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TMI Blog1998 (12) TMI 605X X X X Extracts X X X X X X X X Extracts X X X X ..... ;134,064.47, and assessing the taxpayers to value added tax and default interest in the total sum of £21,786.26. The facts are stated in the opinion of Lord Slynn of Hadley. Nigel Pleming Q.C. and Michael Kent Q.C. for the commissioners. Roderick Cordara Q.C. and Perdita Cargill-Thompson for the taxpayers. Their Lordships took time for consideration. 16 December. Lord Browne-Wilkinson. I have had the advantage of reading in draft the speech of my noble and learned friend, Lord Slynn of Hadley. For the reasons which he gives I would allow this appeal. LORD SLYNN OF HADLEY. My Lords, this is an appeal by the Commissioners of Customs and Excise from a decision of the Court of Appeal that the respondents were not liable to pay the amount of value added tax assessed by the Commissioners in respect of services provided at a block of flats known as Nell Gwynn House in London. In so deciding the Court of Appeal reversed the decision of Popplewell J. who had upheld the decision of a VAT tribunal that the tax was payable. The respondents to the appeal are three partners in a firm of solicitors, Graham Harvey, who are, and who have since 1993 been, Trustees of the Nell Gwynn H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he maintenance trustee by two equal instalments. By clause 4(6)(b) the lessor covenanted with the tenant and with the maintenance trustee that throughout the maintenance period the lessor would, in respect of a period in which any flat in the building is let without the tenant being required to pay a maintenance contribution, or for the period during which any flat in the building is unlet, pay a sum equal to the maintenance contribution, such sums paid by the lessor being dealt with for all purposes as if they were a maintenance contribution paid by the tenant of the flat. By clause 5 it was provided: "(A) The maintenance trustee shall retain out of the sums received by it in respect of the annual maintenance provision aforesaid and the maintenance adjustment its remuneration calculated in accordance with paragraph 2(2)(ii) of Part III of the third schedule and adjusted in accordance with paragraph 3 thereof and shall pay the balance into a bank having the status of a trust corporation in an account named 'the Nell Gwynn House Maintenance Fund' and shall hold such balance (hereafter called 'the maintenance fund' which expression includes the assets in the h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the highest practicable level of luxury together with such maintenance staff and cleaners required to maintain and clean the building and the equipment therein. So far as possible the duties to be performed by such staff will be designed to provide a complete full time luxury level of service and will include: [the day-to-day management of the building, the cleaning of parts of the residential premises, the running and maintenance of the building, the provision of a telephone answering service and the provision of a letting office including the collection of rent and other payments due thereunder]." There is a proviso to paragraph (1) that there shall be payable by the tenant to the maintenance trustee by way of additional charge to be credited to the maintenance fund certain sums including any value added tax payable on such sums. In the block there are 435 flats, 270 of which are let by the landlords or their predecessors. At the time of the tribunal hearing the staff consisted of a general manager and 17 other persons working under the general manager's supervision including a house manager, porters, night supervisor, clerks, engineer and cleaners. An important par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the maintenance trustee for whichever of these two alternative services they supplied was the whole amount by way of maintenance contribution, in so far as attributable to staff salaries and wages, or whether it was only the maintenance trustee's remuneration, being three per cent. of the maintenance contributions, or whether it was some other amount. The third question is whether it makes any difference to liability for VAT that the maintenance contributions are, after deduction of their own remuneration, held by the maintenance trustee on trust. These first three issues are, as the respondents contend, closely related. They say in their written case that: "If their submissions on the proper supply are correct, then so are their submissions on the proper consideration and vice versa." I agree and consider them together. Article 2 of the Sixth VAT Directive (Council Directive 77/388/E.E.C. of 17 May 1977) provides that there shall be subject to VAT "the supply of goods or services effected for consideration within the territory of the country by a taxable person acting as such." In section 2 of the Value Added Tax Act 1983, passed to give effect to the Dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant and that it was done for a consideration. There are various ways in which that can be put. Payment from the maintenance fund for the supply of services made by the appellants to the lessor. Alternatively the maintenance contribution made by the tenants under the lease and/or by the lessor also under the lease. The remuneration of the trustees provided for by the lease is in my judgment capable of and does constitute consideration." Sir Christopher Slade, with whom Swinton Thomas and Butler Sloss L.J.J. agreed, concluded [1996] S.T.C. 310, 321, that "the relevant supply of services in the present case is the arrangement by the trustees for staff to supply services to the tenants and the lessor, not the sale by the trustees of staff services." In my opinion the tribunal's analysis of the position is the correct one. It may well be that the maintenance trustee could have fulfilled its obligations under paragraph (1) of the fourth schedule to the lease "To employ and keep such staff to perform such services as the maintenance trustee shall think necessary in and about the building" by contracting with third parties for the provision of those services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be the clear position on the facts that the maintenance trustee was supplying the services rather than merely arranging for them to be supplied. It is agreed that the taxable amount for such supplies is, by article 11A(1)(a) of the Sixth Council Directive, "everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser" and that consideration means "everything received in return for the supply of services or the provision of services" (Second Council Directive Annex A, paragraph 13) and Apple and Pear Development Council v. Customs and Excise Commission (Case 102/86) [1988] 2 All E.R. 922. In the ordinary way the taxable amount would be the payment made to the person who provides the services which here would be the maintenance trustee. In the present case however it is said that that cannot apply firstly since the respondents only arranged for the provision of services and cannot be, and are not, remunerated for anything above that and secondly because the respondents are trustees receiving and holding moneys on trust and these cannot constitute consideration for the supply of services. VAT being a tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roperty, but of a service. The supply of foreign currencies in the way described was the provision of a service for consideration being the difference between what it paid and what it received for the currency. The currencies received by the bank were not the remuneration it received. That consisted in what the bank could keep for itself, calculated as the net result of all transactions over a given period of time. In Customs and Excise Commissioners v. Plantiford (unreported), 5 November 1998 the question arose as to whether a sum for packing and postage which the purchaser agreed to pay had to be added to the price of the goods for the purpose of constituting the consideration for the supply of such goods by the plaintiff. Laws J. held that the moneys received by Plantiford Ltd. were not received by it to hold on behalf of Parcelforce who were actually to deliver the goods. The sum of £2.50 (being postage of £1.63 plus packing of 0.87p) was received by Plantiford for itself, even though its expenses would include the sum of £1.63 for postage. It was therefore necessary to count it as part of the consideration received by Plantiford for the services it provided. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irst approach it is unnecessary to consider the appellants' alternative argument that the respondents' activities in applying moneys which belong in law to them, but which are impressed with a trust, constitute economic activities within the Sixth Council Directive and that the consideration for such activities is the net payment of service charges plus letting office fees paid into the fund. It follows that it is not necessary to refer any questions to the European Court of Justice on this point under article 177 of the Treaty of Rome. The fourth issue The respondents contend that even if they are wrong as to what is the supply and as to what is the consideration, the effect of article 11A(3)(c) of the Sixth Council Directive is to exclude amounts beyond the specified remuneration from the taxable amount. Secondly they say that any supplies of maintenance, upkeep and cleaning of the building would be exempt from the imposition of VAT pursuant to group 1, item 1 of Schedule 6 to the Act of 1983. As to the first point, article 11A(3)(c) provides: "The taxable amount shall not include: . . . (c) the amounts received by a taxable person from his purchaser or custome ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts in making the supply." I agree with Sir Christopher Slade. It is to my mind clear that once it is established as it is here that the staff being paid were employed by the appellants by means of moneys which became their moneys beneficially for the purpose of paying the respondents' employees, they were not the "repayment for expenses paid out in the name and for the account of" the purchasers or customers. The respondents cannot rely on article 11(A)(3)(c). As to the second point, Group 1, item 1 of Schedule 6 to the Act of 1983 exempts from VAT "the grant . . . of any interest in or right over land or of any licence to occupy land . . . other than" certain categories. This was to implement article 13(B) of the Sixth Council Directive which provides: "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: . . . (b) The leasing or letting of immovable property excluding . . . . member states may apply further exclusions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. To that extent there is a close link between the grant of the right to occupy the land and the right to receive the services. However, it is to be noted that the Henrikson case was concerned with the letting of two different immoveable properties, residential properties and garages, and not with the supply of immoveable property and of services as here. In Henriksen case one of the lettings was exempt as a letting of immoveable property and the other letting was excluded from the exemption as "premises and sites used for parking vehicles". The issue was how one interpreted the exemption read with the exclusion in a situation where there was a close relationship between the two lettings. In the present case we are dealing with immoveable property in article 13B(b) which is exempt but not with any of the exclusions from the exemption. The supply of services is quite separate from any of the exclusions and is by a different taxpayer. Accordingly, it does not seem to me that the linking of two services so as to treat them as one arises. In Customs and Excise Commissioners v. Wellington Private Hospital Ltd. [1997] S.T.C. 445, 462, Millett L.J. said: "In determining ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the latter providing that: "Member States may allow tax payers a right of option for taxation in cases of: (a) letting and leasing of immoveable property." Whether paragraph 7 of the Act is within the powers of article 13(C)(a) of the directive is a question of community law: what paragraph 7 of Schedule 6A of the Act means is a question of domestic law, no doubt interpreted in the light of the directive. The respondents say that if maintenance contributions or part of them "are considered to have accrued to the benefit of the respondents" and such moneys must be seen as part of the consideration for the grant of the lease, the respondents must for the purposes of the Act be treated as if they were themselves making the grant of the lease. Accordingly, paragraph 7 of Schedule 6A by a legislative fiction removes the separate supplier problem by treating the respondents as if they were making the grant of the lease. With respect to the ingenious and able arguments of Mr. Cordara, I do not consider that this paragraph has any relevance to the present case. Schedule 6A is concerned with the removal or waiving of tax on taxable supplies. Thus paragraph 1 provides ..... X X X X Extracts X X X X X X X X Extracts X X X X
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