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You are here: BAILII >> Databases >> United Kingdom Upper Tribunal (Tax and Chancery Chamber) >> British Association of Leisure Parks, Piers And Attractions Led v Revenue and Customs [2013] UKUT 130 (TCC) (12 March 2013) URL: http://www.bailii.org/uk/cases/UKUT/TCC/2013/130.html Cite as: [2013] UKUT 130 (TCC) |
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Appeal number FTC/15/2012
Value
Added Tax – claim to repayment of
output tax allegedly overpaid – whether
services provided by Appellant
Association
to its members exempt under Value
Added Tax Act 1994, Schedule 9, Group 9, Item 1(d) – whether primary purpose
of
Association
was lobbying – whether any exemption under Item 1(d) disapplied by
Note 5 – whether membership
of Association
restricted in accordance with Note 5
– whether defence to repayment
of
allegedly overpaid output tax on the ground
of
unjust enrichment
IN THE UPPER TRIBUNAL
(TAX AND CHANCERY CHAMBER)
ON APPEAL FROM THE FIRST-TIER TRIBUNAL
(TAX CHAMBER)
Between :
|
|
Appellant |
|
- and - |
|
|
THE COMMISSIONERS FOR Her Majesty’s Revenue and Customs |
Respondents |
TRIBUNAL: MR JUSTICE MORGAN
Sitting in public at Royal
Courts of
Justice, Rolls Building, Fetter Lane, London, EC4A 1NL on 12th February
2013
Mr Timothy Brown (instructed by Charcroft Baker, Chartered Accountants) for the Appellant
Mr Sarabjit Singh (instructed by General Counsel and Solicitor for HM Revenue) for the Respondents
© CROWN COPYRIGHT 2013
DECISION
Tribunal Judge: Mr Justice Morgan:
The appeal
1.
This is an appeal by the British Association of Leisure Parks
, Piers
& Attractions Ltd (“the
Association
”) against the decision
of
the
First-tier Tribunal (“the FTT”) (Sir Stephen Oliver QC) released on 12th
October 2011. The FTT gave permission, on 11th January 2012, to
appeal to the Upper Tribunal.
2.
The Association
’s case before the FTT was that it was entitled to
be repaid allegedly overpaid output tax in respect
of
membership subscriptions
received by it and on which output tax had been charged and accounted for. The
Association
said that at all material times, it was exempt from VAT pursuant to
the provision most recently contained in the Value Added Tax Act 1994 (“VATA
1994”), Schedule 9, Group 9, Item 1(d). The period
of
the claim ran from the
date from which the
Association
(or, more accurately, a predecessor
unincorporated
association
) was first registered for VAT (1st
January 1982) to 31st March 2008, save that (for reasons which need
not be explained) there was a gap in this period from 31st March
2005 to 1st October 2005.
3.
An appeal to the Upper Tribunal is restricted to an appeal on a
point of
law: see section 11(1)
of
the Tribunals Courts and Enforcement Act
2007.
The relevant legislation
4.
The matter was argued before me on the
basis that the relevant provision pursuant to which supplies by the Association
were said to be exempt from VAT was VATA 1994, Schedule 9, Group 9, Item 1(d).
However, since the period during which supplies by the
Association
are claimed
to have been exempt dates from 1st January 1982, it is I think
necessary to refer to the relevant European and United Kingdom provisions which
applied during that period.
5.
For most of
the period in dispute, the
underlying European legislation was contained in Article 13(A)(1)(l)
of
the
Sixth VAT Directive, which provided as follows:
"Article 13 Exemptions within the territory of
the
country
A. Exemptions for certain activities in the public interest
1. Without prejudice to other Community provisions, Member
States shall exempt the following under conditions which they shall lay down
for the purpose of
ensuring the correct and straightforward application
of
such
exemptions and
of
preventing any possible evasion, avoidance or abuse:
...
(l) supply of
services and goods closely linked thereto for
the benefit
of
their members in return for a subscription fixed in accordance
with their rules by non-profit-making organisations with aims
of
a political,
trade- union, religious, patriotic, philosophical, philanthropic or civic
nature, provided that this exemption is not likely to cause distortion
of
competition;
...
2(b) The supply of
services or goods shall not be granted
exemption as provided for in (1) ... (l) ... above if:
- it is not essential to the transactions exempted,
- its basic purpose is to obtain additional income for the
organisation by carrying out transactions which are in direct competition with
those of
commercial enterprises liable for value added tax."
6.
With effect from 1 January 2007, the above provisions were
replaced with similarly worded provisions in Articles 131, 132(1)(l), 133(d)
and 134 of
the current Principal VAT Directive, Council Directive
of
28
November 2006 on the common system
of
value added tax. In particular, Article
132(1)(l) reproduces the wording
of
the previous Article 13(A)(1)(l), but
substituting the words "to their members in their common interest"
for "for the benefit
of
their members".
7.
The exemption was transposed into UK domestic legislation as Group 9 of
Schedule 9 to VATA 1994, replacing similar provisions
in VATA 1983 Schedule 6 Group 9. As amended in 1999, Group 9 provides as
follows:
“GROUP 9 – SUBSCRIPTIONS TO TRADE UNIONS, PROFESSIONAL AND OTHER PUBLIC INTEREST BODIES
Item No. 1
The supply to its members of
such services and, in connection
with those services,
of
such goods as are both referable only to its aims and
available without payment other than a membership subscription by any
of
the
following non-profit-making organisations –
a) a trade union or other organisation of
persons having as
its main object the negotiation on behalf
of
its members
of
the terms and
conditions
of
their employment;
b) a professional association
, membership
of
which is wholly
or mainly restricted to individuals who have or are seeking a qualification
appropriate to the practice
of
the profession concerned;
c) an association
, the primary purpose
of
which is the
advancement
of
a particular branch
of
knowledge, or the fostering
of
professional expertise, connected with the past or present professions or
employments
of
its members;
d) an association
, the primary purpose
of
which is to make
representations to the government on legislation and other public matters which
affect the business or professional interests
of
its members;
e) a body which has objects which are in the public domain and
are of
a political, religious, patriotic, philosophical, philanthropic or civic
nature.
Notes:
...
(5) Paragraph (d) does not apply unless the association
restricts its membership wholly or mainly to individuals or corporate bodies
whose business or professional interests are directly connected with the
purposes
of
the
association
.”
8.
It can be seen that Parliament has split up the single exemption
contained in Article 13(A)(1)(l) of
the Sixth Directive and Article 132(1)(l)
of
the Principal VAT Directive into separate paragraphs, and that paragraph (d)
is clearly intended to give effect to the exemption for organisations
"with aims
of
a political ... nature".
The issues before the FTT
9. There were three issues before the FTT as follows:
(1)
whether as regards all or any part of
the period covered by the claim
the
Association
was a body falling within the above provisions, most recently
the provision contained in Item 1(d)
of
Group 9 in Schedule 9 to VATA 1994;
(2)
if and to the extent that the Association
was such a body, whether the
exemption in Item 1(d) was disapplied by Note 5 to Group 9;
(3)
if not, whether the Association
would be unjustly enriched if it
received repayment from
HMRC
.
10.
The FTT decided the first issue against the Association
. The FTT held
that during the relevant period, the
Association
had not shown that its primary
purpose was to make representations to the government in the way required by
Item 1(d). That finding
of
the FTT meant that the
Association
’s claim to be
repaid output tax failed for the entirety
of
the period
of
claim. However, the
FTT went on to consider the other two issues. In relation to the second issue,
the FTT ruled against the contentions
of
the
Association
. The FTT held that if
supplies by the
Association
would otherwise have been exempt under Item 1(d) then
that exemption was disapplied by Note 5, by reason
of
the findings it made as
to the membership
of
the
Association
. Even though the
Association
’s claim to be
repaid output tax would fail on two independent grounds, the FTT went on to
consider the third issue
of
unjust enrichment. The FTT held, applying section
80(3)
of
VATA 1994, that the
Association
would be unjustly enriched if it were
to be repaid output VAT.
11.
In this appeal to the Upper Tribunal, the Association
challenges the decision
of
the FTT on each
of
these three issues.
The first issue: primary purpose
12.
The first issue is whether, as regards all or any part of
the period
covered by the claim, the
Association
was a body falling within the relevant
provisions which conferred exemption from VAT, most recently the provision
contained in Item 1(d)
of
Group 9 in Schedule 9 to VATA 1994.
13.
Before the FTT, and on this appeal to the Upper Tribunal, the Association
referred only to the wording
of
Item 1(d)
of
Group 9 in Schedule 9 to the VATA
1994. Neither it nor the Respondents suggested that the wording
of
the two
European Directives to which I have referred or the wording
of
the similar
provision in VATA 1983 would produce any different result to that produced by
VATA 1994. Accordingly, I need only consider the wording
of
the current
provision which I will refer to as Item 1(d).
14.
The parties did not disagree as to the meaning or the effect of
Item
1(d). They agreed that the relevant legal principles were to be found in the
decisions in
British Association
for Shooting and Conservation Ltd
v
Revenue
and Customs Commissioners [2009] EWHC 399 (Ch) (Lewison J) and Revenue
and Customs Commissioners
v
European Tour Operators
Association
[2012] UKUT 377 (TCC) (Henderson J). I can summarise the principles which I derive from
those authorities, and other principles which were not in dispute, so far as
they are relevant to the present appeal, as follows:
(1)
in construing Item 1(d), which is an exception to a general principle of
community law as to VAT, the court should adopt a strict but not a strained
approach; a strict approach is not to be equated with a restricted approach; a
court should not reject a claim relying on the exemption where the claim comes
within a fair interpretation
of
the words
of
the exemption because there is
another, more restricted, meaning
of
the words which would exclude the supplies
in question;
(2)
the reference to “primary purpose” in Item 1(d) does not require the
Association
to show that the purpose referred to in Item 1(d) was the sole
purpose
of
the
Association
but the purpose referred to in Item 1(d) must be its
main or principal purpose;
(3) it is possible for a body to have multiple objects so that no single object could be said to be predominant or the primary purpose;
(4)
the primary purpose test involves an objective enquiry, not a subjective
one; the matter is to be determined primarily by an examination of
the stated
objects and the actual activities
of
the body in question; the subjective views
of
the officers and members
of
the body may throw some light on the relevant
objective enquiry but those views are not to be elevated into a diagnostic
test;
(5)
the enquiry as to the primary purpose of
the body normally involves the
tribunal looking at the constitutional documents
of
that body and other
materials from which the purposes
of
the body can be derived tested against the
reality
of
what the body does.
15.
As I have explained, the FTT in the present case concluded that the
Association
had not shown, for any part
of
the relevant period covered by the
claim, that its primary purpose was to make representations to the government
in the way required by Item 1(d). The
Association
challenges that decision on three
grounds. The first ground is that it is said that the FTT held that the
Association
was a trade
association
but did not go on to ask itself the right question
which was: what was the primary purpose
of
the trade
association
? Merely to say
that the
Association
was a trade
association
(which it was) does not tell one
what the primary purpose
of
this particular trade
association
was. The second
ground is that it is said that the FTT made up its mind as to the primary
purpose
of
the
Association
by relying on the
Association
’s constitutional
documents and without considering its actual activities. Although the FTT
appeared to go on to consider the actual activities
of
the
Association
, it is
said that it had already pre-determined the matter without regard to those
activities. The third ground was that it was said that the ultimate finding
of
the FTT that the primary purpose
of
the
Association
was to be a trade
association
, and so that it did not have as its primary purpose the purpose
identified in Item 1(d), was based on a finding
of
fact or an inference
of
fact
which was perverse or irrational or which left relevant factors out
of
account;
reliance was placed on the test in Edwards
v
Bairstow [1956] AC 14.
16.
Having set out the relevant legislation at paragraphs [3] – [4] of
its
decision, the FTT dealt with the first issue at paragraphs [5] – [28]. The FTT
dealt with the evidence in detail and set out substantial extracts from
documents. I will attempt to summarise some
of
these paragraphs but I need to
set out other paragraphs in full.
17.
The relevant part of
the decision on this issue began in this way:
“5. … Accordingly the question is whether, under item 1(d)
of
Group 9, the
Association
had the "primary purpose"
of
making
"representations to the Government on legislation and other public
matters" affecting "the business or professional interests
of
its members"
in part or all
of
the relevant period.
6. HMRC
say, consistently with Notice 701/5, that a
"primary purpose" is not necessarily the sole purpose
of
the society
but is the main or principal purpose. And for present purposes an
association
can only have one primary purpose. I do not understand this to be challenged,
as a matter
of
principle, by the
Association
.
7. HMRC
do not dispute that a purpose
of
the
Association
in
the relevant period was to make representations
of
the kind referred to in item
1(d). However,
HMRC
do not accept that this was the
Association
's primary
purpose.
Evidence
8. In this Decision I use the term "lobbying" as a
shorthand expression to cover the functions referred to in item 1 of
Group 9.
Thus, to determine whether lobbying has been the
Association
's primary purpose
or a main or principal purpose (see above) for all or any
of
the periods
covered by the claim, I need to examine the facts as they existed in each
of
the periods. I then have to decide, on the basis
of
that fact- finding
exercise, whether the
Association
has satisfied me (as regards all or any
of
the periods) that its primary purpose was lobbying. The evidence provided by
the
Association
included documentation relating to its structure, its registration
(including visit reports), the facilities offered to its members, some letters
from the
Association
relating to legislation proposed and extracts from
management committee minutes for 2002 onwards. The chief executive
of
the
Association
from 2001 to 2010, Mr Colin Dawson OBE, gave oral evidence. I shall
summarise the evidence as far as possible in chronological order.
18.
At paragraphs [9] and [10] of
its decision, the FTT referred to a letter
from the
Association
to
HMRC
on 6th November 1981 when the
Association
applied to be registered for VAT. The FTT also referred to a visit from
HMRC
at
that time and a report which recorded the main activities
of
the
Association
.
The FTT then referred to the fact that there were further visits by
HMRC
in
1983, 1986, 1988 and 1992.
19.
The FTT referred to the HMRC
report at the time
of
the 1992 visit in
these terms:
“11. The 1992 Visit Report states that the "main
business activity" of
the
Association
is - "Representing members (who
are engaged in the business
of
amusement
parks
, piers etc) re private members
bills and promoting member interests by other activities".
"Subsidiary business activities" are described as - "Arranging
for members to attend exhibitions and receiving commission from exhibition
holders for doing same." The Report also observes that "The
Association
helps promote its members by producing magazines which may, for
example, highlight particular rides or else provide a summary as to the
location
of
various amusement
parks
. Magazines are distributed to various
parties." ”
20.
In paragraph [12] of
its decision, the FTT recorded that the
Association
was incorporated as a company limited by guarantee in 1996 and set out the
objects clause from its Memorandum
of Association
. At paragraph [13], the FTT
set out the Rules
of
the
Association
which stated its Objectives. At paragraphs
[14] and [16], the FTT referred to a number
of
undated documents which
summarised the benefits
of
membership. At paragraph [15], the FTT referred to
some evidence about the make up
of
the membership.
21.
At paragraph [17] of
its decision, the FTT referred to the
Association
’s
annual Parliamentary lunch. At paragraphs [18] – [20], the FTT referred in
detail to the evidence which the
Association
relied upon (in the period from
2002 onwards) as to lobbying or similar activities. At paragraph [21], the FTT
stated:
“21. Mr Dawson estimated that he spent 70% of
his time as
chief executive on the representation
of
members' interests to government and
other legislative bodies. A four-drawer filing cabinet had been dedicated to
Gambling Act material. He said that he saw the representation
of
its members to
the Government at all levels as the
Association
's primary aim.”
22.
At paragraph [22] of
its decision, the FTT recorded that it had heard no
evidence from members as to their perceptions as to the objects
of
the
Association
or the benefits
of
membership.
23. The FTT then expressed its conclusions on the issue as to primary purpose as follows:
“Conclusions on primary issue
23. It is not in dispute that the Association
has to satisfy
the Tribunal that it qualifies for exemption as regards its supplies in the
accounting period covered by the claim. For each such period therefore it must
show that its primary purpose has been to make representations to the Government
(UK and/or EC) on legislation and other public matters affecting the business
of
its members. To put the test colloquially, it has to be shown that lobbying
has been the
Association
's primary purpose in such period.
24. The purposes of
the
Association
as a company registered
under the Companies Act are defined in its "objects clause". Its
purposes, so far as concerns its role as an
association
representing the
interest
of
its members, are found in its Rules. The benefits
of
members, as
explained to the public at large, are found in the passage summarised in
paragraph 16 above and in the
Association
's website. From these and from the
wide range
of
documentary evidence presented to the Tribunal, it is clear that
the character
of
the
Association
is that
of
a trade
association
which has a set
of
specific purposes or, as formerly described in the Memorandum, specific
"objects". The
Association
's character as a trade
association
is, I
think, its over-arching purpose. That over-arching purpose is expressed in the
statement at the start
of
the objects clause in the
Association
's Memorandum
which states that its "objects are to act as the trade
association
for
that part
of
the
leisure
industry ... which comprises amusement, theme and
other
parks
, and piers and other static or permanent attractions and
enterprises for the public and/or tourist entertainment". Each
of
the
specific purposes or objects (and I do not see any significant difference
between those two terms in the present context) provides the means by which the
Association
functions as a trade
association
for the
leisure
industry. The
individual descriptions in the Memorandum
of
the specific objects are said to
be "without prejudice to the generality
of
the opening words". The
demands on the
Association
's resources will vary as between the particular
specific objects and, as regards a particular object, the demands in one
accounting period may be different because the particular activity or function
has changed.
25. Assisting and promoting the interests of
its members is a
theme common to all the specific objects, i.e. both those set out in the
Memorandum and in the Rules. The
Association
through its promotion
of
safe
practice, dissemination
of
information, training, lobbying, facilitating
networking, providing a CRB "umbrella", for example, is thereby
functioning as a trade organisation. The evidence shows, I think, that that was
what the
Association
was doing when registered and that is what has continued
throughout the periods covered by the claim.
26. The thrust of
the
Association
's case is that lobbying has
grown into the
Association
's predominant or primary purpose. The evidence does
not, however, bear this out. Virtually all the documentary evidence relating to
lobbying has come from the three to four most recent years to which the claim
relates. I accept that in these recent years, and probably from 2005/6 onwards,
lobbying has made the greatest demands on the resources
of
management and
space. I record also that until the early 2000s, no suggestion had been made
and no evidence exists to show that lobbying had been making a heavy demand on
the
Association
's resources. In that connection I mention that the statement in
the 1992 Visit Report (see paragraph 11 above), which is supported by no
explanation or reference to the circumstances, has not persuaded me that
lobbying was then a principal purpose
of
the
Association
.
27. I accept Mr Dawson's evidence that 70 per cent of
his
time has come to be spent on lobbying. But a purpose or, as here, a primary
purpose, will not necessarily be determined from the level
of
a particular
claimant's activities. There was moreover, no evidence to show the views
of
the
members, to whom the manner in which the
Association
has represented their
interests will have been a primary concern. I cannot therefore conclude that
they endorse the
Association
's contention that lobbying is its primary purpose.
28. Looked at overall, the Association
has retained as its
primary purpose its function as a trade
association
which has, throughout the
periods covered by the claim, represented and promoted the interests
of
its
members.”
24.
The Association
’s first ground
of
challenge to this reasoning is the
contention that it was not enough for the FTT to hold that the
Association
was
a trade
association
. It is said that it should have gone on to ask itself: what
type
of
trade
association
was it? Was it a trade
association
the primary
purpose
of
which was lobbying? In my judgment, the FTT did ask, and then
answered, the right question. The FTT asked itself whether the primary purpose
of
the
Association
was lobbying and it held that it was not. That is apparent
from the many places, for example, in paragraphs [5], [7], [8], [23], [26] and
[27]
of
the decision where the FTT is plainly considering the right question.
The
Association
’s challenge to the decision appears to be based on the way in
which the FTT expressed itself in paragraphs [24], [25] and [28] where the FTT
held that the character
of
the
Association
was a trade
association
. I do not
read those references as a failure to ask the right question. Instead, I read
those references as findings that the purposes
of
the
Association
were the
varied purposes
of
a trade
association
and that lobbying was not the primary
purpose
of
the
Association
.
25.
As to the second ground of
challenge to the FTT’s decision, both parties
to this appeal accept that it was appropriate for the FTT, when seeking to
ascertain the primary purpose
of
the
Association
, to look at the constitutional
documents
of
the
Association
and any other materials from which the purposes
of
the
Association
could be derived and then to consider the evidence as to the
reality
of
what the body did. Although the
Association
submits that the FTT
left out
of
account the reality
of
what the
Association
did and determined the
matter by reference only to the constitutional documents and other materials as
to the general character
of
the
Association
as a trade
association
, I cannot
accept that as an accurate description
of
what the FTT did. It seems to me that
the FTT rightly paid close attention to what the
Association
did throughout the
period covered by the claim, made detailed findings on that subject and then
came to its overall conclusion in the light
of
those findings and all other
relevant materials.
26.
In relation to the Edwards v
Bairstow challenge, the
Association
relied on two matters in particular. It was said, first, that the FTT had erred
in its treatment
of
the evidence as to the 1992 Visit Report. That report is
referred to in paragraph [11]
of
the decision and is then considered in
paragraph [26]
of
the decision. I do not consider that the statements in the
1992 Visit Report amount to a finding that making representations to Government
on legislation was then the main business activity
of
the
Association
. The
Association
relies on the statement in the 1992 Visit Report which refers to
“representing members … re private members bills” but I do not consider that
that reference, read in context, is a statement that the representation
of
members in relation to private members bills was the main business activity
of
the
Association
. I consider that the 1992 Visit Report was saying that
representing members in relation to private members bills and “other
activities” were together the main business activity
of
the
Association
. In any
event, the comments in the 1992 Visit Report were not the only evidence as to
the activities
of
the
Association
at that time and at other times during the
period covered by the claim. The FTT considered all
of
that evidence and I consider
that it was entitled to reach the conclusion which it expressed in paragraph
[26]
of
its decision.
27.
The Association
also criticised the approach
of
the FTT and its finding
in paragraph [27]
of
its decision when it said that “ … a primary purpose will
not necessarily be determined from the level
of
a particular claimant’s
activities.” There is an ambiguity in the reference to a “claimant”. It is
unclear whether that was a reference to Mr Dawson or to the
Association
. It
seems to me to be more likely than not that the reference was to Mr Dawson
rather than to the
Association
. The reference to the claimant immediately
follows the FTT’s finding in relation to Mr Dawson. If the FTT had intended to
refer to the
Association
then it would have been necessary to consider not only
the amount
of
time spent by Mr Dawson on lobbying but also the amount
of
time
spent by the other member
of
staff on other activities. If the reference to the
claimant was a reference to Mr Dawson, then I do not consider that the FTT erred
in principle or made a finding that was not open to it in the comment it made in
paragraph [27]. Further, if the FTT’s statement is to be interpreted as saying
that the primary purpose
of
the
Association
was not “necessarily” to be
determined from the level
of
the
Association
’s activities, then again I do not
consider that such a statement was wrong in principle or perverse. On that
reading
of
the FTT’s statement, the point it was making was that a finding as
to the primary purpose
of
the
Association
should take into account a number
of
matters and the particular level
of
activity at a point in time was not the
only relevant matter and was not itself conclusive as to the primary purpose.
28.
I note that paragraph [27] of
the FTT’s decision went on to refer to the
views
of
the members. The
Association
did not submit to me that this reference
disclosed an error
of
law. It appeared to accept that a reference to the views
of
the members was permissible even though the enquiry as to the primary
purpose
of
the
Association
was an objective one. As explained by Henderson J in
the European Tour Operators case at [28], the views
of
the members
of
the
Association
may throw some light on the enquiry but their views are not
conclusive as to the answer to be given to what is an objective enquiry
29.
It follows that I do not accept any of
the challenges put forward by the
Association
to the FTT’s decision on the first issue.
30.
Before leaving the first issue, I should comment that the evidence
considered by the FTT suggested that lobbying was more important in the later
part of
the period which was the subject
of
the claim and was much less
important in the earlier part
of
that period. Indeed, based on the FTT’s
description
of
the evidence before it, it seems to me that the
Association
had
really no tenable case for saying that lobbying was the primary purpose
of
the
Association
for much
of
the lengthy period for which the
Association
was
claiming exemption. I asked counsel for the
Association
whether it was seeking
to challenge the FTT’s decision for all
of
that period or only for the later
part
of
it. He stated that the challenge was to the decision in relation to the
whole
of
the period
of
the claim. Indeed, he did not make submissions in the
alternative that I should find that the claim was established for the later
part
of
the period even if it was not established for the whole
of
the period.
In any case, based on the FTT’s findings, the
Association
did not establish its
claim to exemption for any part
of
the period. I consider that the
Association
is unable to show that the FTT made any error
of
law in relation to its
decision on the first issue.
31.
If the Association
fails, as I hold that it does, in challenging the
FTT’s decision on the first issue, it follows that its appeal against the
result arrived at by the FTT must be dismissed and that it is unnecessary for
the Upper Tribunal to adjudicate on the second and third issues which were
decided by the FTT and which were raised again on appeal. However, as the
second and third issues were argued before the Upper Tribunal, I will deal with
them albeit more briefly than would be the case if my decision were
determinative
of
the appeal.
The second issue: Note 5
32.
The second issue was: if and to the extent that the Association
was a
body which came within Item 1(d), was the exemption in Item 1(d) disapplied by
Note 5 to Group 9. I have set out the text
of
Note 5 earlier in this judgment.
Relevantly, it refers to the
association
restricting its membership wholly or
mainly to persons whose business or professional interests are “directly
connected with the purposes
of
the
association
”.
33.
The FTT made findings of
fact as to the different classes
of
members
of
the
Association
. Those members comprised “Operating Members” and “Trade
Associate Members”. This latter class
of
members primarily consisted
of
suppliers
of
goods and services
of
various kinds to the
leisure
industry. The FTT’s
findings appeared to be by reference to the position in 2010, which was after
the end
of
the period which was the subject
of
the
Association
’s claim to
repayment.
34.
On the assumption being made for the purposes of
the second issue that
the primary purpose
of
the
Association
was lobbying (within Item 1(d)), the FTT
held that it was not sufficient for the purposes
of
Note 5 for the business or
professional interests
of
members (such as the Trade
Association
Members) to
have a connection with only one subsidiary ingredient in the purposes
of
the
Association
rather than a direct connection with the purposes
of
the
Association
,
the primary purpose
of
which was lobbying.
35.
The FTT then proceeded on the basis that the business or professional
interests of
the Trade Associate Members did not have a direct connection with
the purposes
of
the
Association
. It then held that because Trade Associate
Members made up some 31%
of
the membership
of
the
Association
, it followed that
the
Association
did not restrict its membership “wholly or mainly” to persons
whose business or professional interests were directly connected with the
purposes
of
the
Association
. The FTT commented on the meaning
of
“wholly or
mainly” in this context.
36.
The decision of
the FTT on Note 5 is unsatisfactory for a number
of
reasons.
The first reason is provided by the decision
of
Henderson J in the European
Tour Operators case. The FTT’s decision in relation to Note 5 in the case
which is before me was cited to Henderson J. He did not agree with it. He
pointed out the contrast between the reference to “the primary purpose” in Item
1 (d) and the reference to “the purposes” in Note 5. He said at paragraph 42
of
his judgment:
“In my view, on a fair
interpretation of
Note 5, a direct connection with all the purposes
of
the
Association
taken together will satisfy the requirement; … . Whether a direct
connection with just one
of
the ancillary purposes, viewed in isolation, would
also suffice is far less clear. It may well be that, in such a case, the
connection with "the purposes"
of
the
Association
, viewed as a whole,
would be too tenuous to qualify.”
37.
No one submitted to me that I should not follow the approach of
Henderson J in that case. It follows that the FTT in the present case did not
apply the correct legal test for the purposes
of
Note 5.
38.
The second respect in which the decision of
the FTT in the present case
is unsatisfactory is that the FTT did not explicitly ask itself the question
which I consider is posed by Note 5: does the
Association
restrict its
membership to persons whose business or professional interests are directly
connected with the purposes
of
the
Association
? The FTT referred to the rules
of
the
Association
which dealt with the entitlement to apply to be an Operating
Member or a Trade Associate Member but did not comprehensively refer to the
rules which referred to various other classes
of
membership and which dealt
with the entitlement to apply to be a member within one
of
those classes.
Instead, the FTT considered the actual position as to membership in 2010 and
held that because Trade Associate Members then represented some 31%
of
the
membership
of
the
Association
, the requirements
of
Note 5 were not met.
39.
In my judgment, what Note 5 requires is that the Association
restricts
its membership in accordance with Note 5. In principle, an
association
could
restrict its membership by its rules, or by its practice, as to eligibility for
membership. If the rules
of
an
association
provided that membership was
restricted in a way which complied with Note 5, then there would be a relevant
restriction on membership for the purposes
of
Note 5, unless it was shown that
the rules had been replaced by a practice which was not restricted in the way
laid down by the rules themselves. Further, if the rules
of
an
association
did
not impose a restriction on eligibility for membership which complied with Note
5, then an
association
might be able to show that it had a practice to restrict
such eligibility more narrowly than was provided by its rules and that the
restrictions imposed in practice did comply with Note 5.
40.
In the present case, it appears that the Association
did not set out to
establish that its rules did restrict eligibility for membership in a way which
complied with Note 5. Nor did the
Association
seek to establish that it had a
practice which restricted eligibility for membership more narrowly than did the
rules and that such a practice complied with Note 5.
41.
As it happens, the materials placed before the Upper Tribunal on this
appeal contained the relevant rules of
the
Association
as to eligibility for
membership and those rules did not restrict membership in a way which complied
with Note 5. In the absence
of
any evidence as to the existence
of
a more
restricted practice, it would seem to follow that even if the primary purpose
of
the
Association
had come within Item 1(d), the exemption pursuant to Item 1
(d) would have been disapplied by Note 5.
42.
If I am right as to the approach to Note 5, then it seems to me that it
will normally be inappropriate to examine the make up of
the particular
membership at any one point in time. I can see that if it were argued that a
restriction on eligibility contained within the rules was not being enforced in
practice, then that point might be demonstrated by looking at the make up
of
the actual membership. However, if neither the rules nor the practice imposed
the necessary restriction on eligibility, then it would not follow that
membership was restricted in accordance with Note 5 just because the actual
members turned out to be from a class which was narrower than the classes
of
members who were eligible for membership. Furthermore, if it could ever be
relevant in a particular case to examine the make up
of
the actual membership,
I doubt if there was any point in the present case in looking at the position
in 2010, where the application
of
Item 1(d) (and its predecessors) had to be
considered in relation to the period 1982 to 2008.
43.
In the skeleton argument served on behalf of
the Respondents on this
appeal to the Upper Tribunal, this point about the need to show that
eligibility for membership was restricted in accordance with Note 5 was taken
by the Respondents. There was a dispute as to whether this point had been taken
before the FTT. The FTT did not refer to this point in its decision. The
Respondents submitted that the point had been adequately taken in oral
submissions at the end
of
the hearing before the FTT. The
Association
objected
to the point being taken against it on this appeal to the Upper Tribunal.
44.
Because I have already decided that the Association
’s appeal fails on
the first issue, I do not consider that there is any advantage in resolving the
question whether this point about the restriction on eligibility should be open
to the Respondents on this appeal. The answer to that question does not affect
the outcome
of
this appeal and is not
of
wider general interest. The correct
interpretation
of
Note 5 is
of
wider general interest but I have already
expressed my views on that matter.
45.
Similarly, it does not seem to me to be necessary to consider what the
position would be in this case if I held that the point about the restriction
on eligibility were not open to the Respondents and I attempted to apply the
test identified in paragraph 36 above instead of
the test applied by the FTT.
The third issue: unjust enrichment
46.
The third issue is: if the Association
would otherwise be entitled to
claim repayment
of
its overpayment
of
output tax, would such repayment by
HMRC
to the
Association
result in the
Association
being unjustly enriched?
47.
Section 80(1) of
VATA 1994 provides:
“Where a person -
(a) has accounted to the Commissioners for VAT for a prescribed accounting period (whenever ended), and
(b) in doing so, has brought into account as output tax an amount that was not output tax due,
the Commissioners shall be liable to credit the person with that amount.”
48.
Section 80(3) of
VATA 1994 provides:
“It shall be a defence, in relation to a claim under this
section by virtue of
subsection (1) ... above, that the crediting
of
an amount
would unjustly enrich the claimant.”
49. The FTT recorded that there was agreement between the parties as to the approach it should adopt, as follows:
“42. It is not in dispute that, for the Tribunal to find that
repayment would unjustly enrich the Association
, the Tribunal needs to be
satisfied that the
Association
(i) has charged amounts
of
VAT to its customers
that it ought not to have charged, (ii) has passed the economic burden
of
the
wrongly charged VAT to its customers, (iii) has suffered no loss or damage as a
result
of
having passed the mistaken charge to its customers and (iv) is unable
or unwilling to reimburse its customers with any amounts paid to it by
HMRC
.”
50. The FTT then considered the questions arising, as follows:
“44. The burden is on HMRC
to show that the economic burden
of
the wrongly charged VAT (assuming that it was wrongly charged) was passed on
to the
Association
's customers (see Baines & Ernst Ltd
v
Customs and
Excise Commissioners [2006] STC 1632 at paragraph 13). That burden, say
HMRC
, is discharged in the present case. That is because there is no dispute
that the
Association
passed on the economic burden
of
any wrongly charged VAT
to its customers by charging output tax on subscription fees to its
VAT-registered numbers, which those members then recovered from
HMRC
as input
tax.
45. I agree with HMRC
that in principle the economic burden
of
wrongly charged VAT was passed on by the
Association
to its members or
"customers" for these purposes. The onus shifts to the
Association
to
show why it suffered loss or damage as a result
of
having passed this charge
on. The
Association
has produced no evidence on this point. I cannot see that
the
Association
did in fact suffer any loss or damage. It passed the VAT charge
on to its "customers". ”
51.
The FTT then referred to the following argument put forward on behalf of
the
Association
:
“46. The Association
's principal argument in resistance to
the claim that repayment would unjustly enrich it is that it is a not for
profit organisation and any profits are held by the
Association
for the benefit
of
the members. Therefore, it is said, although the
Association
may be
enriched, it is not unjustly so.”
52. The FTT rejected this argument and it has not been repeated on the appeal to the Upper Tribunal.
53.
The FTT then dealt with a further argument for the Association
, as
follows:
“49. The Association
contends that
HMRC
cannot demonstrate
that it would be unjustly enriched if it were paid the output tax. The recovery
rates
of
its members are not known. In all probability the zoo members, for
example, will have been exempt and so will have recovered nothing; others might
record less than the standard rate.
50. The Association
has pointed to no other members in
positions comparable to that
of
the zoos.
51. So far as the point is relevant I cannot see that HMRC
is
required to examine the recovery rate
of
each member. I refer to paragraph 60
of
the decision
of
the Advocate General Jacobs in Weber's Wine World
[2003] ECR 1-11365 where he observed that while the burden may lie with the tax
authority to establish unjust enrichment, the threshold should not be unduly
high. The fact is that the
Association
has not borne any part
of
the output tax
that it now seeks to recover. The entirety was passed on to its members. It
would, in my view, be unjustly enriched if the VAT were now to be repaid to it.
I cannot therefore see that the fact that some members were exempt alters
this.”
54.
In my judgment, this was a straightforward case of
unjust enrichment. As
to the four questions which were agreed by the parties to be the relevant
questions, on the assumption (for present purposes) that the
Association
ought
not to have charged VAT to its members, the answers are:
(1)
the Association
has charged amounts
of
VAT to its customers (i.e. its
members) which it ought not to have charged;
(2)
the Association
has passed the economic burden
of
the wrongly charged
VAT to its customers (i.e. its members);
(3)
the Association
has suffered no loss or damage as a result
of
having
passed the mistaken charge to its customers (i.e. its members); and
(4)
the Association
is unable or unwilling to reimburse its customers (i.e
its members) with any amounts paid to it by
HMRC
; on this last point, the
evidence was that the
Association
’s Memorandum
of Association
prevented the
Association
paying a dividend to its members.
55.
In view of
the answers recorded in paragraph 54 above, the defence
of
unjust enrichment was made out. I add the following comments. The
Association
is not to be equated in law with its members. It is not possible to hold that
any repayment being made by
HMRC
to the
Association
is effectively a payment
back to the members who earlier had wrongly paid VAT on subscriptions to the
Association
. This is because the
Association
and its members are in law
different persons. Further, the members who paid subscriptions in the period
of
the claim, 1982 to 2008, will not be the same persons as the current members
of
the
Association
. It does not seem to me to be relevant to consider the concept
of
passing on between the members and their customers or the ability
of
the
members to claim as input tax the VAT they paid to the
Association
. If that
were relevant, the FTT’s findings in paragraphs [49] – [51] would not assist
the
Association
to avoid a finding
of
unjust enrichment on the part
of
the
Association
.
56.
Accordingly, if the third issue had become material to the outcome of
this appeal, I would have dismissed the appeal on the third issue.
The result
57. The result is that the appeal is dismissed.
Costs
58.
Finally, I direct that any applications as to the costs are to be made
in writing, to be served on the other party and on the Upper Tribunal not later
than 21 days following the release of this decision.
……………………………..
MR JUSTICE MORGAN