Colaingrove Ltd. v Customs & Excise

This is an appeal from the dismissal by Jacob J of the appellant’s appeal from the decision of the VAT Tribunal (Chairman, Mr Theodore Wallace) dated 20 July 1999. The Tribunal dismissed the appellant’s appeal from the decision of the Commissioners that the letting of caravan sites for seasonal pitches incurred value added tax (“VAT”) pursuant to schedule 9, part II, group 1 to the Value Added Tax Act 1994 (“VATA”). This appeal, therefore, raises the question of the scope of the exemption in article 13B(b) of the EC Sixth VAT Directive (77/388/EEC) (“the Sixth Directive”), which group 1 of part II to schedule 9 to VATA (set out in material part below) was designed to implement.

Article 13B provides as follows:-

The question on this appeal is whether article 13B(b) permits a member state to charge VAT on the supply of licences for the parking of static caravans. The Commissioners contend that article 13B(b) not only exempts the leasing or letting of immovable property and sets out a number of specific exclusions from this exemption. It also gives the member states an option to apply further exclusions to the scope of the exemption. I will refer to this provision as the “tailpiece member state option”.

The appellant contends that it is not clear as a matter of Community law whether the tailpiece member state option confers a power to create a charging provision of the nature to be found in schedule 9. It seeks an order that this question be referred to the European Court of Justice (“the European Court”). In short, it contends that the licensing of static caravans on seasonal pitches should be exempt from VAT if they are used for residential purposes because the policy behind the exemption in article 13B(b) is that the supply of land to final consumers on a long-term basis, particularly residential consumers, should be exempt.

Under the transactions in question in this case, clients of the appellant are typically purchasers of an eight year licence to occupy a particular site. This site is a slab of concrete on a camping site with access to gas, water and electricity. The camping site provides other facilities but clients who desire to use these facilities must purchase a separate pass and we are not concerned with the provision of those services. As to the terms of the licences in question, paragraph 3 of the judge’s judgment contains a convenient summary:-

Group 1 of schedule 9, part II to VATA provides as follows:-

A provision of the kind mentioned in Note 14(b), which prevents a person from occupying by living in a caravan at any time during the period of a licence, has been referred to in argument as a “no sleep” provision, and I will so refer to it.

Thus, by virtue of group 1, hotel and holiday accommodation are excluded from the exemption for the letting of land. Moreover, by virtue of paragraph 9 of schedule 6 to VATA, where hotel accommodation is occupied for more than twenty-eight days, the consideration chargeable to VAT is reduced to the consideration for the facilities other than the supply of accommodation. This provision was enacted as a result of a derogation by the European Commission pursuant to article 27 of the Sixth Directive.

The purchase of static caravans and houseboats is zero-rated by virtue of group 9 in schedule 8 to VATA. Note (b) to group 9 states that the exemption does not include “the supply of accommodation in a caravan or houseboat”. Accordingly, payments for such accommodation will be standard-rated.

Article 13C, which I need not set out, gives member states the right to allow taxpayers a right of option for taxation in the case of letting of immovable property. This will enable taxpayers who exercise the option to deduct VAT on their purchases from the VAT for which they are liable to account to the Commissioners.

The scheme of the Sixth Directive with respect to the letting of immovable property is thus that, subject to certain specified exceptions, and to other exceptions as laid down by member states, the letting of immovable property should be exempt from VAT (unless the taxpayer elects for taxation). In broad terms, the exceptions specified in the Sixth Directive relate to hotel accommodation and a limited number of commercial lettings. The rationale for excluding hotel and similar accommodation was explained in the explanatory memorandum accompanying the proposal for the Sixth Directive (Supp. 11/73) as follows:-

Article 13B(b) should be read with article 13B(g) and (h), which also relate to land. The reasons for these exemptions were more fully explained by Advocate General Jacobs in Blasi v Finanzamt München 1 [1998] STC 336:-

Thus the policy underlying the exemption of the letting of property is to exclude from VAT transactions which involve simply the long-term, passive occupation of property rather than economic activity. After land has been developed, it is usually simply enjoyed. However, this is not necessarily the case. Where it is let for holiday or storage purposes, there would, in my judgment, be a “more active exploitation” of the property.

Mr Roderick Cordara QC, for the appellant, submits, rightly, that the Sixth Directive must be construed in the light of its recitals. These make it clear that the general policy of the Sixth Directive is that charging provisions on VAT should be uniformly applied across the European Union. For example, it provides that there should be a common list of exemptions. However, the tailpiece member state option in article 13B(b) clearly envisages that member states may have different exclusions from the exemption for the letting of immovable property. These exclusions must not restrict the exclusions specified in article 13B(b): see Skatteministeriet v Henriksen [1990] STC 768.

Mr Cordara stresses the anomalies in the “no sleep” provision. The licensee need not remove the caravan during the period that he may not occupy the caravan by living in it. The period when he cannot occupy it by living may be as short as one night. The licensee need not be prevented from visiting the caravan during that period. The caravan is still being used by the final consumer. The fact that the licensee may not occupy it by living for a short period does not mean that the caravan is not being used for the purposes of a dwelling. He could just go away on holiday. In any event, the Sixth Directive draws no distinction between a person’s first and second home. Mr Cordara submits that the tailpiece member state option must be subject to limitations. On behalf of the Commissioners, Mr Rupert Anderson QC accepts that the tailpiece member state option has been used to adopt limitations of a similar character to those specified in article 13B(b) of the Directive.

In his judgment, Jacob J held that it was acte clair that the appellants were outside the exemption in article 13B(b). He agreed with the Tribunal that the provision of a site for a caravan was not clearly within article 13B(b)(1) on the grounds inter alia that the word “accommodation” was not apt to describe the provision of a concrete slab. There is no appeal on that point. As to the tailpiece member state option, Jacob J held that under the jurisprudence of the European Court the power to define further exclusions from the exemption was wide. He relied upon the opinion of Advocate General Jacobs in the Blasi case and the opinion of Advocate General La Pergola and the judgment of the European Court in Amengual Far v Amengual Far [2002] STC 382. The judge rejected the submission that the tailpiece member state option could not be used to deprive an ultimate consumer of the exemption on the footing that in the Far case the court upheld the exclusion of all lettings, other than lettings exclusively for residential purposes.

The finding of the Tribunal was that some of the caravans were used for sub-letting as well as for occupation. It calculated that caravans were let for an average of 3.4 weeks per annum per owner. The judge accepted that sub-letting was a form of non-dwelling use. As the European Court in the Far case had upheld the exclusion from the exemption of all letting for non-dwelling purposes, the judge considered that it was possible to exclude from the exemption the particular kind of non-dwelling use in point with seasonal pitches.

The appellant argued before the judge that licensees of seasonal pitches for caravans were treated in a different way from persons who had long stays in hotels and who would therefore be entitled to the reduced rate in paragraph 9 of schedule 6 to VATA. The judge found that this difference did not amount to discrimination on the basis that the tailpiece member state option in article 13B(b) conferred a wide discretion.

Mr Cordara’s argument on discrimination derives support from the decision of HHJ Stephen Oliver QC, Chairman of the London VAT Tribunal, in Ashworth v Commissioners of Customs & Excise [1994] VATTR 275. In this case, the taxpayer had a long lease of a lodge which she was not permitted to occupy for one month a year. The Tribunal held that there was unjustifiable discrimination between the position of the taxpayer and the position of lessees generally of property. The case turned on discrimination, and did not involve any issue as to limitations on the tailpiece member state option.

Mr Cordara relies principally on the Henriksen case, Lubbock Fine & Co v Commissioners of Customs & Excise [1994] STC 101, the Blasi case and the Far case. I will consider each of those cases in turn, taking them as Mr Cordara did in chronological order.

In the Henriksen case, the question was whether the letting of covered garages was within exclusion 2 to article 13B(b). Advocate General Jacobs answered this question in the negative. The European Court disagreed but held that the particular transactions were exempt from VAT since the garages were ancillary to houses. Mr Cordara submits that the opinion of Advocate General Jacobs in the Henriksen case shows that there are limits to the discretion conferred by the tailpiece member state option, including limits based on the economic effects of the activity. He relies on the opening part of the following passages from the opinion of Advocate General Jacobs. Having referred to the opening words of article 13B (set out above) the Advocate General said:-

Advocate General Jacobs concluded:-

It was unnecessary for the European Court to comment on the proposition that the tailpiece member state option was subject to limitations. In my judgment, the opinion of Advocate General Jacobs emphasises the breadth of the discretion in the tailpiece member state option, and the European Court appears to have accepted this approach. In the light of this and the conclusion of the Advocate General on the facts of the case, and in the light of the fact that the opening words of article 13B refer to the conditions for exemptions which member states are required to allow, rather than optional exclusions from exemptions, I do not consider that the extract from the Advocate General’s opinion first quoted above can be read as an exclusive statement of the circumstances in which the tailpiece member state option can be exercised.

In the Lubbock Fine case, the question was whether a surrender of a lease was under Community law exempt from VAT where the original grant of the lease had been exempt. The European Commission argued that the tailpiece member state option could only be exercised to introduce additional exclusions “of the same type or nature as those already set out in” the subparagraph of article 13B(b). The Commission contended that that view was confirmed by the preparatory documentation drawn up prior to coming into force of the Directive. The Commission also pointed out that the extent of the exclusions was to be determined by applying the criteria in the introductory wording of article 13B. Advocate General Darmon rejected the Commission’s view. He expressed the opinion that the Commission’s view that the eiusdem generis principle of interpretation limiting the power of member states under the tailpiece member state option was incorrect. He asked rhetorically: “What is the genus?”.

The European Court held that the tailpiece member state option could not be relied upon on the facts of that case. Accordingly, the European Court did not express a view on the breadth of the discretion conferred by the option. The Court effectively adopted the opinion of Advocate General Darmon that the letting and surrender of immovable property produced symmetrical effects and that, therefore, it was not open to member states to draw distinctions between lettings (which are exempt) and surrenders.

In the Blasi case, the question was whether a provision of German domestic law, which imposed VAT on lettings of hostel accommodation for less than six months was compatible with article 13B(b). I have already set out above an extract from the opinion of Advocate General Jacobs in this case. In an earlier passage in his opinion, Advocate General Jacobs returned to the point, made in the Henriksen case, that the discretion conferred by the tailpiece member state option was a broad one. He pointed out that an exclusion from an exemption did not have to be construed strictly. Consistently with this, he opined that the power of the member states to define the conditions for sectors with a similar function for the purposes of article 13B(b)(1) should be given a broad meaning:-

At paragraph 22 of his opinion, Advocate General Jacobs again referred to the tailpiece member state option. He considered that it was appropriate for a member state to take into account the practical difficulties arising out of the exclusions from an exemption. He gave the example of a residential caravan on a camping site and expressed the view that it would be difficult for the owner of the camping site to apply a test of whether the person occupying the caravan was doing so as his “centre of interests”:-

It has to be noted, however, that the discretion conferred on member states by article 13B(b)(1) is more limited than that conferred by the tailpiece member state option.

The European Court agreed with Advocate General Jacobs that the provision in German law in question was compatible with Community law:-

Mr Cordara submits that paragraph 21 from the judgment of the European Court is applicable to the tailpiece member state option. In my judgment, it is clearly applicable only to the discretion conferred by article 13B(b)(1). The passage cited above is also important because the test which the European Court applied to test the legitimacy of the exclusion from the exemption chosen by Germany was that it appeared to be a reasonable one to have made for the purpose for which the discretion in article 13B(b)(1) was conferred. I do not, therefore, consider that the Blasi case assists Mr Cordara’s argument.

In the Far case, the question which the European Court had to consider was whether it was compatible with the Sixth Directive for Spanish law to subject to VAT all lettings, but then to exempt lettings of property let exclusively for dwellings. The argument turned on the form of Spanish legislation which was not expressed to be an exclusion from the exemption for letting. In his opinion, Advocate General La Pergola emphasised that the question whether an exemption should be restricted was essentially for the member state and that the Sixth Directive gave a wide margin of discretion to member states in assessing their economic situation. He added that the power was not unlimited. If it were unlimited, that would make the scope of the exemption “derisive”. The Advocate General applied the court’s decision in Blasi.

The European Court did not, however, advert to any limitation on the discretion in the member state option. It held that the Spanish legislation was compatible with the Directive:-

There has been some discussion in these proceedings as to whether the reference to “the latter” in paragraph 13 of the judgment of the European Court is referring to article 13(C) or to the Sixth Directive as a whole. This was a matter pressed before the judge but not before us. The judge took the view that the reference was to the Sixth Directive as a whole and I agree with him. This is the natural reading of the paragraph in the light of the questions under consideration. Accordingly, not only did the European Court not formulate any limits on the exercise of the discretion conferred by the tailpiece member state option but it also stressed the breadth of the discretion.

Mr Cordara has an alternative argument on discrimination. He submits that an unjustifiable distinction is drawn between the letting of seasonal pitches on the one hand and long stays in hotels, and the letting of cottages as second homes on the other hand. He submits that the limitation of the exemption to seasonal pitches could exclude not simply caravans used as holiday homes but also caravans used for the storage of goods. It was a blunt instrument. The exclusion of the exemption fell outside the genus of exclusions provided for in article 13B(b). He submits that the Far case is distinguishable because the whole class of business lettings would be excluded. On the eiusdem generis argument, it seems to me that Advocate General Darmon must be correct in saying that there is no genus in article 13B(b)(1), and that accordingly that canon of construction cannot apply.

Mr Cordara also submits that the policy behind the various provisions of VATA with respect to the letting of property is not obvious. In the case of buildings, the test whether the accommodation is used for holiday or hotel purposes is adopted. In the case of caravans, a test of seasonality is applied.

In my judgment, the European Court of Justice in the Henriksen, Lubbock Fine, Blasi and Far cases has not itself enunciated any limits on the tailpiece member state option in article 13B(b). On the contrary, the European Court has emphasised that the option is a wide one. I would, however, accept that there are some peripheral limits on the exercise of the option as a matter of the interpretation of the Sixth Directive. Those limits include a restriction that, while a member state is not bound to exercise the tailpiece member state option, if it decides to do so, the member state’s policy objective must be consistent with the rationale of the lettings exemption as explained in the explanatory memorandum to the proposal for the Sixth Directive and by Advocate General Jacobs in the Blasi case. There may be other limitations arising from the general principles of the Sixth Directive: see for example the Lubbock Fine case. However, it is not suggested that there is any such general principle applicable in the present case.

As to the manner of applying the exclusion from the exemption, a large measure of discretion is to be given to the member state. The test chosen by VATA in the case of caravan pitches is the test of seasonality. According to the statement of the minister responsible (Mr Peter Lilley) during the committee stage of the Finance Bill 1989 when seasonal pitches were first excluded by the United Kingdom from the lettings exemption, the purpose of the exclusion was to put seasonal caravan sites on all fours with holiday accommodation (Hansard, Standing Committee G, 16 May 1989, col.2). In the Blasi case the European Court applied the test of reasonableness to the decision of the German government to impose temporality as the test for exempting non-hotel type accommodation. In my judgment, this court should apply the same approach. Its jurisdiction is, therefore, supervisory. It is not appropriate for the court to investigate the matter of its own accord or to express its own view on how the exclusion from the exemption might have been framed. Mr Cordara submits that there are anomalies in the exclusion from exemption of seasonal pitches. He points out that the purchase of static caravans is zero-rated, but this may be because they are not immovable property. Mr Cordara submits that the letting of caravans on seasonal pitches is not structurally suited to VAT. He submits that the exclusion of the letting of seasonal pitches would apply even if the “no sleep” provision was only for one night. It would also apply to caravans used for the storage of goods. However, as I see it, those examples are likely to be exceptional. Moreover, it would self-evidently be difficult for an owner of a camping site to discern whether or not a seasonal pitch was to be used simply as a person’s dwelling. In those circumstances, I would accept that the test of seasonality in the case of static caravan licences meets the test of reasonableness: it seems to me to be a reasonable way of identifying caravan sites which are let for holiday purposes, that is, not for dwelling purposes. The exclusion of such property from the lettings exemption is consistent with the rationale of the exemption.

In the Far case, the Spanish legislation effectively excluded from the exemption all lettings of immovable property where the property was not to be used exclusively for dwelling purposes. As I have said, the objective of the exclusion of seasonal pitches in the present case is to exclude lettings for non-dwelling purposes, and in my judgment, this is consistent with the rationale of the lettings exemption. I do not consider that the European Court would have concluded that, if the Spanish legislation had only excluded from the exemption some lettings for purposes other than purely for use as a dwelling, but not others, it would have been incompatible with the tailpiece member state option. The jurisprudence of the European Court emphasises the breadth of the tailpiece member state option. It follows that the exclusion of the letting of seasonal pitches for caravans, which are unlikely to be occupied on such pitches as a person’s main residence and indeed in the present case are not permitted by the licensor to be so occupied, is not incompatible with the Sixth Directive. The peripheral limits on the tailpiece member state option set out above are thus satisfied in this case.

I then turn to the argument that VATA improperly discriminates between different types of lettings for dwellings purposes. As I see it, a member state is entitled to have regard to its own economic conditions, and to take into account the differences between different sorts of immovable property. Mr Cordara does not suggest that what the United Kingdom has done is necessarily discriminatory when the economic conditions or conditions affecting different immovable property are examined. However, he submits that seasonal pitches for caravans should be exempt if the licensee lives in a caravan there for more than twenty-eight days so that the exemption would be on a par with long stays in a hotel. I can leave on one side Mr Anderson’s argument that paragraph 9 of schedule 6 is not comparable because it was the subject of a derogation under article 27. The economic conditions affecting caravans and hotels are not the same. Long stays in hotels are unusual for tourists. The more usual type of long-stay guest is a homeless person or immigrant. They will be using a hotel as their home. So there are differences between long-term stays in hotels and seasonal pitches. The conditions suitable for differentiating different categories of hotel accommodation may not be appropriate to other lettings of immovable property. They cannot simply be “read across”.

Mr Cordara makes the point that there is no similar exclusion from the exemption for cottages let on the same basis. However, although there was a “no sleep” provision in the Ashworth case, such a situation is probably unusual in the case of cottages. Moreover, if the cottage is let on the basis that it is for holiday or leisure use it will in any event be caught by the exclusion for holiday accommodation. There has to be a separate provision relating to seasonal pitches because as the judge pointed out, seasonal pitches, being only slabs of concrete, are probably not themselves accommodation.

In reply, Mr Cordara developed an argument based on proportionality. He submitted that the exclusion of the exemption in relation to seasonal pitches was disproportionate. It would have been sufficient to exclude from the exemption sites not used by caravans occupied on a non-residential basis. He submitted that to be proportionate the exclusion from the exemption had to be formulated in the way least burdensome to the persons affected by it. In support of this submission he referred C R Smith Glaziers v Commissioners of Customs & Excise [2003] STC 419 at paragraph 25 per Lord Hoffmann (with whom Lord Woolf, Lord Hope and Lord Walker agreed):-

The provision under consideration in the Smith Glaziers case was a measure which restricted a taxpayer from availing himself of an exemption. It was, therefore, a very different provision from a provision which restricts an exemption. I have already held that under the tailpiece member state option member states have a margin of discretion in considering whether to restrict an exemption and also as to the respects in which the restriction should be achieved. In my judgment, once the United Kingdom decided to exclude seasonal pitches from the lettings exemption it was not bound to do so in the way least burdensome to the taxpayer. That would be inconsistent with the wide discretion conferred on the member state. In this respect the Sixth Directive gives greater value to the discretion of member state than to the interests of the individual taxpayer. Having, however, made its decision to restrict the exemption in a particular way, the member state must not impose the restriction in a disproportionate way. For example, in my judgment, it could not make the availability of the exemption dependent on producing a licence agreement executed in some particular way.

The principles of Community law applicable in this case, and necessary for the court’s decision, are not in doubt. Accordingly, I do not consider that a reference should be made to the European Court.

For these reasons, I would dismiss this appeal.

I agree.

I also agree.