[2010] UKFTT 320 (TC)

TC00607

Appeal number: TC/2009/10903

VAT – CONSIDERATION – The Appellant supplied game shoots to its director without charge – Tribunal decided that there was a direct link between the game shoots and the services supplied by the director – The supplies of game shoots were effected for consideration – The value of the consideration for each game shoot was ₤1,000 not ₤8,000 as asserted by HMRC – Appeal allowed in part.

FIRST-TIER TRIBUNAL

TAX 
	THIMBLEBY FARMS LIMITED	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

		TRIBUNAL: 	MICHAEL TILDESLEY OBE (TRIBUNAL JUDGE)					ROLAND PRESHO				

Sitting in public at Leeds on 21 April 2010

Nigel Ferrington, Senior VAT Consultant of Abbey Tax Protection for the Appellant

James Puzey counsel instructed by the General Counsel and Solicitor to HM Revenue & Customs, for HMRC

© CROWN COPYRIGHT 2010

DECISION

The Appeal
1.	The Appellant was appealing against an assessment for unpaid VAT. The assessment has been amended on several occasions. The current assessment was dated 25 February 2010 in the sum of ₤28,594 plus interest in respect of under declared output tax for periods from 12/06 to 03/08, and a misdeclaration penalty in the sum of ₤964 for the periods 12/06 and 12/07.
2.	The dispute concerned the proper VAT treatment of supplies of game shoots to Mr Shelley, the Appellant’s sole director. The Appellant was the exclusive owner of sporting rights on the Thimbleby Estate. The Appellant arranged 12 commercial shoots each season for which it charged ₤8,000 per shoot on which VAT was accounted.  In addition the Appellant provided Mr Shelley with 12 private shoots of which one was subsequently given to charity. The Appellant did not charge Mr Shelley for the private shoots, and no VAT was accounted for on the supplies.
3.	The Appellant asserted that the supplies of game shoots to Mr Shelley were not taxable supplies because no consideration was given for them. HMRC disagreed, contending that Mr Shelley provided a range of services in his capacity of director to the Appellant in consideration of the game shoots. According to HMRC, the monetary value of the consideration for the shoots was the price charged for the commercial shoots, namely ₤8,000 per shoot. Thus the private shoots were taxable supplies upon which VAT at the standard rate was chargeable. 
The Issues
4.	The principal issue in dispute was whether the Appellant’s supplies of game shoots to Mr Shelley were effected for consideration. HMRC contended that Mr Shelley’s services in his capacity of director constituted the consideration.
5.	The secondary dispute concerned the value of the supplies to Mr Shelley, which depended upon whether the supplies were effected for consideration. If they were, the Appellant argued that the value of each shoot to Mr Shelley was equivalent to the costs of making those supplies which was ₤1,000 per shoot. HMRC, on the other hand, contended that the value of each shoot was ₤8,000 which was the price charged by the Appellant to third parties.
The Evidence
6.	The Tribunal heard evidence from Mr Shelley and Mr Willey for the Appellant. Mr Shelley gave evidence on the workings of Thimbleby Estate and his role as a director. Mr Willey acted as the Appellant’s accountant, and explained the valuation of the game shoot as a benefit for income tax purposes.  The witness statements of Susan Way-Vautier and Heather Gibbs were admitted in evidence on behalf of HMRC. Mrs Way-Vautier was the assessing officer who carried out the investigation into the Appellant’s VAT returns. Mrs Gibbs conducted the review of the original assessment. Each party submitted a bundle of documents which were admitted in evidence.
The Law
7.	Article 2 of the VAT Directive 2006/112/EC provides that
“1. The following transactions shall be subject to VAT:
(a) the supply of goods for consideration within the territory of a
Member State by a taxable person acting as such”;

8.	Article 2(1)(a) has been incorporated in UK legislation in sections 4 and 5 of the VAT Act 1994. 
“4(1) VAT shall be charged on any supply of goods or services made in the United Kingdom where it is a taxable supply made by a taxable person in the course or furtherance of any business carried on by him.
4(2) A taxable supply is a supply of goods or services made in the United Kingdom other than an exempt supply”.
5(2) Subject to any provision made by Schedule 4 and to Treasury Orders under subsections (3) to (6) below –
(a) supply in this Act includes all forms of supply, but not anything done otherwise than for a consideration;”
9.	In this Appeal the principal issue was whether the supplies of game shoots to Mr Shelley were done otherwise than for consideration. The VAT Directive and the VAT Act 1994 do not define consideration. However, Article 73 of the VAT Directive indicates that consideration includes everything which the supplier has received or is to receive from the purchaser, the customer or a third party for the relevant supplies. Article 73 provides as follows:
“In respect of the supply of goods or services, other than as referred to in
Articles 74 to 77, the taxable amount shall include everything which
constitutes consideration obtained or to be obtained by the supplier, in
return for the supply, from the customer or a third party, including
subsidies directly linked to the price of the supply”.
 
10.	Section 19 of the VAT Act 1994 deals with valuation of supplies of goods or services. Sections 19(2) & 19(3) provide that
“(2) If the supply is for a consideration in money its value shall be taken to be such amount as with the addition of the VAT chargeable, is equivalent to the consideration.
 (3) If the supply is for a consideration not consisting or not wholly consisting of money, its value shall be taken to be such amount in money as, with the addition of the VAT chargeable, is equivalent to the consideration”.
11.	The effect of section 19(3)  means that Mr Shelley’s supplies of services as a  director is not ruled out as a potential candidate for  consideration for the game shoot supplies simply on the ground that it does not consist of money. 
12.	 Section 19(5) of the VAT Act 1994 states that
“For the purposes of this Act the open market value of a supply of goods or services shall be taken to be the amount that would fall to be taken as its value under subsection (2) above if the supply were for such consideration in money as would be payable by a person standing in no such relationship with any person as would affect that consideration”.
The Facts
13.	The Thimbleby estate consisted of Thimbleby Hall which was occupied by Mr and Mrs Shelley as their private home, and Thimbleby Farm which was owned by Thimbleby Farms Limited (the Appellant).
14.	In November 2005 Mr and Mrs Shelley purchased with private monies the entire share capital of Thimbleby Farms Limited. In a separate deal Mr and Mrs Shelley also bought Thimbleby Hall in their own names.
15.	The Appellant had 41 different sources of income which fell within three broad categories: mixed arable farming, the estate, and property letting. The farming activities were contracted out to a third party. The Appellant was responsible for the running of the estate and the property letting. In this respect the Appellant employed seven members of staff with tied accommodation which included gamekeepers, gardeners, a general estate worker, housekeeper, and a shepherd.  
16.	As part of its estate responsibilities the Appellant organised game shoots which comprised a mix of pheasant and partridge shooting. The Appellant purchased the birds from a game supplier, and provided catering as part of the shoot. The Appellant arranged for 24 shoots during a season, which was broken down into 12 commercial shoots and 12 private shoots reserved for Mr Shelley. The shoots were limited to eight guns with the commercial shoots being sold at ₤8,000 VAT inclusive per shoot. The Appellant did not charge Mr Shelley for his private shoots. The Appellant recovered VAT on the catering supplies associated with the private shoots, of which Mr Shelley was unaware. Mr Shelley restricted the private shoots to family and friends.
17.	Mr and Mrs Shelley were the shareholders of the Appellant. Mr Shelley held the position of the Appellant’s sole director, whilst Mrs Shelley acted as company secretary. Mr Shelley had no contract of employment with the Appellant. He received no salary from the Appellant for his services as a director. Mr Shelley, however, declared on his income tax returns the private shoots as a benefit for which a PD11 was issued by the Appellant. The value of the benefit declared was ₤1,000 per shoot which was the approximate cost of each shoot to the Appellant. Mr Shelley’s accountants advised him to declare the private shooting as a benefit. Mr Shelley declared no other benefit from the Appellant. No dividends were paid by the Appellant to Mr and Mrs Shelley.
18.	Mr Shelley was a wealthy individual who had a range of business interests outside Thimbleby Estate, which took him away from his home for about three months a year. He was not dependent upon the Appellant for his source of income. Mr Shelley viewed the Estate as a private investment and as a home for his family. Mr and Mrs Shelley had invested about ₤1.5 million in the Estate. He was a keen game shooter which was one of the reasons why he purchased the Appellant’s shareholding so that he could have access to the game shooting. 
19.	Mr Shelley described his role as the Appellant’s director as being responsible for the strategic direction of the company, a pointy farmer by which he meant that he would point out things that needed to be done to the Appellant’s employees, and acting as a host when he was available to the buyers of the commercial shoots. Mr Shelley asserted that he was not a farmer and did not have the competence to organise the day to day running of the estate which was left to the Appellant’s employees.
20.	  Mr Shelley stated that there was no agreement that he would receive 12 days shooting from the Appellant for his services as a director. He had no idea of how the 12 days were arrived at, although the documentation in the bundle suggested that this was the arrangement with the previous owner of the Estate. Mr Shelley considered that there was no link between his services as a director and the shoots. He would have provided those services regardless of whether he received the shoots.
21.	The final assessment dated 25 February 2010 was calculated on the basis that the value of the supplies to Mr Shelley equated to that amount charged commercially. According to HMRC the Appellant supplied game shoot services to the value of ₤96,000 to Mr Shelley during a season, of which ₤14,297 represented unpaid VAT. The assessment covered two seasons resulting in an assessment to the value of ₤28,594. Each season consisted of two VAT quarters 12/06 and 03/07, and 12/07 and 03/08. The VAT due for the 12/06 and 12/07 quarters was ₤10.723 per quarter, and ₤3,574 each for quarters 03/07 and 03/08.
22.	HMRC raised misdeclaration penalties for quarters 12/06 and 12/07 against the Appellant but mitigated the penalties by 70% on account of the complexity of the issue, co-operation given and compliance history, which produced a penalty of ₤482 for each quarter . 
Reasons
23.	The principal issue in this Appeal is whether the services supplied by Mr Shelley as a director constituted consideration for the Appellant’s supplies of game shoots. The European Court of Justice has addressed the  question of whether a supply of services is effected for consideration in several cases: Staatssecretaris van Financiën v Coöperatieve Aardappelenbewaarplaats GA (Dutch Potato Case) (Case 154/80) [1981] ECR 445 at 454, Apple and Pear Development Council v Customs and Excise Comrs (Case 102/86) [1988] STC 221,  Naturally Yours Cosmetics Ltd v Customs and Excise Comrs (Case 230/87) [1988] STC 879, Tolsma v Inspecteur der Omzetbelasting (Case C-16/93) [1994] STC 509 and Julius Fillibeck Söhne Gmbh & Co KG v Finanzamt Neustadt (Case C-258/95) [1998] STC 513.
24.	De Voil Indirect Tax Service at paragraph V.3.103 summarised the principles established from the cases, namely:
(1)	Interpretation of the term "consideration" cannot be left to the discretion of each member state.
(2)	There must be a direct link between goods supplied or services provided and the consideration received.
(3)	There must be a legal relationship between the supplier and recipient pursuant to which there is reciprocal performance, the remuneration received by the supplier constituting the value actually given in return for the supply.
(4)	Consideration must be capable of being expressed in money.
(5)	Consideration is a "subjective value".
(6)	There must be a reasonable correlation between the value of the consideration and the value of the goods or services.
25.	Principle 2 is the critical issue at stake in this Appeal, namely, whether there was a direct link between the supplies of game shoots to Mr Shelley and the supplies of services to the Appellant by Mr Shelley in his capacity as director. In this respect the Tribunal considers it instructive to examine how the Court of Justice has interpreted the concept of direct link.
26.	The facts of the Apple and Pear Development Council case were that the Council was established in 1966 by the Minister of Agriculture, Fisheries and Food at the instance of commercial growers of apples and pears. It was mandatory for a grower to register with the Council. The functions of the Council covered all manner of research and promotional activities which were likely to be of use to commercial growers of apples and pears, including the dissemination of information obtained by the Council and the rendering of advice on matters with which it was concerned in the exercise of its functions. The Council was required to exercise its functions in such manner as appeared to it to be likely to increase efficiency and productivity in the industry.
27.	The issue considered by the Court of Justice in Apple and Pear Development Council was whether the payment of the charges imposed compulsorily on growers by the Council amounted to consideration for the services rendered by the Council in pursuance of its general activities. According to the Court, in order for a supply of services to be regarded as effected for consideration, and thus to be taxable, there must be a direct link between the service provided and the consideration received. 
28.	The Court of Justice decided that there was no direct link in which case the exercise of its functions by the Council did not constitute a supply of services effected for consideration. The rationale for the Court’s decision was that the Council's functions related to the common interests of the growers. In so far as the Council was a provider of services, the benefits deriving from those services accrued to the whole industry. If individual apple and pear growers received benefits, they derived them indirectly from those accruing generally to the industry as a whole.  Moreover, no relationship existed between the level of the benefits which individual growers obtained from the services provided by the Council and the amount of mandatory charges they were obliged to pay under statute (the 1980 Order. The charges were recoverable from each individual grower as a debt due to the Council, whether or not a given service of the Council conferred a benefit upon him. The relationship between individual growers and the Council was governed by statute not by contract.
29.	 In Tolsma, the Appellant played a barrel organ on the public highway in the Netherlands. Although he was unable to claim any remuneration by right, he solicited voluntary donations from passers-by by rattling a collecting tin and sometimes by knocking at the doors of houses and shops to ask for payment
30.	Two questions were posed for the Court of Justice:
(1)	“Must a service which consists in playing music on the public highway, for which no payment is stipulated but payment is nevertheless received, be regarded as a supply of services effected for consideration within the meaning of art 2 of the Sixth Directive?”
(2)	“Is it relevant for the purpose of answering this question that although the payment received is not stipulated, it is nevertheless solicited and, in view of customary usage, can be expected, although its amount is neither quantified nor quantifiable?”
31.	The Court answered both questions in the negative. The Advocate General’s opinion is helpful in illuminating the reasons for its decision. In respect of the first question the Advocate General at [1994] STC 509 at  512 said:
“In my opinion, it is not possible in such circumstances to speak of a service 'for consideration'. In the absence of a price or some other value given in return which could be attributed in one way or another to an agreement on an exchange there is no direct link between the service and the sums received. Instead the receipts originate in voluntary decisions by certain passers-by to pay an amount of their choice.
Moreover, that is consistent with the fact that the 'service' itself is not defined contractually in any way as regards either its principle or its extent. The Commission rightly points out that Mr Tolsma plays music voluntarily and can terminate his performance at any time. Conversely, the passer-by can decide freely how long he wishes to remain on the spot and listen. 
For the same reasons, it is not possible to establish the necessary relationship between the benefits which the passers-by obtain from the services and the fact of payment and its amount. The persons concerned can decide freely, without being contractually bound, on all the factors which are of importance for that relationship. Thus many passers-by may deposit a comparatively large sum in Mr Tolsma's collecting tin without lingering, while others may listen to his performance for a considerable time without paying anything.
Contrary to the opinion of the German government, the necessary 'inherent link' between the 'service' and the 'consideration' can also not be deduced from the fact that the passers-by 'only give money because the music has been played to them first'. Some passers-by certainly might be induced by Mr Tolsma's performance to hand over certain sums of money to him. Others who would in any event have been prepared to make a donation might perhaps decide on a larger amount than if Mr Tolsma did not make music but merely asked for money. However, Mr Tolsma and the passers-by do not determine the service and consideration as mutually dependent elements of a bargain. In those circumstances the motives which underlie the greater or lesser inclination of passers-by to make donations are irrelevant”.
32.	In respect of the second question the Advocate General opined at [1994] STC 509 at  514:
“First, the circumstance that 'payment' is 'solicited' confirms that there is no legal entitlement to it. Consequently, that circumstance does not permit the present case to be equated with that of an agreed exchange of service and consideration.
The national court states that 'payment ... in view of customary usage, can be expected', but it is not entirely clear what precisely is meant thereby. If it meant that experience shows that a greater or lesser volume of payments can be expected, that would be of no relevance, since the amount donated by the individual passer-by, as can be seen from the very text of the question, is neither quantified nor quantifiable. The usage referred to by the national court would therefore not create any relationship between the performance by Mr Tolsma and the payment by the individual passers-by comparable with the relationship in the case of an agreed exchange of service and consideration”.
33.	The final case of Julius Fillibeck Söhne Gmbh & Co KG concerned a building company which provided free transport to work for employees who lived more than six kilometres from their workplace. The employees made no payment and no sum was deducted from their wages to pay for or contribute to the cost of the transport services. The question for the Court of Justice was whether the transport provided by an employer constituted a service "effected for consideration" within the meaning of art 2(1) of the Sixth Directive.
34.	The Court of Justice held at [1998] STC 513 at 523:
“It is clear from the order for reference that Fillibeck provides transport for its employees from their homes to their workplace when they are more than a certain distance apart and that the employees do not make any payment, nor is any sum deducted from their wages in respect of that service.
Furthermore, since the work to be performed and the wages received are independent of the use or otherwise by employees of the transport provided to them by their employer, it is not possible to regard a proportion of the work performed as being consideration for the transport services.
In those circumstances, there is no consideration which has a subjective value and a direct link with the service provided. Consequently, the requirements relating to a supply of services effected for consideration are not satisfied.
The reply to the first question is therefore that art 2(1) of the Sixth Directive is to be interpreted as meaning that an employer who provides transport for employees free of charge from their homes to the workplace where they are more than a specified distance apart, in the absence of any real connection either with the work performed or the wages received, does not effect a supply of services for consideration within the meaning of that provision”.
35.	The Tribunal identifies from the above cases the following features that define a direct link:
(1)	The recipient derives a specific identifiable benefit from the services supplied (Apple and Pear Development Council).
(2)	The value given and the service provided constitute mutually dependent elements of a bargain struck between the parties (Tolsma). 
(3)	The consideration given must be quantified or quantifiable (Tolsma).
(4)	There must be a real connection between the service supplied and the consideration (Julius Fillibeck).
36.	 The Appellant argued that there was no written agreement with Mr Shelley to supply game shoots in return for his services as a director. In the Appellant’s view, the game shoot supplies and the services provided by Mr Shelley in his capacity of director were independent of each other and as such there was no direct link between them.
37.	The Court of Justice placed weight in its decisions dealing with consideration on whether an agreement existed about the elements of the bargain struck between the parties. There is, however, no requirement for this agreement to be in writing.  The Tribunal is entitled to infer the existence of such an agreement between the Appellant and Mr Shelley from the facts of the case. 
38.	The Tribunal finds the following facts:
(1)	The Appellant agreed to supply Mr Shelley with a fixed number of game shoots, namely 12, in any one sporting season. Mr Shelley secured the game shoots by virtue of his position as the Appellant’s director. The game shoots were organised for Mr Shelley’s benefit. He chose the guests to accompany him on the shooting party.
(2)	Mr Shelley provided the Appellant with strategic direction and overall operational management by pointing out requisite tasks. He also acted as host of the commercial shoots, whenever he was available. These tasks were essential to the Appellant’s viability, and could only be performed by Mr Shelley being the sole director of the Appellant.
(3)	Mr Shelley accepted that the facility to shoot game was a principal reason for purchasing the Appellant’s shareholding with his wife. No weight was, therefore, attached to Mr Shelley’s assertion that he would have provided his services as a director regardless of whether he received the game shoots. In the Tribunal’s view he would not have bought the shareholding but for the sporting rights owned by the Appellant.
(4)	The supply of game shoots was the sole benefit derived by Mr Shelley from the Appellant. 
(5)	Mr Shelley declared in his income tax return a value for the benefit of the game shoots. Likewise the Appellant issued Mr Shelley with a P11D confirming that the game shoots were a benefit associated with Mr Shelley’s position as a director, and the value of the benefit.
39.	The Tribunal holds from the above facts that there was a real connection between the game shoots and Mr Shelley’s services as a director. Mr Shelley received the supplies because of his position as a director. The game shoots were set up solely for Mr Shelley’s enjoyment. He decided the guest list for each event. Mr Sheeley derived from the Appellant an identifiable benefit in the form of game shoots which were specific in number, and constituted his sole reward from his position as director. In return the Appellant received from Mr Shelley strategic direction, operational management, and the hosting of commercial shoots, which were critical for the Appellant’s well-being as a company. The Appellant did not obtain these services from elsewhere. Mr Shelley’s services were capable of being quantified as demonstrated by the monetary value placed by the Appellant on his services of ₤12,000 per annum which equated with the Appellant’s costs of putting on the game shoots for him. 
40.	The Tribunal finds that a bargain was struck between the Appellant and Mr Shelley, namely that the Appellant would supply Mr Shelley with 12 game shoots in each sporting season in return for his services as a director. The Tribunal is, therefore, satisfied that there was a direct link between the supplies of game shoots and Mr Shelley’s services as a director. In those circumstances the Tribunal decides that the supplies of game shoots to Mr Shelley were effected for consideration within the meaning of the VAT Act 1994.
41.	The question that now arises is the value of the consideration given by Mr Shelley for the game shoot supplies. The Appellant submitted that the value was that declared by Mr Shelley in his income tax return, namely ₤12,000 for 12 shoots. This was the amount agreed between the parties, and represented the subjective value of the supplies. In the Appellant’s view the value of ₤96,000 attributed to the supplies by HMRC was not arrived at on a subjective basis and bore no relationship to the true worth of the services provided by Mr Shelley to the Appellant.
42.	The figure of ₤1,000 for each shoot equated to the costs to the Appellant of putting on the shoot. The figure included the costs of the gamekeeper, the beaters, the game birds and the catering.
43.	HMRC considered that the open market value of the game shoots was the appropriate measure for the consideration given by Mr Shelley. The Appellant sold game shoots commercially for ₤8,000 (VAT inclusive) which when multiplied by 12 events produced the figure of ₤96,000. HMRC asserted that the Appellant’s valuation of ₤1,000 was restricted to the computation of benefits in kind for income tax purposes, and had no relevance for the valuation of consideration under the VAT Act.   HMRC acknowledged that the size of the consideration must accord with the subjective value of the supplies in question. In this Appeal HMRC submitted that the Appellant had adduced no compelling evidence that the value of ₤1,000 had been subjectively agreed between the parties. 
44.	The question of the correct approach for determining the value of consideration under the VAT regime has been examined by the Court of Justice. The starting point is  the Dutch Potato case, in which the Court ruled that
“….such consideration is a subjective value since the basis of assessment for the provision of services is the consideration actually received and not a value assessed according to objective criteria”.
45.	The concept of subjective value gives priority to the actual price paid and or the actual bargain struck between the parties. At first sight it is at odds with the term open market value as used in the domestic VAT legislation. The Advocate-General's opinion in Naturally Yours Cosmetics Ltd v Customs & Excise Commissioners (Case 230/87) [1988] STC 879 at 890-892  addressed the apparent contradiction between subjective value and open market value:
“52 Where the transaction is an exchange, the value of what is supplied by one party represents, in the final analysis, the consideration for what is supplied by the other.
53. What makes the question somewhat less clear is the fact that the United Kingdom legislation refers to the open market value of the goods delivered or the service provided as the basis of assessment.
57. But the way in which the commissioners have applied the United Kingdom provision does not, strictly speaking, involve reliance, for the purpose of evaluating the consideration, on the concept of open market value in the strict sense of that term, as a fictitious concept dissociated from the terms of the transaction in question and from the synallagmatic relationship established between the two parties to the contract.
64. In fact, by providing that, in the general case of supplies of goods and the provision of services, the basis of assessment comprises 'everything which constitutes the consideration which has been or is to be obtained by the supplier', the legislature left open the method of determination or evaluation of that consideration in those cases where it did not consist of a monetary payment….. 
65. That 'method' must be the one which proves most direct and least distorting and which is most in conformity with the general scheme of the Sixth Directive, as interpreted by the court (in particular, in Staatssecretaris van Financiën v Coöperatieve Aardappelenbewaarplaats GA, cited earlier).
66. In certain cases, reliance on the concept of open market value will, as stated earlier, be the only way of evaluating the consideration and avoiding the unjustified tax distortions or advantages which would otherwise result.
68. But, as I observed in my opinion in Direct Cosmetics Ltd and Laughtons Photographs Ltd v Customs and Excise Comrs Joined Cases 138/86 and 139/86 [1988] STC 540 at 549, the normal value will only have to be taken into account where no price has been paid by the purchaser and where it is impossible (or at least, excessively difficult) to attribute to the consideration, by some other means, its true value for the purposes of the transaction, or, at least, its real market value. At this point it must be stated that the expression used in the United Kingdom legislation and in the English version of the Sixth Directive, 'open market value', which we could assimilate to 'ordinary market value', seems to me to be more felicitous than the expression 'normal value' used in the Romance-language versions of the directive. It is only where there is no market that it is necessary to have recourse to a value other than the real value, or to a deemed value.
69. In any event, being a tax on consumption VAT must be levied as precisely as possible on the actual amount spent by the consumer and, accordingly, reference to open market values rather than to real values should be permitted only (otherwise than in cases where that approach is expressly provided for) where it is impossible to follow some other procedure which comes closer to determination of what the court has called the 'subjective value' of the consideration.

70. The court has confirmed this in the judgment which it gave very recently (on 12 July 1988) in the Direct Cosmetics case [1988] STC 540 at 574 (para 53) to which I referred, in which it held that 'the open market value for the purposes of the system established by the derogating measure in question must be understood as meaning the value that is closest to the commercial value on a sale by retail, that is to say the actual price paid by the final consumer'.
71. In the present case an approximation of that kind is possible in so far as a value can be accurately (although indirectly) attributed, within the relationship between the parties, to the service provided as consideration for the goods supplied, without its even being necessary, contrary to what might be suggested by the terms of the domestic provision (and particularly by the normal translation thereof into the various Romance languages) pursuant to which the commissioners took their decision, to refer to the concept of normal value or open market value.
72. Since the compatibility of that provision with Community law is not at issue here, it is pointless to make judgments of a general nature concerning the terms in which it is drafted. Accordingly, in the reply which I shall suggest shortly I shall confine myself to indicating what seem to me to be the principles to be followed in interpreting art 11(A)(1)(a) of the Sixth Directive, for the purpose of deciding the present case.
73. I would merely add that the value of the service incorporated in the consideration must not be determined by reference to what it produces but rather to the subjective value attributed to it by the parties, with the result that the value is not dependent on the greater or lesser success, or in other words the greater or lesser profit, of the parties held. In the same way, an architect's plan has a price, regardless of whether it is the one selected, as does the opinion given by a university professor, regardless of whether or not the person who consulted him wins his case”.
46.	The Advocate General’s opinion is directed at the compatibility in the United Kingdom legislation with the VAT directive in respect of determining the valuation of consideration. The Advocate General expresses the view at paragraph 57 that the application of the concept open market value should not operate independently from the terms of the transaction in question and from the understanding reached by the parties to the contract.  At paragraphs 68 and 69 the Advocate General suggests that  open market value should be used as a last resort where no price has been paid by the purchaser and where it is impossible (or at least, excessively difficult) to attribute to the consideration, by some other means, its true value for the purposes of the transaction, or, at least, its real market value. 
47.	De Voil at V3.152 has summarised the principles underpinning the valuation of consideration as determined by the Court of Justice as such:
(1)	 The value to be used is the value (if any) actually assigned to the consideration by the parties (i.e. a subjective value) rather than a value arrived at by objective criteria (i.e. an open market value).
(2)	If the recipient of the consideration has attributed a particular value to the consideration, and the other party has not, the value attributed by the recipient ought to be treated as the value of the consideration.
(3)	There is no obvious reason for departing from this basis of valuation in the reverse circumstances;
(4)	 Any purported subjective attribution must be genuine if it is to be effective as such.
(5)	 Open market value is preserved as a basis of valuation where it is impossible, or excessively difficult, to attribute a subjective value to the consideration.
48.	In respect of this Appeal the Tribunal finds that the parties had agreed the value attributed to the consideration for the game shoots supplied to Mr Shelley, which was ₤1,000 per shoot. This agreement was evidenced by the issue of the P11D by the Appellant to Mr Shelley, and the declaration of Mr Shelley in his income tax return. Further the ₤1,000 was not an arbitrary figure, in that it represented the costs to the Appellant of putting on a game shoot. Finally the value of ₤12,000 for twelve shoots bore a reasonable correlation to the value of the services supplied by Mr Shelley. The evidence showed that Mr Shelley’s participation as a director was a part-time activity, which did not consume much of his time. Mr Shelley did not rely on his appointment as the Appellant’s director for his source of income. 
49.	HMRC’s counter proposal that the valuation of the consideration should be based on the open market value of a shoot, namely the price charged to commercial customers, lacked substance. Whilst the Appellant has the burden of proving on the balance of the probabilities that ₤1,000 represented the subjective value, once the Appellant established the existence of a prima facie agreement regarding the consideration, the evidential burden shifted to HMRC to undermine the credibility of that agreement.  Mrs Way-Vautier’s reasons for rejecting the agreement were that the principle of benefits in kind was relevant only for income tax but not for VAT, and that the Appellant was making a supply to just another customer. HMRC counsel at the hearing pursued another line of argument inferring that the agreement may not be genuine because of the close connection between Mr Shelley and the Appellant. The Tribunal considers Mrs Way-Vautier’s reasons inadequate, in that they did not challenge the existence of an agreement between the parties about the value of the consideration given for the game shoots. The line pursued by counsel was not backed up by evidence.
50.	The Tribunal is, therefore, satisfied on the facts found in paragraph 48 that the parties had agreed upon a value of ₤1,000 for the consideration of a game shoot, which met the legal requirement of subjective value. The Tribunal considers that the value of ₤1,000 was exclusive of VAT.
51.	The Appellant put forward a further argument that HMRC’s case on no consideration was in effect a proposition that the arrangements between Mr Shelley and the Appellant amounted to a salary sacrifice. According to the Appellant, HMRC’s internal manuals state that such arrangements did not constitute consideration. The Tribunal did not examine the salary sacrifice argument because of the Appellant’s evidence that Mr Shelley did not take a salary from his position as director, and that Mr Shelley did not regard the game shoots as a quid pro quo for not taking a salary. Thus there was no evidence of a salary sacrifice.
52.	HMRC imposed misdeclaration penalties for quarters 12/06 and 12/07, which   HMRC mitigated by 70% in view of  the complex issues involved, co-operation given and compliance history. The Appellant asserted that it had a reasonable excuse for not accounting for VAT on the supplies of game shoots to Mr Shelley. In the Appellant’s view a reasonable business person would not have been aware of the complex issues on the meaning of consideration for VAT supplies. The Tribunal considers that the excuse put forward equated to ignorance of the law which could not amount to a reasonable excuse in law. The Tribunal also finds that there are no further grounds to mitigate the penalty. The Tribunal considers that HMRC has properly reflected the scale of mitigation in this Appeal with its reduction of 70%. The Tribunal upholds the misdeclaration penalties subject to the appropriate adjustment following its decision on the principal dispute.
Decision
53.	The Tribunal decides that
(1)	There was a direct link between the supplies of game shoots and Mr Shelley’s services as a director. 
(2)	The supplies of game shoots to Mr Shelley were effected for consideration within the meaning of the VAT Act 1994.
(3)	The value of the consideration for a supply of a game shoot to Mr Shelley was ₤1,000 (VAT exclusive).
(4)	The value of the disputed supplies for the periods covered by the assessment was ₤24,000 (VAT exclusive).
(5)	 The Appellant had no reasonable excuse in respect of the imposition of misdeclaration penalties and that further mitigation of the penalties was not justified. 
54.	The Tribunal directs that the assessment dated 25 February 2010 and the misdeclaration penalties for quarters 12/06 and 12/07 be adjusted accordingly to reflect the Tribunal’s decision on the value of the consideration. Leave is given to the parties to apply to the Tribunal to fix the quantum of the assessment and the penalties, if they are unable to agree the respective amounts.
55.	The Tribunal, therefore, allows the Appeal in part.
56.	This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.   The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

                                

MICHAEL TILDESLEY OBE
TRIBUNAL JUDGE 
RELEASE DATE: 8 July 2010

MAN/