Commissioners for Customs & Excise v Isle of Wight Council

Local authority — Whether VAT payable on receipts from off-street parking — Whether possible to interpret provisions of Value Added Tax Act 1994 consistently with article 4.5 of Directive 77/388/EEC — Whether article 4.5 having direct effect — Claim allowed The VAT and Duties Tribunal determined certain preliminary issues in an appeal by the respondent council relating to their liability for VAT on payments derived from off-street parking facilities. The tribunal found, in the council’s favour, that the provision of off-street parking was excluded from a VAT charge by the operation of article 4.5 of the EC Sixth Directive (77/388/EEC). Article 4.5 imposed a special legal regime for regional and local government authorities, stating that they should not be considered taxable persons in respect of activities or transactions in which they engaged as public authorities. In its second paragraph, the article made an exception where treatment of such bodies as non-taxable persons would lead to significant distortions of competition. The council maintained that this paragraph of article 4.5 had not been properly implemented into UK law by the provisions of the Value Added Tax Act 1994, and was therefore not applicable. The appellant commissioners appealed. Issues arose as to whether: (i) it was possible to interpret the 1994 Act so as to be consistent with the Sixth Directive by applying the principle in Marleasing v Spain Case C106/89, namely that national courts should interpret national law, so far as possible, in the light of the wording and purpose of the relevant directive; and (ii) if the Marleasing principle was incapable of application, the provisions of article 4.5 were of direct effect as between the commissioners and the council. The commissioners maintained that Marleasing could be applied by interpreting the definition of “business” in section 94 of the 1994 Act to include the economic activities of local authorities except where carried out pursuant to a special legal regime, unless this would lead to significant distortions of competition. The council argued that the 1994 Act could not be read in that way, and contended, in relation to article 4.5, that the first paragraph was directly applicable but the second paragraph was not. Held: The appeal was allowed. The entirety of article 4.5 of the Sixth Directive was directly applicable as between the council and the commissioners. The first two paragraphs of article 4.5 were unconditional and sufficiently precise to bind the commissioners. Although the benefit of article 4.5 was restricted to situations where the public authorities’ non-taxable status would not give rise to significant distortions of competition, that question was only a “conditional limitation”, requiring an assessment that was not exempt from judicial review: Comune di Carpaneto C-231/87 applied. The second paragraph of article 4.5 was not too uncertain to have direct effect. This was not a case in which the local authority could take the benefit of the first paragraph of article 4.5 without assuming the burden of the second. It followed that the tribunal had been required to investigate whether treating the council as non-taxable, in respect of the activity for which they sought repayment of tax, was liable to give rise to a serious distortion of competition. It was therefore unnecessary to apply the Marleasing doctrine, which was, in any event, of doubtful applicability in the present case. As a matter of ordinary construction, the scheme of the charging provisions in the 1994 Act so far as they affected local authorities was clear: local authorities should pay VAT on all supplies falling within section 4(1), namely taxable supplies made in the course of the furtherance of any business carried on by them. Article 4.5, by contrast, exempted the specified public authorities from tax on the basis of their status rather than the nature of the business carried on by them. The effect of the second paragraph was to remove that exemption if their activities would lead to significant distortions of competition were the public authority to be treated as a non-taxable person. The effect of the domestic legislation was nothing like this. It contained no qualification by reference to the person making the supply or to its effects on competition. To attempt to overcome these problems by a wholesale rewriting of the kind suggested by the commissioners lay at the very edge of a permissible approach to the Marleasing doctrine. Christopher Vajda QC and Paul Harris (instructed by the solicitor to Customs & Excise) appeared for the appellants; Julie Anderson (instructed by WJB Chiltern) appeared for the respondent. Sally Dobson, barrister