20668

EXEMPTION – whether City Livery Company could include the objects of its associated charities in its objects for the purpose of determining whether its membership subscription income was exempt under item 1(e), Group 9, Schedule 9, VAT Act 1994 – no – whether the objects of the Appellant viewed alone were in the public domain – no – whether they were of a patriotic, philanthropic or civic nature – no – appeal dismissed

LONDON TRIBUNAL CENTRE

	THE WORSHIP COMPANY OF PAINTER-STAINERS	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S 
	REVENUE AND CUSTOMS	Respondents

			Tribunal:	DR JOHN F AVERY JONES CBE (Chairman)
					RUTH A WATTS DAVIES MHCIMA FCIPD

Sitting in public in London on 21 and 22 April 2008

James Vine, counsel, instructed directly by the Appellant, for the Appellant

Christiaan Zwart, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2007

DECISION

1.	This is an appeal by the Worshipful Company of Painter-Stainers against a decision letter of 31 October 2006 to the effect that membership fees were standard-rated and not exempt under item 1(e) of Group 9 of Schedule 9 to the VAT Act 1994.  The Appellant was represented by Mr James Vine, and the Respondent (“Customs”) by Mr Christiaan Zwart.
2.	The issue in this appeal is whether the Appellant qualifies for exemption on its membership subscriptions, which for liverymen are called quarterage, under item 1(e):
“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—
…
(e)     a body which has objects which are in the public domain and are of a political, religious, patriotic, philosophical, philanthropic or civic nature.”
3.	We heard evidence from Mr Anthony John Ward, Renter Warden of the Appellant, Mr John Alfred Dalley, honorary Treasurer of the Appellant, and officer John Chetwynd, and find the following facts:
(1)	The Appellant is an ancient livery company of the City of London, being an amalgamation in 1502 of two guilds, the Painters’ fraternity (painters painted on wood and metal), which existed in 1283, and the Stainers’ fraternity (stainers stained or painted on canvas and cloth).  The Appellant is 28th in order of precedence of the now 107 City Livery Companies.  The Appellant acquired its Hall in 1532, rebuilt it after the fire of London and again after the last War.  It received Royal Charters from Elizabeth I in 1581, James II in 1686 (surrendered but revived by Act of Parliament of William & Mary and effectively its governing instrument), with subsidiary Charters granted by George VI in 1939 and Elizabeth II in 1981.  The Hall contains many works of art and other treasures.  The paintings are not in the balance sheet and Mr Dalley presumed (and we so find) that they are owned by the Fine Art Trust mentioned below.  The Hall is let out for functions and is open to visitors by arrangement.
(2)	As is common for livery companies there are two classes of members, freeman and liverymen (who become freemen of the City of London before proceeding to the livery) with different rights.  An applicant for membership must be British, or a Commonwealth or EU citizen; must be proposed and seconded and is interviewed before being elected.  Liverymen pay quarterage on an amount depending on their age.  Applicants for membership state whether they practise painting or staining professionally (28 per cent of members do) or the nature of, or capacity in which, they are engaged in artistic or creative endeavours.  
(3)	The Appellant is run by a Master, elected annually, two Wardens and a Court of Assistants (any reference herein to the Court is to this body unless the context refers to a decision of a court of law).  The Appellant has a paid Clerk, secretary and beadle.
(4)	The objects of the Appellant found in its annual Red Book sent to freemen and liverymen are as follows.
1.	“To foster interest within the Livery in the history traditions and customs associated with the life of the Company
2.	To administer the Company’s buildings, pictures, plate, sculpture, charters, furniture etc prudently so that Liverymen of the Company may be encouraged to take an active part in the affairs of the Company, for example by serving on one or other of the Committees
3.	To maintain the prestige of the Company within the City of London by participating in Civic affairs and by careful scrutiny of applicants to join the Livery and Freedom
4.	To administer the Charities for which the Company acts as Trustees
5.	To administer the Painters’ Company Charity by encouraging education relating to the art and craft of painting and by supporting appropriate appeals connected with the City of London
6.	To disseminate knowledge of the City Livery Companies and their part in the life of the City of London
7.	To support the Lord Mayor and the Corporation in their administration of the City of London
8.	To interest the Livery in their responsibilities to the Company by participating on the Feast of St Luke in the election of a Master and Wardens and their Civic responsibility by participating in elections of the Lord Mayor and Sheriffs
9.	To encourage the Livery to take an active part in the administration of the ‘City of London by serving as Common Councilmen
10.	(a) To support art by commissioning contemporary work
	(b) To foster an interest in the craft and fine art of painting and support modern art by acquisition when possible of contemporary work.”
The Appellant’s witnesses were unable to tell us the legal status of these objects.  They have been in force at least since 1967.  We deduce that they are restrictions on the Appellant’s activity imposed by the Court.
(5)	Freemen and liverymen are entitled to attend various functions of the Appellant.  For example, in 2006-07 a liveryman could attend the church service before the election of the Master on St Luke’s day, the election itself and a banquet thereafter free of charge (it has been free only since 2002; the average attendance between 2003 and 2005 being 94 Liverymen, 44 guests of Liverymen, and 12 honoured guests of the Company), six dinners and four luncheons (including luncheons after the election of the Lord Mayor and of the Sheriffs) on payment, five art exhibitions (one a preview), a charity evening, a history of art lecture, an annual prize giving, and the ceremony of the Keys at the Tower of London.  Members receive a Red Book containing details of members, information about the Appellant’s activities, and a magazine, Phoenix, as well as circulars about forthcoming events.  The Appellant has a wine cellar; 3,179 bottles were consumed at the Appellant’s functions in 2006-07.  Mr Dalley said in his witness statement that since joining the livery he had “enjoyed the company of like minded people who feel that the traditions of the City of London should be maintained, its heritage preserved for our future generations.”  Mr Ward considered that artists liked to join in order to meet other artists with a view to exchanging ideas.  There are number of related societies to which members can belong, including the Fine Art Society for which the Appellant organises an annual exhibition for sale of works by artists who are members by the Appellant, a golfing society, and a Masonic lodge.
(6)	In round terms the accounts of the Appellant to 18 October 2006 in the Red Book show income from members of £99K, rent and investment income of £312K.  Expenditure consisting of staff costs £185K, dinners £22K, donations £12K (Mr Dalley said that these were connected with the Appellant’s participation in the Lord Mayor’s show and seem to be exceptional as the figure was only £556 in the previous year, which he said was donations to the Lord Mayor’s charities), and administration costs of £183K, with the release of a provision of £11K.  This left a surplus of £20K.
(7)	As Object 4 indicates the Appellant administers a number of charities.  These include the Painters’ Company Charity (to which members individually contributed £15K raised in one charity fundraising event and we suspect, although there was no evidence, also contributed the balance of the total donations of £26K in 2006, and which distributed £34K in direct charitable expenditure) which distributed art prizes of £50 (total £1,200) and a certificate were awarded to each of 24 schools (not limited to the City of London), six prizes of £100 were awarded for National Vocational Qualifications, and 36 Fine Art Awards of between £50 and £2,000 (total £20,450) at a number of colleges of art, and the Lynn Painter-Stainer’s Prize (co-sponsored by the Lynn Foundation) of £22,500 and a medal.  The Fine Art Trust received donations of £4,325 in the year to 18 October 2006, also, we suspect, but there was no evidence, from members, owns the paintings in the Hall.  Other charities include “To the aged blind” (an amalgamation by scheme of the Charity Commissioners of six separate will trusts); and the Charity of John Stock, which also incorporates a number of separate charities.  We were not given any further details about the total payments made by these associated charities.
(8)	The Appellant has an affiliation with the 3rd (Volunteer) Military Intelligence Battalion in that an annual competition of military skills is named the Master’s Company Competition at which a silver rose bowl presented by the Appellant in 1967 is awarded.  It also has an association with the Intelligence Corps of the Regular Army in that the Painter-Stainers’ Enterprise Trophy of a piece of silver commissioned by the Appellant is awarded annually.
4.	Mr Vine, for the Appellant, contends:
(1)	The Appellant’s objects are in the public domain particularly in relation to its prizes, competitions and exhibitions.
(2)	Its activities, taken together with its associated charities in accordance with Rotary International v Customs and Excise Commissioners (1991) VAT Decision 5946, are philanthropic.  The stated aims were important and not the fact that members derived some social benefit from membership, as was also the case in Rotary International.
(3)	Its objects were also civic, as interpreted by the Court of Appeal in Expert Witness Institute v Customs and Excise Commissioners [2002] STC 42, in its connection with the City of London.
(4)	Its objects are patriotic, in particular in relation to the military affiliations.
5.	Mr Zwart, for Customs, contends:
(1)	Membership provides a wide range of benefits, not all referable to the stated objects; the objects are not in the public domain being concerned primarily with the Appellant rather than the public; the objects are primarily for the benefit of the members and for recognition and reward of the art of painting; they are not patriotic, philanthropic or civic in nature.
(2)	“The provision by a club, association or organisation (for a subscription or other consideration) of the facilities or advantages available to its members” is deemed to be the carrying on of a business by s 94(2) of the VAT Act 1994.  The facilities or advantages of membership to Liverymen include the right to attend the St Luke’s dinner without charge, and the other dinners and luncheons on payment, including inviting guests paid for by the Liveryman, a periodic magazine Phoenix and the Red Book, circulars about events, and the right to hire the Hall at a privileged rate.  The luncheons and dinners are private events not open to the public.
(3)	The exemption requires that (a) the body has objects in the public domain and (b) that those objects are of a patriotic, philanthropic or civic nature (being the relevant items).  The objects must be those of the body itself and not of another body, such as the charities which the Appellant administers.  The Rotary International case does not support the Appellant’s position (see below).  In particular the objects of the Appellant and the related charities are not the same.
(4)	Having excluded the functions performed by the associated charities the Appellant fails on both grounds (a) and (b).  The relevant objects of the Appellant are those that the Appellant in practice operates and if there are a number of objects, the primary one (Civil Service Pensioners Alliance v Customs and Excise Commissioners (2004) VAT Decision 18911).  Here, primarily the Appellant provides benefits to its members as opposed to the public generally, to use the distinction made by Lord Granchester in The English Speaking Union of the Commonwealth v Customs and excise Commissioners (1980) VAT Decision 1023).
(5)	The objects are not patriotic because of the existence of Royal Charters or the affiliation with the 3rd (volunteer) Military Intelligence Battalion, or of the Intelligence Corps.  They are not philanthropic because all but the donation of £15K connected with the Lord Mayor’s show, are funded by the associated charities.  Nor are they civic because any such activities are connected with the Appellant’s standing in the City rather than with the general benefit to mankind.
6.	In our view the issues to be decided are as follows: (1) whether the Appellant’s objects include those of the associated charities that it administers, (2) what are the objects of the Appellant, (3) are those objects in the public domain, and (4) if so, are those objects patriotic, philanthropic or civic in nature?
7.	As will be seen from the contentions of the parties there is a fundamental disagreement about the test to be applied in (1).  Is it, as the Appellant contends, whether the Appellant, taken with its associated charities, is “a body which has objects which are in the public domain and are of a … patriotic, … philanthropic or civic nature”; or is it, as Customs contend, whether the Appellant taken alone is such a body? 
8.	Mr Vine relied on Rotary International in contending that the associated charities should be included.  In that case Rotary International in Great Britain and Ireland (“RIBI”) has held to qualify for the predecessor of this exemption, which was drafted in terms of the body not carrying on business only because its members subscribe to it if the subscription obtains no facility or advantage from membership other then the right to participate in its management or receive reports of its activities.  It was conceded that the subscription carried no such advantage.  Each Rotary Club paid an annual subscription to RIBI based in the member of its members.  RIBI’s object was to aid the Clubs in carrying out their objects, which was “to encourage and foster the ideal of service as a basis of worthy enterprise…”  It arranged an annual conference and produced literature for public consumption, supported a library service to third world countries, laid on careers exhibitions for school leavers, and provided information services to clubs, supported a “travelling circus of eye surgeons in India and Africa.  Customs contended that its administrative and organisational work was not philanthropic.  The Tribunal found that its purpose in carrying out the administrative work was to promote the purposes of Rotary International (the world parent body) and the object of Rotary.
9.	Mr Zwart contended that the plain words of item 1(e) should be applied: “a body [singular] which has objects which are in the public domain and are of a … patriotic, … philanthropic or civic nature.”  The question related to the Appellant alone, as the body concerned.  He distinguished Rotary International on the ground that RIBI could control the Rotary Clubs, and the objects of both were the same.  The reason for the existence of the parent body was to perform administrative and organisational work in order to further the purposes of the subsidiary bodies.  Here we were dealing with the Appellant and its autonomous charitable trusts which each have different objects.  The Appellant may administer them in accordance with Object 4 but they are separate bodies whose activities cannot be attributed to the Appellant.
10.	We agree with Mr Zwart.  The words of the exemption are plain and must be construed strictly.  They relate to the body, in the singular, to which the member pays a subscription.  Rotary International was a different case in which RIBI, the national parent body carried out administrative work in order to coordinate the work of the individual Rotary Clubs which paid subscriptions to it.  Here the Appellant, as one of its objects, administers a number of separate charities but we are not dealing with the like situation of the subsidiary body paying a subscription to its parent body in order to assist the subsidiary body in carrying out its functions.  Here the subscriptions (quarterage) are paid by the liverymen to the Appellant, and part of those subscriptions no doubt goes on staff and other costs of administering the charities.  The charities certainly do not pay anything equivalent to subscriptions to the Appellant, which was the situation in Rotary International.  Nor are the functions of the charities identical to those of the Appellant.  Indeed presumably the reason the charities are separate is that the objects of the Appellant itself are not charitable.  We do not therefore consider that Rotary International can be regarded as authority for saying that the activities of a subsidiary body must always be attributed to the parent body.  That result is consistent with the question which is concerned with the supply by the body of services to members in return for the subscription.  The subscription does not go to the charities (which is not to imply that the members do not individually support the charities, but that is a different issue) and so there is no logic in attributing the charities’ activities to the Appellant in order to determine the Appellant’s objects.  Accordingly, we find that the test is whether the Appellant on its own is such a body as is referred to in item 1(e).
11.	Issue (2) concerns the Appellant’s objects.  We bear in mind what Chadwick LJ said in the said Expert Witness Institute case at [31] that “the relevant objective is that of the organisation; not that of any individual member or members.”  It is therefore irrelevant that some members may join for social reasons, such as in Mr Ward’s example to meet other artists, or Mr Dalley’s enjoying the company of like minded people.  We have the list of 10 objects set out above.  Some of these, for example Object 10(a) and (b) on the commissioning and acquisition of contemporary art are actually carried out by the charities.  Clearly not all objects have equal weight.  For example there is no evidence about whether there are any Liverymen of the Appellant on the Common Council (Object 9).  Some are inward-looking (Objects 1, 2, 3 and, as to the election of the Master and Wardens, 8); others are outward-looking (Objects 4, 5, 6, 7 and, as to the Lord Mayor and Sheriffs, 8).  We agree with the approach of the Tribunal in Civil Service Pensioners Alliance v Customs and Excise Commissioners and also in The Game Conservancy Trust v Customs and Excise Commissioners (2001) VAT Decision 13734 at [65] that it is not enough simply to refer to the stated objects; it is necessary to look at the way in which the organisation operated in practice.  There is no reference in the objects to other things the Appellant does to promote art, such as organising history of art lectures and art exhibitions.  Nor is there any reference to the Appellant organising fundraising by members for the Appellant’s charities (Object 5 only seems to envisage the Appellant supporting appeals connected with the City of London) but we know that that members raised £15K for the Painters’ Company Charity at a charity evening and we suspect, although there was no evidence, that they also contributed to be rest of the donations of £36K in 2006, and the donations to the Fine Art Trust.  There is also no reference in the objects to the seven dinners and four luncheons that Liverymen and their guests may attend.  Even if one could exclude the St Luke’s dinner and the luncheons after the election of the Lord Mayor and of the Sheriffs as being incidental to Object 8, this still leaves the rest of them.  We consider that the objects should include these unstated objects and exclude anything actually carried out by the charities.
12.	On issue (3), The exemption is based on art 13A(1)(l) of the Sixth Directive under the heading “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;…”
This is now art 132(1)(l) of the Recast VAT Directive:
“(l)  the supply of services, and the supply of goods closely linked thereto, to their members in their common interest 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;”
We consider that the exemption should be construed in the light of these.  While it is settled law that an exemption must be construed strictly, as Chadwick LJ said in the Expert Witness Institute case at [19] “The task of the court is to give the exempting words a meaning which they can fairly and properly bear in the context in which they are used.”  
13.	Lord Granchester in the English Speaking Union case said of the words “public domain”:
“In my judgment the words ‘objects which are in the public domain’ are those aims and objects which are regarded as matters of concern and interest to the public generally as opposed to matters of concern and to individuals or groups of individuals in their private capacities.”
In Newport County AFC Social Club Limited v HMRC (2006) VAT Decision 19807 the Tribunal pointed out that public concern need not be national concern, and that public concern is not limited to moral or artistic issues. We also agree with the approach of the Tribunal in Civil Service Pensioners Alliance v Customs and Excise Commissioners that we should consider whether the primary objects are in the public domain.  Weighing up the objects we have found in issue (2), we consider that, while there are undoubtedly some objects in the public domain, it cannot be said that they are primarily in the public domain because those objects solely for the benefit of members rather than the public are too significant to be treated as incidental to the ones in the public domain.
14.	Given our decision on issue (3) it is strictly not necessary to consider issue (4) but as the point was argued our view on these is as follows.  So far as patriotic is concerned, the aspects put forward by the Appellant are that members swear allegiance to the Queen (we were not told what EU citizens, who are eligible for membership, do), that the loyal toast is included at all functions, and the affiliations with the 3rd (Volunteer) Military Intelligence Battalion and the Intelligence Corps.  Of these, the first two are not unusual for bodies generally and the military affiliations seem to consist of the annual presentation of a piece of silver once presented by the Appellant.  We do not consider that these are sufficient to make the Appellant’s object of a patriotic nature.
15.	On philanthropic, the exclusion of the financial benefits provided by the associated charities, leaves only the donation of about £12K in connection with the Appellant’s participation in the Lord Mayor’s show (2.5 per cent of the Appellant’s income).  Some of the objects, such as organising exhibitions for the public, would qualify under this head.  We do not consider that these are sufficient to make the Appellant’s object of a philanthropic nature.
16.	The meaning of civic can be related to (in the Appellant’s case) the City of London, or to the responsibility of citizenship generally, as in the support of the administration of justice in Expert Witness Institute v Customs and Excise Commissioners.  Here the two meanings do not differ substantially as all the Appellant’s citizenship responsibilities are geared to the City.  The Appellant has a number of connections with the City, including Objects 3, 5 in relation to supporting appeals connected with the City, 6, 7, 8 in relation to Liverymen participating in the elections of the Lord Mayor and Sheriffs, and 9.  Object 3 in some ways is inward-looking in maintaining the Appellant prestige with the City, and in other ways outward-looking in scrutinising Applicants because they might one day become Common Councilmen (although we have no evidence about whether any liverymen in fact are Common Councilmen in accordance with Object 9), or Sheriffs or the Lord Mayor.  We have looked at Object 5 under philanthropic.  Some of the others are somewhat nebulous, such as disseminating knowledge of the City Livery Companies and their part in the life of the City of London (Object 6) and supporting the Lord Mayor and the Corporation in their administration of the City (Object 7).  Encouraging Liverymen to vote in elections of the Lord Mayor and of the Sheriffs (Object 8) is part of civic responsibility.  Looking at these as a whole we do not consider that these amount to the Appellant having objects of a civic nature.
17.	We consider that we should also look at the objects against the totality of their patriotic, philanthropic and civic nature.  We do not consider that this leads to a different conclusion.
18.	Accordingly, our decision is that the Appellant does not qualify for exemption in relation to its subscription income (quarterage) because its objects are not primarily in the public domain and nor are they of a patriotic, philanthropic or civil nature, and we dismiss the appeal.
19.	We should like to add a postscript in case this decision should receive a misleading headline on the lines of “City Livery Company is not philanthropic body.”  Shortly before the hearing the Lord Mayor of London circulated a leaflet to all liverymen of City Livery Companies showing that charitable giving by Livery Companies in 2006 was £41m.  No doubt this figure includes the Companies’ associated separate charities.  Unfortunately, in our view the wording of the VAT legislation requires us to exclude such charities.  Had we been able to include them this decision might well have been different.

JOHN F. AVERY JONES

CHAIRMAN
RELEASE DATE: 6 May 2008

LON/06/1304