In Gray & Farrar International LLP v HMRC [2021] UKUT 293 (TCC) (26 November 2021), the Upper Tribunal (UT) found that matchmaking services were ‘services of consultants’ and/or ‘the provision of information’ and therefore outside the scope of UK VAT when supplied to non-EU customers.
Gray & Farrar (G&F) ran an ‘exclusive’ matchmaking business providing its services to clients in many jurisdictions. Its dispute with HMRC related to periods when the UK remained an EU member state and turned on the interpretation of Directive 2006/112/EC article 59(c), implemented in the UK by VATA 1994 Sch 4A para 16(2)(d). These provisions set out a special place of supply rule for business to consumer (B2C) supplies of the services of consultants, engineers, consultancy firms, lawyers, accountants and other similar services, as well as data processing and the provision of information. B2C supplies covered by this special rule were (during the periods in question) outside the scope of UK VAT when supplied to customers belonging outside the EU.
The FTT had found for HMRC, concluding (broadly) that the matchmaking services went beyond the services of consultants and therefore the special place of supply rule did not apply. The taxpayer appealed to the UT.
The UT agreed with the FTT that the activities listed in the special place of supply rule were not confined to services provided by members of ‘the liberal professions’, rejecting HMRC’s submissions on this matter. It also accepted the FTT’s conclusion that ‘data processing and the provision of information’ were, in the context of this special rule, two separate activities (again rejecting HMRC’s narrower interpretation).
However, the UT disagreed with the way that the FTT had characterised the supply of the matchmaking service. The FTT had found that the advice provided by the taxpayer was ‘expert advice’ which could be within the scope of the special rule. However, the FTT judge suggested that the addition of ‘post-introduction liaison’ services altered the characterization of the supply such that it went beyond what was envisaged by the special place of supply rule. The UT considered this to be an error. The FTT had not considered the potential application of ‘the predominant element test’. This test (derived from the European cases of Levob and Mesto) permitted the possibility that there could be a material element of a supply (in this instance the ‘post-introduction liaison’ services) which does not govern the characterization of the supply.
Having identified this error in law, the UT felt that it was able to remake the decision. Applying the relevant test, the predominant element of the supply from the point of view of a typical consumer was advice provided as part of the matchmaking service combined with information relating to potential matches. The post-introduction liaison services were insufficient to disturb this characterisation. Consequently, the matchmaking services supplied to non-EU clients fell within the scope of the special rule and were outside the scope of UK VAT.
Why it matters: Following Brexit, the scope of the special place of supply rule for B2C consultancy (and similar) services has been extended such that it applies to supplies to customers belonging outside the UK (not simply non-EU customers). Therefore, the interpretation of the rule is more important than ever. The decision suggests HMRC may be taking an overly narrow view of when the special rule applies. It also provides guidance on how to characterize complex supplies which may be of use both in a place of supply and a liability context.
In Gray & Farrar International LLP v HMRC [2021] UKUT 293 (TCC) (26 November 2021), the Upper Tribunal (UT) found that matchmaking services were ‘services of consultants’ and/or ‘the provision of information’ and therefore outside the scope of UK VAT when supplied to non-EU customers.
Gray & Farrar (G&F) ran an ‘exclusive’ matchmaking business providing its services to clients in many jurisdictions. Its dispute with HMRC related to periods when the UK remained an EU member state and turned on the interpretation of Directive 2006/112/EC article 59(c), implemented in the UK by VATA 1994 Sch 4A para 16(2)(d). These provisions set out a special place of supply rule for business to consumer (B2C) supplies of the services of consultants, engineers, consultancy firms, lawyers, accountants and other similar services, as well as data processing and the provision of information. B2C supplies covered by this special rule were (during the periods in question) outside the scope of UK VAT when supplied to customers belonging outside the EU.
The FTT had found for HMRC, concluding (broadly) that the matchmaking services went beyond the services of consultants and therefore the special place of supply rule did not apply. The taxpayer appealed to the UT.
The UT agreed with the FTT that the activities listed in the special place of supply rule were not confined to services provided by members of ‘the liberal professions’, rejecting HMRC’s submissions on this matter. It also accepted the FTT’s conclusion that ‘data processing and the provision of information’ were, in the context of this special rule, two separate activities (again rejecting HMRC’s narrower interpretation).
However, the UT disagreed with the way that the FTT had characterised the supply of the matchmaking service. The FTT had found that the advice provided by the taxpayer was ‘expert advice’ which could be within the scope of the special rule. However, the FTT judge suggested that the addition of ‘post-introduction liaison’ services altered the characterization of the supply such that it went beyond what was envisaged by the special place of supply rule. The UT considered this to be an error. The FTT had not considered the potential application of ‘the predominant element test’. This test (derived from the European cases of Levob and Mesto) permitted the possibility that there could be a material element of a supply (in this instance the ‘post-introduction liaison’ services) which does not govern the characterization of the supply.
Having identified this error in law, the UT felt that it was able to remake the decision. Applying the relevant test, the predominant element of the supply from the point of view of a typical consumer was advice provided as part of the matchmaking service combined with information relating to potential matches. The post-introduction liaison services were insufficient to disturb this characterisation. Consequently, the matchmaking services supplied to non-EU clients fell within the scope of the special rule and were outside the scope of UK VAT.
Why it matters: Following Brexit, the scope of the special place of supply rule for B2C consultancy (and similar) services has been extended such that it applies to supplies to customers belonging outside the UK (not simply non-EU customers). Therefore, the interpretation of the rule is more important than ever. The decision suggests HMRC may be taking an overly narrow view of when the special rule applies. It also provides guidance on how to characterize complex supplies which may be of use both in a place of supply and a liability context.
90a1d87b-c1b5-43c3-a720-cd324830adee.tmb-editorspic.jpg?sfvrsn=1b2d0a7e_1)
