Cadbury Ireland Pension Trust Ltd, C.M.F. Trustees Ltd v Revenue Commissioners
| Jurisdiction | Ireland |
| Judge | Miss Justice Laffoy |
| Judgment Date | 24 May 2007 |
| Neutral Citation | [2007] IEHC 179 |
| Court | High Court |
| Docket Number | [2007 No. 190 R] |
| Date | 24 May 2007 |
[2007] IEHC 179
THE HIGH COURT
AND
Judgment of Miss Justice Laffoy delivered on 24th May, 2007
The background to this case stated pursuant to s. 941 of the Taxes Consolidation Act, 1997, as applied to value added tax (VAT) by s. 25(2) of the Value Added Tax Act, 1972, as amended ( VATA), was an appeal by the appellants to R.F. Kelly, Appeal Commissioner (the Commissioner) against a decision of the Inspector of Taxes that the appellants were liable for VAT on assessments raised on them by the respondent for the years 1996 through 2001 on the basis that they were in receipt of specified services in the course of business which gave rise to a reverse charge for VAT pursuant to s. 5(6)(e) and s. 8(2)(a) of VATA.
Each of the appellants is the trustee of a pension fund established by Cadbury Ireland Plc (Cadbury), one for employees (established in 1968/1970) and the other for executives (established in 1990). Each of the appellants is a company limited by guarantee not having a share capital. The principal object of each appellant is to act in the State and elsewhere as trustee of any non-contributory or contributory pension or superannuation fund. The objects clause also empowers each company generally to undertake fiduciary offices and duties of all kinds in every part of the world and under every system of law, whether relating to property or not. As a matter of fact, the function of each of the appellants was confined to acting as trustee of the relevant contributory pension scheme established by Cadbury, which, in each case, was a defined benefit scheme funded by the contributions of Cadbury and the employees. The fact that the objects clause empowered each appellant to exercise other functions, in my view, is irrelevant to the issues which arise on the case stated. The memorandum of association of each of the appellants also provided that the affairs of each should at all times be conducted with a view to avoiding the acquisition of any profit or gain of any kind and, if any profit or gain should nonetheless be acquired, that it should be applied in reducing charges made by that appellant for its services.
Each of the appellants has its establishment in the State. Each has retained as investment manager Baillie Gifford Overseas Limited (BG), which is established in Scotland and provides the investment management services for each from the United Kingdom.
Neither of the appellants is registered for VAT. Originally BG invoiced Cadbury for its services. Cadbury reclaimed the VAT on the fees as input credit against output. However, the respondent contended that the VAT was not reclaimable because the services were provided to the appellants, not Cadbury. The Commissioner found for the respondent on that point and the appellant accepted that finding.
The legislative framework within which the appeal to the Commissioner fell to be decided and by reference to which the issue on the case stated is to be determined is EC Council Directive 77/388 of 17th May, 1997 (the Sixth Directive) providing for a common system of value added tax and a uniform basis of assessment, as transposed in this jurisdiction by the provisions of VATA. The specific provisions of VATA, and the corresponding provision of the Sixth Directive, which are material, specifically or peripherally, to the issue on this case stated are as follows:
· Section 2 of VATA deals with the charge of value added tax, and sub-s. (1) of which, insofar as is relevant for present purposes, provides as follows:
"With effect on and from the specified day a tax, to be called value added tax, shall subject to this Act and regulations, be charged, levied and paid -"
(a) on the supply of goods and services effected within the State for any consideration by a taxable person in the course or furtherance of any business carried on by him ..."
The word "business" is defined in s. 1 as including -
"farming, the promotion of dances and any trade, commerce, manufacture, or any venture or concern in the nature of trade, or manufacture, and any profession or vocation, whether for profit or otherwise."
Section 2 mirrors article 2 of the Sixth Directive which deals with the scope of value added tax and provides, inter alia, that the following shall be subject to value added tax:
"the supply of goods or services effected for consideration within the territory of the country by a taxable person acting as such."
· Section 5 of VATA deals with the supply of services and paragraph (e) of sub-s. (6) deals with the place of supply and, insofar as is relevant for present purposes, provides as follows:
"The place of supply of services of any of the descriptions specified in the Fourth Schedule ... shall be deemed, for the purposes of this Act to be -"
(i) ...
(ii) in case they are received, for the purposes of any business carried on by him, by a person -
(I) ...
(II) who has his establishment in the Community but does not have his establishment, or if he has more than one establishment, his principal establishment in the country in which, but for this sub-paragraph, the services would be deemed to be supplied,
(III) ...
the place where he has his establishment or, if he has more than one establishment, the establishment of his at which or for the purposes of which the services are most directly used or to be used, as the case may be ..."
This is the provision which effects the reverse charge. Its effect is that, if a U.K.-based supplier supplies a service which falls within the services listed in the Fourth Schedule to an Irish-based company which does not have an establishment in the United Kingdom and the service is received by the company for the purpose of business carried on by it, the service is deemed to be supplied in Ireland. It is common case that the services supplied by BG to the appellants are Fourth Schedule services (services that where taxable are taxed where received), which are within the scope of para. (iii) and/or para. (v) of the Fourth Schedule.
Section 5(6)(e)(ii)(II) and the Fourth Schedule transpose article 9.2(e) of the Sixth Directive, which provides, inter alia, that when specified services are performed for taxable persons established in the Community but not in the same country as the supplier the place where those services are supplied "shall be the place where the customer has established his business or has a fixed establishment to which the service is supplied".
· Section 8 of VATA deals with taxable persons. Sub-section (1) contains the definition of the expression "taxable person" and defines it as meaning:
"A person who, otherwise than as an employee of another person, engages in the supply, within the State, of taxable goods or taxable services in the course or furtherance of business ..."
Sub-section 2(a) is complementary to s. 5(6)(e)(ii) and provides that where by virtue of that provision a taxable service that, apart from that provision, would be treated as supplied abroad is deemed to be supplied in the State -
"... the person who receives the service shall in relation thereto be a taxable person and be liable to pay the tax charged as if he had himself supplied the service for consideration in the course or furtherance of his business."
Section 8 mirrors article 4 of the Sixth Directive. Article 4.1 defines "taxable person" as meaning -
"Any person who independently carries out in any place any economic activity specified in paragraph 2, whatever the purpose or results of that activity."
Article 4.2 provides as follows:
"The economic activities referred to at paragraph 1 shall comprise all activities of producers, traders and persons supplying services including mining and agricultural activities and activities of the professions. The exploitation of tangible or intangible property for the purpose of obtaining income therefrom on a continuing basis shall also be considered an economic activity."
· Section 10 of VATA deals with the amount on which tax is chargeable. The general rule provided for in sub-s. (1) is that the amount on which the tax is chargeable is the total consideration which the person supplying the goods or services becomes entitled to receive in respect of or in relation to the supply of goods or services. Sub-section (5) specifically addresses the situation in which there is a reverse charge and provides as follows:
"The amount on which tax is chargeable in relation to services for the tax chargeable on which the recipient is, by virtue of section 8(2), liable shall be the consideration for which the services were in fact supplied to him."
An obvious difference between the provisions of VATA and the Sixth Directive is that the expression "economic activity" in the Sixth Directive is transposed as "business" in VATA. A similar approach was adopted in transposing the Directive in the United Kingdom. The difference in wording was addressed by the House of Lords in Institute of Chartered Accountants in England and Wales v. Customs and Excise Commissioners [1999] S.T.C. 398. In his speech, Lord Slynn of Hadley commented as follows on the difference in wording (at p. 402):
"There is a difference in the wording between s. 4 of the 1994 Act and arts. 2 and 4 of the Sixth Directive. Thus the 1994 Act refers to 'taxable supply made by a taxable person in the course or furtherance of any business carried on by him [emphasis added]'. The Sixth Directive refers to the supply of services 'effected for consideratio...
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