Gabbitas Educational Consultants Ltd v The Commissioners for Revenue & Customs [2009] UKFTT 325 (TC)

FTT-Tax
Gabbitas Educational Consultants Ltd v The Commissioners for Revenue & Customs
[2009] UKFTT 325 (TC) · 2009-11-27
[1]The Appeal concerned the place of supply of certain services (the Disputed Services) supplied by the Appellant to its customers who were resident outside the European Community.[2]The resolution of the issue depended upon whether the services in question were the services of consultants or similar services within article 56(1)(c) of the Principal VAT Directive.[3]The Appellant contended that the Disputed Services were the services of consultants or similar services. As a consequence the place of supply of the Disputed Services was the place where the recipient had a permanent address or usually resided which was outside the European Community. The Disputed Services were thus outside the scope of VAT.[4]The Respondents contended that the Disputed Services were essentially a supply of administrative and organisational or supporting functions. As a consequence the place of supply was the UK being the place where the Appellant has established its business. The Disputed Services were thus subject to VAT.[5]The Appellant relied on the evidence of Catherine Stoker the Managing Director of the Appellant to describe the nature of the Disputed Services. Background and facts[6]The Appellant is a company specialising in providing a broad range of services to parents from all over the world and their children who attend UK schools.[7]It was common ground between the parties that the Disputed Services were only that package of services outlined in the Appellant’s leaflet “Gabbitas Guardianship caring for your child in the UK” (“the Guardianship leaflet”).[8]The Disputed Services were provided to overseas parents who had decided to send their children to UK schools.[9]The Guardianship leaflet explained the background to the Disputed Services.[10]According to the Guardianship leaflet under the guardianship services the Appellant “offers a flexible range of guardianship services covering the care and guardianship of your child, educational guidance, practical and administrative support with travel and financial matters, plus a range of extras such as assistance with shopping for essential items, school uniform or musical instruments”.[11]In the Guardianship leaflet the Disputed Services are divided into Gold, Platinum and Diamond Services.[12]The Gold, Platinum and Diamond services all include the selection and appointment of a suitable guardian family; background checks on guardian family members; 24 hour emergency contact while the child is in the UK; attendance by guardian at school events and parents’ meetings; monitoring educational progress and liaising with parents over end of term reports; assisting with GCSE and A level subject choices; liaising with school about holiday, exeat, sport and social events; travel arrangements for the child; payment of the term expenses to the guardian family on behalf of the parent; providing a statement every term of the parent’s account and providing a newsletter every term for the parent and child.[13]The Platinum and Diamond services also include an annual visit to the child at school; accompanying the child to and from the airport; assistance with mobile phone purchase on a “pay as you go” basis; monitoring and payment of pocket money to the child on the parents’ behalf and payment of school fees on behalf of the parent.[14]The Diamond Service in addition to all of the above services included under both the Gold and Platinum service also provides a visit every term to the child at school; assistance with school selection to take into account the individual needs of the child and registration once a decision has been made; providing general advice on education; assistance with the purchase of uniform and making hotel, flight and travel reservations on behalf of the child and the parent.[15]Although the leaflet included a page on the guidance offered regarding all stages of the UK education, this was in fact only immediately available to those parents selecting the Diamond service.[16]The Appellant has its principal offices in Central London where 23 full- time staff, 7 part-time staff and 3 self-employed consultants are based.[17]The Disputed Services are delivered by a specific business division within the Appellant. This guardianship division is headed by Debbie Cowley who leads a team of five staff members based in the London office and four staff members based overseas. The UK- based staff consists of three client relationship co-ordinators, a travel co-ordinator and a finance manager.[18]The cost of the services increases with the increase in the services. In her witness statement and in cross examination Ms Stoker stated that in practice the elements included in the Disputed Services provided varied very little once the parent had become a customer of the Appellant and the fees they paid varied only in accordance with the frequency of the advice they received.[19]She stated in her witness statement and in cross-examination that the most important aspect of the Disputed Services was acting as an interface between the parents, the child, the guardian and the school. Although the Appellant also undertook a small number of ancillary tasks as part of the Disputed Services, at most only 20% of staff time was spent on those tasks.[20]Of the six staff members in the guardianship division in London, Ms Stoker stated that two of them dealt with travel and financial matters exclusively leaving the head of the division and the three client relationship co-ordinators dealing with the Disputed Services.[21]Ms Stoker described the background of the three client relationship co-ordinators - as a Lithuanian who spoke fluent Russian, an English speaker from South Africa who was in her first job and a third who was also new and had taught in schools all over Asia and Taiwan.[22]Whilst Ms Stoker stated under cross- examination that 50 % of her own time was spent on the Disputed Services she accepted that she was actually only a point of reference if anybody needed assistance. Although she said that staff members from a separate division also helped members of the guardianship division, Counsel for the Respondents submitted that whilst in any office colleagues seek help and support from other staff members, the Disputed Services were typically provided by the members of the guardianship division.[23]Counsel for the Respondent submitted that as they were hired on Ms Stoker’s evidence largely for their language skills and cultural knowledge it was unlikely that they could give expert educational advice.[24]Ms Stoker stated that the Appellant currently had 145 families using the Disputed Services.[25]In her cross-examination Ms Stoker was asked to give typical examples of the advice given under the Disputed Services. She referred to advice given to a parent that a child who wanted to go into the travel business should retain French as an AS subject rather than drop it; whether A levels or the Baccalaureate should be taken; the benefits of Westminster school; whether to stay on at a school or change in the sixth form; that a holiday during the Easter break and prior to exams was not a good idea; the implications of a child being suspended; and the inherent dangers of a 12 year old flying alone to Russia. She appeared to accept Counsel for the Respondent’s suggestion that some of this advice was not of a particular specialised nature but was common sense advice.[26]In the agreed bundle six case studies were provided together with a selection of emails. Case study 1 concerned a Chinese student for whom one of the guardianship team it is stated is “actively involved in advising her on alternative schools and guiding her through the administrative process” Case study 2 concerned a student from Thailand but the emails provided appear to be between the student’s father and the guardian who appears to be providing all the advice. Case study 3 concerned four siblings who were provided with applications and advice concerning school selections and admissions under the Disputed Services. Case study 4 concerned a Russian student but the emails provided were in Russian without any translation despite a staff member being available who spoke fluent Russian. Apparently here the advice provided was in respect of academic issues and senior school applications. Case study 5 concerned another Russian student whose parents sought assistance choosing a boarding school for her sixth form studies. Again however the emails provided to substantiate this were in Russian without translation. Case study 6 concerned a student whose parents sought advice on school choices and admission procedures. The Law[27]Counsel for the Appellant submitted that a useful definition of consultancy for these purposes was the “application of specialist knowledge by a person in providing services to his customers.[28]He submitted that this approach was in accordance with the published guidance of the Respondent in Note 741 paragraph 13.5.2 in which it was recognised that consultancy services could include matters as diverse as translation services, the testing and analysis of goods, market research, research and development and a variety of different software based services.[29]He submitted that the questions for the Tribunal were: Are the services the sort that a consultant would principally and habitually supply? Is the Appellant a consultant with respect to the Disputed Services?[30]In her closing submissions Counsel for the Respondents summarised the Respondents’ case as follows: The services of consultants or similar services should be understood to be the sorts of services typically supplied by those advisors who may be regarded as members of the liberal profession of consultants; No aspect of the Disputed Services is such a service; Alternatively even if a small part of the Disputed Services could be considered to be such services, the predominant and /or characteristic nature of the relevant services, that which is of decisive importance, is the appointment of a guardian and those who support a child in the UK whose parents are overseas, rather than the provision of advice on that child’s education. Thus the Disputed Services are not habitually and principally those of a consultant even if contrary to the Respondents’ primary position it is found that a minor part of such services is that of a consultant.[31]The legal framework relating to the appeal is as summarised by Counsel for the Appellant as follows: The place of supply of services is generally the supplier’s permanent address or where the supplier usually resides as stipulated in article 43 of the Principal VAT Directive (previously article 9(1) of the Sixth Directive) implemented in the UK by VATA Section 7(10). There are however exceptions to this general rule set out in articles 44 to 59 of the Principal VAT Directive (formerly article 9(2) of the Sixth Directive) and Implemented in the UK by VATA Section 7(11), VATA Schedule 5 and Value Added Tax (Place of Supply of Services) Order 1992 . In this case the relevant exception is that set out in article 56(1)c of the Principal Directive (formerly the third indent of article 9(2)(e) of the Sixth Directive). Under article 56(1)(c) where “the services of consultants, engineers, consultancy bureaux, lawyers, accountants [or]other similar services” are performed for non-business customers established outside the EC the place of supply is the place where the customer has their permanent address or usually resides.[32]In reaching its conclusion in Maatschap M J M Linthorst, K G P Pouwels and J Scheres cs v Inspecteur der Belastingdiens/ondernemingen Roermond (Case C-167/95) [1997] STC 1287 ( Linthorst) that the services supplied by veterinary services were not consultancy the ECJ noted that:
“Whereas veterinary surgeons’ duties sometimes involve advisory or consultancy aspects, that fact is not enough to bring the principal and habitual activities of the profession of veterinary surgeon within the concepts of ‘consultants’ or ‘consultancy bureaux’ or to cause them to be regarded as similar”
. Counsel for the Appellant submitted that the ECJ therefore regarded the services provided by a consultant as including both advisory aspects on the one hand and consultancy aspects on the other. He used this to support the proposition that consultancy services extend beyond pure advice.[33]He said that support for consultancy which extends beyond pure advice can also be found in Vision Express Limited v HMRC (Decision 16848 of the VAT & Duties Tribunal). In Vision Express , the Tribunal held that certain services supplied to Vision Express Limited in the UK by its French parent company were consultancy services within the meaning of article 56(1)(c). The services in question included introducing financial accounting, the distribution of an action plan for a review of the Vision Express Brand and the installation of various systems following a period of analysis and studies. The services therefore extended well beyond the mere provision of advice.[34]In Card Protection Plan Limited v CCE (Case C-349/96) the ECJ held at paragraph 27: “ The question of the extent of the transaction is of particular importance for VAT purposes, both for identifying the place where the services are provided and for applying the rate of tax or, as in the present case, the exemption provisions in the Sixth Directive”.[35]Counsel for the Appellant submitted that the extent might be determined by asking as in Card Protection Plan whether there is a principal service to which other aspects are “ancillary” or as in Levob Verzekeringen BV v Staatssecretaris van Financien (Case C-41/04) (“ Levob” ) by asking whether the “two or more elements….. supplied by the taxable person to the customer….are so closely linked that they form, objectively, a single, indivisible supply, which it would be artificial to split”. In either case the transaction is then taxed by reference to the principal element only.[36]Counsel for the Appellant referred to the Respondents’ contention that the Disputed Services would not generally fall within supplies made by members of a liberal profession and therefore could not be regarded as falling within Article 9(2)(e).[37]He submitted that the genesis of the Respondents argument on this point appeared to lie within the decision of the VAT & Duties Tribunal in Nasim Mohammed (t/aThe Indian Palmist) v HMRC (Decision 18397 of the VAT & Duties Tribunal). In that case the Tribunal concluded after citing Linthorst and von Hoffman v Finanzamt Trier (Case C-145/96) [1997] STC 1321 ( “von Hoffman” ) and referring to the judgement of the ECJ in Christiane Adam, epouse Urbing v Administration de l’enregistrement et domains (Case C-267/99) ( “Christiane Adam” ) concluded:
“Consultant must fall within the term ‘liberal profession’. The European Court of Justice has given a preliminary ruling in Christiane Adam as to the meaning of ‘liberal profession’ and has stated that a ‘liberal profession’ must have a marked intellectual character, require a high level qualification and be subject to clear and strict professional regulation.”
[38]Counsel for the Appellant submitted that it was essential to appreciate the fundamental difference in structure between Annex F(2) of the Sixth Directive (the relevant provision in Christiane Adam and article 56(1)(c) the relevant provision in this case and in Nasim Mohammed .[39]Annex F of the Sixth Directive set out the transactions which member states could continue to exempt under article 28(3)(b) for a transitional period. Annex F(2) of the Sixth Directive defines the services in question by reference to particular professions. In this context it is the characteristics of the person supplying the services rather than the services themselves that matter. Article 56(1)(c) does not refer to professions but rather to services and accordingly it is not the characteristics of the supplier that matter but rather the characteristics of the service.[40]He submitted that the jurisprudence of the ECJ and the Opinions of its Advocates General are clear in rejecting the very existence of any genus in article 56(1)(c) and indeed of any requirement that in order to be consultancy, the services in question must be those of a type generally supplied by members of a liberal profession.[41]In Linthorst Fennelly AG concluded that “The search is essentially for a sufficiently common element to permit an identification of a recognisable class. The activities listed in the third indent of art 9(2)(e) [now article 56(1)(c)] seem to me to be too heterogeneous and lacking in common elements. It has been suggested that the fact that the activities listed may broadly be regarded as constituting liberal professions provides a genus. However I do not think that the legislator, by that indent, intended to enumerate a catalogue or establish a class of activities corresponding to those of the liberal professions” In a similar vein in its Judgement in Linthorst, the ECJ noted at paragraph 20 that: “The only common feature of the disparate activities mentioned in that provision is that they all come under the heading of liberal professions. Yet as the German government rightly observed if the Community legislature had intended all activities carried on in an independent manner to be covered by that provision, it would have defined them in general terms”.[42]Counsel for the Appellant submitted that Linthorst , did not impose an additional requirement in relation to article 56(1)(c) that the person providing the services must be a member of a liberal profession. Both the ECJ and its Advocate General were(a) making reference to a submission which had been put to them to the effect the fact that the activities listed may broadly be regarded as constituting liberal professions and that this provided a foundation for the application of the esjudem generic rule and(b) rejecting the proposition that any genus could be identified from the terms of article 56(1)(c).[43]Furthermore and to the same effect the ECJ held in von Hoffman that: “the expression ‘other similar services’ does not refer to some common feature of the disparate services mentioned in art 9(2)(e) of the Sixth Directive [now article 56(1)(c) but to services similar to those of each of those activities viewed separately”.[44]He submitted that both Linthorst and von Hoffman were therefore inconsistent with the existence of an additional requirement in article 56(1)(c) that the services must as the Respondents contend “generally fall within supplies made by members of a liberal profession”.[45]Counsel for the Respondent submitted that in determining whether the Disputed Services fell within the category of ‘services of a consultant’ or ‘similar services’ the overly broad definition suggested by the Appellant ‘the application of specialist knowledge by a person providing services to its customers’ should not be adopted but that rather the kinds of services provided by members of the liberal profession of consultants should be in mind.[47]She stated that firstly the Appellant’s definition failed to emphasise the advisory content of consultancy – consultants are customarily expected to provide options and recommendations to clients rather than to manage, support or facilitate an activity on behalf of a client.[48]Secondly the Appellant’s definition was so broad as to capture any service that provided advice to a customer by someone with some experience on the issue. If the European legislature intended to include the services of any person providing advice on any issue, albeit with some degree of experience on that issue, it would have used a broader term than ‘consultant’.[49]She submitted that it was clear that the ECJ understood ‘consultant’ to refer to the liberal profession of consultants rather than those advising for example on the best plants to plant in one’s garden, which bathroom to choose for one’s house or the best shows to see when visiting London.[50]She agreed that the ECJ had not defined what a consultant was but submitted that it was clear from what the ECJ had said that the nature of the services provided by consultants was principally and habitually advisory (thus that a veterinary surgeon who also sometimes provided advice was not sufficient to bring him within the category) and of a particular quality which ordinarily required intellectual input, skill and qualification (hence the ECJ’s labelling of consultants as members of the liberal professions in Linthorst and the reference in Levob to consultants as ‘professionals’) which was accepted in the case of Nasim Mohammed.[51]She submitted that none of the Appellant’s arguments against this approach acknowledged that it was the ECJ in Linthorst in particular that labelled the ‘services of consultants’ as the services of a liberal profession. She said that the Appellant rightly argued that the ECJ made the point that not all the services of liberal professions come within the provision but that he failed to confront the key point that according to the ECJ the services of a consultant are the services of a liberal professional. She submitted that this was an important explanation of the term and one that accords with the natural meaning of the word ‘consultant’.[52]She submitted that the Respondents fully accepted that it is the services that are relevant and not the service provider. The Respondents point was that in determining what are the ‘services of a consultant’ the ECJ has shown that it understands a ‘consultant’ to be one who is a member of a liberal profession. She submitted therefore that the relevance of the Respondents’ reference to ‘liberal professions’ was not to say that only a person who may be regarded as a member of a liberal profession could fall within the relevant exception but simply to explain how the term ‘consultant’ was to be understood which would of course have an effect on how the ‘services of a consultant’ or similar services may be understood.[53]She submitted however that the ECJ, contrary to the AG’s approach in Linthorst does understand ‘consultant’ to be a member of a liberal profession and this colours what is meant by the ‘services of a consultant or similar services’.[54]She referred to the ECJ judgement at para 20 in Linthorst : “It should be noted that the only common feature of the disparate activities mentioned in that provision is that they all come under the heading of liberal professions”.[55]She stated that this sentence was unambiguous. The ECJ accepted that the activities in the provision are disparate yet also clearly stated that there was a common feature and that was that they were the activities of the liberal professions.[56]The ECJ also made clear that it should not be taken from this that all activities carried out in an independent manner or for that matter all the services provided by the liberal professions fall within the provision contained in para 20 of Linthorst . This she submitted did not detract from the finding by the ECJ that those services that are referred to in the provision are those of ‘liberal professions’.[57]Counsel for the Respondents referred to the case of Christiane Adams in which the ECJ provided guidance on the concept of liberal professions as used in Annex F2 of the Sixth Directive by giving a definition at paragraph 39: “The liberal professions mentioned in that provision are activities which inter alia are of a marked intellectual character, require a high level qualification and are usually subject to clear and strict professional regulation. In the exercise of such an activity the personal element is of special importance and such exercise always involves a large measure of independence in the accomplishment of the professional activities”.[58]She submitted that a similar definition was given by the AG in Linthorst. The Respondents submitted that the case law supported the notion that the provision referred to quite specialist and expert advice by someone with extensive experience/qualifications on a subject.[59]Thus she said that the fact that the ECJ adopts a relatively specific rather than a broad approach is unsurprising and is common to the whole provision. In von Hoffman the services of an arbitrator were held not to be the services of a lawyer or a consultant or similar services; in Linthorst the services of a veterinary surgeon were held not to be the services of a consultant or similar services; and in Case C-40/06 Commission v Germany the services of an executor were not held to be the services of a lawyer or similar services. In von Hoffman the services of a lawyer were defined as those representing or defending the interests of a person.[60]She pointed out that the Appellant put repeated emphasis on AG Fennelly’s comments in von Hoffman and Linthorst to the effect that the term ‘consultant’ is a word of ‘broad import’ and ‘indeterminate scope’. However it was important to note that the ECJ did not adopt these phrases; that in Linthorst it expressly called the services of a consultant those of a liberal profession contrary to the AG and did not follow the AG in von Hoffman.[61]She said that the only reliance the Appellant placed on the ECJ’s notion of what the services of a consultant might include was to say that in Commission v Germany reference was made by the ECJ to the claim by the Commission that the tracing of beneficiaries fell within the provision. She submitted that there was no indication that this is a reference to the services of a consultant at all; that the relevant paragraph clearly sets out the claim by one party – that it is not a finding of the court; and that these are no basis for inferring from the ECJ’s failure to expressly reject an argument from one party that the argument finds favour.[62]In conclusion she stated that it was clear that the term ‘consultant’ is not understood by the ECJ in a particularly broad sense but referred to the services that would be provided by what might be regarded as the liberal profession of consultancy. The Respondents submitted that the nature of the advice that must be given in a service for it to qualify as the service of a consultant or similar must be of quite a high calibre. Findings[63]Counsel for the Respondents placed much emphasis on the requirement that the services should be of a type supplied by members of the liberal professions. She relied primarily on the first sentence of paragraph 20 of Linthorst.[64]The Tribunal however preferred Counsel for the Appellant’s submission that the second sentence of that paragraph is important and plays down the first (see 41 above).[66]The Tribunal decided that it was not a key point adopted by the ECJ and the Judgement in Linthorst did not restrict the nature of consultancy to those services provided by the liberal professions.[67]The Tribunal agreed with Counsel for the Appellant that it was essential to appreciate the fundamental difference in structure between Annex F2 of the Sixth Directive (the relevant provision in Christiane Adams ) and article 56(1)(c) before using guidance from Christiane Adams in defining a consultant.[68]Counsel for the Appellant suggested that a useful working definition for consultancy for these purposes would be the application of specialist knowledge by a person in providing services to his customers. The Tribunal found this too wide but preferred that submitted by Counsel for the Respondent in her closing submissions (see paragraph 58 above). “Specialist and expert advice by someone with extensive experience/qualifications on a subject”.[69]The Tribunal agreed with the Appellant’s Counsel that the services could extend beyond the provision of advice as in Card Protection Plan by asking whether there was a principal service to which the other aspects are ancillary.[70]Counsel for the Respondents stated that of the 23 aspects of the Disputed Services as listed in the Guardianship leaflet the only possible advisory aspects were “the assisting with GCSE and A level subject choices” (common to all packages), “assistance with school selection” and “providing general advice on education” (which only forms part of the diamond package). She further stated that the other 20 aspects listed all related to the appointment of a guardian family and to various kinds of practical assistance provided to parents such as emergency points of contact; liaising over holidays; travel arrangements; payment of expenses; mobile phone purchase.[71]Whilst Counsel for the Appellant argued that the Guardianship leaflet was a marketing tool and merely a summary of the type of service provided by the Appellant and that the Appellant would in practice seek to provide whatever advice and/or assistance is required by its clients no matter what package they have chosen the Tribunal found that the Guardianship leaflet dealt almost exclusively with the job of picking a suitable family as guardians for the child.[72]In cross-examination Ms Stoker stated that the appointment of the guardian family was a long process; that there were lots of checks to be done; and that it was time consuming. The Tribunal found that in describing the Disputed Services Ms Stoker’s evidence generally followed that described in the Guardianship leaflet.[73]Whilst Ms Stoker stated in cross examination that there were currently 145 families using the Disputed Services she was only able to give seven verbal examples of the service provided to them without any case notes or attendance notes to substantiate her evidence.[74]Counsel for the Appellant referred to Ms Stoker’s witness statement in which she said that: “In order to understand the position of these overseas parents, it may help to imagine hypothetical UK-based parents who have decided to educate their children at boarding school in China. The parents may not have any knowledge of Chinese or of the Chinese educational system. In order to make the best educational choices for their child they would need ongoing help and advice from an organisation on the ground in China. That is the type of position in which overseas parents who want to educate their children in the UK can find themselves”.[75]In cross-examination however Ms Stoker accepted that many of the Disputed Services were those of practical assistance or explanation and stressed in particular the supporting role which the Appellant played in ensuring that the child was happy and safe.[76]In the Tribunal’s view this too would be the most important aspect for the hypothetical parents sending their child to boarding school in China – to deal with a person who spoke their language and who could play a supporting role in ensuring their child was happy and safe.[77]In the Tribunal’s view such services would not require a ‘consultant’. Some of the advice required both in China or for foreign parents sending their children to boarding school in the UK could indeed be provided, in the Tribunal’s view, by parents in the relevant countries who send their children to boarding school- with the help of course of a translator.[78]The Tribunal found that there was clearly some educational advice contained within the Disputed Services but from the evidence found that much of the work provided by the Disputed Services consisted of fairly routine administration. This was consistent with the members of the guardianship team largely hired for their language skills and familiarity with certain overseas cultures rather than their educational knowledge and experience.[79]The Tribunal concluded that whilst some of the Disputed Services which related to the educational advice given at the start to their clients and at other times relating to choice of subjects and schools might be termed consultancy services, the majority of the Disputed Services were organisational, administrative or the provision of practical advice. They were not services that a consultant would principally and habitually supply. There was not sufficient educational advice provided within the Disputed Services for it to be the principal service to which the others were ancillary. Decision[80]The Tribunal found that the majority of the Disputed Services supplied by the Appellant were not the services of a consultant or similar services.[81]Hence the place of supply of the Disputed Services is the United Kingdom and the Appeal is dismissed.[82]The Respondents made no application for costs and none are awarded by the Tribunal. The Appellant has a right to apply for permission to appeal against this decision pursuant to Rule 39 of the Rules. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice. MRS S.M.G.RADFORD TRIBUNAL JUDGE RELEASE DATE: 27 November 2009

Cited in 3 later judgments