18717
VAT PLACE OF SUPPLY – appellant providing services to members of an organisation set up to create a business tool in electronic form – all activities carried on in the USA – appellant belonging in the UK – whether any of the exceptional rules under section 7(11) of VAT Act apply – no.
VAT EXEMPTION – Schedule 9 Group 9 item 1(c) an association for advancement of professional expertise – yes – but membership not restricted to individuals so exemption excluded by note 4.
LONDON TRIBUNAL CENTRE
RIXML.ORG LIMITED Appellant
THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents
Tribunal: MR R BARLOW (Chairman)
MRS B JOHNSON
Sitting in public in London on 21 and 22 April 2004
Mr D Scorey of counsel, instructed by Messrs Baker Tilly, for the Appellant
Mr J Hyam of counsel, instructed by the Solicitor for the Customs and Excise. for the Respondents
© CROWN COPYRIGHT 2004
DECISION
Proceedings
- The appeal is against the respondents' decision contained in a letter dated 7 January 2002 by which they ruled that the activities of the appellant involved making supplies in the United Kingdom and that those supplies were liable to value added tax at the standard rate.
- Mr Scorey, for the appellant, argued that the appellant did not make supplies in the United Kingdom and relied upon several possible grounds for that contention and in the alternative he argued that if supplies are made in the United Kingdom they are exempt.
- The parties submitted a 13 page agreed statement of facts and Mr Andrew Ling, a director of the appellant, gave evidence confirming the agreed statement with a minor correction about the actual level of membership fees, which is not relevant to our decision and he confirmed his witness statement. He was questioned by both counsel to elicit further information and the truthfulness of his evidence was not challenged.
- From that evidence and from the documents we make the following findings of fact.
Findings of fact
- RIXML.ORG Limited is a private company incorporated in the United Kingdom. It has no premises or staff and its registered office is that of a firm of accountants in the UK. It did register for VAT in the UK and the same accountants' office was used for that purpose.
- The appellant's only income comes from 'members' who may be either steering committee members or associate members, some of the steering committee members are also shareholders.
- The steering committee members are all organisations involved in the field of investment either as investment banks (referred to as the 'sell-side') or as investment management firms (referred to as the 'buy-side').
- The initial impetus for the creation of the appellant came from the sell-side where an investment bank had been encouraged by one of its asset management clients to adopt a common language to be used in financial reports. This was an attractive idea to that investment bank and to others because they rely on financial analysts' reports to assist the promotion of sales to clients and it was felt that adoption of a common language would mean that reports could be better judged on merit so that a report writer who had the best information technology would not gain a possibly unwarranted advantage over others who might be producing better reports but in a less accessible form.
- The investment banks cannot force anyone to use the common language but in order to encourage its use it is available free of charge to anyone who wants to use it. The language is known as 'Research Information Exchange Markup Language' (hence the acronym RIXML).
- It is not necessary to make detailed findings about the nature of what we have referred to as the common language but it will assist the understanding of the issues to make basic findings. The language is really a standardisation, in part, of the form for writing analysts reports and in particular standard words or abbreviations will be used by those writing in the language so that anyone wishing to find reports relevant to a particular type of investment can search for the standard word or abbreviation in the knowledge that they will find the relevant reports. The example given was that analysts might refer to France as F, FRA, Fr or, presumably, France. By adopting a standard abbreviation the common language would enable anyone wishing to access reports on France or French companies to enter that abbreviation and thus to find the reports and to know that the list was complete.
- Naturally, there was a good deal of work to do to draw up the language. The initial work was done by consultants paid by the appellant. Subsequently the work has been continued and it is now done by the members, as we will explain.
- Sell-side members of the steering committee pay higher fees than the buy-side members. This was to encourage the buy-side to join and take part. Associate members pay lower fees. After the initial work had been done by consultants the fees were reduced because the members effectively do the work for nothing (or rather as employers they allow their staff to participate as one of the duties of their employment and do not charge the appellant for their time) and the fees were needed only to cover expenses. The appellant has no staff.
- Once the language had been developed it was produced in the form of what is known as the schema, which is an electronic file, and anyone wishing to do so can access it on the internet and can download it with a view to applying it to their draft documents so that the documents can be edited to conform with the language. The schema is amended and extended as necessary.
- The Memorandum of Association of the appellant contains standard wide objects clauses but the first clause is specific to it and reads:
(i) to define an open protocol to improve the process of categorising, aggregating, comparing, sorting and distributing global financial research;
(ii) to provide an improved process of electronic research distribution by creating an open industry standard; and
(iii) to create an open specification to be freely used by application vendors, research providers and their clients in relation to industry needs.
- The operations of the appellant are conducted by committees. The steering committee, which we have already referred to, is at the top of the structure and sets the objects to be pursued by the other committees. The steering committee meets monthly at various locations in the United States of America, none of which are its premises; and indeed it has no premises.
- As instructed by the steering committee, the standards committee directs the development of the schema. The standards committee consists of a small number of steering committee members and it directs the technical committee by setting a policy which the technical committee translates into proposed alterations to the schema. Technically minded members of the technical committee also make the actual changes to the schema by amending the electronic file.
- As stated, the steering committee meets monthly but once each quarter the steering committee meeting is on the same day as meetings of the standards and technical committees and on those occasions the associate members attend the standards and technical committee meetings and participate in discussions. Much of the work is in fact done by ad hoc working groups which report back to the standards and technical committees. All members also have the opportunity to participate in discussion of issues by means of a bulletin board on the appellant's web site. Members of the public can leave questions on a different part of the site but discussion is restricted to members.
- Once proposals have gone through the committee process the steering committee has to adopt them before the schema is altered and if necessary a vote is taken.
- There are also committees for marketing and communication, membership, liaison and administration which are concerned with the operation of the appellant's activities rather than the creation of the schema.
- As access to the schema is free, the only activities of the appellant that might be supplies for a consideration are the provision of the membership services to the members for which they pay quite large sums (though as they are themselves large organisations mostly trading multi-nationally the amounts are insignificant to them). Mr Hyam pointed out that, as the appellant's services for which it makes a charge are exclusively supplied to the members, it is those supplies which may be taxable supplies and services provided without consideration to third parties as a result of the appellant's activities, in which its members participate, are not supplies at all for VAT purposes. We agree that that is the case.
- Access to the schema is available free Worldwide.
- At all material times, all the members were non-EU and non-UK establishments, though many of them had subsidiaries or associated companies in the EU and the UK.
- The reason why the appellant was incorporated in the UK was to avoid the risks of litigation in the United States of America where there was a perceived risk of unmeritorious claims at the suit of unscrupulous litigants claiming copyright in the appellant's ideas.
The legal position
- Mr Scorey submitted that the supplies, if any, to the members were outside the scope of VAT or were non-supplies for various reasons and we will deal with them in turn.
General principles
- Mr Scorey drew our attention to article 9(1) of the Sixth VAT Directive which deems the place of supply of services to be the place where the supplier has "established his business or has a fixed establishment from which the service is supplied or, in the absence of such a place of business or fixed establishment, the place where he has his permanent address or usually resides". Mr Scorey did not claim that that provision would deem the place of supply to be outside the UK in this case, because clearly the appellant has no place of business or fixed establishment anywhere outside the UK (if indeed it has one anywhere at all) and the permanent address in the UK would determine the place of supply, if that rule applies. Rather he relied upon some of the exceptions provided by article 9(2).
- He contended, without demur from Mr Hyam, that article 9(2) is not to be given a narrow or restricted meaning and that article 9(1) does not take precedence over the exceptions and he cited cases Dudda –v- Finanzamt Bergish Gladbach [1996] STC 1290 and Maatschap Linthorst and others –v- Inspecteur der Belastingdienst Ondernemingen Roermond [1997] STC 1287 in support of that argument. We agree with those submissions.
Exceptions
- Mr Scorey relied upon article 9(2)(e) of the Sixth Directive which provides that, for certain services, the place where they are supplied is the place where a customer for whom they are performed, and who is established outside the community or in a different country from that of the supplier, has established his business or has a fixed establishment to which the service is supplied or performed.
- That provision is transposed into UK law by Article 16 of the VAT (Place of Supply of Services) Order 1992 which potentially applies in this case because the recipients of the supplies are established in the United States of America. Provided the supplies are of a type described in Schedule 5 of the VAT Act, to which article 16 cross-refers, they will be treated as supplied where the recipients belong.
- The first exception relied upon by Mr Scorey is that for "data processing and the supply of information" in article 9(2)(e) of the Sixth Directive which is transposed as "data processing and provision of information" in paragraph 3 of Schedule 5 to the VAT Act; which are clearly identical in effect despite the slight difference in wording.
- As we have already remarked, the only supplies are to the members. Although the end product of the appellant's activities may be to put persons using the schema in a position where they can process information, that is not what the appellant does when it enables the members to take part in drawing up and amending the schema. Similarly it is not the provision of information. Information is conveyed by persons using the schema but that is not the nature of the supplies to the members which would be more accurately described as devising a system for providing information.
- We therefore do not agree that the supplies fall within that exception.
- The second exception Mr Scorey relied upon was the supply of "financial services" in the fifth indent of article 9(2)(e) of the Sixth Directive and paragraph 5 of Schedule 5 to the VAT Act. For essentially the same reason as for the data processing exception we do not agree that the appellant's supplies to its members have that character. They may have enabled both the members and others who use the schema better to transact financial transactions but that does not make the supplies to the members the supply of financial services. In context, the exception for financial services appears alongside banking, insurance and reinsurance and it is clear that the intention is to make special provision for financial services as such and not those which happen to be related to financial institutions in a more general sense but do not to consist of financial services as such.
- We therefore do not agree that the supplies fall within that exception.
- The third exception Mr Scorey relied upon was that for intermediaries supplying services, including those in the first two exceptions referred to, which is provided for by paragraph 8 of Schedule 5 to the VAT Act (and article 16 of the Place of Supply Order), though not specifically referred to in the Sixth Directive.
- Mr Scorey pointed out that the respondents had accepted in the decision letter that the members exchange information but the respondents had contended that the information is exchanged between the members amongst themselves not via the appellant. We agree with Mr Scorey that, if the services supplied by the appellant did consist of the provision of information, it would have procured it for each of the members, in so far as its source was not the appellant, to whatever extent that might be the case but as we do not agree that the service had that characteristic in the first place that provision has no relevance. The members were enabled to take part in what could be termed the creation of information but that is not the same as the provision of information to the members.
- The fourth exception Mr Scorey relied upon was paragraph 7C of Schedule 5 to the VAT Act which provides for electronically supplied services and which is one of the categories to be treated where the recipient belongs by reason of the cross reference to that Schedule in paragraph 16 of the Place of Supply Order.
- Paragraph 7C begins by referring to "electronically provided services" and then gives examples such as website supply, supply of software, images and text. No doubt if the appellant charged for the use of the schema that would be a supply which would fall within the provision. However, paragraph 7C ends with these words:
"But where the supplier of a service and his customer communicate via electronic mail, this shall not of itself mean that the service performed is an electronically supplied service".
Both categories of members take part in the discussions and make proposals for changes to the schema by electronic means, though it should not be forgotten that all members also attend meetings if they wish to do so. However, the use of electronic means is only the medium by which they take part as members. The service to the members of the benefits of membership do not consist of services of the type described in paragraph 7C as electronically provided services and it is our conclusion that the supplies of membership services are not such as to fall within paragraph 7C.
- The fifth exception to the rule in article 9(1) of the Sixth directive Mr Scorey relied upon was article 9(2)(c) which provides that certain supplies are treated as being supplied where they are physically carried out i.e. the place of supply is not dependent upon the place where either party belongs.
- Mr Scorey contended that the supplies in question were services relating to either "scientific, educational … or similar activities … including the activities of organisers of such activities" under article 9(2)(c) or are supplies consisting of "scientific, educational … services [or] services ancillary to, including those of organising any [such] supply" under article 15 of the Place of Supply Order.
- In addition he relied upon article 15 of the Place of Supply Order which also refers to "services relating to exhibitions, conferences or meetings" whether or not that is provided for under the Directive, though it may simply be intended as partial implementation of the reference to the activities of organisers.
- We do not agree that the appellant's supplies to its members can be said to be scientific or educational, giving those terms their normal meaning. Devising a language or reference system for a non-scientific activity is certainly not covered by the reference to "scientific" in the legislation. Nor do we consider the activities in question to be educational. Clearly teaching a foreign language is educational but although we have referred to the schema as a language we do not mean by that that it is akin to a language properly so called nor is it a body of knowledge which can be taught as an educational subject; it is at best a business tool and does not have the essential characteristics for imparting knowledge by which it could be classified as education. It follows that ancillary activities and organising activities related to the schema do not fall within the provisions in question either.
- We also reject the suggestion that the reference to meetings can be given such a wide interpretation as to cover the activities of the appellant. The word meetings appears in conjunction with exhibitions and conferences and in the context of cultural, artistic, sporting, scientific, educational and entertainment services and cannot in our view be held to include meetings of just any kind. The meetings referred to must be similar to exhibitions and conferences which the members' meetings are not.
- It follows that we have rejected all the appellant's contentions about its activities, so far as they relate to making supplies for VAT purposes, being outside the scope of the tax or non-supplies under the place of supply rules.
Exemption
- Mr Scorey relied in the further alternative on the proposition that, if the activities of the appellant include making supplies in the UK, those supplies are exempt under item 1(c) of Group 9 of Schedule 9 to the VAT Act 1994.
- That provision reads as follows:
"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-
(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".
Mr Hyam accepted that the appellant is non-profit making but he argued that the activities of the appellant are not restricted to a single profession and that the primary purpose of the appellant was not the fostering of professional expertise.
- Mr Hyam relied upon two tribunal cases. In the Bookmakers' Protection Association (Southern Area) Ltd (case number 849) Lord Grantchester specifically left open the question whether the word "professional" in the phrase "professional expertise" was intended to do more than limit the provision to expertise in respect of the relevant business activity. In The Permanent Way Institution (case number 17746) Mr Huggins accepted that the institute was advancing a branch of knowledge in connection with permanent way maintenance, which is clearly not one of the so called but ill defined "liberal professions" and so that decision is authority for the proposition that professional expertise can be in connection with an employment which is not itself a profession. Mr Hyam also referred to The Expert Witness Institute –v- Customs and Excise [2002] STC 42 but there was no appeal in that case against the tribunal's decision that the institute did not have as its primary aim the advancement of a particular branch of knowledge or fostering of expertise. The tribunal had held that being an expert witness was not a separate profession because the experts came from numerous separate professions.
- Our interpretation of item 1(c) is that "professional expertise" can apply equally to a profession as such or to any employment requiring expertise whether or not it is a profession in the ordinary sense. Indeed the reference to the employments of an association's members as an alternative to their profession makes it very clear that expertise is not restricted to professions as such. The buy and sell side members operate in the same employment or profession and so even if the provision can be interpreted as relating only to a single profession or employment that condition is satisfied here.
- We hold that it is in any case a matter of fact and degree whether the expertise is connected with the profession or employment of the members. The provision would not apply to an association concerned with a disparate group of professions or employments. However, there will be cases where an association dealing with what might be capable of being seen as more than one profession or employment will in fact be dealing with the same body of expertise. For example, could it be said that an association dealing with a particular branch of the law falls outside the provision if it admits both barristers and solicitors?
- In principle, the appellant's activities would be capable of falling within the exempting provision but for one factor. Neither party drew it to our attention but we cannot ignore note 4 to Group 9 which limits the application of the exemption, in the case of an association claiming exemption under paragraph (c) to cases where the members of the association are wholly or mainly "individuals" in the relevant profession or employment. In this case all the members are corporate bodies as far as we were told in evidence and certainly it was not suggested that any significant number of individuals are members.
- We hold that the supplies are not exempt. It was not suggested that they were made otherwise than in the course of a business and it follows that they are standard rated.
Direct link between consideration and supply
- At one point during the argument we wondered whether the necessary direct link existed between the supply and the consideration but, from the evidence, it became abundantly clear that the members obtained the benefit of their rights as members directly as a result of the payment of their subscriptions and the fact that others may benefit indirectly from the members' activities without payment makes no difference to that. The facts that some members may not benefit much and others may benefit greatly and that there are different levels of actual participation are also irrelevant.
Conclusion
- The supplies are standard rated supplies made in the United Kingdom and the appellant was correctly ruled to be liable to tax. The appeal is dismissed. The respondents did not seek costs and there will be no order.
RICHARD BARLOW
CHAIRMAN
RELEASED: 29/07/04
LON/02/185
