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VALUE ADDED TAX – place of supply of services – services supplied where recipient belongs – whether certain services supplied by the Appellant were services of accountants - no - or data processing – yes – appeal allowed - VATA 1994 S 7(11) and Sch 5 para 3; VAT (Place of Supply of Services) Order 1992 SI 1992 No. 3121 Art 16.
LONDON TRIBUNAL CENTRE
TALENT AND PRODUCTION SERVICES LIMITED Appellant
- and -
THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents
Tribunal: DR NUALA BRICE (Chairman)
MR S K DAS
Sitting in public in London on 8 March 2004
Philip Knight FCA, of Messrs Knight Goodhead Chartered Accountants, for the Appellant
Ian Hutton of Counsel, instructed by the Solicitor for the Customs and Excise, for the Respondents
© CROWN COPYRIGHT 2004
DECISION
The appeal
- Talent and Production Services Limited (the Appellant) appeals against (1) an assessment dated 18 October 2002 for tax of £2,263 in respect of the accounting period ending on 30 November 2001 and (2) a misdeclaration penalty of £399 in respect of the same accounting period. The assessment and penalty were issued because Customs and Excise were of the view that certain services supplied by the Appellant to a client in the United States of America were standard-rated supplies.
The legislation
- Section 4 of the Value Added Tax Act 1994 (the 1994 Act) provides that tax is charged on any supply of services made in the United Kingdom. Thus supplies of services made outside the United Kingdom are outside the scope of the tax. The normal rules which apply to the place of supply of services are contained in section 7(10) of the 1994 Act which provides that a supply of services shall be treated as being made in the United Kingdom if the supplier belongs in the United Kingdom, and in another country if the supplier belongs in that other country. As the Appellant is the supplier of the disputed services section 7(10) would have the effect that the supplies he makes are treated as being made in the United Kingdom and so within the scope of the tax.
- However, section 7(11) goes on to provide that the Treasury may by order provide, in relation to services generally, or to particular services specified in the order, for varying the rules for determining where a supply of services is made. The relevant order is the Value Added Tax (Place of Supply of Services) Order 1992 SI 1992 No. 3121. Article 16 provides that, where a supply consists of services of a description specified in any of paragraphs 1 to 8 of Schedule 5 of the 1994 Act, and the recipient of that supply belongs in a country which is not a member state, the supply is treated as being made where the recipient belongs. As the recipient of the disputed supplies belonged in the United States the supplies at issue in this appeal would not be made in the United Kingdom (and would therefore be outside the scope of the tax) if they were of a description specified in any of paragraphs 1 to 8 of Schedule 5.
- Paragraph 3 of Schedule 5 specifies:
"Services of consultants, engineers, consultancy bureaux, lawyers, accountants, and other similar services; data processing and provision of information ... "
The issue
- The Appellant originally argued that the disputed supplies were accounting services or data-processing. At the hearing the Appellant also argued that the disputed supplies could be "other similar services" or the provision of information. For Customs and Excise Dr Hutton argued that, in its Notice of Appeal, the Appellant had argued that the supply was either of accounting services or data processing. If the Tribunal permitted the Appellant to argue that the supply was either other similar services or the provision of information then he requested an adjournment. We were able to decide the appeal in favour of the Appellant having regard to his original grounds of appeal and so no adjournment was required. Thus the issue for determination in the appeal was whether the disputed services were accountancy services or data processing within the meaning of paragraph 3 of Schedule 5.
The evidence
- A bundle of documents was produced. Oral evidence was given on behalf of the Appellant by Mr Robert Trott, the managing director of the Appellant. Oral evidence was given on behalf of Customs and Excise by Ms Elaine Estall an Officer of HM Customs and Excise.
The facts
- From the evidence before us we find the following facts.
- Mr Robert Trott is the director of the Appellant. He has a degree in General Science from St Andrew's University but has no accountancy qualification. He has worked in data processing since 1967 and is still a computer programmer/analyst. He calls himself a systems designer/data processor.
- In 1979 Mr Trott worked as a systems manager and programmer in the United States of America. In the 1980s he designed a computer program to assist television companies who had to pay actors, musicians and other artistes (all referred to in this Decision as artistes) when television programmes or advertisements were repeated. The computer program would know how much a television programme earned in sales and from that would analyse what needed to be paid by the television company to each artiste for repeat showings. (Different percentages were payable to different artistes). The computer would then print the cheques made payable to the artistes for the correct amounts. This function was referred to by Mr Trott as a "payroll system" although it was not designed for employees but for artistes who received fees from the television company for repeat performances.
- In 1983 Mr Trott moved to the United Kingdom with the intention of selling his program to television companies here. A computer company set up a separate company to run the program for a television company on a Wang computer operated by Mr Trott. The computer was programmed by Mr Trott who had the help of administrative staff. Data was input into the computer and the computer could produce reports about the artistes whose work had been repeated by the television company; the reports would indicate how much the television company had to pay each artiste for those repeats. Later the computer company gained other customers including MTM International in the United States of America.
- In 1986 Mr Trott bought his own Wang computer and took over the work of the computer company. His Wang computer contained the extensive database on which records were held of the appearances of artistes on old television shows. In 1992 the television company lost its franchise and both it and MTM were sold a number of times. Through all the changes Mr Trott continued to provide the data about the repeat performances. He retained the same computer because we were told that conversion would have been very expensive.
- The Appellant registered for value added tax as from 1 September 1993.
- In evidence which we accept Mr Trott described the work the Appellant did for one client. The client would know the total percentage of the receipts for, say, a video or a DVD, which had to be paid to the artistes. The Appellant, using his computer, would then be able to divide this up and ensure that the right amounts were paid to each artiste. The computer would print the cheques made payable to each artiste; the cheques had to be printed by the computer as the bank would not accept hand-written cheques. The cheques were then sent to the client who would check them. The client would pay the amount of all the cheques into a separate bank account held by the Appellant for that purpose and then would send the cheques to the recipients.
- Again, if a particular television series were repeated the computer would know which artistes appeared in each episode and would have their addresses. The Appellant would input the relevant percentage due to each artiste from an Equity table which was updated each year and then run the computer. There would be a payment record for each performance but the computer could aggregate up to twenty repeat performances so that one cheque was payable to each actor or artistes for a number of repeats. The Appellant made sure that the computer worked and that all the data was up to date.
- When invoicing clients the Appellant normally made two charges. There was a charge for each time it produced the data about which artistes should be paid and how much; this charge depended upon the amount of work done. There was also a retainer, or standing charge, for the provision of the service; this was payable quarterly or annually.
- By 1997 the Appellant had three clients of which MTM was one. However, in 1997 MTM ceased using the services of the Appellant. The Appellant sent MTM an invoice for £12,500 in respect of the standing charge which MTM did not pay.
- In 2000 MTM had been unable to find an alternative to the Appellant's services. It wanted to terminate its contract with the Appellant and to obtain the data to enable it to pay the artistes itself. Accordingly, it asked the Appellant to provide the detailed data. As MTM had not paid the 1997 invoice the Appellant was reluctant to provide the data without payment. In 2001 the Appellant agreed to credit the 1997 invoice and to send a final invoice for £15,200. In return for the final invoice (which is the disputed invoice in this appeal) the Appellant produced a final residual "payroll" report and also, by means of some bespoke software, modified its computer program to enable the data to be transferred onto a disc so that it could be converted by MTM and run in MTM's system. The Appellant also prepared a printout so that MTM could see what was in each record.
- The disputed invoice was dated 10 July 2001 and was addressed to MTM. It was expressed to be for "services performed by Talent & Production Services as per our contract". There were two charges, £15,000 for "completion of contract" and £200 for "printing materials" making a total of £15,200. No value added tax was charged. The Appellant did not produce the contract with MTM.
- In evidence Mr Trott accepted that the information which the Appellant had supplied to MTM was information which belonged to MTM.
The arguments for the Appellant
- For the Appellant Mr Knight argued that the services supplied by the Appellant were either the services of accountants, or other similar services, or data processing or the provision of information. As far as the services of accountants were concerned Mr Knight argued that the work of the Appellant was the provision of payroll services and those services were habitually provided by accountants. His own practice provided this service for thirty-five clients.
The arguments for Customs and Excise
- For Customs and Excise Dr Hutton referred to Article 9 of the Sixth Council Directive (77/388/EEC) (which is in very similar terms to paragraph 3 of Schedule 5 of the 1994 Act) and to the seventh recital. He cited Design Concept SA v Flanders Expo SA [2003] ECR I-5617 for the principle that Article 9 should be interpreted in such a way as to ensure legal certainty. From this he argued that just because an accountant performed certain services those were not necessarily services of accountants within the meaning of Article 9 (or of paragraph 3 of Schedule 5). Also, neither the Appellant nor Mr Trott was an accountant and so the services provided were not the services of an accountant.
- As far as data processing was concerned, Dr Hutton referred to Notice 741 - Place of Supply of Services at paragraph 12.4.11. He argued that Mr Trott had accepted in evidence that what the customer wanted was for the artistes to be paid. The customer wanted the payments to be made and the Appellant was the conduit through whom the payments were made. The primary purpose of the contract between the Appellant and its customer was not for data processing. The supply was not concerned exclusively or primarily with the manipulation of data. The manner of the performance of the contract could not alter the nature of the supply. Further, from the point of view of the customer, the services supplied to MTM were not data processing as all the customer wanted was the information. MTM wanted their actors to be paid and that was the nature of the supply made by the Appellant - it was not data processing. It was not relevant how the Appellant provided the service; the contract was: "give us our data and we will pay you".
- Turning to the supply of information Dr Hutton referred to Notice 741 at paragraphs 12.4.12 and 12.4.14 which indicated that the delivery or transmission of another person's information by whatever means was excluded from paragraph 3 of Schedule 5. The information supplied by the Appellant to MTM was MTM's information and so was excluded.
Reasons for decision
- In considering the arguments of the parties we first record that we do not agree that the services provided by the Appellant were the services of an accountant within the meaning of paragraph 3 of Schedule 5. Both the Sixth Directive and paragraph 3 refer to "services of ... accountants". In our view this means services supplied by accountants and neither the Appellant nor Mr Trott is an accountant. We are also of the view that the positioning of the words "other similar services" in paragraph 3 means services supplied by professionals similar to the other professionals stated specifically in the paragraph. We agree with Dr Hutton's arguments on this point.
- Turning next to the question whether the supplies made by the Appellant were data processing we begin with Notice 741. Of course, notice 741 only states the views of Customs and Excise and we are not bound by them. Nevertheless we have found them helpful.
- Paragraphs 12.4.10 and 12.4.11 of Notice 741 provide:
"12.4.10 What is data processing?
For the purposes of para 3, data processing is the application of programmed instructions on existing data which results in the production of required information.
12.4.11 Examples of exclusions from data processing
- Services which simply include an element of data processing. Where this is simply required for a contract to be completed, the nature of the actual contracted services determines which section applies.
- Processing data from seismic surveys where the computer analysis relates to a specified area of land or seabed (see section 4).
- Simple re-formatting where there is no change to the meaning of the content."
- In our view the disputed supply falls fairly and squarely within the definition of data processing in paragraph 12.4.10. The Appellant applied programmed instructions on existing data which resulted in the production of the required information. In reaching this conclusion we bear in mind that Mr Trott designed the computer program which was used to provide the service. The original Wang computer of 1983 was programmed by Mr Trott who also input the relevant data. The work done by the Appellant, and reflected in the disputed invoice to MTM, was the provision of a final report for MTM and the modification of the program and its transfer onto disc (with a printout) so that it could be run on MTM's system. It was not just the supply of information - as Mr Trott said in evidence "the information [sent to MTM] was wrapped up in the programs I had written".
- We are confirmed in our view having referred to paragraph 12.4.11 of Notice 741 because we do not consider that the services supplied by the Appellant come within any of the descriptions in that paragraph. The Appellant did not provide other services which simply included an element of data processing - what he supplied was data processing. Only a supplier with the computer program and data which the Appellant had could make the supply. That is illustrated by the fact that MTM wanted to terminate its arrangements with the Appellant but, without his program and the data, could not find an alternative supplier. The second example in paragraph 12.4.11 does not apply in this appeal and the third example does not apply either because this was not a supply of "simple re-formatting where there is no change to the meaning of the content". Without the Appellant's computer program and data the work could not have been done.
- Finally, we do not agree with Dr Hutton that the supply was not primarily concerned with the manipulation of data; we are of the view that it was.
Decision
- Our decision on the issue for determination n the appeal is that the services supplied by the Appellant for the disputed invoice were supplies of data processing.
- The appeal is, therefore, allowed.
DR NUALA BRICE
CHAIRMAN
RELEASE DATE:23/04/2004
LON/2003/0732
- 04.04
