Colaingrove Ltd. v The Commissioners for Customs and Excise

Mr Justice Jacob:

1. This is an appeal from a decision of the VAT Tribunal (Mr Theodore Wallace) given on 20^th July 1999. Quite why it has taken so long to reach this court I do not know. It does not matter much but one hopes that in future appeals will not take this long to come on.

2. The appellants operate 22 caravan parks in the United Kingdom containing between them 20,000 pitches, 14,500 of these are let to caravan owners. This case is concerned with those lettings. The owners keep their caravans on average for about 8 years, although they have a right of termination of their agreement upon giving 2 months’ notice. A 6-month notice the other way can also be given. The appellant’s customers are given no interest in land. They have no more than a licence to occupy the site.

3. There are restrictions as to what the owners can do on the sites. In particular they may not live in their caravans as a permanent address and may not stay overnight the 3 months December to February. During those 3 months they can have access to their caravans but not stay. The caravan sites have the sort of amenities one would expect for a holiday site such as swimming pools, entertainment facilities and so on. In essence, therefore, what the appellants provide their customers with is a place to keep their caravans for holiday use and not permanent residential use. The customers are free (during the permitted times only) to let their caravans for use by others. Some do this. Others chose to live in their caravans over the summer.

4. The appellants say that the services they provide are not chargeable to VAT. The Tribunal held otherwise. Before me the appellants say that they have a good enough point that there should be a reference to the European Court of Justice. The Commissioners say the matter is so clear that I should decide it now in their favour: there is no point in sending any questions to the Court of Justice.

5. I have concluded that the matter is indeed acte claire. To explain why I must first begin by reciting some of the turgid legislation concerning VAT. The key European legislation is the VAT Sixth Directive (77/388/EEC).

6. Art. 13 B provides:

"Without prejudice to other Community provisions, Member States shall exempt the following under conditions which they shall lay down for the purpose of ensuring the current and straightforward application of the exemption and of preventing any possible evasion, avoidance or abuse:

…

(b) the leasing or letting of immovable property excluding:

Member states may apply further exclusions to the scope of this exemption."

7. I have emboldened the bits that matter. 13B thus has this structure – a general exemption relating to leasing or letting of land, four specified exclusions to that exemption and an option for member states to apply further exclusions. In argument the option was called “the tailpiece.”

8. I should, in passing also mention Art.13(C) which gives member states a right to allow taxpayers a right of option for taxation, both generally or in a restricted form.

9. Finally I should mention Recital 11:

“Whereas a common list of exemptions should be drawn up so that the Communities’ own resources may be collected in a uniform manner in all Member States.”

10. The UK implemented the Directive. The current version of the implementation is the Value Added Tax Act 1994. Schedule 9 Group 1 of the 1994 Act specifies that the following shall be exempt from VAT:

"1. The grant of any interest in or right over land or of any licence to occupy land … other than-

…

(d) the provision in an hotel, inn, boarding house or similar establishment of sleeping accommodation or of accommodation in rooms which are provided in conjunction with sleeping accommodation or for the purpose of the supply of catering;

(e) the grant of any interest in, right over or licence to occupy holiday accommodation;

(f) the provision of seasonal pitches for caravans, and the grant of facilities at caravan parks to persons for whom such pitches are provided;

(g) the provision of pitches for tents or of camping facilities;

(h) the grant of facilities for the parking of a vehicle;

…"

The Notes to Group 1 include:

"(13) "Holiday accommodation" includes any accommodation in a building, hut…, caravan, houseboat or tent which is advertised or held out as holiday accommodation or as suitable for holiday or leisure use, but excludes any accommodation within paragraph (d).

(14) A seasonal pitch is a pitch-

(a) which is provided for a period of less than a year, or

(b) which is provided for a year or a period longer than a year but which the person to whom it is provided is prevented by the terms of any covenant, statutory planning consent or similar permission from occupying by living in a caravan at all times throughout the period for which the pitch is provided."

11. Note 14(b) obviously covers exactly what the appellants do: they provide seasonal pitches as defined. The appellants concede that. So there is no doubt that if the UK legislation is valid, then their activities are subject to VAT. The question therefore is, is the UK legislation permitted or is it beyond the powers given by the Directive? The Commissioners say it is, either because it is an implementation of the emboldened bit of the hotel sector exclusion or because it is permitted by the tailpiece.

12. The Tribunal was doubtful about the hotel sector exclusion justifying the seasonal pitch provisions – a right to keep a caravan on a piece of concrete on a long term basis, albeit in a site with facilities, is getting a bit far from the concept of a hotel. If the case had turned on that, it said it would have referred a question to the ECJ. However it then went on to hold that the provision was legitimised by the tailpiece.

13. I too have reservations about whether the provision of a seasonal pitch can properly be described as being in the hotel sector or in a sector with a similar function. There is a permanency about a seasonal pitch absent from the hotel function which may take it outside the notion intended by the exemption. Moreover seasonal pitches are not really in competition with hotels – a factor considered by the ECJ to be important in Blasi v. Finanzamt MunchenCase C-346/95[1998] STC 336 at 345 where the ECJ said at para. 20:

“…..the words ‘sectors with a similar function’ should be given a broad construction since their purpose is to ensure that the provision of temporary accommodation similar to, and hence in competition with, that provided in the hotel sector is subject to tax”.

14. Finally on this point there is the problem caused by the word “accommodation” – a piece of concrete is hardly that, though it is fair to note that the exemption includes camp sites by way of example and thus would include a piece of ground for pitching a tent. So “accommodation” may have a wide meaning.

15. Thus I cannot say that the UK provision bringing seasonal pitches into tax is clearly legitimised by Art. 13B(b)1. I, like the Tribunal, would have referred the matter if that had been the key question. But it is not. For what matters is the tailpiece. Does that permit the UK to bring seasonal pitches into tax? Mr Cordara QC for the taxpayer argues that the UK provision which purports to do so is invalid. It is to that question I now turn.

16. I begin by observing that the general principle of construction of EU instruments – that exceptions are to be construed narrowly – does not apply to the tailpiece. This is for the obvious reason that it is not an exception. On the contrary it empowers Member States to derogate from an exception. There is clear authority that that power is wide, both from speeches of Advocates General and the Court itself:

(a) In Blasi Jacobs A-G put it this way at paragraph 12:

“The last sentence of art 13B(b) is broadly worded so as to allow the member states a large degree of discretion in placing limits on the scope of the exemption in art 13B(b). As the Court stated in Henriksen [1990] STC 768 at 779, [1989] ECR 2763 at 2782, para 21 "member states are free to limit the scope of the exemption by providing for additional exclusions". Unlike exemptions, which generally fall to be construed narrowly because they constitute exceptions to the general principle that turnover tax is levied on all supplies for consideration made by a taxable person (see for example Stichting Uitvoering Financiale Acties v Staatssecretaris van Financiele (Case 348/87)[1989] ECR 1737 at 1753, para 13), the exclusion of transactions from exemption is in conformity with that general principle. I see no Community interest in seeking to interpret narrowly the discretion granted to member states by that provision to bring further transactions within the scope of the charge to tax.

See also para. 18.

(The Court, in Blasi had no need to and did not consider the tailpiece. It held that a German provision which excluded short term (6-month or less) lettings from the exemption was a legitimate implementation of the exception contained in Art. 13B(b)1. It is noteworthy that Jacobs A-G was of the opinion that the German provision could also be justified by the tailpiece, see para.13)

(b) In Amengual Far v Amengual FarCase C-12/98 [2002] STC 382 La Pergola A-G said (para 8):

“… the exemptions, which constitute an exception to the general principle of taxation, are interpreted restrictively. This criterion has been consistently followed in the case law of this court. Likewise therefore the power of the member states to apply exceptions to the exemptions listed in the Sixth Directive must be construed broadly. This was confirmed in Blasi”.

(c) Finally, the Court itself made the position clear in Far:

“13. Furthermore it is clear from that actual words of Arts 13B(b) and 13C of the Sixth Directive that the latter has left the member states wide discretion as to whether the transactions concerned are to be exempt or taxed”.

14. It is therefore immaterial that a member state which considers it appropriate to subject to VAT all lettings of immovable property to be used otherwise than for dwelling purposes achieves this result by means of a general rule which subjects all lettings of immovable property to VAT and which exempts only lettings of immovable property for dwelling purposes or arrives at that same result by means of exceptions to a general rule exempting lettings of immovable property.

15. The answer to be given to the first question must therefore be that Art.13B(b) of the Sixth Directive allows member states, by means of a general rule, to subject to VAT lettings of immovable property, and, by way of exception, to exempt only lettings of immovable property to be used for dwelling purposes.”

17. Paragraph 13 of that opinion is, to my mind, clearly saying that there is a wide discretion conferred on member states by Art. 13B(b). Mr Cordara suggests otherwise; that by the word “latter” in paragraph 13 the Court is referring to Art. 13C only. I do not think that is seriously tenable for the following reasons:

(i) The Far case was about Art.13B(b), not Art. 13C;

(ii) So the whole point of paragraph 13 was about the discretion conferred on member states in that regard;

(iii) The Court only referred to Art.13C to point out that it conferred a wide discretion and so Art 13B(b) by analogy did so too. Here it was referring to part of the argument of the Advocate General. He, at para. 9., had pointed out an interrelationship between the two Articles:

“In fact, apart from the provisions under discussion, the Sixth Directive as a whole allows the member states a wide margin for assessing the economic situation. It is particularly significant that, even though Art 13B places the letting of immovable property generally among the exempt operations, Art 13C allows the member states to give persons liable to tax the right to opt for taxation of lettings and leases.”

18. The court’s use of “the latter” as meaning the Directive as a whole could not be clearer. Mr Cordora’s argument simply ignores paragraphs 14 and 15 of the judgment, the whole point of the Far case and that passage of the A-G’s speech. Indeed I could not help noticing that in argument, he tried to avoid referring to paragraphs 14 and 15.

19. The great width of the discretion to exclude the exemption is illustrated by the Far case itself. Spain’s imposition of VAT on all commercial lettings was held to be within the discretion conferred by the tailpiece.

20. So the discretion is wide. Mr Cordara submits, however, that it has limits. I am prepared to accept that is so. The A-G in Far thought it was so too. He said (para. 9):

“I do not agree with the opinion expressed by the agent for the Spanish Government when he states that the Sixth Directive allows member states to derogate from the exemption relating to letting of property without any limit, if only for the reason that it makes the scope of the Directive derisive.”

21. But this case is not concerned with what the A-G had in mind there – a wholesale derogation or something like it. This is a specifically targeted derogation. So this general proposition does not advance the argument in this case.

22. Nor does Mr Cordara’s faint reliance on Recital 11 help. The reference in Recital 11 to the desirability of a common list of exceptions has played no part in the Court’s conclusion that the discretion conferred by Art 13 is wide.

23. Next Mr Cordara submitted that the derogation here, unlike that in Far, is for a case where the consumer is an ultimate consumer. In Far the consumers (lessees of commercial properties) would be able to pass on the VAT. So the land here is “leaving the production” process whereas in Far it was still within the “production cycle”. He suggests that the wide discretion cannot extend to such a case. But the cases simply do not support that. Far, paragraph 15, says member states can have a general rule subjecting all letting to VAT and to provide by way of exception, to exempt only dwelling purpose lettings.

24. Mr Anderson, shrewdly and accurately points out that these seasonal pitches are outwith dwelling purposes. The rules about the caravans on them not being useable as a main residence, not being occupiable during the winter and so on mean that is so. So all that UK has done here is to except a particular example of non-dwelling use. In Farall non-dwelling use was excepted. If that was all right (and it was) then this much lesser exception must also be all right: the greater includes the less.

25. Moreover it seems clear that many of the uses of these seasonal pitches are not exactly at the end of the production cycle. Nearly 80% of users buy access (via a “privilege pass”) to the various facilities (swimming pool, entertainment, crazy golf etc.) offered on the site – there is not a once and for all consumption. I do not rest my opinion on this last point, however.

26. But, for the reason pointed out by Mr Anderson, I think there can be no doubt that the UK provision is in principle within the wide powers conferred by the tailpiece. That does not dispose of the matter immediately, however, for Mr Cordara has another shot in his locker – discrimination. The point here is that if a member state seeks to exercise its tailpiece powers, it must do so rationally, and in particular may not exclude one kind of transaction but include an equivalent kind. There is no doubt that is so in principle. For that is what the Court decided in Lubbock Finev Commissioners of Customs & ExciseCase C-63/92) [1994] STC 101.

27. Lubbock Fine was about the surrender of an exempt lease. The Commissioners said the payment for the surrender was subject to VAT because although the grant of the lease was exempt, its surrender was not. The Court held that would not do. The surrender and the letting have “symmetrical effects” (to use Darmon’s A-G phrase) So, the Court held, using a purposive approach, a surrender of a lease was within the meaning of “letting of immovable property” as used in Art. 13B(b). That being so, the question of the validity of the UK’s legislation, purportedly under the tailpiece, came into play. The UK legislation sought to impose tax on the consideration for the surrender, though there was no tax on the grant. The court dealt with this point in short order. It said:

“11. The essence of the second question … is whether [the tailpiece] authorises [member states] to tax the consideration paid by one party to the other in connection with the surrender of the lease where the rent paid under the lease was exempt from VAT.

12. Art. 13B allows member states to exclude certain types of letting from the scope of exemption and hence to subject them to tax. However it cannot be construed as allowing them to tax a transaction terminating a lease where the grant of the lease was compulsorily exempt. The relations created by a lease cannot be broken up in this way.”

28. Mr Cordara seeks to generalise from this in a remarkable way. He says that there should be an examination of any transaction subject to a purported exercise of the tailpiece power with other transactions which are not exempt. If one finds a kind of transaction which is exempt and a closely similar transaction which is not exempt by virtue of a purported exercise of the tailpiece power, then that exercise is invalid. He then seeks to apply that here in the following way. UK legislation derogates from the Sixth Directive in respect of long stays in hotel accommodation. Hotel accommodation is excluded from the exemption under Article 13B(d)(1) but, in respect of stays in excess of twenty-eight consecutive days, a reduced rate of VAT is applied. This recognises that part of the service provided corresponds to a letting or leasing of immovable property which is exempt under Article 13(B)(d): see Schedule 6, paragraph 9 of VATA 1994; and Notice 709/3/02 (January 2002) at paragraph 3. So, submits, Mr Cordara, the UK says that the accommodation element of long-hotel stays are VAT free but seasonal pitches are not. That is irrational and therefore not permitted by the tailpiece.

29. I do not think Lubbock Fine is authority for the sort of wide-ranging comparison envisaged by Mr Cordara. It is one thing to say that two practically identical transactions should be treated identically. It is quite another to enter into a review of significantly different transactions to see what elements they have in common and the elements they do not, weigh them in some sort of mental scale and form a value judgment about irrationality. I cannot see any warrant for that. Further I think the whole notion is incompatible with the settled principle that the implementation of Art. 13(b), both generally and specifically in relation to the tailpiece power is within the wide discretion conferred upon member states.

30. Moreover I find nothing irrational or discriminatory about the UK deciding to treat long-stays in hotels differently from seasonal pitches. Seasonal pitches have a lot in common with the sort of thing excluded from the exemption in Art.13B and I can see no rational reason why the UK should not tax them if that is the policy decided upon.

31. Finally I can see no real Community interest engaged in the issue as to how the UK choses to treat seasonal pitches for VAT purposes.

32. I think the position is clear, so clear that there is no point in making a reference. The appeal is dismissed.