Appeal Number LON/2008/1983

[2009] UKFTT 325 (TC)

TC00268

Appeal number LON/2008/1983

VAT-Supply of goods or services-place of supply- whether Appellant supplied the services of consultants or similar services for the purposes of paragraph 3 of Schedule 5 VATA and Article 56(1)(c)of the Principal VAT Directive such that those services were outside the scope of VAT

FIRST-TIER TRIBUNAL

TAX CHAMBER

GABBITAS EDUCATIONAL CONSULTANTS LIMITEDAppellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS Respondents

TRIBUNAL: MRS S.M.G.RADFORD (Judge)

Mr N.L.COLLARD

Sitting in public in London on 19 & 20 October 2009

Andrew Hitchmough, counsel instructed by Thorne Lancaster Parker, for the Appellant

Eleni Mitrophanous, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents

DECISION

The Appeal

The Appeal concerned the place of supply of certain services (the Disputed Services) supplied by the Appellant to its customers who were resident outside the European Community.
The resolution of the issue depended upon whether the services in question were the services of consultants or similar services within article 56(1)(c) of the Principal VAT Directive.
The Appellant contended that the Disputed Services were the services of consultants or similar services. As a consequence the place of supply of the Disputed Services was the place where the recipient had a permanent address or usually resided which was outside the European Community. The Disputed Services were thus outside the scope of VAT.
The Respondents contended that the Disputed Services were essentially a supply of administrative and organisational or supporting functions. As a consequence the place of supply was the UK being the place where the Appellant has established its business. The Disputed Services were thus subject to VAT.
The Appellant relied on the evidence of Catherine Stoker the Managing Director of the Appellant to describe the nature of the Disputed Services.

Background and facts

The Appellant is a company specialising in providing a broad range of services to parents from all over the world and their children who attend UK schools.
It was common ground between the parties that the Disputed Services were only that package of services outlined in the Appellant’s leaflet “Gabbitas Guardianship caring for your child in the UK” (“the Guardianship leaflet”).

8. The Disputed Services were provided to overseas parents who had decided to send their children to UK schools.

9. The Guardianship leaflet explained the background to the Disputed Services.

10. According to the Guardianship leaflet under the guardianship services the Appellant “offers a flexible range of guardianship services covering the care and guardianship of your child, educational guidance, practical and administrative support with travel and financial matters, plus a range of extras such as assistance with shopping for essential items, school uniform or musical instruments”.

11. In the Guardianship leaflet the Disputed Services are divided into Gold, Platinum and Diamond Services.

12. The Gold, Platinum and Diamond services all include the selection and appointment of a suitable guardian family; background checks on guardian family members; 24 hour emergency contact while the child is in the UK; attendance by guardian at school events and parents’ meetings; monitoring educational progress and liaising with parents over end of term reports; assisting with GCSE and A level subject choices; liaising with school about holiday, exeat, sport and social events; travel arrangements for the child; payment of the term expenses to the guardian family on behalf of the parent; providing a statement every term of the parent’s account and providing a newsletter every term for the parent and child.

13. The Platinum and Diamond services also include an annual visit to the child at school; accompanying the child to and from the airport; assistance with mobile phone purchase on a “pay as you go” basis; monitoring and payment of pocket money to the child on the parents’ behalf and payment of school fees on behalf of the parent.

14. The Diamond Service in addition to all of the above services included under both the Gold and Platinum service also provides a visit every term to the child at school; assistance with school selection to take into account the individual needs of the child and registration once a decision has been made; providing general advice on education; assistance with the purchase of uniform and making hotel, flight and travel reservations on behalf of the child and the parent.

15. Although the leaflet included a page on the guidance offered regarding all stages of the UK education, this was in fact only immediately available to those parents selecting the Diamond service.

16. The Appellant has its principal offices in Central London where 23 full- time staff, 7 part-time staff and 3 self-employed consultants are based.

17. The Disputed Services are delivered by a specific business division within the Appellant. This guardianship division is headed by Debbie Cowley who leads a team of five staff members based in the London office and four staff members based overseas. The UK- based staff consists of three client relationship co-ordinators, a travel co-ordinator and a finance manager.

18. The cost of the services increases with the increase in the services. In her witness statement and in cross examination Ms Stoker stated that in practice the elements included in the Disputed Services provided varied very little once the parent had become a customer of the Appellant and the fees they paid varied only in accordance with the frequency of the advice they received.

19. She stated in her witness statement and in cross-examination that the most important aspect of the Disputed Services was acting as an interface between the parents, the child, the guardian and the school. Although the Appellant also undertook a small number of ancillary tasks as part of the Disputed Services, at most only 20% of staff time was spent on those tasks.

20. Of the six staff members in the guardianship division in London, Ms Stoker stated that two of them dealt with travel and financial matters exclusively leaving the head of the division and the three client relationship co-ordinators dealing with the Disputed Services.

21. Ms Stoker described the background of the three client relationship co-ordinators - as a Lithuanian who spoke fluent Russian, an English speaker from South Africa who was in her first job and a third who was also new and had taught in schools all over Asia and Taiwan.

22. Whilst Ms Stoker stated under cross- examination that 50 % of her own time was spent on the Disputed Services she accepted that she was actually only a point of reference if anybody needed assistance. Although she said that staff members from a separate division also helped members of the guardianship division, Counsel for the Respondents submitted that whilst in any office colleagues seek help and support from other staff members, the Disputed Services were typically provided by the members of the guardianship division.

23. Counsel for the Respondent submitted that as they were hired on Ms Stoker’s evidence largely for their language skills and cultural knowledge it was unlikely that they could give expert educational advice.

24. Ms Stoker stated that the Appellant currently had 145 families using the Disputed Services.

25. In her cross-examination Ms Stoker was asked to give typical examples of the advice given under the Disputed Services. She referred to advice given to a parent that a child who wanted to go into the travel business should retain French as an AS subject rather than drop it; whether A levels or the Baccalaureate should be taken; the benefits of Westminster school; whether to stay on at a school or change in the sixth form; that a holiday during the Easter break and prior to exams was not a good idea; the implications of a child being suspended; and the inherent dangers of a 12 year old flying alone to Russia. She appeared to accept Counsel for the Respondent’s suggestion that some of this advice was not of a particular specialised nature but was common sense advice.

26. In the agreed bundle six case studies were provided together with a selection of emails.

Case study 1 concerned a Chinese student for whom one of the guardianship team it is stated is “actively involved in advising her on alternative schools and guiding her through the administrative process”

Case study 2 concerned a student from Thailand but the emails provided appear to be between the student’s father and the guardian who appears to be providing all the advice.

Case study 3 concerned four siblings who were provided with applications and advice concerning school selections and admissions under the Disputed Services.

Case study 4 concerned a Russian student but the emails provided were in Russian without any translation despite a staff member being available who spoke fluent Russian. Apparently here the advice provided was in respect of academic issues and senior school applications.

Case study 5 concerned another Russian student whose parents sought assistance choosing a boarding school for her sixth form studies. Again however the emails provided to substantiate this were in Russian without translation.

Case study 6 concerned a student whose parents sought advice on school choices and admission procedures.

The Law

27. Counsel for the Appellant submitted that a useful definition of consultancy for these purposes was the “application of specialist knowledge by a person in providing services to his customers.

28. He submitted that this approach was in accordance with the published guidance of the Respondent in Note 741 paragraph 13.5.2 in which it was recognised that consultancy services could include matters as diverse as translation services, the testing and analysis of goods, market research, research and development and a variety of different software based services.

29. He submitted that the questions for the Tribunal were:

Are the services the sort that a consultant would principally and habitually supply?

Is the Appellant a consultant with respect to the Disputed Services?

30. In her closing submissions Counsel for the Respondents summarised the Respondents’ case as follows:

The services of consultants or similar services should be understood to be the sorts of services typically supplied by those advisors who may be regarded as members of the liberal profession of consultants;

No aspect of the Disputed Services is such a service;

Alternatively even if a small part of the Disputed Services could be considered to be such services, the predominant and /or characteristic nature of the relevant services, that which is of decisive importance, is the appointment of a guardian and those who support a child in the UK whose parents are overseas, rather than the provision of advice on that child’s education. Thus the Disputed Services are not habitually and principally those of a consultant even if contrary to the Respondents’ primary position it is found that a minor part of such services is that of a consultant.

31. The legal framework relating to the appeal is as summarised by Counsel for the Appellant as follows:

The place of supply of services is generally the supplier’s permanent address or where the supplier usually resides as stipulated in article 43 of the Principal VAT Directive (previously article 9(1) of the Sixth Directive) implemented in the UK by VATA Section 7(10).

There are however exceptions to this general rule set out in articles 44 to 59 of the Principal VAT Directive (formerly article 9(2) of the Sixth Directive) and Implemented in the UK by VATA Section 7(11), VATA Schedule 5 and Value Added Tax (Place of Supply of Services) Order 1992 .

In this case the relevant exception is that set out in article 56(1)c of the Principal Directive (formerly the third indent of article 9(2)(e) of the Sixth Directive). Under article 56(1)(c) where “the services of consultants, engineers, consultancy bureaux, lawyers, accountants [or]other similar services” are performed for non-business customers established outside the EC the place of supply is the place where the customer has their permanent address or usually resides.

32. In reaching its conclusion in Maatschap M J M Linthorst, K G P Pouwels and J Scheres cs v Inspecteur der Belastingdiens/ondernemingen Roermond (Case C-167/95) [1997] STC 1287 (Linthorst) that the services supplied by veterinary services were not consultancy the ECJ noted that:

“Whereas veterinary surgeons’ duties sometimes involve advisory or consultancy aspects, that fact is not enough to bring the principal and habitual activities of the profession of veterinary surgeon within the concepts of ‘consultants’ or ‘consultancy bureaux’ or to cause them to be regarded as similar”.

Counsel for the Appellant submitted that the ECJ therefore regarded the services provided by a consultant as including both advisory aspects on the one hand and consultancy aspects on the other. He used this to support the proposition that consultancy services extend beyond pure advice.

33. He said that support for consultancy which extends beyond pure advice can also be found in Vision Express Limited v HMRC (Decision 16848 of the VAT & Duties Tribunal). In Vision Express, the Tribunal held that certain services supplied to Vision Express Limited in the UK by its French parent company were consultancy services within the meaning of article 56(1)(c). The services in question included introducing financial accounting, the distribution of an action plan for a review of the Vision Express Brand and the installation of various systems following a period of analysis and studies. The services therefore extended well beyond the mere provision of advice.

34. In Card Protection Plan Limited v CCE (Case C-349/96) the ECJ held at paragraph 27:

“The question of the extent of the transaction is of particular importance for VAT purposes, both for identifying the place where the services are provided and for applying the rate of tax or, as in the present case, the exemption provisions in the Sixth Directive”.

35. Counsel for the Appellant submitted that the extent might be determined by asking as in Card Protection Plan whether there is a principal service to which other aspects are “ancillary” or as in Levob Verzekeringen BV v Staatssecretaris van Financien (Case C-41/04) (“Levob”) by asking whether the “two or more elements….. supplied by the taxable person to the customer….are so closely linked that they form, objectively, a single, indivisible supply, which it would be artificial to split”. In either case the transaction is then taxed by reference to the principal element only.

36. Counsel for the Appellant referred to the Respondents’ contention that the Disputed Services would not generally fall within supplies made by members of a liberal profession and therefore could not be regarded as falling within Article 9(2)(e).

37. He submitted that the genesis of the Respondents argument on this point appeared to lie within the decision of the VAT & Duties Tribunal in Nasim Mohammed (t/aThe Indian Palmist) v HMRC (Decision 18397 of the VAT & Duties Tribunal). In that case the Tribunal concluded after citing Linthorst and von Hoffman v Finanzamt Trier (Case C-145/96) [1997] STC 1321 (“von Hoffman”) and referring to the judgement of the ECJ in Christiane Adam, epouse Urbing v Administration de l’enregistrement et domains (Case C-267/99) (“Christiane Adam”) concluded:

“Consultant must fall within the term ‘liberal profession’. The European Court of Justice has given a preliminary ruling in Christiane Adam as to the meaning of ‘liberal profession’ and has stated that a ‘liberal profession’ must have a marked intellectual character, require a high level qualification and be subject to clear and strict professional regulation.”

38. Counsel for the Appellant submitted that it was essential to appreciate the fundamental difference in structure between Annex F(2) of the Sixth Directive (the relevant provision in Christiane Adam and article 56(1)(c) the relevant provision in this case and in Nasim Mohammed.

39. Annex F of the Sixth Directive set out the transactions which member states could continue to exempt under article 28(3)(b) for a transitional period. Annex F(2) of the Sixth Directive defines the services in question by reference to particular professions. In this context it is the characteristics of the person supplying the services rather than the services themselves that matter. Article 56(1)(c) does not refer to professions but rather to services and accordingly it is not the characteristics of the supplier that matter but rather the characteristics of the service.

40. He submitted that the jurisprudence of the ECJ and the Opinions of its Advocates General are clear in rejecting the very existence of any genus in article 56(1)(c) and indeed of any requirement that in order to be consultancy, the services in question must be those of a type generally supplied by members of a liberal profession.

41. In Linthorst Fennelly AG concluded that

“The search is essentially for a sufficiently common element to permit an identification of a recognisable class. The activities listed in the third indent of art 9(2)(e) [now article 56(1)(c)] seem to me to be too heterogeneous and lacking in common elements. It has been suggested that the fact that the activities listed may broadly be regarded as constituting liberal professions provides a genus. However I do not think that the legislator, by that indent, intended to enumerate a catalogue or establish a class of activities corresponding to those of the liberal professions”

In a similar vein in its Judgement in Linthorst, the ECJ noted at paragraph 20 that:

“The only common feature of the disparate activities mentioned in that provision is that they all come under the heading of liberal professions. Yet as the German government rightly observed if the Community legislature had intended all activities carried on in an independent manner to be covered by that provision, it would have defined them in general terms”.

42. Counsel for the Appellant submitted that Linthorst, did not impose an additional requirement in relation to article 56(1)(c) that the person providing the services must be a member of a liberal profession. Both the ECJ and its Advocate General were (a) making reference to a submission which had been put to them to the effect the fact that the activities listed may broadly be regarded as constituting liberal professions and that this provided a foundation for the application of the esjudem generic rule and (b) rejecting the proposition that any genus could be identified from the terms of article 56(1)(c).