“the place where [services of consultants] are supplied when performed for customers established outside the Community..., shall be the place where the customer has established his business or has a fixed establishment to which the service is supplied or, in the absence of such a place, the place where he has his permanent address or usually resides.”
“...a set of software tools used by many international businesses to keep business records, prepare accounts, monitor budgets, control costs and handle many other business process needs. Certain core modules were made compulsory throughout the Group. These are known as FI/CO [FI for financial records (comprising general ledger, accounts payable, accounts receivable, fixed assets and special ledger; CO for controlling (which tracks costs and works out profits for management reporting purposes, and comprises costs centre accounting, internal orders and profitability analysis)]. The output from SAP provided management reporting, regulatory reporting (such as insurance company regulation, direct tax and VAT) in sterling and based on UK GAAP [Generally Accepted Accounting Principles] for Zurich (UK), local reporting based on IAS [International Accounting Standards], and also information required by Zurich (HO) for Group reporting in other currencies and based on IAS with an addition for insurance company reporting known as NewZAP. Consolidation worldwide was performed by the output from SAP being passed through another system, Cormis.”
“Consistent management information requires common definitions of such things as premiums which is achieved by the use of modules common throughout the group. A standard template, known as Z-Core, was developed in Switzerland for this purpose. The framework agreement (see para 5(6) below) explained it as “…a set of definitions and rules in order to allow the required central consolidation, visibility and overall benefits to be achieved.”
“Z-Core is a SAP design that is intended to deliver group financial and management accounting reports prepared on a consistent basis, from individual business units to the group whilst retaining maximum flexibility for individual business units to add additional local configuration to meet their own local requirements.”
“stated that there was an urgent need to put in place a new accounting system for the non-life businesses in order to integrate the merged businesses. Another important requirement was that IAS reporting used by the parent company for external reporting was not possible under existing systems. The benefits of SAP were identified. Mrs Stringer allocated some of these to Zurich (HO), such as worldwide transmission of data, easier completion of year-end and interim reporting; others to Zurich (UK), such as easier consolidation of the results of local entities; and the remainder of the benefits accrued to the whole organisation, such as improved management information and easier inter-group charging.”
“(19) The implementation of SAP by Zurich (UK) was carried out partly by Zurich (UK) staff (60% of the staff, although originally it had been expected to be 75%) and partly by PwC (UK) (40% of the staff) working as a team in Zurich (UK) premises. At the height there were 165 staff working on the project in the UK. (20) We infer from the above that Zurich (HO) designed Z-Core in order to provide for its requirement for information prepared on a consistent basis while at the same time enabling it to be configured to meet local requirements. Zurich (UK) required some financial reporting and accounting software, whether the existing OLAS (which was in process of being upgraded) or SAP. It would have needed outside consultancy services to implement any such system. Much of the output from such system would be required by Zurich (UK) even if it were not part of a worldwide organisation. This included its primary accounting needs, management information, and reporting for regulatory purposes, including insurance company regulation and tax. Without such information Zurich (UK) would not have been able to operate.”
“PwC (UK) invoiced PwC AG for their services (zero-rated for VAT by virtue of article 9(2)(e) of the Sixth Directive as consultancy services). PwC AG invoiced “Zurich Leben” (whose full name is Zurich Lebensversicherungs-Gesellschaft, which we understand is a member of the Swiss VAT Group), which we shall treat as the equivalent of invoicing Zurich (HO), by two separate invoices both including Swiss VAT at 7.5%, one for 79% of the total which was re-charged internally by Zurich (HO) to Zurich (UK); and another for 21% of the total which was initially re-charged internally by Zurich (HO) to Zurich (UK) and then recharged by Zurich (UK) to Group life companies in the UK within the UK VAT group on the basis that this proportion of the work for the non-life business was of benefit to the life companies. A reverse charge to UK VAT was paid on the 21%.”
“We remind ourselves of the test to be applied. Article 9(1) dealing with the place of supply is a deeming provision: “the place where a service is supplied shall be deemed to be the place where the supplier has established his business or has a fixed establishment from which the service is supplied.”
“the place where the customer has established his business or has a fixed establishment to which the service is supplied.”
“...that it was both. The subject matter of the work was the financial results of Zurich (UK) which Zurich (UK) needed for its own regulatory reporting and without which it could not operate. Zurich (HO) were also interested in the results of Zurich (UK) so that it could report the worldwide results and had produced Z-Core in order to receive reports in a form it required. Z-Core only worked if the input from the UK accounting systems was in the right format. 23. Weighing up these factors in terms of economic reality as understood in DFDS we regard the place of contracting as the most important. We pay less regard to the work being done in the UK because the question is not where did the supply take place (as it is for article 9(2) supplies) but who is the customer. Similarly, in DFDS where the travel took place was not a consideration. We regard the place of benefit as the least important, particularly as neither location received the benefit to the exclusion of the other. If payment for the services had been borne by Zurich (HO) as originally proposed we would regard it as clear that the service was supplied to Zurich (HO). If Zurich (HO) and Zurich (UK) were two different legal persons, these factors would certainly point to Zurich (HO) as the contracting party and the place of contracting and payment, the factor that was given importance in DFDS, however much Zurich (UK) benefited from the service. It would be analogous to the supply by the estate agent in Customs and Excise Commissioners v Redrow[1999] STC 161 . But this was changed so that Zurich (UK) bore the costs which points away from Zurich (HO) being the notional contracting party. Does it mean that we should pay less attention to the “calling the shots” factor and treat the service as supplied to Zurich (UK) when the factor of the work being done in the UK is added? We do not think it does. First, Zurich (HO) as notional contracting party remains such because PwC AG looks to it for payment. The bearing of the expense by Zurich (UK) is a subsequent notional contract which is of no concern to PwC AG. Secondly, the change to Zurich (UK) bearing the cost was made for tax reasons, which means we give it less importance in applying economic and commercial reality, but not to the extent of disregarding it. Our tentative conclusion is therefore that the supply was made to Zurich (HO).”
“The result was that consultancy services contracted for by ZIC(HO) in Switzerland but performed for ZIC in the United Kingdom and provided physically at premises of ZIC(UK) were received without the addition of any charge for VAT.”
“For the reasons which I will explain, I respectfully disagree with the decision of the Tribunal, and I will allow the appeal.”
“This case is not about the VAT consequences of expenditure incurred in connection with the development and design of Z-Core. It is only about the United Kingdom VAT consequences of expenditure on the services of consultants who were engaged to assist upon the installation of SAP into the activities of ZIC(UK).”
“At the risk of labouring excessively the point made in paragraph 10 above about the difference between the development of Z-Core (a matter relevant to ZIC’s business worldwide) and the consequential installation of SAP into the activities of ZIC(UK) (a matter relevant, or primarily relevant, to ZIC’s business in the United Kingdom), I wish to quote a number of passages from the Tribunal’s decision (in addition to the passage quoted in paragraph 9 above, which is also relevant to the same matter) and from documents which the Tribunal had before it. I also quote passages to show that the central role which SAP was to perform was a role within the United Kingdom business of ZIC(UK). I do these things because the Tribunal made a finding that the work on installation of the SAP system was carried out for the benefit both of ZIC(UK) and of ZIC(HO), and in my view ZIC attempts to place on that finding a greater burden than it can bear.”
“If the Directive requires the national legislature to impose a charge on a particular type of transaction, and the legislature imposes one but does so to a greater extent than the Directive requires, then in my opinion the liability falls to be reduced to the level, if any, which the Directive permits.”
“In my judgment, on the facts of this case that country can only be the United Kingdom. I refer in this connection to paragraph 13 above, in which I set out various extracts from the decision or from documents which were before the Tribunal, showing that the SAP system (for the installation of which the consultancy services were received) was the top level computer system used in the operations of ZIC(UK). It is true that ZIC(HO) also had an important interest in getting the SAP system installed in ZIC’s United Kingdom premises and activities, because it was a system compatible with Z-Core and gave ZIC(HO) ready access to the records of ZIC’s United Kingdom operations. Nevertheless, to the question of whether the SAP system, for the installation of which the consultancy services of PwC AG were provided, was mainly to be used in the United Kingdom or in Switzerland the only conceivable answer is: in the United Kingdom.”
“If they mean that PwC AG’s supply was made to ZIC in the United Kingdom they do not remove the liability to United Kingdom VAT which arises under ss.8 and 9. If they mean that the supply was made in Switzerland, they do.”
“I agree with the Tribunal’s approach up to a point: I agree that it was appropriate to ask whether PwC AG’s services were supplied to ZIC at its head office, or to ZIC at its United Kingdom establishment. However, I cannot agree with the answer which the Tribunal gave to the question. In my view, on the facts of this case, the only tenable answer to the question is that the services were supplied to ZIC at its United Kingdom establishments. I respectfully disagree with the Tribunal that the most important consideration was the place at which the contract for the services to be supplied was made. VAT is not charged on the supply of the service of making a contract for services. It is charged on the supply of the services which have been contracted to be supplied.”
“39. When a Work Order was signed ZIC thereby contracted with PwC AG for PwC AG to provide consultancy services to ZIC’s United Kingdom establishment. I can accept that PwC AG and ZIC made that contract in Switzerland. I can also accept that it was the sort of contract as respects which the head office in Switzerland would, for commercial reasons, want to be involved in the final decision to enter into it, rather than leaving that decision to the United Kingdom establishment alone. But PwC AG did not provide or supply the consultancy services to ZIC at ZIC’s head office by making a contract to provide or supply them. It provided or supplied the services by performing its contract after it had made it. And it performed the contract wholly, or virtually wholly, in the United Kingdom. It performed it through a sub-contractor, PwC(UK), and PwC(UK) fulfilled PwC AG’s contractual obligations entirely in the United Kingdom. PwC(UK) sent its specialist personnel to ZIC’s offices, and it was there that the services which ZIC had contracted for were supplied by (or on behalf of) PwC AG and received by ZIC. In this connection the facts found by the Tribunal are in paragraph 5(19) of the decision: “(19) The implementation of SAP by Zurich (UK) was carried out partly by Zurich (UK) staff (60% of the staff, although originally it had been expected to be 75%) and partly by PwC(UK) (40% of the staff) working as a team in Zurich (UK) premises. At the height there were 165 staff working on the project in the UK.” 40. I accept that, when PwC AG performed the contract by means of what the staff of its subcontractor, PwC(UK), did at ZIC(UK)’s premises in the United Kingdom, there was a sense in which it (PwC AG) provided a service to ZIC(HO) as well as providing a service to ZIC(UK): it provided to ZIC(HO) the service of doing what it had contracted with ZIC(HO) that it would do. The Tribunal, in paragraph 23 of its decision, draws an analogy with the circumstances in Customs & Excise Commissioners v Redrow Group plc[1999] STC 161 , in which a first party contracted with a second party that the second party would, in consideration of payment from the first party, provide a service to a third party. There was a supply of services to the first party, which was entitled to input tax credit for the VAT content of what it had paid to the second party. The analogy is apt in some ways, but it does not change my view. It remains the case that what the head office of ZIC wanted was to get the SAP system installed into the operations of ZIC’s establishment in the United Kingdom. It was in order to secure that result that ZIC engaged PwC AG to provide its consultancy services. That result is what ZIC got, and in my view the actual provision of the services to ZIC in the United Kingdom far outweighs in importance the feature that the contract which PwC AG thereby performed in the United Kingdom had been made with ZIC(HO) in Switzerland. In reality the fixed establishment of ZIC ‘to which the service [was] supplied’ (echoing the words of article 9.2(e)) was its establishment in the United Kingdom, and not its head office in Switzerland.” “(19) The implementation of SAP by Zurich (UK) was carried out partly by Zurich (UK) staff (60% of the staff, although originally it had been expected to be 75%) and partly by PwC(UK) (40% of the staff) working as a team in Zurich (UK) premises. At the height there were 165 staff working on the project in the UK.”
“That is true in the sense that any head office of a business with branches located away from the head office will want its branches to be adequately equipped and organised, and will also want to have efficient access to information about the business which is going on in the branches. But that does not, in my opinion, change the position. The critical point is that, so far as the Work Orders relevant to this case are concerned, PwC AG was engaged to consult on the installation of the new SAP system in the premises and operations of ZIC(UK), not in the premises and operations of ZIC(HO). Of course ZIC(HO) would have wanted to be sure that the system was a good one and that it was efficiently installed. Also ZIC(HO) had a particular concern that the SAP system installed in the United Kingdom should be compatible with ZIC’s Z-Core template. But the operation was still one for the installation of a new system in the United Kingdom establishments, not in the head office establishment in Switzerland.”
“In my judgment the conclusion that PwC AG’s services were supplied to ZIC’s fixed establishment in the United Kingdom is not just the only tenable conclusion on the facts. It is also the conclusion which produces a rational result, which avoids non-taxation in a case where there ought to be taxation, and which avoids distortion of competition.”
“For the reasons which I have explained, I consider that on a proper application of the place of supply rule in the Sixth Directive article 9.2(e) PwC AG’s supplies were made to ZIC’s establishment in the United Kingdom. It follows that the result of applying the reverse charge provision in VATA s.8 is the same as the result required to be brought about by the Directive. Accordingly I allow this appeal in principle.”
“I do not think that inferences drawn from other facts are incapable of being themselves findings of fact, although there is value in the distinction between primary facts and inferences drawn from them. When the case comes before the court it is its duty to examine the determination having regard to its knowledge of the relevant law. If the case contains anything ex facie which is bad law and which bears upon the determination, it is, obviously, erroneous in point of law. But, without any such misconception appearing ex facie, it may be that the facts found are such that no person acting judicially and properly instructed as to the relevant law could have come to the determination under appeal. In those circumstances, too, the court must intervene. It has no option but to assume that there has been some misconception of the law and that, this has been responsible for the determination. So there, too, there has been error in point of law.”
“As I see it, the reason why the courts do not interfere with commissioners' findings or determinations when they really do involve nothing but questions of fact is not any supposed advantage in the commissioners of greater experience in matters of business or any other matters. The reason is simply that by the system that has been set up the commissioners are the first tribunal to try an appeal, and in the interests of the efficient administration of justice their decisions can only be upset on appeal if they have been positively wrong in law. The court is not a second opinion, where there is reasonable ground for the first. But there is no reason to make a mystery about the subjects that commissioners deal with or to invite the courts to impose any exceptional restraints upon themselves because they are dealing with cases that arise out of facts found by commissioners. Their duty is no more than to examine those facts with a decent respect for the tribunal appealed from and if they think that the only reasonable conclusion on the facts found is inconsistent with the determination come to, to say so without more ado.”
“...unless they [the Commissioners] can establish that on the primary facts found by the tribunal, the true and only reasonable conclusion is that HK did have a fixed establishment in the United Kingdom from which the services are supplied or, at least, had the tribunal not misdirected itself in law (as to whether a separate legal entity can be a fixed establishment) they might have reached that conclusion on the facts found, in which event the matter should be remitted.”
“In my judgment, the tribunal was entitled, on the facts which it found, to conclude that that service was provided from Hong Kong. It is not just a matter of comparing the activities of the two companies, it is more important, as the tribunal recognised, to consider the significance of those activities and the part they play in their contribution to the service supplied (see final paragraph of p 23). True it is that CCUK appears to have employed a far greater number and can therefore be said to have spent more man hours that HK, but non constat that its activities made an equal or greater contribution to the service. The tribunal clearly took the view that the main contribution consisted of making contracts, arrangements for transmission and selecting programmes. That may have taken less time than it did to perform the production and editorial functions in the United Kingdom, but that is nothing to the point if those United Kingdom activities may be fairly judged to have played a lesser part.”
“Article 9 requires a factual judgment as to whether the service is supplied from a fixed establishment. The tribunal concluded as a matter of fact that the service was supplied from Hong Kong and not from the United Kingdom. It is plain that CCUK made a contribution to that service. Thus a judgment was required as to whether, despite that contribution, it could be said that the service was supplied from Hong Kong and not from the United Kingdom. This is a question of degree for the tribunal. It may require consideration of which establishment, either the main place of business or the fixed establishment, if any, was most directly concerned. In other words, the test contained in United Kingdom legislation in s 9(2)(b) of the 1994 Act is a test to be used in order to answer the question posed by art 9 of the Sixth Directive. That article, in cases where aspects of the service are provided from the main place of business and others from a fixed establishment, requires a decision as to whether the service is supplied from the fixed establishment. That question cannot be answered by saying that some aspects of the service are and some are not; an overall conclusion must be reached. In my judgment, the commissioners fail because they are unable successfully to impugn the conclusion that, having assessed the contribution made by HK and CCUK to the service, the tribunal concluded that the service was supplied from Hong Kong.”
“20. Moreover, services cannot be deemed to be supplied at an establishment other than the place where the supplier has established his business unless that establishment is of a certain minimum size and both the human and technical resources necessary for the provision of the services are permanently present (see Berkholz (at 2263, para 18) 21. In this case, to treat, for tax purposes, all the services provided by a tour operator, including those supplied in other member states through undertakings operating on his behalf, as being supplied from the place where the tour operator has established his business, would have the clear advantage, as the Danish company has pointed out, of having a single place of taxation for all the business of that operator covered by art 26 of the Sixth Directive. 22. However, as the United Kingdom government has pointed out, that treatment would not lead to a rational result for tax purposes in that it takes no account of the actual place where the tours are marketed which, whatever the customer’s destination, the national authorities have good reason to take into consideration as the most appropriate point of reference. 23. As the Advocate General points out in paras 32 to 34 of his opinion, consideration of the actual economic situation is a fundamental criterion for the application of the common VAT system. The alternative approach for determining the place of taxation of the services of travel agents, based on the fixed establishment from which these services are supplied, is specifically intended to take account of the possible diversification of travel agents’ activities in different places within the Community. Systematic reliance on the place where the supplier has established his business could in fact lead to distortions of competition, in that it might encourage undertakings trading in one member state to establish their businesses, in order to avoid taxation, in another member state which has availed itself of the possibility of maintaining the VAT exemption for the services in question. 24. In those circumstances, it must be concluded that, where services have been provided by a tour operator from a fixed establishment which that operator has in a member state other than that in which he has established his business, such supply of services to the customer is taxable in the state where that fixed establishment is located.”
“VAT is not charged on the supply of the service of making a contract for services. It is charged on the supply of the services which have been contracted to be supplied.”
“...gives two possibilities: (1) the place where ZIC has established its business, or (2) the place where ZIC has a fixed establishment to which the service is supplied. The first question is: which of those two possibilities should be adopted? It is first necessary to ask whether possibility (2) exists on the facts. That is, does ZIC have a fixed establishment elsewhere than where it (ZIC) is established, and was the supply of services made to that fixed establishment? If ZIC does not have a fixed establishment elsewhere or, although it does, the supply of services was not made to it at that establishment, the place of supply will be possibility (1): the place where ZIC has established its business, namely Switzerland. There would be no other possibility. The case would be analogous to Berkholz, in which the taxable person was established in Germany and did not have a fixed establishment anywhere else (the gaming machines on the ferries not being a fixed establishment). If, however, ZIC has a fixed establishment elsewhere than in Switzerland (which it obviously does), and if the services are supplied to that establishment (which is the critical disputed issue), then in my view the place of supply will be where the establishment is located.”
“14. …Article 9 is designed to secure the rational delimitation of the respective areas covered by national VAT rules by determining in a uniform manner the place where services are deemed to be provided for tax purposes. Article 9(2) sets out a number of specific instances of places where certain services are deemed to be supplied, whilst Article 9(1) lays down the general rule on the matter. The object of those provisions is to avoid, first, conflicts of jurisdiction, which may result in double taxation, and secondly non-taxation, as Article 9(3) indicates, albeit only as regards specific situations. … 17. … [I]t is for the tax authorities in each Member State to determine from the range of options set forth in the directive which point of reference is most appropriate to determine tax jurisdiction over a given service. According to Article 9(1), the place where the supplier has established his business is a primary point of reference in as much as regard is to be had to another establishment from which the services are supplied only if the reference to the place where the supplier has established his business does not lead to a rational result for tax purposes or creates a conflict with another Member State. 18. It appears from the context of the concepts employed in Article 9 and from its aim, as stated above, that services cannot be deemed to be supplied at an establishment other than the place where the supplier has established his business unless that establishment is of a certain minimum size and both the human and technical resources necessary for the provision of the services are permanently present. It does not appear that the installation on board a seagoing ship of gaming machines, which are maintained intermittently, is capable of constituting such an establishment, especially if tax may appropriately be charged at the place where the operator of the machines has his permanent business establishment. 19. … Article 9(1) … must be interpreted as meaning that an installation for carrying on a commercial activity, such as the operation of gaming machines, on board a ship sailing on the high seas outside the national territory may be regarded as a fixed establishment within the meaning of that provision only if the establishment entails the permanent presence of both the human and technical resources necessary for the provision of those services and it is not appropriate to deem those services to have been provided at the place where the supplier has established his business.”
“On the proper interpretation of … Article 26 …, where a tour operator has its headquarters in Member State A but supplies services in the form of package tours to travellers through the agency of a company in Member State B: (a) in what (if any) circumstances is the supply of those services by the tour operator taxable in Member State B? (b) in what (if any) circumstances can it be said that the tour operator "has established its business" in Member State B or "has a fixed establishment from which it has provided the services" in Member State B?”
“His opinion that the place of supply was at the place of the fixed establishment was based on the principle that taxation should coincide with the place of supply to the consumer applied in harmony with the actual economic situation. He was therefore regarding travel services as provided where the contract for them was made rather than where the underlying supply was made.”
“In other words, the place from which the supply of the single travel service was made was determined by where the contract was made, the documentation issued and the consideration paid.”
“32. I feel … able to align myself with the view advanced by the United Kingdom Government. I am also of the opinion that reference to the place where the supplier has established his business does not in this case lead to a rational result. The first consequence of such an approach would in fact be failure to apply the legislative criterion that the place of taxation must fundamentally coincide with that at which the service is supplied to the consumer. That is the basic criterion: the VAT system must be applied in a manner as far as possible in harmony with the actual economic situation. I do not consider it logical for the subsidiary criterion, when the possibility of applying it is assessed, to be automatically treated as being subordinate to that of the place where the supplier has established his business. … 35. The view put forward by the Danish company is not in conformity with those principles - in fact it errs towards formalism. It fails to take account of the fact that the economic realities of this case justify making travel agency business subject to VAT at the place where the services are provided …”
“26. Let us now consider whether the requirements laid down by the Court in those decisions are met in this case. In my opinion they are. There is actual pursuit of an economic activity, it is pursued for an indefinite period and there is a fixed establishment. All those points are confirmed by the detailed examination of the facts undertaken by the VAT Tribunal. The decision adopted by that tribunal highlights a number of factors, the most important of which - and here I share the view expressed by the Commission's representative at the hearing - is the fact that the English company has about 100 employees. And there is no shortage of other considerations of a factual nature to support the view that, in addition, the service offered to consumers originates in the United Kingdom. The contract is concluded in the United Kingdom; it may be presumed that payment is made in local currency; any complaints from customers will be dealt with by the English company; and the parent company reimburses any expenses incurred by DFDS Ltd in legal proceedings to protect its interests.”