VAT – Tour Operators Margin Scheme – Respondent marketing hotel accommodation through website – Whether liable to VAT under scheme as tour operator supplying designated travel service – Whether making supply in own name or agent for hotel operators – Section 53 of Value Added Tax Act 1994 and article 3(1) of Value Added Tax (Tour Operators) Order 1987 – Article 26 of the Sixth Council Directive 77/388/EEC – Appeal allowed
The respondent company operated a website through which it marketed hotel, villa and apartment accommodation in resorts in the Mediterranean and Caribbean pursuant to agreements with hotel operators. Most sales were made to travel agents although some were made direct to holidaymakers. The respondent’s sole obligation under those agreements was to “deal accurately with the request for accommodation bookings and relay all monies, which it receives from the principal’s client(s)… which are due to the principal”. The hotel operator in turn undertook to provide accommodation as described in its advertising material, to honour accommodation bookings, or provide alternative accommodation where it could not do so, and to indemnify the respondent in respect of any liability to clients that arose as a result of certain matters relating to the hotel operator’s breach of the agreement or wrongful or negligent omission. The respondent operated its own booking conditions, which applied to all customers; these stated that it acted as booking agent on behalf of all hotels, apartments and villas features on its website and that the customer’s contract would be made with those accommodation providers. Customer payments were made into the respondent’s own account, not that of the hotel; those payments included the respondent’s commission in an amount that it set for itself and did not disclose to the hotel.
The respondent appealed against VAT assessments in excess of £7m issued by the appellants, for accounting periods between December 2005 and June 2007, in respect of output tax under the Tour Operators Margin Scheme; that scheme was set out in section 53 of the Value Added Tax Act 1994) and the Value Added Tax (Tour Operators) Order 1987, implementing Article 26 of the Sixth Council Directive 77/388/EEC.
Dismissing the respondent’s appeal, the first-tier tribunal held that the respondent was a “tour operator” within section 53 of the 1994 Act, since it was not simply supplying agency services to the hotel but was itself supplying the holiday, and was therefore required to account for VAT in the UK in respect of its supply of a designated travel service within article 3(1) of the 1987 Order. In reaching that decision, it considered that bit should take all the facts into account, focusing not only on the wording of the various contractual documents but also on the actual behaviour of the respondent.
That decision was reversed by the Upper Tribunal, which held that, purely as a matter of construction of the relevant contracts, the respondent was acting as agent for the hotel operators and was itself not liable to VAT. The appellants appealed.
Held: The appeal was allowed.
The correctness or otherwise of the appellants’ VAT assessments depended on whether the case fell within the Tour Operators Margin Scheme. That in turn depended on whether the respondent was a “tour operator” for the purposes of the 1987 Order and whether it was supplying a “designated travel service” within article 3(1) of the 1987 Order. Those two questions were so closely linked as to be inter-dependent and were essentially questions of fact. Although the 1987 Order did not define the expression “tour operator”, the meaning was to be determined was to be determined by reference to section 53 of the 1994 Act, read with Article 26(1) of the Sixth Directive, and the definition of “designated travel service” in article 3(1) of the 1987 Order. Section 53(3) of the 1994 Act included within the definition of a tour operator any person providing, for the benefit of travellers, services of any kind commonly provided by tour operators and did not limit the meaning of the term to travel agents acting as principals. Article 26(1) of the Sixth Directive required VAT to be applied, in accordance with a margin scheme, to the operations of a travel agent that dealt with customers in its own name and used the supplies and services of other taxable persons in the provision of travel facilities; it did not apply to travel agents acting only as intermediaries. A designated travel service, as defined by article 3(1) of the 1987 Order, was a supply, by a tour operator, of goods or services acquired for the purposes of his business and supplied for the benefit of a traveller without material alteration or further processing. A travel agent who acted only as an intermediary would not be making a supply of a designated travel service, since, as an intermediary, it would not be supplying services for the benefit of a traveller that it had acquired for the purposes of its business. However, a travel agent that dealt with customers in its own name and used the supplies and services of other taxable persons in the provision of travel facilities was likely to be making a supply of a designated travel service and, prima facie, would be a tour operator for the purposes of the 1987 Order.
The first-tier tribunal had been correct to have regard to all the facts of the case in order determine whether the respondent was a tour operator for the purposes of the 1987 Order and whether it was supplying a designated travel service. Those facts included not only the various contractual documents but also the behaviour of the respondent. The concept of making a supply for the purposes of VAT was not identical with the performance of an obligation for the purposes of the law of contract; the true construction of a contractual document would not always answer the question as to what was the nature of the VAT supply in the case: Commissioners for HM Customs and Excise v Reed Personnel Services [1995] STC 588 applied. Since the supply of one or more designated travel services as part of a single transaction was to be treated, under article 3(2) of the 1987 Order, as a single supply of services, it was necessary to look at the whole package provided by the respondent in order to determine whether it was acting only as an intermediary; it was not appropriate to concentrate only on particular elements, such as the supply of accommodation, to the exclusion of others.
Having regard to the whole package, the first-tier tribunal had been correct to conclude that the respondent was a tour operator supplying designated travel services. Factors of particular weight were that the respondent: (i) dealt with holidaymakers in its own name in respect of the use of its website and in the services of its local handling agents, which it retained at the locations where the accommodation was situated; (ii) dealt with holidaymakers in its own name, and not as intermediary, in cases where the hotel operator was unable to provide accommodation as booked and the holidaymaker rejected the alternative accommodation offered; (iii) dealt with matters of complaint and compensation in its own name and without reference to the hotel operator; (iv) used the services of other taxable persons, namely the hotel operators, in the provision of the travel facilities marketed through its website; (v) in relation to VAT, dealt with hotel operators in a manner inconsistent with the relationship of principal and agent, in that it did not provide the hotels with invoices in respect of its commission or even notify them of the amount of that commission, so making it impossible for the hotel operators to comply with their obligations to account to the tax authorities of that member state in accordance with the Sixth Directive; and (vi) treated deposits and other moneys received from holidaymakers and their agents as its own moneys.
Sam Grodzinski QC and Eleni Mitrophanous (instructed by the legal department of HMRC) appeared for the appellants; David Milne QC and Nicola Shaw QC (instructed by Pinsent Masons LLP) appeared for the respondent.
Sally Dobson, barrister
