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You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> Welsh's Coaches Ltd v Revenue & Customs [2007] UKVAT V20193 (05 June 2007) URL: https://www.bailii.org/uk/cases/UKVAT/2007/V20193.html Cite as: [2007] UKVAT V20193 |
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20193
VAT — TOMS — coach tour operator — whether allowed to use National Express coach fares as comparator in order to calculate market value of in-house supplies — no — alternatively whether in calculating value of in-house supplies appellant entitled to include notional rent and hire-purchase interest on purchase of vehicles — no — appeal dismissed
MANCHESTER TRIBUNAL CENTRE
WELSH'S COACHES LIMITED Appellant
- and -
THE COMMISSIONERS FOR
HER MAJESTY'S REVENUE AND CUSTOMS Respondents
Tribunal: David Demack
Alban Holden JP
Sitting in public in Manchester on 4 May 2007
Nigel Gibbon, solicitor, of Omnis Consultancy, for the Appellant
James Puzey of counsel instructed by the General Counsel and Solicitor to Her Majesty's Commissioners for Revenue and Customs for the Respondents
© CROWN COPYRIGHT 2007
DECISION
(a) Whether the market value of in-house supplies of coach travel by Welsh can be calculated by using fares charged by National Express for similar journeys;
(b) In the event of our holding that the market value cannot be so calculated, whether in calculating the value of in-house supplies of passenger transport Welsh may include:
(i) notional rent; and
(ii) hire-purchase interest on the purchase of vehicles.
The relevant legislative provisions
"1. Member States shall apply value added tax to the operations of travel agents in accordance with the provisions of this Article, where the travel agents deal with customers in their own name and use the supplies and services of other taxable persons in the provision of travel facilities.
- … The taxable amount and the price exclusive of tax, within the meaning of Article 22(3)(b), in respect of this service shall be the travel agent's margin, that is to say, the difference between the total amount to be paid by the traveller, exclusive of value added tax, and the actual cost to the travel agent of supplies and services provided by other taxable persons where these transactions are for the direct benefit of the traveller.
- The special scheme only applies where a travel agent/ tour operator buys in supplies from other businesses to use for the benefit of travellers.
- The taxable amount shall be the travel agent / tour operator's 'margin'."
"Section 53
Tour Operators
(1) The Treasury may by order modify the application of this Act in relation to supplies of goods or services by tour operators or in relation to such of those supplies as may be determined by or under the order.
(2) Without prejudice to the generality of subsection (1) above, an order under this section may make provision —
(b) for the value of that supply to be ascertained, in such manner as may be determined by or under the order, by reference to the difference between sums paid or payable to and sums paid or payable by the tour operator."
"Article 7: … the value of a designated travel service shall be determined by reference to the difference between sums paid or payable to and sums paid or payable by the tour operator in respect of that service, calculated in such manner as the Commissioners of Customs and Excise shall specify".
(By article 3 of the 1987 Order a designated travel service is defined as "a service purchased from a third party and supplied to a traveller (without material alteration).")
Relevant case law
"41. As the Advocate General observes in para 65 of his opinion, it follows from the existence of a package price covering both services bought in from third parties—and so covered by art 26—and in-house services—not covered by that provision—that the consideration within the meaning of art 11A(1)(a) of the Sixth Directive cannot be used as the taxable amount for the in-house services which are provided as part of the package.
- It is therefore necessary to determine the unit of reference to be used as an alternative to the consideration in order to identify the part of the package which relates to the in-house services. There are two possible methods, one based on actual costs as under TOMS, the other based on market value.
- In this context, it should be observed, first, as the Advocate General notes in para 71 of his opinion, that the actual cost method used by the United Kingdom government could be problematical, as there is no reason to suppose that the margins on the different services which make up the package are proportional to the respective costs of those services.
- Second, use of the criterion of market value—in the present case the room and half-board prices charged by the hotel where customers do not make use of the package—may also be to some extent arbitrary if the price of the accommodation offered as an in-house service as part of the package is taken as being the same as the price for accommodation offered as a single service.
- The actual cost method in relation to the in-house services requires a series of complex sub-apportionment exercises and thus also means substantial additional work for the trader. By contrast, use of the market value of the in-house services, as the Advocate General observes in para 76 of his opinion, has the advantage of simplicity, since there is no need to distinguish the various elements of the value of the in-house services.
- In those circumstances – bearing in mind its common ground in the present case that calculation of the VAT on the margin for the bought-in services by using one alternative or the other in principle gives the same figure for VAT – a trader may not be required to calculate the part of the package corresponding to the in-house services by the actual cost method where it is possible to identify that part of the package on the basis of the market value of services similar to those which form part of the package."
"72. It is for the national tax authorities, and in appropriate cases, the national courts to assess whether it is possible to identify the part of the package price relating to in-house services on the basis of their market value.
- It seems to me that the facts of the main proceedings tend, rather, to confirm my analysis. The great fluctuation in the prices of flights and the diversity of cost, according to destination, as a result, in particular, of competition in that area from 'low cost' airlines might make it difficult and controversial to establish relevant comparators on the basis of transport provided by other taxable persons. Moreover, the referring court is not calling into question the method of establishing the market value of in-house services, which is set out in the judgment of Madgett and Baldwin. It is therefore for that court to assess whether flights sold individually by MyTravel may constitute similar services to those supplied by that taxable person as part of a package and, if appropriate, to establish the market value of those flights on the basis of the price of those sold individually."
"31. It is apparent from the judgment in Madgett and Baldwin that the market value method may be adopted where it is possible to identify the part of the package corresponding to the in-house service on the basis of the market value of services similar to those which form part of the package. None the less, that must not result in a taxable person being conceded the right to use that method at its own discretion, according to whether or not the effect of its use is to reduce his tax liability compared with the tax liability which would result from using the actual cost method.
32. The grant to taxable persons of such a right could have the consequence of allowing them to increase artificially the taxable amount subject to the lowest rate and of thus creating an inequality in competition between businesses, in favour of those which have established their business or have a fixed establishment in a member state which taxes certain transactions at very low rates or even zero-rates them, as in the United Kingdom in relation to passenger transport. Such an interpretation could, therefore, run counter to the principle of neutrality of VAT."
"Article 26 of the Sixth Directive must be interpreted as meaning that a travel agent or tour operator who, in return for a package price, supplies to a traveller services brought in from third parties and in-house services must, in principle, identify the part of the package corresponding to his in-house services on the basis of their market value where that value can be established. In such a case, a taxable person may use the criterion of actual costs only if he proves that this criterion accurately reflects the actual structure of the package. Application of the criterion of market value is not subject to the condition that it must be simpler than application of the actual cost method or to the condition that it must produce a VAT liability identical or close to that which would result from using the actual cost method. Accordingly:
- a travel agent or tour operator may not use the market value method at his own discretion and
- that method is applicable to in-house services whose market value may be established even if, in the same tax period, the value of certain in-house components of the package cannot be established inasmuch as the taxable person does not sell similar services on a non-package basis."
Submissions
"The great fluctuation in the prices of flights and the diversity of cost, according to destination, as a result, in particular, of competition in that area from 'low cost' airlines might make it difficult and controversial to establish relevant comparators on the basis of transport provided by other taxable persons." (paragraph 75).
"On the contrary, an average value may be more representative where … there is significant variation in the prices of similar services sold without packages (paragraph 86).
DAVID DEMACK
CHAIRMAN
Release Date: 5 June 2007
MAN/04/0114