“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 or, in the absence of such a place of business or fixed establishment, the place where he has his permanent address or usually resides.”
“. . . the place of the supply of services connected with immovable property, . . . , shall be the place where the property is situated.”
“1. Member States shall apply value added tax on to the operation 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. This Article shall not apply to travel agents who are acting only as intermediaries and accounting for tax in accordance with Article 11A(3)(c). In this Article travel agents include tour operators. 2. All transactions performed by the travel agent in respect of a journey shall be treated as a single service supplied by the travel agent to the traveller. It shall be taxable in the Member State in which the travel agent has established his business or has a fixed establishment from which the travel agent has provided the services. 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 those transactions are for the direct benefit of the traveller. . . . 4 Tax charged to the travel agent by the other taxable persons on the transactions described in paragraph 2 which are for the direct benefit of the traveller, shall not be eligible for deduction or refund in any Member State.”
“The taxable amount shall not include: . . . (c) the amounts received by a taxable person from his purchaser or customer as repayment for expenses paid out in the name and for the account of the latter and which are entered in his books in a suspense account. The taxable person must furnish proof of the actual amount of this expenditure and may not deduct any tax which may have been charged on these transactions.”
“. . . a supply of goods or services – (a) acquired for the benefit of his business; and (b) supplied for the benefit of a traveller without material alteration or further processing; by a tour operator in a member State of the European Community in which he has established his business or has a fixed establishment.”
“Subject to Articles 8, 9 and 9A of this Order, 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.”
“3. At all material times, the Appellant [Medhotels] was part of a group of travel related businesses which includes lastminute.com and Holiday Autos. The group was owned by lastminute.com Ltd (a wholly owned subsidiary of Sabre Holdings Corporation). On2 February 2009 , the trade and assets of the Appellant were sold to Hotels4U.com Ltd as part of a transfer of a going concern of the lastminute.com group. . . [On]25 February 2009 the Appellant changed its name from Med Hotels Ltd to Secret Hotels2 Ltd. The grounds of appeal state that for VAT purposes the Appellant remains part of the lastminute.com group. It is irrelevant to the decision we have to make precisely what the group structure is. 4. At all material times the Appellant operated a website (www.medhotels.com) through which it marketed hotel accommodation. The website featured approximately 2,500 resort hotels, villas and apartments in a variety of destinations throughout the Mediterranean and the Caribbean. 5. Approximately 94% of all hotel sales were made to travel agents who supply the hotels on to the holidaymakers. The remaining 6% of sales were made to holidaymakers.”
“. . . The majority of this contract imposes obligations upon the hotel in question, the only obligation, which appears in the preamble, undertaken by the Appellant is that it undertakes “to deal accurately with the request for accommodation bookings and relay all monies, which it receives from the principal’s client(s) … which are due to the principal, but shall have no further commitment to the principal under this agreement.”
“. . . The Appellant provided the accommodation direct to holidaymakers booking through its website and subject to its own booking conditions and to other travel agents on the basis of agreement with those travel agents. Those holidaymakers who booked accommodation through other travel agents were still subject to the Appellant’s booking conditions.”
“medhotels.com act as Booking Agents on behalf of all hotels, apartments and villas featured on this website and your contract will be made with those accommodation providers. . . .”
“After the preamble, in the first paragraph on the first page, it is stated: ‘Once the contract is made, the accommodation provider is responsible to you to provide you with what you have booked and you are responsible to pay for it, in each case subject to these Booking Conditions, and any other terms and conditions specific to the relevant accommodation.’ However, this does not specifically state that the holidaymaker is responsible for paying the accommodation provider. The Booking Conditions subsequently state: ‘Please note: your booking may be cancelled, if you fail to make payment on time (i.e. to the Appellant) and you would then be liable to pay the accommodation provider the cancellation charges set out below.’ This may be contrasted with the next statement: ‘Payment for incidental extras (e.g. mini bars, telephone charges, etc) has to be made directly to the accommodation provider, when you check out’, which make a distinction between those payments which must be made direct to the accommodation provider and those which must be made to the Appellant.”
“38. . . . when a holidaymaker (a term which we will use to avoid the ambiguity of the word ‘customer’) makes a booking using the Appellant’s website, he/she . . . makes a payment to the Appellant. A deposit of 25% is made at the time of the booking unless it is less than five weeks prior to the travel date, in which case the full price is paid. Payment is made by credit card and the Appellant takes the balance of the payment five weeks before the travel date. This payment is made into the Appellant’s bank account, not the hotel’s account. Interest on direct sales is therefore earned by the Appellant. . . . 39. It was accepted by Mr McLintock that the holidaymaker would not know the rate which the hotel charged to the Appellant and neither did the hotel know what rate the holidaymaker was paying. It was not disputed that the bill from one hotel to a particular holidaymaker, Mrs Cotter, sent to the Appellant showed an IVA (VAT) rate of 5%. It was accepted that the Appellant ought on all occasions to have issued a VAT invoice for its commission (an amount unknown to the hotels in question) but this had not been done, . . . The Agency Agreement itself stipulated in its Agreement with the travel agent that a VAT invoice in respect of commission earned would be required before commission would be credited. . . . but in practice only twenty-seven travel agents out of many hundreds in fact issued a VAT invoice. It was accepted by Mr McLintock that where a hotel would make an error in the Appellant’s favour, then the Appellant would not account to the hotel for the difference, but where a hotel made an error in its own favour, then the Appellant would look to the hotel to correct it. . . . The Appellant retained the 25% deposit it had received prior to the holidaymakers’ arrival on such occasions when the holidaymaker did not in fact go on holiday in question, i.e. the holidaymaker forfeited that amount to the Appellant, not to the hotel. . . . However in circumstances where a travel agent was involved, the money would be passed back to the travel agent, although in practice the travel agent almost never charged for cancellations. Equally hotels would not generally charge for cancellations other than when a large party was involved. On such an occasion the hotel would contact the Appellant. In situations where the hotel did not charge, the Appellant would not do so. It was accepted that a holidaymaker would have contracted to pay cancellation charges and the Appellant therefore had a discretion to impose such a charge. The evidence shows that even where a hotel did not charge, the Appellant would retain the customer’s deposit. . . . 40. Various letters of complaint written to the Appellant were produced which showed that it had corresponded with the complainants and offered payment without first clearing the matter with the hotel in question, although that hotel would then be charged by the Appellant for any monies paid to the complainant. . . . It was accepted that at a meeting on25 January 2006 between HMRC and representatives of the Appellant it was said that the Appellant could agree compensation without prior approval from the hotel in question. It could also recover the compensation by way of deducting it from the payment it made to the hotel. In some cases the Appellant would issue a voucher but that voucher would be in respect of a future holiday with the Appellant and not with the hotel in question. . . . The fact that some customers complained to the Appellant and not to the hotel was explained by it being easier for the holidaymaker to contact the Appellant as it was in the United Kingdom. In another case there was evidence of a complaint which was rejected by a hotel but nonetheless the Appellant paid the complainant and then charged the hotel in question. . . . . . . 43. The Appellant had made pre-payments to certain hotels which, at the meeting referred to above with HMRC, were referred to as ‘loans’ which were made in order to get the hotel to sign up with the Appellant. . . . Mr McLintock accepted that there was a risk that the hotel in question might go insolvent, but it was deemed at the time to be an acceptable risk. The payments in question were made in return for higher commission rates.”
“If in the unlikely event that we are informed by the accommodation owner that they are unable to provide the accommodation which you have booked, we will try to provide you with similar accommodation of equal standard. If we are unable to do this or you prefer not to accept our alternative, you may cancel free of charge.”
“Because we are acting only as a booking agent we have no liability for any of the accommodation arrangements and in particular no liability for any illness, personal injury, death or loss of any kind, unless caused by our negligence. Any claim for damages for injury, illness or death arising from your stay in the accommodation must be brought against the owner of the accommodation and will be under the jurisdiction of the law of the country in which the accommodation is based” and that, given their view that the holiday maker would have no contract with the hotel, the two provisions were contradictory. As they put it: “an onus in the one being on the Appellant to provide alternative accommodation in certain circumstances, but in the other the Appellant states that the liability for injury is that of the accommodation provider”. (5) The absence from the Terms and Conditions of any obligation on Medhotels to promote and use its reasonable endeavours to increase sales of accommodation – in contrast to the obligation imposed on travel agents in the Agency Agreement (described under head (C)) was inconsistent with the role of an agent: paragraph 64. (6) The fact that Medhotels retained handling agents at the location where the accommodation was situated – in circumstances where there was no condition in the contracts between the hotels and the Appellant which required or allowed Medhotels to provide in-resort services – was a further indication that Medhotels saw itself as providing hotel accommodation as principal: (ibid). (7) The fact that Medhotels set its own commission; and did not disclose the amount of that commission to the hotel was “strongly indicative” of the fact that it was acting as a principal. The Tribunal pointed out that, under the arrangements in the contractual documents, the responsibility to provide accommodation was owed by the hotel to Medhotels and not to the holidaymaker. The holidaymaker contracted with Medhotels. It explained that, although in a case not involving VAT the fact that the hotel (as principal) did not know the amount of the commission charged by its agent might be of no consequence, in a case where VAT would be payable on the supply of accommodation by the hotel (as it would be if the accommodation was situated in a Member State) it was necessary for the hotel to know the amount of the agent’s commission. In a case where VAT would be payable on the supply of accommodation by the hotel (but sold through an agent), the hotel could not properly account to the tax authorities of the Member State in which the accommodation was situated unless it knew the price charged by the agent to the holidaymaker: paragraph 66 of the decision. As the Tribunal explained (ibid): “In the present case the Appellant did not invoice the hotel with its commission or even inform it of what it was, which assumes that the hotel will not be accounting for VAT based on the full price paid for by the holidaymaker. The hotel only accounted for local VAT on the net amount payable by the Appellant to it. The VAT due on the amount retained by the Appellant should have been payable by the Appellant in the UK, and it was not. If the Appellant were simply supplying agency services to the hotel it should have charged VAT to the hotel on its commission unless it had issued an invoice indicating that the hotel was liable to pay the VAT on the Appellant’s services under the reverse charge procedure, which did not ever happen. Similarly there is no evidence that the hotels were accounting for VAT on the full price paid by the holidaymaker.”
“In our judgment the principal document for our consideration is the contract between the Appellant and the hotel. Despite the clear statement in that document to the effect that the Appellant is the agent and the hotel is the principal, we do not find the document as a whole consistent with that declaration when taken together with the way it is implemented by the Appellant, considering the further factors which we have set out above. The Appellant’s failure to account to the hotel (its alleged principal) for all the funds received by it, which if it were truly an agent it would be obliged to do . . . and its failure either to account for VAT or put the hotel in a position to pay the relevant VAT on those sums, render its actions those of a principal in the supply of accommodation not an agent particularly when viewed in the whole context of its actions. We do not accept Mr Milne’s submission [on behalf of Medhotels] that in this case the failure to account may be regarded as no more than a breach of the Appellant’s fiduciary duty. It is the Appellant who dictates to the accommodation providers the terms of the relationship, the accommodation providers impose no terms on the Appellant, and no hotel could go to any holidaymaker to demand payment for the accommodation provided. In all the above circumstances we find that the Appellant was not simply supplying agency services to the hotels, but was itself supplying the holiday.”
“in relation to the supplies of hotel accommodation, who is the supplier?”
“The first source is Med’s website which is accessed by the holidaymaker, or by a travel agent dealing with the holidaymaker. . . . The second source is the set of booking conditions.”
“If the hotel accommodation is supplied by the hotel operator, and not by Med, to the holidaymaker, then Med is not liable to account for VAT on that supply. In such a case, Med will have supplied agency services to the hotel operator and will be liable to account for VAT on that supply or to arrange for that VAT to be paid by its principal, the hotel operator. The parties are agreed that such liability will be in the Member State where the relevant hotel is situated and not in the UK. If the hotel accommodation is supplied by Med to the holidaymaker, then Med is liable to account for VAT on that supply to the Commissioners in accordance with TOMS [the Tour Operators Margin Scheme].”
“The issue in the present case is as to the identity of the supplier of holiday accommodation to holidaymakers. In order to determine that issue, it is necessary to apply basic principles as to the construction of written agreements, some further principles as to the law of agency and to consider whether there are any special principles which apply by reason of the fact that the issue arises in a VAT context.”
“In some cases, the parties purport to state the legal effect of their agreement. They may, for example, state that the agreement is a licence in relation to land and not a tenancy. They may do this even where there is no question of the agreement being a sham. They may act in this way through a misunderstanding of what is involved in the legal concept to which they refer or for other reasons. Notwithstanding this, the court will examine the substance of the agreement to determine its legal effect: see, for example, Street v Mountford[1985] AC 809 . This will often produce the result that the court finds that the parties have correctly described the legal effect of the agreement but in other cases the court will determine that the description used by the parties is incorrect and is overridden by the substance of what they have otherwise agreed.”
“In the present case, the FTT stated that it would not only look at the written contractual documents but also at ‘the behaviour’ of Med. This raises an important question as to the purposes for which the FTT, and the Upper Tribunal on this appeal, is entitled to look at behaviour in this case where the contractual arrangements between the parties are the subject of detailed written agreements.”
“Subject to the above matters [set out at paragraph 92, and not material in the present context], it remains the law that the court may not have regard to the subsequent conduct of the parties to a written agreement as a suggested aid to the interpretation of that agreement: Schuler AG v Wickham Machine Tools Sales Ltd[1974] AC 235 . . . .”
“Thus the fiduciary obligations of the agent may be modified by express agreement. In particular, an agency agreement may contain express terms which provide for matters which would otherwise not be appropriate as involving an impermissible conflict of interest. These express terms which are at variance with what would otherwise be the obligations of parties to a relationship of agency do not necessarily mean that the relationship has ceased to be one of agency. There may, however, come a point where the parties have created a contractual relationship which is so far removed from that of agency, that it is not appropriate to analyse the case as one of principal and agent.”
“It is possible in an agency relationship for the principal and the agent to agree that the agent can contract on behalf of the principal with a third party on terms that (1) the third party will pay the agent £X plus a mark up and (2) the agent will remit £X to the principal. Of course there is an entirely different set of legal relationships involving three parties which can lead to one party receiving a mark up. I refer to the relationships created by a sale and a sub-sale, for example where A sells goods to B for £X and then B sub-sells the same goods to C for £X plus a mark up. In any particular case, it may be relevant to determine whether the parties have contracted for an agency relationship or the relationship of sale and sub-sale. If there is no written agreement between the parties, then the court will have to look carefully at the course of dealing to see which relationship exists. Conversely, if the matter is governed by a written document, then the legal answer is to be arrived at by construing the written document applying conventional principles as to the interpretation of written documents.”
“I would summarise my conclusions as follows: (i) Where two or more persons (call them A and B) are involved in the supply of goods or services to an ultimate consumer (call him C) different contractual structures may entail different VAT consequences; (ii) Those consequences will follow whether C knows about the contractual arrangements between A and B or not; (iii) The starting point for determining the true relationship between A, B and C is an analysis of the contractual arrangements between them; (iv) Where the contractual arrangements are contained wholly in written agreements, this will be a question of construction of the agreements. But a contract may be partly written and partly oral, in which case what the parties said and did may throw light on the extent of their contractual obligations; (v) The apparent contractual arrangements will not represent the true relationship between A, B and C if the contractual arrangements are a sham; or if the parties have failed to operate the contractual arrangements; or if the evidence is wholly inconsistent with the apparent contract; (vi) The identification of the true rights and obligations of the parties will be the same, whether the question arises in the context of VAT or in the context of an action for breach of contract; and is the same whether the question arises in a domestic or a European context; (vii) Having identified the true rights and obligations of the parties, it will then be necessary to decide how those rights and obligations should be classified for the purposes of VAT; (viii) Sometimes this will be concluded by the terms of the contract themselves; but it may not be. If it is not then the classification of the parties’ rights and obligations for the purposes of VAT may involve the application of particular deeming provisions of the VATA; or deciding whether the nature of the supply falls within a particular description; whether there is one contract or more than one; or in some cases deciding whether on the true construction of a single contract there is one supply or more than one; (ix) Depending on the true relationship between A, B and C the conclusion might be that A makes a supply to B, who makes an overall supply to C; or A and B may make separate and concurrent supplies to C.”
“Once the supplier under the contract is identified in that way, that party will be the supplier for the purpose of the VAT provisions. In the present case, it would appear to be unnecessary to engage in any further classification or assessment of the relevant supply.”
“In any event, I do not think that anything said in Reed Personnel Services Ltd could justify the course taken by the FTT in this case. What the FTT appears to have done in this case was to consider the terms of the written agreements, then to consider some evidence as to how they were implemented in some cases and then to hold that the written agreements were not consistent with the way that they were implemented and, finally, to conclude that the terms of the written agreements could not be relied upon as setting out the governing terms of the relevant arrangements.”
“. . . in the transactions with which this case is concerned, who supplies the hotel accommodation to the holidaymakers? Is it the hotel operators (through the agency of Med) or is it Med?”
“. . . As the holidaymaker enters into these two contracts at around the same time, the terms of these two contracts can be referred to as part of the relevant background when construing either contract. There does not appear to be any other relevant background which is admissible as an aid to construing the contracts with the holidaymaker. In particular, the terms of the agreement between the hotel operators and Med are not admissible for this purpose because those terms would not be available to the holidaymaker. Further any course of dealing between the hotel operators and Med prior to the relevant holidaymaker contract would similarly not be available and not admissible. . . . In this way, the true construction of the contracts with the holidaymakers turn upon the wording of the contracts themselves without the addition of any other material and they are not to be construed by reference to ‘the behaviour’ of Med as the FTT suggested.”
“Taking the express terms as a whole, I find that they clearly and unambiguously state that the contract for the provision of hotel accommodation is to be between the hotel operator and the holidaymaker. It is not suggested that these express terms are a sham and they therefore have full legal effect in accordance with the construction at which I have arrived.”
“The FTT referred to a number of matters in relation to the agreement between Med and hotel operators. It referred to the very limited obligations undertaken by Med. It referred to Med’s commission being taken in the form of a mark up on the price received by the hotel. It referred to the way in which some of the hotels invoiced Med and the way in which VAT was accounted for. It referred to the fact that Med placed the monies received from holidaymakers in its own bank account, retained the interest and ran a currency risk before paying sums over to the hotel operators. Finally it referred to occasions when Med compensated holidaymakers. In my judgment, none of the matters which were stressed by the FTT, whether taken individually or collectively, allows me to ignore the clear provisions in the agreements between Med and the hotel operators to provide hotel accommodation to holidaymakers. The limited obligations undertaken by Med are not inconsistent with this grant of authority. Nor is the fact that Med’s commission is taken in the form of a mark up on the price received by the hotel. Med’s conduct in placing the monies received from holidaymakers in its own bank account, retaining the interest and running a currency risk is not contrary to the agreements with the hotel operators. As to the way in which some of the hotels invoiced Med, all that that shows is that the terms of the agreement were not correctly operated in some cases. In the absence of an allegation that the written agreements were shams or were superseded by later agreements on different terms, I do not see that I am able to disregard the effect of the written agreements. Further, the findings of the FTT appear to be limited to some cases and cannot therefore be applied to every case. As to the way in which VAT was accounted for, it is clear that VAT was not correctly accounted for in any case. Med did not account for VAT in accordance with its contentions as to the legal position but, of course, neither did it account for VAT in accordance with the Commissioners’ contentions as to the legal position. Finally, the occasions when Med compensated holidaymakers can be explained, as Mr McLintock did explain, on the basis of Med protecting its own economic interest in the arrangements. The FTT relied on other matters which were also stressed by the Commissioners on this appeal. These included the arrangements under which Med made advance payments to hotel operators and the fact that Med engaged travel representatives in some resorts. I do not find that those arrangements were incompatible with the terms of the written agreements between Med and the hotel operators nor do they throw any doubt on the express grant of authority to Med enabling it, as agent for the hotel operators, to enter into contracts with holidaymakers. Accordingly I conclude that none of the matters relied upon by the FTT, nor any of the other circumstances of the case referred to in the course of argument, allow me to ignore the express grant of authority to Med. It is not alleged that the express terms of the agreements to which I have referred are a sham.”
“I have reached the opposite conclusion to that reached by the FTT. It seems to me that the FTT was persuaded by the Commissioners to approach the question in an impermissible way. The FTT seems to have lost sight of the point that it was common ground that the written agreements were not shams and their legal effect was to be arrived at by a process of construction of their express terms. The FTT does not seem to have applied conventional principles as to the construction of written agreements. It appears to have read far too much into the decision in Reed Personnel Services and to have ignored (although it cited the decision) the very helpful statements of principle in A1 Lofts. It had regard to what it called ‘behaviour’ in a way which would have been more appropriate if there had been no written contracts and the FTT had to infer the contractual terms from a course of dealing. Further, it seems to have extrapolated from events which occurred in some cases so that all of the contracts in all of the cases were governed by those events. Finally, it seems to have regarded anything which could be argued to be inconsistent with an agency relationship as far more weighty that the many matters which pointed unambiguously towards an agency relationship.”
“I certainly accept that where any issue turns wholly upon the construction of a document having legal consequences, the exercise of construction is one of law for the judge. But for the proper resolution of a case of this kind, there are I think two qualifications. The first is that the concept of making a supply for the purposes of VAT is not identical with the performance of an obligation for the purposes of the law of contract, even where the obligation consists in the provision of goods or services. The second is that, in consequence, the true construction of a contractual document may not always answer the question – what was the nature of the VAT supply in the case? Insofar as the answer to that question is not concluded by the legal process of construing the document, there remains a question of fact . . .”
“But in my judgment the premise is false. First, as I have already said, the concept of ‘supply’ for the purposes of VAT is not identical with that of contractual obligation. Secondly, in consequence, it is perfectly possible that although the parties in any given situation may conclude their contractual arrangement in writing so as to define all their mutual rights and obligations arising in private law, their agreement may nevertheless leave open the question, what is the nature of the supplies made by A to B for the purposes of A’s assessment of VAT. … Where and to what extent the tax falls to be exacted depends, as with every tax, on the application of the taxing statute to the particular facts. Within those facts, the terms of contract entered into by the taxpayer may or may not determine the right tax result. They do not necessarily do so. They will not do so where the contract, though it tells all the parties everything that they must or must not do, does not categorise any individual parties’ obligations in a way which inevitably leads to the conclusion that he makes certain defined supplies to another. In principle, the nature of a VAT supply is to be ascertained from the whole facts of the case. It may be a consequence, but it is not a function, of the contracts entered into by the relevant parties.”