SiBCAS LIMITED, APPEAL BY AGAINST THE COMMISSIONERS FOR HER MAJESTY'S REVENUE AND CUSTOMS [2018] ScotCS CSIH_49 (13 July 2018)

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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> SiBCAS LIMITED, APPEAL BY AGAINST THE COMMISSIONERS FOR HER MAJESTY'S REVENUE AND CUSTOMS [2018] ScotCS CSIH_49 (13 July 2018)
URL: http://www.bailii.org/scot/cases/ScotCS/2018/[2018]_CSIH_49.html
Cite as: [2018] CSIH 49, 2018 GWD 24-314, [2018] ScotCS CSIH_49, 2018 SC 604, [2018] BVC 36, 2018 SLT 1066, [2018] STC 1828, 2019 SCLR 131

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FIRST DIVISION, INNER HOUSE, COURT OF SESSION
Lord President
Lord Drummond Young
Lord Bannatyne
[2018] CSIH 49
XA81/17
OPINION OF LORD CARLOWAY, the LORD PRESIDENT
in the appeal by
SiBCAS LTD
Appellants
against
THE COMMISSIONERS FOR HER MAJESTY’S REVENUE AND CUSTOMS
Respondents
Appellant: Simpson QC; Anderson Strathern
Respondents: Roxburgh; Office of the Advocate General
13 July 2018
Introduction
[1]       This appeal is about whether the appellantssupply of temporary school
accommodation to an educational institution is exempt from Value Added Tax as
constituting “the grant of [an] interest in or right over land or of [a] licence to occupy land”,
as interpreted to include “the leasing or letting of immovable property”. Unusually, it is the
respondents who maintain that the supply is exempt. The issue is of some importance since
there requires to be clarity, or at least firm guidance, for commercial enterprises on whether
they ought to charge VAT to customers to whom they supply a variety of different types,
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shapes and sizes of accommodation modules which are, at least at the time of the initial
supply, intended for temporary use.
Statutory Background
[2]       The Value Added Tax Act 1994 provides (s 1) that VAT shall be charged “(a) on the
supply of goods or services”; “supply” including (s 5) “all forms of supply”. The supply
requires to be by a taxable (registered) person (s 3) “in the course or furtherance of any
business” (s 4). The 1994 Act has its source in the Sixth Directive (EC 77/388) on the
harmonisation of ... turnover taxes, which became the Principal Directive (EC 2006/112) on
the common system of VAT. The Act’s terms require to be construed in a manner
compatible with the 2006 Directive. Article 9 of the 2006 Directive refers to a taxable person
being someone carrying on “any economic activity”; meaning “any activity of producers,
traders or persons supplying services” (see also the Sixth Directive, Art 4). There is, for
other purposes, a definition of “a building” in Article 12; being “any structure fixed to or in
the ground”.
[3]       The 1994 Act provides that “the grant of any interest in or right over land or of any
licence to occupy land” is exempt from VAT (s 31(1); Sch 9, part II, group 1 (land), item 1(l)).
This implements Article 135(1)(l) of the 2006 Directive, which requires member states to
exempt transactions involving “the leasing or letting of immovable property” from the
charge (see the Sixth Directive Art 13B(b)). Exceptions to the exemption in this group
include the provision of hotel, catering or holiday accommodation, caravan park or camping
facilities, and accommodation at a sports ground or other place of entertainment.
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Facts found by the First Tier Tribunal
[4]       The appellants’ business is the manufacture, supply and hire of relocatable, modular
prefabricated accommodation units. Single units are manufactured in different sizes, but are
generally 3 metres wide and between 6.8 and 9.2 metres long. They are rectangular boxes.
The units are transported by lorry to the customers’ sites by the appellants. The duration of
hire is typically between 1 and 13 months for a single unit; averaging 7 months. Multiple
unit hires will range from 4 to 36 months; averaging 20 months.
[5]       Part of a secondary school in Stockton-on-Tees, which was operated by the Church of
England, had been condemned. Temporary school accommodation was to be supplied by
the appellants. The supply was for a minimum of 24 months, although it ultimately lasted
for 32 months.
[6]       The appellants required to carry out foundation works, since the structure was to be
laid on an uneven tarmac playground/tennis court, which was adjacent to the condemned
school. The ground conditions were of insufficient strength to cope with the structure’s
predicted weight. The appellants cut the tarmac and dug three parallel trenches. They filled
each trench with compacted stone and placed large steel levelling beams on top of the stone
to provide an adequate and level base for the units. The beams were not attached to or
embedded in the stone. They simply rested on top of it. The trenches were about 30 metres
long and between 300 and 600 millimetres deep. The ground floor units rested on, and were
initially clamped to, the beams. The purpose of these friction clamps was not to secure the
structure permanently to the ground, since its mass and weight would do that. They were
used to stop the first unit moving as the others were positioned next to it and to do the same
with other units during the construction phase. The clamps could have been removed on
completion of the structure, although there was no need to do so.
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[7]       The accommodation consisted of three interlinked, two storey blocks, plus four
landings and steps, one disabled access ramp to the ground floor and two landings and
stairs to the first floor. The base of one staircase was surrounded by tarmac and the others
were bolted to metal plates secured to the tarmac. There was no roof framework; simply the
flat top of the upper units, which was covered by a sealant membrane. The completed
construction contained 19 classrooms with associated staff and other accommodation,
including toilets and an internal lift and stairways. It extended to almost 4,000 m2. It had
central heating and air conditioning as well as other utilities, including plumbing and
electric and network cabling.
[8]       The construction involved 66 units, some of which were combined to create the
desired space. The units were clipped or clamped together to create the integrated
structure. Decoration and tiling ran across the units. Skirtings were installed between the
floors and below the ground floor for cosmetic and safety reasons. Each unit required an
articulated lorry to move it onto site, with eight more lorries needed for the carriage of other
component parts. The units had all come from another site, where they had also been used
as educational accommodation. The overall complex size was the same, although some
minor internal modifications were made to meet the school’s specific requirements. The
units were positioned using a telescopic crane. They took 29 days to assemble (it being
impractical to deliver all the units to the site at once).
[9]       When the contract came to an end, the services were disconnected, the cabling
stripped out and central heating pipes cut. This required far less skill than that used in
construction. The rooms were broken back into units. Each unit was removed by crane and
lorry. The trenches and stone infill were left on site. The steel beams were taken away. It
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took 98 man days (14 men x 7 days) to dismantle and remove the structure. No unit was
damaged and all were subsequently rehired to other customers.
The First Tier Tribunal’s analysis
[10]       The FTT focused on the nature of the completed structure in order to determine
whether there had been a lease of immovable property. In that context, it had regard to C-
315/00 Maierhofer v Finanzamt Augsburg-Land [2003] STC 564, C-60/96 Commission v France
[1999] STC 480, HM Revenue & Customs v UK Storage Co (SW) [2013] STC 361 and University
of Kent v Commissioners of Customs & Excise [2004] BVC 2215. The FTT determined that
“immovable” meant “fixed to or in the ground” (Maierhofer (supra) at para 35). The relevant
question was “whether the prefabricated components and therefore the units are fixed to or
in the ground and whether they can be easily dismantled or easily moved”. Each unit had
to be considered in isolation. The friction clamps did not attach or fix the units “and
therefore the building” to the beams. The beams which rested on the stone were not an
integral part of the building. The foundation trenches and stone remained on site after
removal. The external service connections were very limited. Objectively, the attachment
was not sufficient to enable the building, or the individual units, to be “firmly fixed to the
ground”. In any event, it was a straightforward matter to disconnect and remove the units.
The appellants did this all over the country on a regular basis with no particular difficulty.
The works were therefore not exempt from the VAT charge.
The Upper Tribunal
[11]       The UT considered that the question for the FTT had been whether there had been a
“grant of any interest in or right over land or of any licence to occupy land”. This depended
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upon whether there had been a letting of immovable propertywithin the meaning of
Article 135(l) of the 2006 Directive. Article 135(l) had to be interpreted in its context and
having regard to the underlying purpose of the exemption which it established. The letting
of a building may be one of immovable property even if the land on which the building
stands is not included in the letting (Maierhofer at para 41). In terms of Advocate General
Jacobsfirst conclusion in Maierhofer (at para 43), “’immovable property... covers buildings
constructed from prefabricated materials … if they are firmly fixed to or in the ground”.
[12]       Reading both Maierhofer and C-532/11 Leichenich v Peffekoven [2013] STC 846, it was
clear that: (1) Article 135(l) of the 2006 Directive should be interpreted in a way which was
consonant with Article 12(2), whereby a building will be immovable property if it is fixed
to or in the ground; (2) in neither case did the CJEU exhaustively prescribe the
circumstances in which a building ought to be regarded as so fixed. An active connection,
such as a physical fastening was not a requirement, as the FTT and the UT in UK Storage Co
(SW) (supra) had held; (3) immovability was to be determined by looking objectively at the
characteristics of the building and its relationship with the site; (4) Maierhofer did not say
that the immovability of a prefabricated building fell to be decided according to whether
individual components were fixed to the ground. The issue was whether the building was
fixed to or in the ground; and (5) neither Maierhofer nor Leichenich recommended a sequential
approach. The UT in UK Storage Co (SW) had erred in adopting that approach. The means
by which a building was kept in position and the ease of removal or dismantling were inter-
related and both were relevant to whether the building was fixed to or in the ground. They
ought to be considered together.
[13]       In the UT’s view, the relevant question was whether the building was fixed to or in
the ground. The FTT had taken an unduly restrictive view of what this had involved. It had
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regarded the facts in Maierhofer as representing a minimum requirement. It had wrongly
adopted the sequential approach. It ought to have looked objectively at the building’s
relationship with the ground and taken a holistic view, looking cumulatively at all of the
links between the building and the ground and whether the building could be easily
dismantled and moved. The FTT had erred in looking at each connection separately. The
issue was whether the beams and foundations had been integral to the building before
dismantling. They plainly were. The FTT’s error had been compounded by looking at
whether a unit rather than the structure could be easily dismantled and moved. The
structure was fixed to or in the ground. It had substantial foundations sunk into the ground.
It was held very firmly in position by compressive force. It was connected to services
running through the ground. Other parts of the structure, including the stairways, were
secured to the ground. “Importantly, the building could not feasibly be moved without
being dismantled, and it could not easily be dismantled and moved.” The appeal was
allowed.
Submissions
Appellant
[14]       The appellant maintained that the proper approach was to focus on the FTT’s
decision, because that tribunal was the primary fact-finder and the maker of judgments
based on those primary facts. Unless it had made an error in law in so doing, it was not for
the court to interfere (Procter & Gamble UK v Revenue & Customs Commissioners [2009] STC
1990 at para 7). The court should be slow to interfere with findings of fact (Advocate General
v Murray Group Holdings 2016 SC 201 at para [46]). The FTT had been reversed on the
question of whether the beams and stone had constituted part of the building. The FTT had
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given acceptable reasons for its conclusions on this point and it had been wrong in law for
the UT to alter that. Similarly, the UT had wrongly reversed the FTT on the ease of
dismantling and removing.
[15]       The reason for the exemption in relation to the lease of immovables was that the
construction of a building marked the end of the production process. Letting was normally
a passive activity; not adding significant value (C-326/99 Stichting Goed Wonen v
Staatssecretaris van Financiën [2001] ECR I-6856 at para 52). Once the construction process
had been completed, value was brought within the scope of VAT on the first grant of a
major interest (albeit zero rated). Apart from that, supplies were exempt because, generally,
nothing apart from construction added value. In contrast, the appellantsactivities in
relation to the units were comparatively active. Each hire added value. At the end of each
hire the units were taken back and maintenance carried out before the construction of a new
structure for subsequent hire. Standing back and looking at the case generally, the
appellants were not passive exploiters of immovable property. They manufactured
individual units and actively exploited them by using them to create a variety of different
structures for different customers. If the appellants’ supply were deemed to be exempt, that
would cause a serious practical problem in deciding whether a particular structure was
exempt. It might depend on the condition of the ground in terms of its strength or level.
[16]       Maierhofer (supra) indicated that the concept of being fixed to or in the ground
required some active connection between the structure and the land. The UT erred in
adopting a broad interpretation of this phrase to include “firmly placed on the ground”.
Resting on top of ground was not enough. Using the definition of “building” as an aid, the
CJEU had held that there was, for a prefabricated structure to be deemed immovable, a
requirement for the components to be fixed to or in the ground in such a way that they (ie
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the components) could not either be easily dismantled or easily moved. This was so even if
the building was to be removed at the end of the lease and re-used elsewhere. The
difference here was that the units would be re-used to form different structures. C-428/02
Fonden Marselisborg Lystbådehavn v Skatteministeriet [2005] ECR I-1527 was distinguishable.
Leichenich v Peffekoven (supra) was consistent with Maierhofer (supra). It referred (para 26) to
the relevance of the objective envisaged by the parties and the function allocated to the
structure. The houseboat there was permanent and passively exploited.
[17]       HM Revenue & Customs v UK Storage Co (SW) (supra) had been correct in stating
(para 26) that a building, which was kept in place merely by its own weight, could not be
held to be fixed to or in the ground. The formulation by the CJEU required a causal
relationship between the manner of fixing and the ease of dismantling or moving. Any
difficulty in dismantling, which was brought about by the connection between components,
was to be ignored in assessing whether the supply was of immovable property. The
formulation in Maierhofer (supra) was that, where a structure consisted of prefabricated parts,
the question was whether the parts could be easily dismantled or moved. The UT erred in
rejecting the sequential approach in UK Storage Co (SW) (supra). The FTT had been correct to
find that the trenches and stone had not formed part of the structure. The services did not
connect the structure to the land. It was a straightforward matter to disconnect the units
from the ground, hoist them onto a truck and drive them away. The FTT had been correct to
find that the trenches and stone had not formed part of the structure. The services did not
connect the structure to the land.
[18]       The purpose of the legislation was not to distinguish between immovable and
moveable. That is what it did. The purpose was to remove passive investment in land and
buildings from the scope of VAT. The appellants’ business was to manufacture
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“Portacabin” style units and to hire them out to a variety of different customers. That
involved transport, installation, customisation and removal. The building only existed for
the period of hire before disappearing. Having regard to the purpose of the exemption, this
was a business which should be fully taxable. Applying the CJEU jurisprudence, there was
a taxable supply.
Respondents
[19]       The respondents maintained that the UT had been correct to find that the FTT had
erred in law in: (1) its application of Maierhofer (supra); (2) its identification of the structure to
which the Maierhofer test applied; (3) its approach to whether the building was fixed to or in
the ground; (4) finding that the units were not attached to the beams; (5) finding that the
stone and beams were not an integral part of the structure; and (6) finding that it was a
straightforward matter to dismantle and remove the building.
[20]       In C-428/02 Fonden Marselisborg Lystbådehavn v Skatteministeriet (supra), Advocate
General Kokott had said (para 30) that immovable property was a specific part of the
earth’s surface, including buildings firmly constructed thereon. In Maierhofer (supra) it was
noted that there were degrees of movability. Whether a particular structure was movable or
immovable depended upon where on the scale it fell. The court held (para 33) that
structures fixed to or in the ground must be regarded as immovable. There was no need for
them to be inseverably fixed. The letting of a building constructed from prefabricated
components, which were fixed to or in the ground in such a way that they could not be
either easily dismantled or easily moved, constituted the letting of immovable property,
even if the building was to be removed at the end of the lease and reused on another site.
The approach in Maierhofer was applied in Leichenich v Peffekoven (supra), which
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demonstrated that it was necessary to look at the buildings link with its site. In University of
Kent (supra) and UK Storage Co (SW) (supra), the tribunals had been concerned with
individual units with no foundations. The FTT had taken a “unit” as shorthand for a
prefabricated component in Maierhofer. It had ignored the beams and foundation trenches.
The FTT had asked the wrong question when considering whether the units, as distinct from
the whole structure, were fixed in or to the ground and could be easily dismantled or
moved.
[21]       Whether the units making up the ground floor were physically attached to the beams
was irrelevant. The units could not have been sited on the land without the beams and the
foundations. What was important was that the beams were integral parts of the structure
before the building was dismantled. The FTT had found that there was a physical
connection between the beams and the units. This fixed or attached the units to the beams.
The UT was correct to hold that the beams and the foundations were integral parts of the
structure. The question, of whether the building was fixed to or in the ground in such a way
that it could not be easily dismantled or moved, involved looking objectively at the
characteristics of the building and its relationship with the site.
[22]       The argument that the exemption was designed to exclude passive exploitation was
rejected by the Advocate General in Maierhofer ((supra) at para 41). The question was
whether the building was fixed in or to the ground; looking at what was supplied and
whether it could be easily dismantled and moved (UK Storage Co (SW) (supra) at paras [20],
[30]      -[31]). The building in Maierhofer had involved foundations. There was no requirement
for an active connection. Compressive force was sufficient. Little turned on whether or not
a sequential approach, such as that in UK Storage Co (SW), was applied. The building was
not made of Lego. There were interconnected services. The supply had to be looked at
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objectively; the period of the lease was not relevant nor was what happened after the
supply.
Decision
The cases
[23]       Each of the cases cited is materially different in nature from that under consideration,
although each contains relevant dicta for analaysis. Approaching the European cases
chronologically, C-326/99 Stichting Goed Wonen v Staatssecretaris van Financiën [2001] ECR I-
6831 concerned three newly built housing complexes, which were undoubtedly immovable.
The issue was whether a housing association’s grant to a foundation, which it had
established, of a right to use the complexes for a period of 10 years in circumstances in
which the foundation had in turn contracted with the association to manage the individual
lets, was exempt from the VAT charge. Put another way (para 39), was the grant of a right
to use the housing complexes for a limited period of time itself the lease of immovable
property; was it a “supply”? The court noted (para 46) that exemptions from the VAT
charge were derogations from the general principle that VAT is to be levied on all supplies
or services. They therefore required to be interpreted strictly.
[24]       Of more interest, however, is the court’s analysis (paras 50 et seq) of the ratio legis of
the exemption. It stated:
“52. Although the leasing of immovable property is in principle covered by the
concept of economic activity ... it is normally a relatively passive activity, not
generating any significant added value. Like sales of new buildings following their
first supply to a final consumer, which marks the end of the production process, the
leasing of immovable property must therefore in principle be exempt from taxation
...
53. ... The common characteristic of the transactions which [are excluded] from
the scope of the exemption is indeed that they involve more active exploitation of
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immovable property, thus justifying supplementary taxation, in addition to that
charged on the initial sale of the property”.
The purpose of the exemption is essentially to cover the passive act of leasing land and
buildings constructed upon it.
[25]       C-315/00 Maierhofer v Finanzamt Augsburg-Land [2003] STC 564 involved (AG’s
Opinion para 13) “buildings similar to prefabricated houses”; with the walls being made of
panels, secured to a concrete base erected on sunk foundations, and a roof framework with
tiles. The base was secured by bolts embedded in the foundations. This is a different type of
structure from the modular units in this case. The contract involved only the leasing of
existing buildings; not their design, transportation, construction and removal. It involved
the let, not only of the accommodation, but the land (ibid para 12). The only issue was
whether the buildings were immovable. The buildings were, in part, built on land which
Mr Maierhofer had rented from the local authority or on land rented, but not owned, by the
tenants.
[26]       Advocate General Jacobs was not convinced (para 31) by the argument that the
transaction entailed active exploitation of immovable property beyond that levied upon the
initial sale. He reasoned (para 41), no doubt correctly, that Mr Maierhofer “merely lets the
buildings ...; in so doing he does not exploit the property more actively than he would if the
letting were of a conventional building which he had constructed”. His dismissal of the
significance of the possibility of dismantling and re-using the components elsewhere was
because “such a sequence of events is ... merely hypothetical, and as such cannot without
undermining legal certainty influence the correct classification of a building at a given time
as immovable property...”.
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[27]       The Advocate General’s reasoning on why he considered the buildings in Maierhofer
to be immovable is instructive, even if it was not entirely adopted by the court. The German
Government had suggested that the buildings were comparable in type to the “tents,
caravans, mobile homes and light-framed leisure dwellings” in Case C-60/96 Commission v
France [1999] STC 480. The Advocate General commented (para 32) that “a true building
with walls and foundations will ... only very exceptionally be moved whereas a circus tent’s
core function is precisely to be movable”. He posed the question of whether buildings
should be classified as immovable either by looking at objective criteria, such as the quality
of attachment to the land, or by subjective criteria, such as the intended duration of the
attachment. He excluded the latter as irrelevant because of what he described as the
“notoriously fickle criterion” of intention. This reasoning stemmed partly as a consequence
of his perception, no doubt soundly based, of the semi-permanence of certain post war
“prefabs”. An objective criterion, specifically “whether the structure is firmly fixed to or in
the ground”, was selected. In that context, he continued:
“42. ... The buildings stand on a concrete base erected on concrete foundations
sunk into the ground and are secured by bolts embedded in those foundations. ...
they were solidly built in order to last at least five years. It would take a team of
eight persons a period of ten days to dismantle them. They may be distinguished
from tents, caravans and mobile homes which are both inherently mobile and less
firmly attached to the ground(emphasis added).
[28]       The CJEU commenced its interpretation by reiterating (paras 27 and 28) the need to
“consider its wording as well as the context in which it occurs and the objectives of the rules
of which it forms part”. In also contrasting the buildings with “caravans, tents, mobile
homes and light-framed leisure dwellings” in C-60/96 Commission v France (supra), the court
said:
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“32 ... the buildings at issue ... are not mobile; nor can they be easily moved. They
are buildings with a concrete base erected on concrete foundations sunk into the
ground. They can be dismantled on expiry of the lease for subsequent re-use but by
having recourse to eight persons over ten days.
33 Such buildings made of structures fixed to or in the ground must be regarded
as immovable property. ... [I]t is significant that the structures cannot be easily
dismantled or easily moved but ... [T]here is no need for them to be inseverably fixed
to or in the ground. Nor is the term of the lease decisive for the purpose of
determining whether the buildings at issue are moveable or immovable property”.
[29]       The court stressed the utility of adopting the definition of “building”, in what is now
Article 12 of the 2006 Directive, before continuing:
“... the letting of a building constructed from prefabricated components fixed to or in
the ground in such a way that they cannot be either easily dismantled or easily
moved constitutes a letting of immovable property ... even if the building is to be
removed at the end of the lease and re-used on another site”.
That is entirely understandable in relation to the letting of prefabricated buildings. That is
not to say that the same result is achieved in relation to a contract for the construction of
temporary accommodation using, not prefabricated walls, ceilings and roofs, but modular
units, which are essentially designed to be relatively easily positioned as units, fitted out
and even more easily dismantled and removed, and where the contract provides for that
removal after a limited period of time.
[30]       C-428/02 Fonden Marselisborg Lystbådehavn v Skatteministeriet [2005] ECR I-1527 was
decided shortly after Maierhofer (supra). It concerned a foundation that owned and operated
a marina and let out moorings and storage sites for boats on a short or long term basis. The
boat owner acquired a right to use a mooring, which was alongside a jetty, and certain
communal facilities. The court observed (at para 28) that what is now Article 135 of the 2006
Directive must be interpreted “having particular regard to the underlying purpose of the
exemption”. Letting of immovable property meant (para 30) the grant by a landlord of a
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right to occupy “his property” in return for a rent for an agreed period. The ground used
for the moorings was immovable. The foundation owned it and let it to the boat owner. It
was therefore an exempt supply.
[31]       More recently, C-532/11 Leichenich v Peffekoven [2013] STC 846 concerned an
agreement to lease a houseboat, landing stage and adjoining area for use as a café-
restaurant, and later as a discotheque. The landlord had an agreement with the waterways
authority, which allowed him to occupy the relevant river bank and a section of water. The
houseboat, whilst immobilised by ropes, chains and anchors, had no system of propulsion
and had full utility connections and a postal address. The court noted that Maierhofer (supra)
had determined (para 23) that it was not necessary for a construction to be “indissociably
incorporated into the ground in order to be regarded as immovable”. It continued:
“24 By the terms of the leasing contract which is concluded for a duration of five
years and which shows no wish of the parties to confer an occasional and temporary
character to the use made of the houseboat, the latter is used exclusively for the
permanent operation of a restaurant-discotheque” (emphasis added).
The court took account (para 25) of not only the physical link of the houseboat with its site
but also the nature of the contract which designated it “exclusively and permanently to the
operation” of a restaurant-discotheque in determining that it was immovable.
[32]       Turning to the Upper Tribunal decisions, University of Kent v Commissioners of
Customs & Excise [2004] BVC 2215 was concerned with 20 “sleep units” hired by the
University to accommodate an unexpected number of students who had meantime been
placed in hotels because of the University’s guarantee of a campus bedroom. The hire lasted
for an academic year. The units were to be placed in a car park, which turned out not to be
level. A contractor was engaged to place slabs or blocks under the units in order to remedy
this problem. Three units could be transported on each lorry. Each weighed about a tonne.
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They measured 2700mm (width), 3600mm (length) and 2300mm (height). They had no
foundations, but did have four adjustable corner points. They were placed in two rows,
back to back, with a service corridor being created between the rows. Timber steps and
landings were added to the door of each unit together with various skirtings. A timber
member was secured to the tarmac of the car park with bolted connections. A batten was
bolted to the sub-frame of the unit and a panel screwed onto it. Concrete traffic control
barriers were placed around the units. Electricity, water and drainage connections were
established. The units normally contained two beds, but this was reduced to one in order to
permit study space. The construction took about 3 weeks. Removal took much less time,
with ducting, which had been cut into the car park surface, left on site.
[33]       In addressing whether the units were immovable, the UT accepted that the test was
“how easily the units could be removed from the site” (para 52). They considered that there
was a scale of degrees of movability and immovability. In attempting to follow Maierhofer
(supra), the UT were of the view that the issue was where on this scale the units fell. They
did not consider that they were firmly fixed to the ground. It took only about 1½ hours to
move a unit after the disconnection of services. The UT held the units to be movable.
[34]       HM Revenue & Customs v UK Storage Co (SW) [2013] STC 361 involved the provision
of self-storage facilities to the public. The customer could hire one or more of some 300
storage units; being cladded steel boxes each accessed through a door. The units were
assembled on demand and positioned by telescopic crane into gap free rows, placed back to
back. The units weighed 600kgs and rested on a concrete surface. They could be dismantled
in 2 man-days. The UT, in determining that the provision was not exempt as being the grant
of an interest in land, made certain observations on the interpretation of Maierhofer (supra).
The first (para [20]) was that, in order to be immovable property, a structure had to be “fixed
Page 18 ⇓
18
to or in the ground”, but not inseverably so. A structure which rested under its own weight
could not be regarded as “fixed to or in the ground”. Using a sequential approach, the UT
said, secondly (para [21]) that, if a structure was fixed to or in the ground, but it could be
easily dismantled and removed or easily moved without being dismantled, then it would
not be immovable. The fact that it could be re-used on another site was nevertheless “not
relevant”. The units in question could easily be moved.
Anaylsis
[35]       Some time has been taken to set out the facts and circumstances of these cases with a
view to determining what test is to be applied to the central question. That question is not
simply one of whether the completed structure of the temporary school accommodation was
immovable. It is whether, looking at the primary facts found by the FTT, the appellants’
supply of the accommodation constituted a grant of an interest in or right over land or any
licence to occupy land (Value Added Tax Act 1994, s 31(1), Sch 9, part II (land) I, group 1,
item (l)); interpreted compatibly with the phrase “the leasing or letting of immovable
property” in the Council Directive 2006/112/EC on the common system for VAT
(Art 135(1)(l)). This is a matter of law; there can only be one correct answer. There is no
discretionary element in the judgment.
[36]       It is important, in the interests of commercial certainty, that the circumstances in
which VAT is chargeable in these or similar circumstances are as clear as is reasonably
possible. They should not involve the trader or customer making difficult judgments, which
are capable of arriving at different results depending upon, for example, the degree of
physical connection between a modular unit or units and a pre-existing or re-constructed
ground surface.
Page 19 ⇓
19
[37]       In deciding whether a supply is, put shortly, a grant of an interest in land, such as a
lease of immovable property, the whole circumstances of the supply, and not just the
physical properties of the product, must be looked at in order to understand the substance
of the commercial transaction (supply) undertaken. In a case, such as the present, where
there are features to the supply beyond the mere leasing of land and/or a building, the
purpose of the exemption should be borne firmly in mind, since it is essentially “passive”
leases which are intended to be exempt and not transactions with active elements such as
those of design, construction, transportation, hire and removal. In all of this, the terms of
the contract, including its duration, may be important in understanding the true nature of
the supply (HM Revenue & Customs v Robert Gordon University 2008 SC 419, Lord Penrose,
delivering the Opinion of the Court, at para [25]). It is no doubt correct that, in a case which
undoubtedly involves the lease of a building, such as Maierhofer (supra), the duration of the
lease is irrelevant. The lease of immovable property remains classified as such, no matter
what its term might be. That is not to say that the duration of a contract involving the
construction and dismantling of what is not simply intended to be, but actually contracted
to be, a temporary structure falls into the same category.
[38]       Another factor, although not a determinative one, is whether any interest in the land
(ie the undoubted immovable) was conveyed or leased, or already belonged to, the person
receiving the supply. In this case, the land was not, nor could it have been, leased by the
appellants to the school. At the start of the contract, and at all times thereafter, the property
which the appellants supplied, that is to say their units, were movable property. They had
no immovable property in Stockton-on-Tees (so far as disclosed) which they could lease, or
over which they could grant a right of occupancy. The contract involved the design,
transportation and construction of “temporary classroom accommodation” on the school’s
Page 20 ⇓
20
own land, payment of rental for the accommodation for a minimum 24 month period and,
again perhaps of some significance, the removal of the temporary classroom facilities at the
end of the rental period. Part of the construction was the creation of a level surface of
adequate strength to support the structure. However, the design of this foundation was not,
as in the case of a normal building, intended to cement or bolt (fix) the structure to the land.
The design was, on the contrary, such as would not hinder the removal of the structure, unit
by unit, or the levelling beams at the end of the period of hire. The supply was of a structure
which was always intended to be a temporary one, albeit lasting at least two years, on top of
land which was, and remained throughout, the property of the school.
[39]       In each of the cases cited, the court or tribunal reached a particular result. In each,
that result appears to have been eminently sensible on the particular facts. On the one hand,
Mr Maierhofer’s buildings were, prima facie, immovable, even if they might possibly have
been dismantled. The berths in the Marselisborg marina seemed immovable.
Mrs Leichenich’s permanent floating discotheque was, apparently, immovable. In these
cases, the land (and water) and buildings concerned were, using Advocate General’s Jacobs
term (supra) “inherently immovable” as he applied that only to land. UK Storage’s boxes and
Kent University’s pods, on the other hand, appeared to be, again borrowing the Advocate
General’s phraseology, “inherently movable”, given their general nature.
[40]       Proceeding on the basis that each case was correctly decided, the search must be to
find why that is. Approaching the matter on the basis that all the relevant circumstances
relating to the goods or services supplied must be taken into account in determining the true
nature of the supply, certain of the dicta in the cases (infra), which restrict the scope of that
inquiry, must fall to be rejected.
Page 21 ⇓
21
[41]       The Upper Tribunal was correct to hold that the cases do not prescribe an exhaustive
list of circumstances in which a building will be regarded as fixed to or in the ground. Sheer
weight of a substantial structure built on rock may render it immovable, even if it has no
binding. The UT was also correct to say that the immovability of a building is to be
determined by looking at its characteristics and its relationship to the site. However, that
will not necessarily answer the question of whether the supply contracted for is truly what is
meant by a lease of immovable property. Furthermore, looking at what is normally
understood to be the characteristics of a lease or a right to occupy, one objective factor must,
as noted above, be the ownership of the land, to which the building attaches, at least where
that owner is, as here, the person to whom the respondents maintain, the building is also to
be leased. That too may not be determinative, but it may be a good pointer towards
acknowledging that what is involved is not a lease; that term normally being understood to
involve a landlord who owns or has a head lease over the relevant land and building and
who leases them to another who is not that owner or head landlord.
[42]       The Upper Tribunal was correct in rejecting the idea, which the FTT adopted, that it
was the connection of the individual components to the ground that was important. That
may be a factor, but the structure as a whole must be considered. As already observed, the
groundworks in this case were never intended to fix the structure to the ground. The
purpose of the design was to provide a stable and level surface, but one which enabled the
removal of the units without any form of structural disruption. Equally, for similar reasons,
the sequential approach in UK Storage Co (SW) is not appropriate. The degree of difficulty in
dismantling or moving must be looked at alongside the degree of fixation or, perhaps better
put, immobility. The services in this case, as with those of the University of Kent’s pods, were
designed to be easily disconnected (eg they were not buried). The connection with the
Page 22 ⇓
22
surface, involving no substantial fastening between beam and ground, or beam and unit
(other than the friction clamps), positively enabled easy removal of each unit by crane, even
if that process would inevitably take some time dependent on many practical factors; not
least transport. The finding of fact, made by the FTT (para 90), that “it was a straightforward
matter to disconnect the individual units from the ground and, once the internal wiring,
connections etc had been stripped out, the removal of the units was also very
straightforward” is important in this context.
[43]       It follows that the Upper Tribunal’s identification of a number of errors in the FTT’s
approach is sound. That is, however, only the start of the equation. The next, and
determinative issue, is whether, applying a holistic approach, the design, provision and
removal of the temporary school accommodation amounted to a lease of immovable
property. On this question, which is the correct one rather than the more restricted issue of
whether the building was fixed to or in the ground, for all the reasons given above, the FTT
reached the correct decision. The structure was one which was “inherently movable”. The
appeal should therefore be allowed and the FTT’s ultimate determination that the supply
was not exempt should be re-instated.
Page 23 ⇓
23
FIRST DIVISION, INNER HOUSE, COURT OF SESSION
Lord President
Lord Drummond Young
Lord Bannatyne
[2018] CSIH 49
XA81/17
OPINION OF LORD DRUMMOND YOUNG
in the appeal by
SiBCAS LTD
Appellants
against
THE COMMISSIONERS FOR HER MAJESTY’S REVENUE AND CUSTOMS
Respondents
Appellant: Simpson QC; Anderson Strathern
Respondents: Roxburgh; Office of the Advocate General
13 July 2018
Introduction
[44]       The critical question in this case is, as your Lordship in the chair indicates, whether
the provision by the taxpayer of goods and services to the Ian Ramsay Church of England
School was an exempt supply; if it was it is not subject to VAT. That issue turns on the
construction of Part II of Schedule 9 to the Value Added Tax Act 1994, read against the
background of article 135(1)(l) of Council Directive 2006/112/EC of 28 November 2006 on the
common system of VAT. Part II of Schedule 9 lists the groups of goods and services that are
Page 24 ⇓
24
exempt from the scheme of VAT. Group 1, item 1 of Part II deals with land. It is in the
following terms:
The grant of any interest in or right over land or of any licence to occupy land, or, in
relation to land in Scotland, any personal right to call for or be granted any such
interest or right…”.
This is subject to a list of exceptions, but none of those is of direct relevance to the present
case. Group 1 of Schedule 9 is based on article 135(1)(l) of the 2006 VAT Directive, which is
in the following terms:
“1. Member States shall exempt the following transactions:
(l) the leasing or letting of immoveable property”.
[45]       The exemption for the leasing or letting of immoveable property has been the subject
of case law in both the Court of Justice of the European Union and domestic courts and
tribunals in the United Kingdom. Before I consider the details of those cases, however, I
should note certain general principles that apply to the construction of the EU legislation
governing VAT. Two general propositions are relevant to the construction of article 135 of
the 2006 VAT Directive and the corresponding United Kingdom legislation. First, the
exemptions that are now provided in articles 132 and 135 of the 2006 VAT Directive are
imposed by Community law. Consequently they must be given a Community definition.
The interpretation of the expression “letting of immoveable property” in article 135 cannot
therefore be determined by the interpretation given by the civil law of any member state:
Case C-315/00, Maierhofer v Finanzamt Augsburg-Land, [2003] ECR I-563; [2003] STC 564, at
paragraphs 25-26; Case C-532/11, Leichenich v Peffekoven, ECLI: EU: C: 2012:720; [2013] STC
846, at paragraph 17. Secondly, in construing the exemptions and their scope, a court must
take proper account of the context, both legal and factual, in which an exemption may fall to
Page 25 ⇓
25
be applied, and must take proper account of the purpose of the exemption: Maierhofer v
Finanzamt Augsburg-Land, supra, at paragraphs 27-28; Case C-428/02, Fonden Marselisborg
Lystbådehavn v Skatteministeriet [2005] ECR I-1527, at paragraph 27; Leichenich v Peffekoven,
supra, at paragraph 18. I would observe that these considerations correspond, at a functional
level at least, to the principles of statutory construction that are normally applied to
domestic United Kingdom legislation.
[46]       Two further general statements of principle relating to the structure of the VAT
legislation are of fundamental importance in the construction of article 135 of the 2006 VAT
Directive. First, the general principle underlying VAT is that all economic activity should be
subject to it apart from a limited number of defined exemptions, together with certain
categories of transaction that are subject to zero rating; none of the latter categories is
relevant to the present case. In the circumstances of the present case, that presumption
operates in favour of the taxpayer, which contends that its activities are economic in nature
and should therefore be subject to VAT. Secondly, it follows from the last proposition that
exemptions from VAT should be restrictively construed.
[47]       These two principles are essentially the converse of each other, and are discussed in
the judgment of the Court of Justice in Case C-326/99, Stichting ‘Goed Wonen’ v Staatssecretaris
van Financiën, [2001] ECR I-6856. The facts of that case and the detailed issues that it raised
(in particular, whether the exemption from VAT for the leasing or letting of immoveable
property applied to a usufructuary right over immoveable property that subsisted for a
limited period) are not relevant to the facts of the present case. Nevertheless in its opinion
the Court of Justice expressed the general approach that should be taken in the application
of the exemption for leasing or letting of property. It indicated (paragraph 46) that what is
now article 2 of the 2006 VAT Directive states the general principle of the Directive, namely
Page 26 ⇓
26
that VAT is to be levied on all supplies of goods or services made for consideration by a
taxable person. The exemptions provided for in what is now article 135 of the 2006 VAT
Directive are accordingly derogations from that general principle stated in article 2, and it is
established in the case law that because they are derogations the exemptions, including that
for the letting of immoveable property, must be interpreted strictly. (The same point is
made in the Court’s decision in Case C-428/02, Fonden Marselisborg Lystbådehavn v
Skatteministeriet (supra), at paragraph 29). It was further noted (paragraphs 47-49) that,
according to the preamble of the Directive, the Council had established a common list of
exemptions in order to ensure uniformity of collection of taxes in all the member states of
the European Union. Thus consistency of approach across different member states is an
important background consideration. In the area of rights over property significant
differences existed in the national legal systems of member states, and consequently the
concept of leasing or letting contained in what is now article 135(1)(l) required a Community
meaning, independent of the law of individual member states.
[48]       The Court accordingly held (paragraphs 50-54) that it was necessary to analyze the
ratio legis of the exemption for the leasing or letting of immoveable property, to determine
whether the exemption might be extended to the grant of a right of usufruct. On that basis,
although the leasing of immoveable property is in principle covered by the concept of
economic activity, “it is normally a relatively passive activity, not generating any significant
added value”. The leasing of immoveable property must therefore in principle be exempt
from taxation; an analogy was drawn with new buildings following their first supply to a
final consumer, which marks the end of the production process. In effect, this part of the
Court’s reasoning is that landlords of immoveable property are typically rentiers, in the
Page 27 ⇓
27
economic sense of that word, and do not engage in entrepreneurial activity. It was
nevertheless consistent with the general aim of the VAT Directive that:
“if immoveable property is made available to a taxable person through leasing or
letting as a means of contributing to the production of goods or services whose cost
is passed on in their price, the property stays within, or returns to, the economic
circuit and must be capable of giving rise to taxable transactions. The common
characteristic of the transactions which [the VAT Directive] excludes from the scope
of the exemption is indeed that they involve more active exploitation of immoveable
property, thus justifying supplementary taxation, in addition to that charged on the
initial sale of the property” (paragraph 53).
In other words, if a person leasing immoveable property can truly be described as engaging
in entrepreneurial activity, as against functioning as a rentier, the justification for exempting
leasing transactions from the system of VAT no longer applies.
[49]       In the present case it was contended for the taxpayer that its activities in leasing
structures made up of prefabricated units were plainly entrepreneurial in nature. A
structure was put together from prefabricated units within the taxpayer’s stock. It was
erected to serve a defined and limited purpose, of an essentially temporary nature. Once
that purpose had been fulfilled, the structure was dismantled, and the components were
used to create new structures in other places. That did not amount to the passive
exploitation of immoveable property. I agree with those general contentions. I would
qualify that, however, by stating that the question of whether the activities of the taxpayer
are entrepreneurial in nature, or on the other hand are the classic activities of a rentier,
cannot be conclusive by itself; the ultimate question that must be determined is whether
specific activities of the taxpayer fall within the statutory concept of leasing or letting of
immoveable property, or in domestic legislation the grant of an interest in or right over land
or a licence to occupy land, including in Scotland personal rights to that effect. That must
depend upon the precise analysis of the particular transaction.
Page 28 ⇓
28
Case law on article 135
[50]       Article 135 and its predecessor, article 13B(b) of the Sixth VAT Directive, has been
considered by the Court of Justice in a number of cases. The most important statements of
principle are in my opinion found in two of these, Maierhofer v Finanzamt Augsburg-Land,
supra; and Leichenich v Peffekoven, supra. The facts of Maierhofer bear some similarity to those
in the present case; the taxpayer had constructed single-story and two-story buildings using
prefabricated components, which stood on a concrete base erected on concrete foundations
sunk into the ground. The walls were secured to foundations by bolts, a factor that
functionally does not exist in the present case, where the clamping arrangements were only
used to secure units during construction. The buildings could be dismantled at any time by
eight persons in ten days and subsequently reused (paragraph 13). The buildings were let to
the Free State of Bavaria, with the necessary land, for the temporary accommodation of
asylum-seekers. The status of the land on which they were built was not entirely clear
(Advocate General, paragraph 12). Some of the land used for the buildings was rented by
the taxpayer from the city of Bamberg, while other buildings were situated on land that the
Free State of Bavaria had rented from the city of Bayreuth. The taxpayer claimed that the
Bayreuth land was made available to him without consideration, but the order for reference
from the German court stated that the taxpayer let the accommodation with the necessary
land. There was thus some doubt as to whether the taxpayer provided both the buildings
and the land to the Free State of Bavaria or merely provided buildings that were erected on
the Free State’s land. Ultimately, however, this issue does not appear to be relevant in view
of the answer given to the second question asked by the German court. On this question,
the Court of Justice held (paragraph 41) that for the purpose of determining whether a
Page 29 ⇓
29
letting was of immoveable property within the meaning of what is now article 135 it was
irrelevant whether the lessor made available to the lessee both the building and the land on
which it was erected or merely the building erected on the lessee’s land. The letting of
immoveable property might concern solely a building (paragraph 40). This seems to be
based on a principle of Community law corresponding to the principle of accession in Scots
domestic law, whereby moveable property that is sufficiently attached to immoveable
(heritable) property becomes immoveable, or heritable, in nature: compare Brand’s Trs v
Brand’s Trs, 1876, 3R (HL) 16.
[51]       The primary question for the Court of Justice was whether the term “letting of
immoveable property” as used in the Sixth VAT Directive covered the provision for
consideration of a building constructed from prefabricated components which is to be
removed following the termination of the contract and may be reused on another site. The
Advocate General gave detailed consideration to the criteria that were relevant to this
question: paragraphs 32-42. He noted that the only property that is inherently immoveable
is land itself, and that other items attached to land fall within a spectrum of “moveability”,
ranging from true buildings with walls and foundations to tents and similar items. He then
suggested that the question of whether buildings or other literally moveable objects are in
legal terms immoveable property may be answered in principle by either objective or
subjective criteria; objective criteria relate to “the quality of the attachment of the object
under consideration to the land on which it stands”, or its “inseverability”. Subjective
criteria covered matters such as the intended duration of the attachment. Many judgments
had assumed that that the letting of conventional buildings or parts of buildings would
amount to a letting of immoveable property for the purposes of the VAT Directive, but there
was no guidance from the Court on the criteria to be applied in borderline cases. In the
Page 30 ⇓
30
Advocate General’s opinion, subjective criteria such as the intended duration of the
attachment should not be taken into account. The German domestic legislation (in
paragraphs 94 and 95 of the Buergerliches Gesetzbuch, quoted at paragraphs 8 and 9)
excluded tangible property attached to the ground only for a temporary purpose from the
definition of immoveable property, but the Advocate General considered intention to be a
“notoriously fickle” criterion, since subjective criteria raised problems of verification.
Reference was made to the prefabricated buildings put up to provide housing after the
Second World War as a temporary measure which remained for many years. Consequently
(paragraph 38)
“It is desirable therefore that the criterion for determining whether a building or
similar structure constitutes immovable property within the meaning of [article 135]
should be objective. In my view the correct criterion is… whether the structure is
firmly fixed to or in the ground”.
Furthermore, the fact that the structures in question in Maierhofer could be removed and re-
erected elsewhere did not entail a more active exploitation of property than if a conventional
building were constructed and leased (paragraph 41). The buildings under consideration in
Maierhofer must be regarded as “firmly fixed to or in the ground”, as they stood on a
concrete base erected on concrete foundations sunk into the ground and were secured by
bolts embedded in the foundations.
[52]       The Court of Justice did not adopt this part of the Advocate General’s analysis in its
opinion, although it agreed with the result suggested by him. The Court described the
structures in question at paragraph 13, in terms that suggested a degree of permanence. It
referred in particular to the fact that the single-story and two-story buildings were “similar
to prefabricated houses”, and that they stood on a concrete base erected on concrete
foundations sunk into the ground. Moreover, the walls were secured to the foundations by
Page 31 ⇓
31
bolts, the roof was covered with tiles and the floors and walls of bathrooms and kitchens
were tiled. These factors in themselves suggested that the structures were analogous to
commonly found types of permanent or semi-permanent building. In the critical part of its
opinion the Court commented that the wording of article 13B(b) of the Sixth Directive (the
equivalent of article 135(1)(l) of the 2006 VAT Directive) indicated that the letting of
moveable property was intended to be subject to tax, in contrast to the letting of immoveable
property which, as a general rule, was to be exempt (paragraph 29). In an earlier decision,
Case C-60/96 Commission v France, [1997] ECR I-3827; [1999] STC 480, the Court had held that
caravans, tents, mobile homes and light-framed leisure dwellings were not immoveable
property for the purposes of the exemption in article 13B(b), as they were either mobile or
could be easily moved (paragraph 31). That distinguished the earlier decision from the
structures in Maierhofer, which were not mobile and could not be easily moved.
[53]       The critical part of the Court’s reasoning is found in paragraphs 33 and 35:
“33 Such buildings made of structures fixed to or in the ground must be regarded
as immoveable property. In that connection, it is significant that the structures
cannot be easily dismantled or easily moved but… there is no need for them to be
inseverably fixed to or in the ground. Nor is the term of the lease decisive for the
purpose of determining whether the buildings at issue are moveable or immoveable
property.
35 The answer to the first question must therefore be that the letting of a
building constructed from prefabricated components fixed to or in the ground in
such a way that they cannot be either easily dismantled or easily moved constitutes a
letting of immoveable property for the purposes of Article 13B(b) of the Sixth
Directive, even if the building is to be removed at the end of the lease and re-used on
another site”.
In my opinion three aspects of this reasoning are important for present purposes. First, two
features are relied on in determining whether the structures were moveable or immoveable
property: the fact that they were “fixed to or in the ground” and the fact that they could not
Page 32 ⇓
32
be easily dismantled or moved. Secondly, it is stated that the term of the lease is not
“decisive” in determining this question. That is different from the Advocate General’s
analysis. He regarded the provisions of the lease as irrelevant with regard to the
Community definition of immoveable property, but the Court did not go so far as to hold
that the lease was not relevant. Thirdly, the Court did not consider the situation where
structures made up using prefabricated components are leased for a defined and essentially
temporary purpose. It did not need to do so; the structures under consideration in
Maierhofer were buildings similar to prefabricated houses, let for the purpose of housing
asylum seekers, and there is no indication anywhere in the reports of the case to suggest that
the letting was for an essentially temporary purpose.
[54]       The most recent decision of the Court of Justice on the meaning of the expression
“the leasing or letting of immoveable property” in article 135(1)(l) of the VAT Directive is
found in Leichenich v Peffekoven, supra. That case involved the letting of the houseboat for
use as a restaurant and discotheque; it was thus on its facts clearly very different from both
Maierhofer and the present case, and for that reason perhaps insufficient attention was paid
to the statements of principle in the case in submissions to the Upper Tribunal. The Court
noted at paragraph 20 that the situation of the houseboat should be examined not in an
isolated manner but taking account of its integration into its site. The houseboat had no
system of propulsion and had been immobilized for many years. It was attached to the
riverbed by anchors and to the bank by chains and ropes, and those measures could not be
removed without effort and considerable cost. It was not necessary for construction to be
“indissociably incorporated into the ground” to be regarded as immoveable property
(paragraph 23). The Court continued, in a passage that is in my opinion of critical
importance in the present case:
Page 33 ⇓
33
“24 By the terms of the leasing contract which is concluded for a duration of five
years and which shows no wish of the parties to confer an occasional and temporary
character to the use made of the houseboat, the latter is used exclusively for the
permanent operation of a restaurant-discotheque. Moreover, the houseboat has a
postal address and telephone line and is connected to the water and electricity mains.
25 Taking account of the houseboat’s link with the elements that constitute its
site and of the fact that it is fixed to those elements, which render it, in practice, a
part of that space taken as a whole, and taking into account also the contract which
allocates the houseboat exclusively and permanently to the operation, on that site, of
a restaurant-discotheque, and taking account of the fact that the latter is connected to
the various mains, it must be held that the whole constituted by the houseboat and
the elements which compose the site where it is moored must be regarded as
immoveable property...
26 The European Commission correctly observes that, having regard to the
objective envisaged by the contracting parties and the function allocated by them to
the houseboat, it is, for those parties, immaterial, from an economic point of view,
whether it is a building incorporated into the ground in a fixed manner, for example
by piles, or a simple houseboat such as that at issue in the main proceedings”.
[55]       Two features of the foregoing analysis seem to me to be important. First, the Court
clearly accepts that the terms of the contract governing the placing of the structure on the
land are an important factor in determining whether property is immoveable for the
purposes of the relevant legislation. Thus in paragraph 24 there is a reference to “the terms
of the leasing contract” and to its duration, and to an important inference from those terms:
that there was no wish of the parties to confer “an occasional and temporary character” on
the use made of the houseboat. In paragraph 25 there is a further reference to the contract,
and to the fact that it allocated the houseboat exclusively and permanently to the operation
of a restaurant-discotheque. In paragraph 26 there is a reference to the function allocated by
the parties to the houseboat; it is obvious that that allocation must have been through the
terms of their contract. Consequently it is apparent that the Court rejected the approach
taken by the Advocate General in Maierhofer, to the effect that “subjective criteria” such as
the intended duration of the attachment should not be taken into account. The Advocate
Page 34 ⇓
34
General’s approach appears to treat contractual arrangements as “subjective”, with the
result that they must be rejected; regard should only be had, he thought, to “objective
criteria”, and in particular the attachment of the structure to the ground: whether it was
“firmly fixed to or in the ground”.
[56]       Secondly, the Court of Justice in Leichenich v Peffekoven accepted that the temporary
or permanent character of the attachment of a structure to the ground may be an important
factor in determining whether it is to be regarded as moveable or immoveable. Once again
this is contrary to the Advocate General’s view in Maierhofer, where the intended duration of
the attachment is rejected as a criterion. In the opinion of the Court of Justice in the latter
case it is stated (at paragraph 33) that the term of the lease is not decisive for the purpose of
determining whether the buildings at issue are moveable or immoveable property, but that
is not an assertion that it is irrelevant.
[57]       At a general level, it appears to me that the Advocate General’s analysis in Maierhofer
is open to significant criticism. He treats the terms of a lease as a “subjective” criterion, and
he refers to intention (apparently of the parties to a contract) to be a “notoriously fickle”
criterion. Furthermore, he states that “subjective” criteria raised problems of verification.
The terms of a lease, however, are normally an objective fact; they will almost invariably be
recorded in a document signed by the parties or their representatives. Furthermore, the
meaning of those terms will inevitably be determined objectively. Scots law (and for that
matter English law) invariably treats the meaning of contractual provisions as a matter to be
determined objectively, without regard to the subjective intentions of any one party. While
that is a matter of domestic law, and it is clearly not conclusive as to the autonomous
meaning given to the expression “the leasing or letting of immoveable property” in article
135 as a matter of Community law, I have great difficulty in understanding how a contract
Page 35 ⇓
35
could be construed on anything other than an objective basis. There are inevitably two (or
sometimes more) parties to the contract, and for a proper judicial determination of the
meaning of any provision of the contract the subjective view of any one party cannot,
logically, be decisive: the only construction that can bind both parties is the objective
construction placed by the court on their agreement. That agreement is itself an objective
fact. Once this is accepted, the relevant “intention” must be the objective intention of the
parties as evidenced by their contract, properly construed. I am accordingly of opinion that
as a matter of Community law, when a lease or other contract is construed for the purposes
of a provision such as article 135(1)(l), an objective approach must be adopted in
determining the intention of the parties.
[58]       Intention of this sort may obviously give rise to doubtful cases, but those are
resolved by a court, which will apply well-established principles of contractual
interpretation, including the principle that intention must be determined objectively.
Almost any legal distinction can give rise to doubtful cases, and the mere existence of such
cases cannot mean that intention is a “fickle” criterion. Finally, the reference to problems of
verification seems remarkable; the terms of the lease will, as I have already noted, normally
be contained in a written document, and their meaning is inevitably ascertained on an
objective basis. For these reasons, I have no hesitation in adopting the approach taken by
the Court of Justice in Leichenich v Peffekoven in preference to the approach adopted by the
Advocate General in Maierhofer.
[59]       Leichenich v Peffekoven is the most recent statement by the Court of Justice on the
interpretation of the provisions of article 135(1)(l). Although the facts of the case are plainly
different from those of the present case (unlike the facts of Maierhofer, which present obvious
similarities), I am of opinion that it is the principles laid down in Leichenich that should be
Page 36 ⇓
36
applied in the present case. In any event, for the reasons that I have stated, I find the
approach in that case to be more coherent than that found in the Advocate General’s opinion
in Maierhofer; moreover, I consider that the acceptance in Leichenich that the terms of the
parties’ contract are relevant to the question of whether the structure has been incorporated
into the ground in such a way as to become immoveable seems to accord with common
sense. The same is true of the acceptance in the latter case of the relevance of the fact that
attachment to the ground may be for a merely temporary purpose. In relation to the
purpose of the annexation, I note that paragraphs 94 and 95 of the Buergerliches Gesetzbuch
expressly have regard to the question of whether attachment to the ground is for a
permanent or merely temporary purpose. The same is true of the Scots law of accession,
“purpose” being understood in an objective sense: see Gordon, Land Law, paragraphs 5-12
5-14. While these are clearly not conclusive so far as the autonomous meaning of
Community legislation is concerned, they appear to me to recognize a rather obvious point:
that if a structure is attached to the ground for a specific and temporary purpose, that is a
relevant consideration in determining whether it is a fixture, or is to be treated as
immoveable property.
[60]       I should mention one further case, the decision of the Upper Tribunal in UK Storage
Co (SW) Ltd v Revenue and Customs Commissioners, [2013] STC 361. In that case it was held
that self-storage units which rested on the ground under their own weight and were not
fixed to the ground did not fall within the exemption for the leasing of immoveable property
contained in article 135(1)(l) of the VAT Directive. I have no criticism to make of the
decision in that case, but I cannot agree with the reasoning of the Upper Tribunal that led to
that result. The Upper Tribunal purported to follow Maierhofer, but added a gloss on the
reasoning of the Court of Justice in two respects, both of which are clearly identified by the
Page 37 ⇓
37
judge of the Upper Tribunal in the present case. First, at paragraph [21], the Upper Tribunal
in UK Storage adopted what the Upper Tribunal in this case described as a “sequential”
approach. They suggested that in applying Maierhofer it was necessary to ask two questions:
first, were the storage units fixed to or in the ground? and secondly, if so, could the units be
(a) easily dismantled and removed or (b) easily moved without being dismantled? The
Upper Tribunal in UK Storage held that for the storage units to be classified as immoveable
property the answer to the first question must be “yes” and the answer to both parts of the
second question must be “no”. In my opinion such a gloss is not justified by the wording of
the legislative provision under consideration in Maierhofer, what is now article 135(1)(l) of
the VAT Directive, which merely refers to the “leasing or letting of immoveable property”.
The primary distinction inherent in that definition is that between moveable and
immoveable property; that is a fairly straightforward distinction, on an issue that is likely to
have parallels in all of the national legal systems, and in my view it should be approached
directly without any recourse to elaborate glossing. It is noticeable that in Maierhofer itself
the Court of Justice approached the issue as a single question. As the judge of the Upper
Tribunal points out in the present case, the means by which a building is kept in position on
its site, and the ease or difficulty of moving or dismantling and moving it, are interrelated
issues, and ought to be considered together.
[61]       Secondly, in UK Storage at paragraph [26] the Upper Tribunal adopted an unduly
restrictive interpretation of the expression “fixed to or in the ground” that is used by the
Court in Maierhofer at paragraph 35. They held that if units were not fixed to the ground but
rested on their own weight and could feasibly be moved, the units were not fixed to or in the
ground; an active connection such as a physical fastening was required. The word “fixed”,
however, as the judge of the Upper Tribunal in this case indicates, has a range of meanings,
Page 38 ⇓
38
including stationary and unchanging or stable in position. A building might be firmly fixed
in position through nothing more than downward compressive force, without any fastening.
Examples of this would include a dry stone wall, and also certain older buildings that rest
on the ground without anything like a modern foundation. Nevertheless, in these cases the
wall or building would be treated as immoveable property. I agree with the Upper Tribunal
in the present case on this issue; I do not think that “fixed” necessarily requires an active
connection. Furthermore, in UK Storage the Upper Tribunal followed the views of the
Advocate General in Maierhofer in holding that the test for fixing to the ground was solely
based on “objective characteristics of the units”. As I have indicated, I do not agree with
that formulation of the test, which is, I think, incompatible with the views expressed by the
Court in Leichenich v Peffekoven.
Approach of the First-tier and Upper Tribunals
[62]       In the present case the First-tier Tribunal purported to follow the decision in
Maierhofer, and held that the primary question was whether the building or units were
“fixed to or in the ground”. On that issue, the primary argument was, the judge thought,
whether the building supplied by the taxpayer should be regarded as a whole or as a series
of individual units. She held that the relevant question is whether the prefabricated
components and therefore the individual units were fixed to or in the ground and whether
those components and units could be easily dismantled or easily moved; it was wrong to
consider the structure as a whole. In agreement with the judge of the Upper Tribunal, I am
of opinion that that approach is erroneous. It purports to be based on a construction of
paragraph 35 of Maierhofer, to the effect that when the Court of Justice refers to “the letting
of a building constructed from prefabricated components fixed to or in the ground in such a
Page 39 ⇓
39
way that they cannot be either easily dismantled or easily moved”, what is referred to is
inevitably the individual components rather than the totality. That seems to me to attach
undue significance to the use of the plural pronoun (a pronoun that in English at least is
used to cover the singular as well as the plural). Furthermore, the approach of the First-tier
Tribunal fails to recognize the fact that in Maierhofer the Court did not even address the
question of whether a building formed from prefabricated components should be
considered as a series of individual components or as a unity; the criterion adopted at
paragraph 35 was whether the building was fixed to or in the ground in a particular manner.
[63]       The First-tier Tribunal went on to consider the application of Maierhofer in the event
that the correct criterion was the structure as a whole. The judge held that attachment by
friction clamps was not sufficient to hold that the building as a whole was fixed to or in the
ground, as the clamps were only required for the purpose of assembling the building. The
levelling beams resting on compacted stone were held not to be an integral part of the
building, and the foundation trenches were held not to be the equivalent of the concrete base
on sunken foundations in Maierhofer. Nor was the connection to main services sufficient to
cause the building to be fixed to or in the ground. Finally, the judge considered the last part
of the analysis put forward in UK Storage, the ease or otherwise of moving and dismantling.
On this matter she held that it was a straightforward matter to disconnect the individual
units from the ground and remove them from the site. This part of the reasoning is in my
opinion incorrect for the reasons given by the Upper Tribunal; the sequential approach is
wrong in itself.
[64]       As will be apparent from the foregoing discussion, I am of opinion that the Upper
Tribunal was generally correct in its analysis of the present case. I disagree with its
approach on one single issue, namely the relevance of the taxpayer’s contractual
Page 40 ⇓
40
arrangements with its customer. Apart from that matter, I am in agreement with the Upper
Tribunal that a sequential approach should not be used in the construction of
article 135(1)(l), and that the expression “fixed to or in the ground” used in Maierhofer does
not require an “active” connection between the building or structure and the ground. I
further agree that Maierhofer is not authority for the proposition that the moveable or
immoveable character of a building constructed from prefabricated components should be
decided by examining whether individual components are fixed to or in the ground; the
issue is whether the building as a whole is fixed to or in the ground.
[65]       That leaves the single point of disagreement. For the reasons stated at
paragraphs [54]-[59] above I am of opinion that the contractual arrangements between the
taxpayer and its customer may be important in determining whether there is a leasing or
letting of immoveable property. That proposition was in my opinion clearly accepted by the
Court in Leichenich v Peffekoven. The judge of the Upper Tribunal referred to that case in
support of his rejection of a sequential approach and as authority for the importance of the
ease or otherwise of dismantling and moving a structure. He also referred to the case as
supporting the view that the objective facts relevant to whether property is moveable or
immoveable may include the period of let in the lease agreement. It does not appear,
however, that the arguments put to the judge included the detailed considerations to which
I have referred previously. The critical aspect of Leichenich v Peffekoven is in my opinion the
acceptance by the Court of Justice of the importance of the contractual arrangements
concluded by the taxpayer. It is those contractual arrangements that I consider to be of
decisive importance in the present case. It is on this point alone that I disagree with the
reasoning of the Upper Tribunal. I now turn to the application of the relevant legal
principles to the facts of the present case.
Page 41 ⇓
41
Application to the present case
[66]       The crucial issue in the present case is whether the supply of goods and services by
the taxpayer to the Ian Ramsay Church of England School was an exempt supply because it
fell within the exemption contained in Group 1, item 1 of Part II of Schedule 9 to the Value
Added Tax Act 1994, read against the background of article 135(1)(l) of the VAT Directive,
or was an ordinary commercial supply of goods and services falling within the VAT regime.
Two general principles favour the inclusion of the taxpayer’s commercial activities within
the VAT regime: the presumption that all economic activity should fall within the VAT
regime unless it is specifically exempted, and the consequent rule that exemptions from the
VAT regime should be restrictively construed. A further general consideration is that the
activities of the taxpayer are clearly entrepreneurial in nature: they involve the construction
and hiring of structures made from prefabricated components which are removed at the end
of the period of hire and reused by the taxpayer. The decision of the Court of Justice in Case
C-326/99, Stichting ‘Goed Wonen’ v Staatssecretaris van Financiën, supra, supports the view that
the exemption for the leasing or letting of immoveable property is justified on the ground
that the activities of a landlord are typically the classic activities of a rentier, not an
entrepreneur: see paragraph [47] above. It is, moreover, clear that the exemptions found in
article 135 must be given a Community meaning to ensure the uniform application of the
system of VAT throughout the European Union: ibid. These factors provide support at a
general level for the argument that the taxpayer’s activities are fully commercial and
therefore fall within the VAT regime. In this connection it is perhaps also significant that the
exemptions from the VAT regime other than the leasing of land predominantly cover public
services; in those cases it can be said that the commercial aspects of the activity are
Page 42 ⇓
42
subordinate to the notion of public service, which justifies the exemption from the VAT
regime.
[67]       Nevertheless, the foregoing considerations are of a general nature, and I cannot
regard them as conclusive. Of greater importance are the two central aspects of the service
provided by the taxpayer: first, the nature of the service provided by the taxpayer, and in
particular the supply by it of a structure that was attached to some extent to the land and
was relatively difficult to remove, and secondly, the definition in the contract between the
taxpayer and its customer of the service that was to be provided.
[68]       The first of these was treated as decisive by the Upper Tribunal, largely because the
second does not appear to have been as fully argued as it was before the Court. On this
issue, I find myself in agreement with the analysis by the Upper Tribunal. The structure
provided by the taxpayer should in my opinion be considered as a totality, having regard
both to the physical nature of the building that was provided and the manner in which that
building was attached to the ground. The building was substantial: it was required to
provide classroom and laboratory accommodation for the Ian Ramsay School, and was
made up of 66 modular units, together with four landings and steps, a disabled ramp to the
ground floor, two landings, and stairs to the first floor. It was placed on levelling beams
which were themselves located on concrete foundations, and those foundations were
constructed in trenches dug into the ground. There was, however, no significant attachment
between the structure and the foundations; bolts were provided, but these were designed to
prevent movement during construction and not to provide long-term stability. Long-term
stability was provided by the downward compressive force of the structure. The building
was obviously connected to the standard services, including electricity, gas and water, and
normal plumbing connections were also provided. Against that background, I agree with
Page 43 ⇓
43
the Upper Tribunal that the building must be regarded as a single integrated building, both
physically and functionally, and that the focus should be on the building as a whole, not the
individual components. For this purpose I agree that the levelling beams should be
regarded as part of the building, and that the concrete foundations should also be regarded
as part of the total structure provided by the taxpayer. The lack of a form of attachment
such as the bolts considered in Maierhofer is not, I think, of critical importance; the scale of
the structure and the compressive force exerted by it are in my opinion sufficient for it to be
considered as attached to the ground.
[69]       Furthermore, it was clear that the building, considered as a whole, could not be
removed without considerable effort. In Maierhofer the buildings under consideration could
be dismantled at any time by eight persons in ten days. In the present case, it was found by
the First-tier Tribunal that dismantling of the building would take a total of 98 man-days,
which is slightly longer. It was accepted by both parties that the dismantling process was
fairly involved and relatively lengthy. In this respect the case cannot be considered
comparable to cases such as UK Storage, supra, or University of Kent v Customs and Excise
Commissioners, [2004] BVC 2215, where the units were separate from one another and were
not integrated into a larger building; in those cases the question of ease of dismantling had
to be considered against the time and effort taken to remove a single unit rather than to
dismantle the building as a whole. For these reasons, I agree with the Upper Tribunal that
this is a case where the relevant structure, the whole building supplied by the taxpayer,
could not be removed easily or quickly. Consequently, when the scale of the structure, its
degree of attachment to the ground, and the ease with which it could be removed are taken
together, if other considerations are left out of account, I am of opinion that the structure
could properly be considered to be fixed to or in the ground in such a way that it constituted
Page 44 ⇓
44
immoveable property for the purposes of article 135(1)(l) and the corresponding provision in
United Kingdom domestic legislation, Group 1, item 1 of Part II of Schedule 9 to the Value
Added Tax Act 1994.
[70]       Nevertheless, I am of opinion that one further consideration is of crucial importance
in deciding whether the structure constituted immoveable property for the purposes of this
legislation. This is the underlying legal relationship that governed the supply by the
taxpayer and the relationship between the taxpayer and its customer. That relationship is
obviously found in the contract concluded between the taxpayer and its customer. In
Leichenich v Peffekoven it was accepted that the terms of the contract that governs the placing
of a structure on land are an important consideration in determining whether that structure
is immoveable for the purposes of article 135(1)(l): see paragraph [55] above. It was further
accepted that the temporary or permanent character of the attachment of a structure to the
ground may be an important factor in determining whether the structure is to be regarded
as moveable or immoveable: see paragraph [56] above. Furthermore, it is established by a
series of decisions of the Court of Justice that in applying the legislation governing VAT a
court must take proper account of the context, both legal and factual, in which an exemption
from VAT may apply, and must take proper account of the purpose of the exemption: see
paragraph [45] above. In a case such as the present, involving the leasing of property, the
legal and factual context obviously includes the terms of the contract under which the
property is supplied. Furthermore, the underlying purpose of the exemption is to exclude
from VAT transactions that amount to the collection of a rent and thus are not truly
“economic” in nature; in giving effect to that purpose a court must take account of that
contract and its terms. For all these reasons, the contractual terms must be of fundamental
Page 45 ⇓
45
importance in determining the application of the relevant legislation, both at a domestic and
at an EU level, to the present case.
[71]       In the statement of agreed facts and the findings in fact of the First-tier Tribunal it is
narrated that the Ian Ramsay School required the units provided by the taxpayer to provide
temporary classroom and laboratory accommodation because part of their existing
permanent building had been condemned. The units hired were accordingly envisaged as a
temporary provision, to provide accommodation during the period that it would take to
reinstate a permanent building containing the requisite classrooms and laboratories. The
structure was originally hired for a period of 24 months, but in the result the period of hire
was extended to 32 months. Nevertheless, this emphasizes that the hire was for a limited
period of relatively short duration.
[72]       Furthermore, it appears that the supply of structures for temporary purposes is a
standard aspect of the taxpayer’s business. Documentation was available to show the use
that had been made of the prefabricated units before and after the supply of the building for
the Ian Ramsay School. It was apparent from this that the individual modules and other
components are repeatedly reused in a series of structures. These structures may obviously
be provided for a wide range of purposes, and the Court was not given a full account of the
taxpayer’s business. Nevertheless, it is obvious that a major use of such components is the
provision of temporary staff and storage accommodation during the performance of a
building contract. As with the provision of temporary school accommodation, that is
plainly a supply of limited duration. Indeed, it is probably fair to observe that the supply of
temporary accommodation is of the essence of the taxpayer’s business; as a matter of
commercial common sense it is obvious that structures composed of prefabricated
Page 46 ⇓
46
components are unlikely to be satisfactory as long-term accommodation, except perhaps for
very limited purposes. If a structure is supplied for a temporary and limited purpose,
however, that seems antithetical to the notion that it is “immoveable”; temporary structures
are designed to serve a limited purpose and then to be removed. Perhaps more
significantly, when structures are provided on that basis, the supply can be seen as
contributing added value to economic activity. That is the fundamental rationale for the
imposition of the VAT regime: see paragraphs [48] and [49] above. Supply of this nature is
quite different at both a conceptual and a practical level from the typical letting of
immoveable property, where the landlord draws a rent for allowing the occupation and use
of its property, rather than adding value through active participation in economic activity.
[73]       Counsel for the taxpayer emphasized the practical difficulty that the taxpayer would
have if the present structure were to be regarded as immoveable for the purposes of the
VAT legislation. In some cases the structure supplied by the taxpayer to a customer is
relatively small and clearly rests on its own weight, without integration into the ground; in
such cases the structure would almost certainly be moveable, by analogy with cases such as
UK Storage. VAT would then be chargeable. At the other extreme, in cases such as the
present, there would be a degree of integration into the ground with the result that the
structure was exempt from VAT. Drawing a distinction between these categories would
frequently be difficult. The difficulty of drawing a distinction is not necessarily a reason for
holding that no distinction exists, and in these two extreme cases the degree of integration
into the ground is clearly very different. Nevertheless, the fundamental feature of the
taxpayer’s activities is the provision of temporary structures, and that applies equally to the
provision of a single unit resting on its own weight and to the provision of a complex
structure such as the present. In both cases the activity can be considered economicin
Page 47 ⇓
47
nature, in the sense in which that word is used in the application of VAT; it involves the
hiring of units and other components for a limited period to serve limited purposes, and
then reusing the units for similar purposes. In my opinion this consideration is decisive; it
negates the view that what is supplied by the taxpayer amounts to “immoveable” property
for the purposes of article 135(1)(l) or is a “right over land” or a “licence to occupy land” for
the purposes of Group 1 of Part II of Schedule 9 to the Value Added Tax Act 1994.
[74]       That is sufficient to hold that the present appeal should be allowed. I should observe
that I do not regard the ownership of the land on which the structure is erected as decisive;
that seems clear from the discussion of the relevance of landownership in Maierhofer, at the
point when the Court of Justice considered the second question put to it by the German
court: see paragraphs 36 et seq, and in particular paragraphs 39 and 40. The critical question
is whether the structure hired by the taxpayer is to be regarded as forming part of the
immoveable property, or is a right over or licence to occupy land, and that must in my
opinion be determined by two main factors, the degree to which the structure can be
considered integrated into the land and the contractual arrangements under which the
structure is supplied. Those two factors may point in different directions, as occurs in the
present case. In that event a court or tribunal must consider the supply of the structure as a
whole and in context, and decide how the statutory test should apply. When it does so, it is
important that the court should have regard to the fundamental purposes of the imposition
of VAT on “economic” transactions and the exemption for the “leasing or letting” of
immoveable property. In the present case, the contractual arrangements between the
taxpayer and its customer demonstrate, especially through their limited and temporary
nature, that they are properly considered as a component in economic activity, and thus fall
within the fundamental purpose of the VAT regime. That in my opinion takes the present
Page 48 ⇓
48
transaction outside the purpose of the leasing exception. That is sufficient to negate any
inference that the structure became immoveable property or involved a right or licence over
land.
[75]       For the foregoing reasons I agree that the appeal should be allowed.
Page 49 ⇓
49
FIRST DIVISION, INNER HOUSE, COURT OF SESSION
Lord President
Lord Drummond Young
Lord Bannatyne
[2018] CSIH 49
XA81/17
OPINION OF LORD BANNATYNE
in the appeal by
SiBCAS LTD
Appellants
against
THE COMMISSIONERS FOR HER MAJESTY’S REVENUE AND CUSTOMS
Respondents
Appellant: Simpson QC; Anderson Strathern
Respondents: Roxburgh; Office of the Advocate General
13 July 2018
Introduction
[76]       I am grateful to your Lordship in the chair for his exposition of the legislation; the
facts and circumstances of the case; the analysis of the authorities; and the analysis of the
decisions of the First Tier Tribunal and the Upper Tribunal. I am in full agreement with
these findings, reasoning and conclusion.
[77]       As observed by your Lordship, this case raises an issue of some importance and in
these circumstances I would wish to add a few remarks of my own.
Page 50 ⇓
50
Errors in law of the First Tier Tribunal
[78]       I consider that the approach of the First Tier Tribunal to the issues before it to be
unsound for the reasons set out by your Lordship.
[79]       In respect to the errors in law of the First Tier Tribunal, I would wish to make the
following further observations.
[80]       First, in considering whether a structure is movable or immovable, the first question
is to identify the structure. Where, as in the present case, individual units are supplied,
which are then functionally or structurally linked together, then it is the structure as a whole
which is relevant and not as the First Tier Tribunal concluded the individual units.
[81]       In my view, the First Tier Tribunal failed to read paragraph 35 of the judgment of the
court in Maierhofer v Finanzamt Augsburg-land [2003] STC 564 in the context of the preceding
paragraphs. On a sound reading of this section of the judgment it is clear that it is the
building as a whole which is being considered and not the individual components. It is
equally clear on a reading of Advocate General Jacobs’ opinion, as a whole, that his advice
related to the building as a whole and not as regards the individual units.
[82]       Second, a further question in the present case, in respect to identification of the
structure, was this: were the foundations and levelling beams part of the structure? The
First Tier Tribunal, as a matter of fact, found as follows: the site on which the school was
constructed did not, on its own, have adequate load-bearing capacity for a school.
Accordingly, the foundations and levelling beams were necessary for the structure as a
whole to be erected. In these circumstances, the foundations and levelling beams were
integral to the structure and thus formed part of it.
[83]       The explanation given by the First Tier Tribunal, for concluding to the contrary, is
given at paragraph 81:
Page 51 ⇓
51
“When the appellant left the site, the foundation trenches and stone remained. The
units, steel beams and flitch plates had simply been removed in turn by the appellant
and were then taken away and used elsewhere. For the same reasons, I do not find
that they can possibly be an integral part of the units.”
This reasoning is unsound. The relevant question is: whether the foundations and levelling
beams were required while the structure was in position? That question is not answered by
noting the foundations remained after the structure was removed and that the levelling
beams were removed with the structure. The First Tier Tribunal erred in law in this finding.
[84]       Third, the First Tier Tribunal’s error of approach regarding whether the foundations
and steel beams formed part of the structure fed into its failure to answer correctly this
question: what is the proper meaning of the word “fixed” as used by the court in the case of
Maierhofer? The First Tier Tribunal applied a narrow construction to this word and in
essence held that in order for a structure to be fixed to the ground then there required to be
an “active connection” such as the bolts which attached the walls to the foundations in
Maierhofer. I can find no basis for the view reached by the First Tier Tribunal in relation to
this issue in any of the case law to which this court was referred. In order to be fixed to the
ground, I am persuaded that there is no necessity for any such “active connection”.
[85]       Fourth, in considering whether the supply involves the leasing or letting of
immovable property, I believe a holistic approach must be taken, in which all the
circumstances of the supply are considered.
[86]       Fifth, I am of the view that as a direct result of taking a holistic approach, the
sequential approach suggested in UK Storage Company (SW) Ltd v Revenue and Customs
Commissioners [2013] STC 361 at paragraph 21, namely: asking first whether “the structure”
was fixed to or in the ground and, if so, going on to ask whether the structure could be
easily moved or dismantled and moved is the wrong approach.
Page 52 ⇓
52
[87]       In Maierhofer, in his opinion, Advocate General Jacobs, at paragraph 43, advises that
the term “immovable property” in Article 13B(b) (of the Sixth Directive):
“... covers buildings constructed from prefabricated materials such as those in issue
in the main proceedings if they are firmly fixed to or in the ground.” (emphasis
added)
In the judgment of the court in Maierhofer, the word “firmly” is not used, rather the court, at
paragraph 33, says this:
“Such buildings made of structures fixed to or in the ground must be regarded as
immovable property.”
The court then goes on at paragraph 33 to give guidance as to factors which are relevant in
considering the question of whether a structure is “fixed to or in the ground”. It opines at
paragraph 33, as follows:
“In that connection, it is significant that the structures cannot be easily dismantled or
easily moved ...”.
Given the above guidance, I agree with the observations of the Upper Tribunal at
paragraph 46, that:
“The means by which a building is kept in position on its site, and the ease or
difficulty of moving or dismantling and moving it, are interrelated issues.”
The issues of fixity to the ground and the ease of moving or dismantling are not separate
questions to be considered one after another. Rather, the issue of the ease or otherwise of
moving or dismantling gives content to the phrase “fixed to or in the ground”.
The determinative question
[88]       Having held that the First Tier Tribunal has erred in law, there is then the question,
on a proper approach, did the supply in the present case amount to a lease of immovable
property?
Page 53 ⇓
53
[89]       I agree with your Lordship in the chair that the above is the correct question, in that
it is the relevant wording in the Directive, and not the more restrictive question; was the
structure fixed to or in the ground?
[90]       As a starting point, it is, I believe, important to understand the purpose or objective
of the exemption.
[91]       The reason for the exemption I consider is identified by the court in Stichting Goed
Wonen v Staatssecretaris van Financiën [2001] ECR I-6856 at paragraphs 52 and 53, here the
court opines as follows:
“52. Although the leasing of immovable property is in principle covered by the
concept of economic activity ... it is normally relatively passive activity, not
generating any significant added value. Like sales of new buildings following their
first supply to a final consumer, which marks the end of the production process, the
leasing of immovable property must therefore in principle be exempt from taxation
...
53. ... The common characteristic of the transactions which [are excluded] from
the scope of the exemption is indeed that they involve more active exploitation of
immovable property, thus justifying supplementary taxation, in addition to that
charged on the initial sale of the property”. (emphasis added)
The importance of the purpose of the exemption in interpreting Article 13B(b) of the Sixth
Directive is emphasised by the court in Belgium v Temco Europe SA [2004] ECR I-11237 at
paragraph 18 where it states:
“That provision (the exemption under Article 13B(b)) must therefore be interpreted
in the light of the context in which it is used, and of the objectives and the scheme of
the Sixth Directive, having particular regard to the underlying purpose of the
exemption ...”.
It was the core submission of Mr Simpson that on standing back and looking generally at the
appellants; they were not passive exploiters of immovable property. Rather, the position is
as he argued: each hire of the units involved added value, as with the hire of any other
movable property. The appellants’ business model is the repeated hires of individual units
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54
which are intended to be formed into various different structures depending on the terms of
the contract. Thus it appears to me that the common characteristic of the transactions which
are excluded from the scope of the exemption is present in the supply by the appellants.
[92]       I do not think, as argued by Ms Roxburgh, that the observations of Advocate General
Jacobs in Maierhofer, at paragraph 41, provide an answer to the above submission by
Mr Simpson. These remarks must be understood in their context. Advocate General Jacobs
considers the position of the German Government that the buildings in issue could be
dismantled at the end of each lease and re-erected and that this was active rather than
passive exploitation and should not escape VAT. He rejects that argument, however, he
does so because on the facts in Maierhofer the “sequence of events” suggested by the German
Government, namely: the removal and re-erection of the structures was “hypothetical”.
[93]       Such a sequence of events in the present case is not hypothetical, rather as submitted
by Mr Simpson it is the most likely sequence of events. This is I think a critical difference
between the present case and Maierhofer. In the present case it would seem to me to
undermine legal certainty were consideration of the likelihood of what would occur to the
units did not form part of the consideration of the issue before the court.
[94]       For these reasons, I agree with your Lordship that, in a case such as the present one,
where the contract goes beyond mere leasing of a building or land, the purpose or objective
of the exemption is one which is of significance in determining the issue before the court.
[95]       Other factors which may be of relevance in approaching the issue in a holistic
manner, are these.
[96]       First, regard can be had to the nature and terms of the contract between the parties
(see: Leichenich v Peffekoven and others [2013] STC 84 at para 24, where: “the term of the
leasing contract, which is concluded for a duration of five years, and which shows no wish
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55
of the parties to confer an occasional and temporary character to the use made of the
houseboat” was said by the court to be a relevant factor in holding that the houseboat
should be regarded as immovable property for the purposes of the exemption.
[97]       Further, in Maierhofer at paragraph 33, the court considers the relevance of the “term
of the lease”. The court holds that the “term” is not “decisive” but it does not hold that it is
an irrelevant consideration.
[98]       I am persuaded that not merely the term of a lease may be a relevant consideration in
determining the issue before the court but more generally the whole terms of the contract of
supply may be a relevant consideration in determining the issue before the court.
[99]       The terms of the contract are an objective criterion in that the court approaches the
issue of construction of a contract by seeking to establish the intention of the parties by
answering this question: “What is the meaning of what the parties have said? Not, what did
the parties mean to say?” (see: Lord Simon of Glaisdale in Wickman Machine Tools Ltd v
Schuler AG [1974] AC 235 at 263).
[100]       Accordingly, the terms of the contract of supply are a relevant consideration in
understanding the nature of the supply.
[101]       I consider that in the present case that it follows from the above that the issue of
whether any interest in land was conveyed or leased in terms of the contract between the
parties was a relevant one.
[102]       The answer to the above question is no, for the reasons set out by your Lordship.
The question for the court then becomes, in terms of the contract, what was in fact supplied
and the answer to that is as your Lordship states at paragraph [38], namely:
“The supply was of a structure which was always intended to be a temporary one,
albeit lasting at least two years, on top of land which was, and remained throughout,
the property of the school.”
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56
It is necessary to caveat the relevance of the terms of the contract of supply. The terms of the
contract would have to give way to the substance of the transaction, if the terms did not
reflect the substance. Advocate General Jacobs emphasises in his opinion in Maierhofer at
paragraph 49 that:
“... it is settled case law that it is the inherent nature of the activity in question which
governs its tax status and not the form of the arrangement between the parties”.
[103]       As regards the substance of this transaction a relevant factor is this: is the structure
fixed or in the ground? This question is interrelated, as I have already said, to the question:
can the structure be easily dismantled/easily moved?
[104]       In considering these interrelated questions in the present case, it is noteworthy, as
observed by your Lordship, that the design of the structure, as a whole, is an indicator that it
is inherently movable. This is a structure which can be detached from its foundations
relatively easily (see the finding-in-fact of the First Tier Tribunal at paragraph 91). It can be
contrasted with the structure in Maierhofer, which is described by the court at paragraph 13,
in this way:
“The building stood on a concrete base erected on concrete foundations sunk into the
ground. The walls, which were made of panels, were secured to the foundations by
bolts. The roof framework was covered by tiles.”
The mode of construction and in particular the nature of the foundations and the attachment
of the building built thereon to the foundations, strongly indicates in Maierhofer an
immovable structure.
[105]       In considering whether a structure is easily moved or dismantled, the time and effort
required to move or dismantle and move the structure is a relevant consideration.
However, it must be borne in mind that the aim in considering such factors is to decide the
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57
extent to which the structure is fixed to or in the ground and therefore where in the
spectrum of movable/immovable the supply should be placed.
[106]       I can understand how in the Maierhofer case, given the nature of the foundations and
the attachment of the building to the foundations, the number of man hours was thought to
be an important factor in deciding that what was supplied was immovable.
[107]       However, the number of man hours in the present case, when viewed in the context
of the nature of the construction’s connection to the ground is, I believe, a much less
significant factor.
[108]       The final relevant matter is the connection of the construction to the site in this sense:
connections to mains services, such as: telephone; gas; electricity; water; or connections to
imported services, such as electricity through an electrical generator or water through, for
example a bowser.
[109]       Once more, as explained by your Lordship, these services were easily disconnected
and had not been installed in such a manner as to indicate the structure was immovable.
[110]       It appears to me in the present case both form and substance clearly indicate that this
is a supply which is movable. In reaching that conclusion I have found the phraseology of
Attorney General Jacobs in Maierhofer, namely: a consideration of the inherent nature of the
activity to be of significance. On standing back, a consideration of the inherent nature of the
supply in the present case clearly indicates the supply of a movable. I consider contrasting
the supply in Maierhofer and the present case clearly indicates that the supply in the instant
case is movable. Thus the supply in Maierhofer was not of individual units which were then
to be put together to form a single structure as in the present case; the buildings erected in
Maierhofer were attached to the ground in a much more significant manner than in the
present case and in one which suggested strongly that it was not a temporary structure
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unlike in the present case and Maierhofer was a case where the sequence of events, which
applied in the present case, was merely hypothetical.
[111]       For all of the foregoing reasons, I agree with the decision of your Lordship that the
appeal should be allowed.



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