwise than for a consideration. Section 3(2)(b) is of critical importance in the present case. Reflecting article 6(1) of the Directive, it provides that anything (including the granting, assignment or surrender of any right) which is not a supply of goods but is done for a consideration is a supply of services. Credit for input tax is governed by sections 14 and 15 of the Act. Section 14(2) entitles the taxpayer to credit for so much of his input tax as is allowable under section 15. Section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transactions in respect of which value added tax is not deductible, only such proportion of the value added tax shall be deductible as is attributable to the former transactions. These provisions entitle a taxpayer who makes both taxable and exempt supplies in the course of his business to obtain a credit for an appropriate proportion of the input tax on his overheads. These are the costs of goods and services which are properly incurred in the course of his business but which cannot be linked with any goods or services supplied by the taxpayer to his customers. Audit and legal fees and the cost of the office carpet are obvious examples. The Court of Justice has repeatedly emphasised the distinction between the acquisition of goods or services by a taxable person and the taxable use to which they are to be put. The former is the more fundamental requirement. It is the acquisition of goods or services by a taxable person acting as such that gives rise to the application of the value added tax system and consequently of the deduction mechanism. The use to which the goods or services are put or intended to be put merely determines the extent of the initial deduction to which th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y in connection with its sale of the shares, an exempt supply, and were exhausted when the shares were sold. It followed that no part of the cost of such services could be attributed to the taxpayer's taxable supplies. The case was about attribution, not about the identity of the person to whom the services were supplied. The taxpayer was the only possible recipient of the services; there was no one else. The interpretation placed upon the decision by the Court of Appeal in the present case would seem to lead to the conclusion that the services of the bankers, solicitors and accountants in connection with the sale of the shares were not supplied to anyone. Yet if the sale of the shares had been a taxable supply the input tax in question would plainly have been deductible. It would also seem to lead to a denial of the right to deduct input tax in respect of overhead costs, for the services in respect of which such costs are incurred cannot be linked, whether directly and immediately or not, with any particular supplies made by the taxable person. Yet in a later part of the judgment the Court of Justice confirmed that overhead costs for the taxable person's taxable transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices in question. The second is that unless the services are rendered for a consideration they cannot constitute the subject matter of a supply. In fact, of course, there can be no question of deducting input tax unless the taxpayer has incurred a liability to pay it as part of the consideration payable by him for a supply of goods or services. In my opinion, these two factors compel the conclusion that one should start with the taxpayer's claim to deduct tax. He must identify the payment of which the tax to be deducted formed part; if the goods or services are to be paid for by someone else he has no claim to deduction. Once the taxpayer has identified the payment the question to be asked is: did he obtain anything anything at all used or to be used for the purposes of his business in return for that payment? This will normally consist of the supply of goods or services to the taxpayer. But it may equally well consist of the right to have goods delivered or services rendered to a third party. The grant of such a right is itself a supply of services. In the present case the taxpayer did not merely derive a benefit from the services which the agents supplied to the hous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear the burden of the tax in respect of which a claim to deduction may arise. Conclusion It is sufficient that the taxpayer obtained something of value in return for the payment of the agents' fees in those cases where it became liable to pay them, and that what it obtained was obtained for the purposes of the taxpayer's business. Both those conditions are satisfied in the present case. It is not necessary that there should be a direct and immediate link between the services supplied by the agent and the sale of a particular Redrow home, although if it were necessary then this condition too would be satisfied on the facts of the present case. From the taxpayer's standpoint, which is what matters, the agent's fees incurred in the sale of a prospective purchaser's own home are not part of the taxpayer's general overhead costs but a necessary cost of and exclusively attributable to the sale of a Redrow home to that same purchaser. If the sale of the Redrow home were an exempt supply and not merely zero-rated, the agent's fees would not be deductible for the reasons given by the Court of Justice in the B.L.P. Group Plc. v. Customs and Excise Commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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