European Community – VAT – Place of supply – Appellant UK company operating timeshare exchange scheme for properties in Spain – Members paying enrolment, annual subscription and exchange fees – Appellant failing to pay UK VAT on enrolment and annual subscription income – Respondents seeking to recover VAT purportedly due – Tribunal referring to ECJ – Whether place of supply of appellant’s services being UK or Spain – Preliminary ruling
The appellant UK company facilitated and organised the exchange of timeshare usage rights in holiday accommodation situated outside the UK. It operated a scheme under which developers of holiday resorts became affiliates and individuals who owned timeshare usage rights in affiliated resorts could apply to become members. Members were entitled to deposit their usage rights into a pool of timeshare accommodation and to access the rights deposited by other members.
Scheme members paid an enrolment fee and annual subscription charges. An exchange fee was payable on the date of the request for an exchange. The appellant treated the fee as a returnable deposit. Where the appellant was unable to identify an exchange that would be acceptable to the member within the pool, it would either hold the exchange fee as a credit against future exchange fees or refund the money. The appellant could supplement the pool by buying in accommodation from a third party or by a developer making extra weeks available. A member could request an exchange in respect of that supplemental accommodation on payment of an exchange fee.
The appellant paid VAT in the UK on enrolment fees received from new members, on annual subscription fees received from existing members and on all exchange fee income received from members who had acquired a timeshare usage right in properties located in the EU, but not those outside the EU. The Spanish tax authorities considered that the services supplied by the appellant were directly connected with immovable property and were subject to VAT in the state in which the timeshare property was located, thus giving rise to double taxation.
Accordingly, from 1 January 2004, the appellant ceased to pay VAT in the UK on its exchange fee income in respect of Spanish properties and on its enrolment and annual subscription income from members whose holiday usage rights related to timeshare properties in Spain. The respondent commissioners raised VAT assessments with regard to the tax unaccounted for in 2004 on that income. The taxpayer appealed to the VAT and Duties Tribunal, which referred to the European Court of Justice for a preliminary ruling as to the correct place of supply of the appellant’s services.
Held: The court made a preliminary ruling.
Pursuant to article 9(2)(a) of Council Directive 77/388/EEC, the place where services were supplied by an association that organised the exchange between its members of their timeshare usage rights in holiday accommodation, in return for enrolment, annual subscription and exchange fees, was the place in which the property in question was situated.
Although the an annual subscription fee was a fixed sum that could relate to each case of use, that did not alter the fact that there was reciprocal performance between the members and the supplier of services. The annual fees could constitute consideration for the services provided by the association, even though members who did not use its services still had to pay the fees. It followed that the enrolment and annual subscription fees should be regarded as constituting consideration for participation in a system that was originally conceived to enable each member to exchange his or her timeshare usage right. The service supplied by the appellant facilitating the payment of fees represented the consideration paid by members for that service.
It was necessary to show a sufficiently direct connection between the supply of services and the immovable property. It would be contrary to article 9(2)(a) to place within its scope every supply of services that had even a tenuous link with immovable property. In the instant case, it was difficult to establish the relationship between the taxpayer and its members without taking into account the purpose of that relationship. Furthermore, timeshare usage rights were rights in immovable property and their transfer in exchange for the enjoyment of similar rights constituted a transaction connected with immovable property.
Article 9 required that goods and services were taxed as far as possible in the place of consumption. The services supplied were consumed in the place in which the immovable property was situated, not where the taxpayer was established. Regarding the fees, that property was the property in respect of which the scheme member had timeshare usage rights that were made available in the scheme.
H Foster (Solicitor), Melanie Hall QC and Mario Angiolini (barristers) appeared for the taxpayer; Z Bryanston-Cross (acting as agent) and Richard Hill (barrister) appeared for the UK government; S Spiropolous, I Bakopoulos, S Alexandriou and V Karra (acting as agents) appeared for the Greek government; B Plaza Cruz (acting as agent) appeared for the Spanish government; R Lyal and M Afonso (acting as agents) appeared for the European Commission.
Eileen O’Grady, barrister