DECISION
1.
This appeal relates to the nature of the VAT purposes of the provision
made by Sandwell Metropolitan Borough Council (“Sandwell”) at its cemetery and
crematorium gardens for the commemoration of the deceased.
2.
Sandwell offers the relatives of the deceased a number of different
options. The range extends from the placement of a plaque on a wall in a garden
close to which ashes may be scattered, to the housing of an urn containing the
ashes in an impressive pink granite above ground vault with a plaque on its
front.
3.
Sandwell makes this provision under an agreement with the relatives of
the deceased which provides that the memorials will remain in place for 10
years (which period may be extended by the payment of a further fee). The
agreement describes the period for which the memorial is retained as a period
of lease.
4.
Sandwell's primary argument is that its supplies are exempt supplies of
land, HMRC’s primary argument is that Sandwell makes supplies of
"commemorative focal points" which are standard rated. Each party has
a number of subsidiary arguments.
The facts
5.
We draw the following facts from the evidence of Brendan Day, the
Bereavement Services Manager at Sandwell. He was responsible for a team of 60
who together managed and maintained the cemeteries, crematoria, registrars and
coroners’ services of Sandwell. We found his evidence expert and informative.
6.
There are 262 crematoria in the UK of which 60 are privately run.
7.
Sandwell provides to the public the service of the cremation of the
bodies of the dead. In addition it offers to the public the interment,
scattering or retention of cremated remains within the grounds of its
crematoria, the provision of memorials within those grounds, information and
advice to the bereaved, and the use of a chapel. Separate charges are made for
cremation, for the burial of remains (scattering ashes is free), and for the
provision of memorials. Where cremation takes place at one of its crematoria
Sandwell imposes no obligation to purchase a memorial or to inter or scatter
the remains in its gardens.
8.
Sandwell also supplies memorials for those whose bodies have not been
cremated by it.
9.
Originally the scattering of ashes was accompanied only by an entry in a
book of remembrance, but in recognition of the fact that some families needed a
specific location to visit as a focal point, Sandwell began providing memorials
within its crematorium grounds in 1972.
10.
Initially remains were buried beneath the memorial, but the land so used
could not be reused because of the restrictions in section 25 Burial Act 1857
on the removal of buried remains. Thus the burial of remains used up limited
space. If instead remains were stored above ground they could be removed on the
expiry of a term. Thus although some memorial options allow for the burial of
the ashes beneath the memorial, Sandwell promotes those which do not.
11.
The memorials are arranged in the gardens in a uniform manner so that
particular types are grouped together. A customer may express a preference for
a memorial to be in a particular location and Sandwell may try to accommodate
that wish, but the last word is with Sandwell. Memorials other than those
provided by Sandwell are not permitted, and memorial masonry is not supplied by
Sandwell for use elsewhere.
12.
The grounds of the crematorium and cemeteries are open from 9 am to 7 pm
(summer) and 5 pm (winter), but pedestrian access is possible day and night.
13.
Generally those who wish for some memorial for a deceased person will
discuss the options after the cremation with a member of Mr. Day’s department.
They will then decide upon an option and complete an order form. Apart from the
contents of the brochures, this is the only written record of agreement between
the customer and Sandwell. The order form describes the arrangement as a lease.
Mr Day appended a brochure to his witness statement which described the various
options. We think it likely that the brochure, or something very similar to it,
would have been provided to those who signed an order form. A single price is
paid by the customer which is detailed on the order form.
14.
Sandwell orders the inscribed plaques from stonemasons. The contract
with the customer makes a single charge for the provision of the memorial which
exceeds the cost to Sandwell of the inscribed plaque.
15.
All the options provided by Sandwell have two features in common: (1) a
stone plaque with an inscription upon it, and (2) a lease for an initial period
of 10 years which may be extended, at commencement or later by payment of a further
fee.
16.
At the end of the lease period the plaque, and, if stored above ground,
the ashes, are removed from their location. The customer is asked if he wishes
to collect the plaque. It is kept for 12 months and if not collected is
destroyed. Only about 10% of customers collect the plaque at the end of the 10
year period. If the customer does not collect stored ashes they are scattered
in the grounds.
17.
During the lease period the plaque is generally screwed in position with
tamper proof screws. Sometimes customers move house during the lease period and
wish to remove their deceased's ashes to a new location. In such circumstances
the plaque may also be taken away.
18.
We have recorded Mr. Day’s evidence that the reason why Sandwell started
to provide memorials in 1972 was because some families needed a specific
location to visit as a focal point. We accept Mr Day’s description of the
object of a typical customer, namely to have "a location where they can
come and remember their loved one". In some cases a memorial would be
acquired when the remains were not within the grounds: an attractive comforting
location was important to customers. But he said that the physical presence and
appearance of memorials were also important. What was needed was something to
commemorate a loved one in a suitable location.
The different types of memorial
(a) Memorials which do not contain or cover remains
19.
The Rose Nameplate is an inscribed plastic plaque attached to a stake by
a rose bush in a rose garden. Ashes might be scattered on the adjoining lawn.
It would be possible to move the nameplate and the stake by hand. Mr Day said
that they would not be moved during the lease period. (We note for completeness
that whilst Mr Day’s witness statement indicated that the agreement was for a
period of 10 years, the order form in the bundle before us indicated a five
year period.)
20.
The Wall Mounted Plaque is an inscribed granite tablet attached to a
wall between two rails. Each plaque is supported by the one beneath it. Ashes
may be scattered in the nearby garden.
21.
The Wall Mounted Plaque with Flower holder is similar but the tablets
(and flower holders) are slotted into individual brackets secured by screws.
22.
The Ashby Garden Memorial is a modest (5–10kg) inscribed plaque resting
on a concrete base located along the path edge. They are held in place by their
own weight.
23.
The Memorial Vase is a fairly heavy piece of white marble with a flower
holder on the top and a slanting side in which there is a recess for the
inscribed tablet. It is cemented to a concrete base located along path edges.
Ashes can be scattered behind it.
(b) Memorials which may contain or cover ashes
24.
The Path Edge Plaque is a low granite block with a flower holder and an
opening for an inscribed plaque. It is located along path edges and cemented to
a concrete foundation. It would be possible, but not particularly easy, to move
it by hand. Ashes may be scattered nearby but there is an option (for a
separate fee) to bury remains beneath the memorial.
25.
The Black Granite Plaque (and the White Marble Vault) are variations on
the Path Edge Plaque with a below ground chamber for up to two sets of ashes
which is sealed by the inscribed plaque.
26.
The Sanctum and the Columbarium are quite substantial. They are above
ground chambers in a granite or brick edifice in which ashes may be kept. The
chamber is sealed by a large inscribed plaque. The Columbariun structure houses
a number of separate above ground chambers (up to four high and four wide); the
Sanctum is a lower structure providing housing for only one or two sets of
ashes. The structures are expected to last for 50 years or more.
27.
In the remainder of this decision we use the “plaque” or “tablet” to
refer to the inscribed piece of stone (generally black granite), and the
“memorial” to refer to any identified structure to which it is affixed during
the term.
The agreement between Sandwell and the customer.
28.
The order form, signed by the customer, is of two pages. The heading of
the form indicates the type of memorial. Below that is half a page for the
precise details of the inscription to be put on the plaque. Then the following
words appear (the square brackets are ours and indicate differences between
the words for different types of memorial) :
"Please supply the following memorial with the
inscription as set out above. I understand and agree that the [plaque/memorial]
shall be subject to the conditions as follows:
Conditions of lease [these three words are not in the
Path Edge Plaque form].
1. The authority reserves the right to amend any
inscription as may be necessary
2. Positioning the [plaque/memorial] shall be determined
by the Memorial Manger within the crematorium Grounds.
3. [Memorials/plaques] shall remain in place for a period
of 10 years from the date of erection. After this period a renewal letter shall
be sent requesting a renewal fee for a further 10 years
4. If the renewal fee is not received within three months
of the due date then the [memorial/plaque] will be removed
5. A [flower holder/container] is provided for each
memorial. Other types of floral containers, potted plants etc, are NOT
permitted.
6. An additional inscription may be added at any time
within the period of lease, at the current cost at the time of application.
This is in the form of a replacement memorial.
7. Please notify the Bereavement Services Office of any
change of address - failure to do so may result in non-receipt of renewal.
8. The inscribed tablet is the property of the purchaser
who may collect the plaque after the expiry of a lease period which is not
intended to renew.
I, the undersigned agree to the conditions above.
Signed....”
On the second page there is a description of the relevant
memorial and details of the cost. There is a box for office use in which the
receipt number, authorisation code, memorial number and the total amount paid
are recorded by Sandwell's officials.
29.
The brochure supplied by Mr. Day describes the memorials and has
pictures of them. It speaks of the "period of lease" and says that
"all memorials are subject to a period of lease” Mr. Day told us that he
regarded the council as having no right to move a plaque during the currency of
the lease, and that it had not done so. The same would be true of any memorial
to which a plaque was affixed. We believe that such would be the understanding
of the agreement by the parties at the time it was made, even though not
expressly stated.
30.
In our judgment therefore the understanding and intention of the parties
was that, in relation to memorials other than the Rose Garden Memorial (and
possibly the simpler wall mounted plaque), the customer would obtain an
exclusive right to the memorial (and the space occupied by it and the plaque)
for the relevant period; such right being subject to conditions preventing the
removal or alteration of the memorial or the plaque by the customer. That seems
to us to be an intention to grant an interest in land.
31.
Section 2 Law of Property (Miscellaneous Provisions) Act 1989, provides
that “a contract for the sale… of an interest in land can only be made in
writing and only by incorporating all the terms which the parties have
expressly agreed in one document…”. It seems to us that all the terms
expressly agreed were contained in the order form although there were intended
terms which were not expressed. The contract thus seemed to us to satisfy the
provisions of section 2. No formal deed granting the interest was made. Thus
there was no formal conveyance of a legal interest in the land to the customer.
32.
We concluded that the effect of the order form, taken with payment and
the surrounding circumstances is that a contract was formed between Sandwell
and the customer under which in particular:
(1)
Sandwell would determine where the memorial would be:
(2)
once that determination had been made the customer would acquire a 10
year lease of the land which comprises the space occupied by the plaque and, if
it is attached to a memorial, by the memorial (of which land the memorial would
form part). During this period Sandwell were not permitted to move the memorial
or the plaque;
(3)
the customer would be obliged to use the memorial only for the purposes
of a memorial to the deceased (containing if relevant only ashes);
(4)
the customer would be given title to the plaque (the tablet) on its
fixation but agree not to remove it without the consent of Sandwell during the
currency of the lease;
(5)
the customer would have the right of access on foot to the space
occupied by the memorial and the plaque at any time.
33.
Even if the contract was unenforceable and no right over land was
granted under English law, the result of the transaction was that in return for
the fee the customer in fact received the benefits described above.
34.
From these conclusions we except the Rose Nameplate (and possibly the
wall mounted plaques if, because each rests on the one beneath it, that means
that if a tablet beneath a particular plaque is removed at the end of its term,
the plaque moves down) . The Rose Nameplate is a plaque affixed to a stake near
a rose bush. It seemed likely that wind, weather and gardening would be
expected to cause it to move, and it cannot have been understood or intended
that the customer would acquire an interest in any particular space. Rather the
customer was given a licence to keep the plaque in roughly the same place in
the rose garden for 10 years.
The parties’ arguments.
35.
HMRC say that when a customer pays a single charge she or he receives
not only a physical memorial but the right to place it in the grounds of a
particular crematorium for 10 years. They contend that there is a single
supply, not because a principal/ancillary analysis applies, but because the
elements of the supply are so clearly linked that they form a single
indivisible supply which it would be artificial to split. In rejecting the
principal/ancillary analysis they contrast the supply of the tablet with the
supply of the right to place it in the grounds. They say that neither is
subservient to the other.
36.
They categorise the single supply as a supply of a commemorative focal
point. They say that that supply cannot be characterised as the supply of land
because such a supply would not meet the fundamental aim of the transaction for
which the tablet is needed.
37.
Mr. Singh says that a supply falls in article 13B(b) of the Sixth
Directive if it is essentially the passive provision, in return for payment, of
the right to occupy land as owner and to exclude others. He says that the
single transaction between Sandwell and the customer does not have the object
of such provision: the customer does not want space but something to
commemorate the deceased - a physical memorial to which appearance is
important. Any right granted by Sandwell to use any space was very restricted.
The location of the memorial played second fiddle to the type of memorial. What
was provided was not the right to occupy land as owner.
38.
Even if there were a land element within the single complex transaction,
the dominant feature of the transaction was commemoration: the brochure
described the transaction as being for "a lasting reminder of a loved one
and a tribute to their life". The appearance of the memorials - marble and
granite - is important. An average customer sought precisely a combination of
the space and the physical memorial. That could not be classified as a supply
of land.
39.
Mr. Mitchell argues that:
(1)
each memorial and its tablet is so fixed to the land such as to be part
of it and to constitute immovable property. He relies in this context on Maierhofer
v Finanzamt Augsburg-Land C315/00. He says that a lease of the Memorial
without the tablet would clearly be a letting of immovable property; the only
complicating factor was that the customer could collect the tablet at the end
of the lease; he says that a lease of the Memorial without a tablet would
clearly be a letting of immovable property;
(2)
in any event during the term of the lease he says that the customer does
not have possession of the tablet or the right to dispose of it as owner;
(3)
the right to the tablet (whether arising immediately or only at the end
of the lease) was ancillary to the letting of the memorial in the same sense in
which the bill payment services in Everything Everywhere v HMRC [2011] STC 316 were ancillary to the main supply of telecommunication services. As
the court in that case said at [27]:
“The supposed supply of
services which those customers are unable to access separately from the use of
the mobile telephone service can offer such customers nothing that is
independent of that service.";
(4)
alternatively he submits that the supply may be ancillary to the
interment of remains, which he says is exempt by Group 8 Schedule 9.
Discussion
A. A single supply or multiple supplies.
(a) The relevant law
40.
Neither party put near the front of its submissions any suggestion that
Sandwell made for VAT purposes more than one supply, namely (1) a supply of the
tablet, and (2) the supply of a 10 year lease of the space in which the plaque
was placed or of the memorial to which it was attached.
41.
We do not think that they were wrong. It was plain that the customer
paid for, required and received a single indivisible economic supply
42.
Roth J summarised the authorities in relation to the question of whether
a package of items is a single supply (of a number of elements which are not
independent) or a number of separate supplies in HMRC v Bryce (trading as
The Barn) [2010] UK UT 26 (TCC) at [23]:
“(a) Every supply of a service must normally be regarded
as distinct and independent. However, a transaction which forms a single supply
from an economic point of view should not be artificially split into separate
supplies ...
(b)For this purpose, regard must be had to all the
circumstances in which the transaction takes place ...
(c) There is a single supply where one or more elements
are to be regarded as constituting the principal supply, whilst one or more elements
are to be regarded by contrast as ancillary to that principal supply ...
(d) However the fact that one element in a package
supplied cannot be described as ancillary to another element does not mean it
is to be regarded as a separate supply for tax purposes. The question is
whether those separate elements are to be treated as separate supplies or
merely as elements in some single overarching supply ...
(e) In that regard, the test is whether the various
elements supplied to the customer are so closely linked as to form,
objectively, a single indivisible economic supply, which it would be artificial
to split ...
(f) It is important to take an overall view of the level
of generality that corresponds with social and economic reality, without
overzealous dissection ...
(g) The assessment should be made from the perspective of
the customer, as a typical customer, not the supplier ...
(h) The fact that a single price is charged for two or
more elements is a relevant factor pointing to a single supply but it is not
decisive .... Similarly, the fact that separate supplies are stipulated for
various elements is not decisive where the two elements have an objective close
link such that they form a single economic transaction ...
(i) The fact that the same or similar goods or services
could be supplied separately from different sources is irrelevant to the
question whether in the particular transaction under consideration their
combination produces a different economic result ...
(j) The test is not whether the different elements in the
services provided by the taxpayer to its customers have value and utility in
their own right ....”
43.
If for the typical customer one element of what is supplied is of no use
without another that indicates that the elements are not independent (see for
example Everything Everywhere at [27], Levob v Staatssecretaris van
Financien [2006] STC 766 [24]).
(b) Single/Multiple supply – conclusion
44.
In our judgment the provision of the tablet and the memorial space are
so closely linked that they form a single indivisible economic supply which it
would be artificial to split. They are not independent. The acquisition of a
space for the tablet or memorial without an inscription would have been no use
to a typical customer and title to a tablet a customer plainly intended to be
affixed (to a memorial or wall) for at least 10 years would be no use without
the memorial space. The making of a single charge for the supply reinforces
this conclusion. We discuss below whether this treatment as a single supply
relies upon the principal/ancillary analysis.
B. The nature of the supply.
45.
This is a more difficult question.
(a) the relevant law
46.
If a congery of items is to be treated as a single supply because there
is a principal item in that congery to which all other items are ancillary,
then it is clear that the VAT classification of the principal item determines
the VAT classification of the package. (Thus in Everything Everywhere
the payment handling charge was ancillary to the telecommunication services and
the package was VATable as telecommunication services).
47.
However where there is no principal supply to which other items are
ancillary but an economically indivisible supply of many items, the position is
more difficult – at least in practice.
48.
In our opinion, for the reasons which follow, what is required is that
the tribunal consider the essential nature of a package of services and goods
and then determine whether that fits any of the statutory provisions. This is
different from finding a description of the package and asking whether that
description can be found within any particular statutory heading. For example
if you provide me with carrots coated in chocolate, you may be said (1) to
supply the service of satisfying my hunger; (2) to supply me with luxury food;
or (3) to supply me with food. But the question is not whether "satisfying
my hunger" or any other description falls within the ambit of the
"food for human consumption" and Schedule 8 VATA, but whether
providing the chocolate coated carrots falls within the words "food of a
kind for human consumption" in Schedule 8. The important thing is not to
be misled by attaching a description to the package when such exercise is not
required by the legislation.
49.
This, at least where the exercise concerns the direct application of a
directive, also clearly follows the requirements that the directive must have
uniform application across the Community: the possible absence in one territory
of a direct translation of any particular description in another cannot affect
the VAT treatment of the transaction. The test must be by reference to the
economic substance and the words of the directive not to a particular
description of the supply.
50.
In 2006 Warren J considered nature of a package of services supplied to
a masseuse (Byrom and others (trading as Salon 24) v HMRC [2006] STC
992). These services included the use of a room but were not ancillary to the
licence to use the room. He concluded at [70]:
"... it is then necessary to categorise the single
supply viewed as a complex of elements (the provision of the licence and the
various services). In my judgement, the overarching single supply is not to be
regarded as a supply of a licence to occupy land. The description which
reflects economic and social reality is a supply of massage parlour services,
one element of which is the provision of the room. That, in my judgement, is
the correct conclusion even if, which for my part I think probably the case,
the provision of the room was, to the masseuse, the most single most important
element of the overall supply and, indeed, one predominating over all the other
elements taken together. This is a case where the tax treatment of the supply
is self evident once it is established that the other service elements are not
ancillary to the provision of the licence."
51.
Earlier in his judgement he had identified:
(1)
that if one element was principal and the others were ancillary to it,
the VAT treatment followed that of the principal element ([38]), but
(2)
where the single complex supply was not of the principal/ancillary
mould:
(a)
College of Estate Management v Customs and Excise Commissioners
[2005] STC 1597 showed that the nature of the single supply was not determined
by the main elements: the supply in that case was of education even though
books were the main elements of the provision;
(b)
that there were cases, like College of Estate Management, where
the nature of the overarching supply was self-evident, but there were other
cases where it was not. In such cases it did not make sense to go back to look
at which elements predominated in order to determine the nature of the single
supply [48].
(c)
“…once having identified a number of elements as constituting a single
supply, it is then necessary to see whether that supply - whether or not it is
given a name but let us call it a supply X - falls within any of the exemptions
in schedule 9.” ([51])
52.
Seen in the light of that analysis it does not seem to us that when in
[70] he classified the supply of being of massage parlour services he was then
simply looking to see whether that phrase or description appeared in one of the
relevant groups of the schedule. Rather he examined whether the complex of
supplies constituted by the service could properly be said to fall within a
particular group.
53.
Since 2006 the ECJ have considered single and multiple suppliers on a
number of occasions. The first we were refered to is that in Finanzampt v
Bog 2011 where the question was whether a supply of ready meals was a
supply of services or a supply of goods. In that case (as in Aktiebloaget
NN v Skatteverket C-111/05 (2008)) the ECJ applied the touchstone of
determining the predominant features of a supply in order to effect that
classification.
54.
In Salon 24 Warren J points out (at [40]) that this is a
different exercise from that of asking whether a supply falls within any
particular group. That is because any supply must be one or the other - either
services or goods; in that exercise the option is not available to say simply
"it is not X" because the result of saying that it is not goods must
mean that it is services. By contrast when asking whether a supply falls within
a particular group, the fact that it does not, does not automatically mean it
must have a particular different nature.
55.
The second is Finanzamt Frankfurt am Main V-Hochst v Deutsche Bank
AG [2012] STC 1951. Here the court considered the VAT nature of a portfolio
management service which comprised the execution of transactions decided upon
by a portfolio manager together with associated administration.
56.
The court held that because the average investor sought a combination of
management advice and execution precisely as a combination, the two elements
were so closely linked that they formed a single economic supply
notwithstanding that they could be acquired separately. The supply was not of a
principal/ancillary nature since:
"[27] In the context of the portfolio management
service ... those two elements are ... not only inseparable but must be placed
on the same footing. They are both indispensable for carrying out the service
as a whole, the result is that it is not possible to take the view that one
must be regarded as the principal service and the other as the ancillary
service.”
57.
The next question was whether that single service fell within a
particular exemption. The advocate general phrased it thus:
"[38] I have reached the view that the services in
issue, viewed broadly, forms a distinct whole. Does that whole fulfil in effect
the specific essential functions described in [the exception of article)?
58.
The court answered that question thus:
"[38] As has been stated ... the portfolio
management service in issue ... consists basically of two elements, namely, on
the one hand, of a service of analysing and monitoring the assets of client
investors, and, on the other hand, the service of actually purchasing and
selling securities.
“[39] Although the service of purchasing and selling
securities may be covered by article 135 (1) (f) ..., the same is not, by
contrast, true of the services of analysing and monitoring assets as the latter
services do not necessarily involve transactions which are liable to create,
alter or extinguish parties’ rights and obligations in respect of securities.
...
[41] However, it is apparent from paragraph 27 of this
judgement that it is not possible to regard the elements of which that service
consists as constituting a principal service on the one hand and an ancillary
service on the other. Those elements must be placed on the same footing.
[42] In that regard, it is established case law that the
terms used to specify the exemptions referred to in article 135 ... are to be
interpreted strictly, since they constitute exceptions to the general principle
that VAT is to be levied on all services supplied for consideration by a
taxable person ...
[43] Consequently, since that service may be taken into
account for VAT purposes only as a whole, cannot be covered by article 135
..."
59.
Deutsche Bank was thus a case where no predominant element could
be ascertained. Thus the supply could not be classified by reference to it. The
ECJ simply asked whether the complex whole fell within the particular statutory
words.
60.
It seems to us that the ECJ in Deutsche bank implicitly accepts
Warren J's insight in Salon 24. The court does not seek to identify, or
consider that it must identify, a predominant feature which will determine the
nature of the supply, but rather considers the elements of the package against
the purpose and meaning of the relevant exemption. We noted that in her opinion
the Advocate General had at [43) identified "the preponderant role"
of the expertise rather than the transaction execution. This, however, was not
a course pursued by the court.
(b) Nature of the supply – application
61.
As a result we reject HMRC’s submission that, because the supply may be
described as the provision of a commemorative focal point, it cannot be a
supply of immovable property even though we accept that that may be one apt
description of the supply.
(c) Nature of the supply – law relating to immovable
property
62.
There is no question that the exemption in Group 1 Schedule 9 VAT Act
1994 is intended to implement, and must be construed in order to give effect to
the provisions of article 13B(b)of the Sixth Directive (and its successor).
That article applies to the leasing or letting of immovable property. In Bryce
Roth J referred to eight principles encapsulated by Briggs J. In summary these
were:
(1)
the exemption must be strictly construed but not so strictly to deprive
it of its effect;
(2)
it must be given a meaning independent of definitions used in the legal
system of any particular member state
(3)
the concept of letting of immovable property is essentially the
conferring by a landlord and tenant, for an agreed period and in return for
payment, of the right to occupy property as if that person were the owner and
to exclude any other persons from enjoyment of such a right;
(4)
the letting of immovable property is characteristically a relatively
passive activity linked to the passage of time and not generating any
significant added value to be distinguished from activities which are
commercial in nature and have as their subject matter something akin to the
provision of a service;
(5)
the right to occupy may not be a letting if it is merely the means of
effecting the supply which is the principal subject matter of the relevant
agreement (this is drawn from Sinclair Collis v Customs and Excise
Commissioners [2003] STC 898 at paragraph 30 and we discuss it greater
detail below);
(6)
there may be a de minimis exemption – the example is given of the
letting of a table in a coffee shop to deal in drugs;
(7)
an agreement may fall short of letting if it is merely a licence to use
rather than to occupy land
(8)
an agreement is not disabled from being a letting because the use is
subject to conditions.
63.
In Maierhofer, the ECJ considered whether buildings constructed
from prefabricated components standing on a concrete base to which they were
secured were immovable property. It held that such structures must be regarded
as immovable because they could not be easily dismantled or easily moved. There
was no need for them to be inseparably fixed to the ground. Nor was the term of
the lease decisive for the purposes of determining whether the buildings were
movable or immovable property. [33]. It makes no difference whether a piece of
immovable property is let with or without the land on which it stands [41].
(d) the Nature of the supply – our conclusions
64.
We start by considering the White Marble Vase. This lay about halfway in
the range between the Rose Nameplate and the Columbarium. It will be recalled
that the memorial is a piece of marble of trapezoidal cross section with a
flower holder sunk into the top and a sloping face into which the inscribed
tablet fits. They sit in groups of three along path edges and are cemented to
the ground.
65.
It seemed to us that the Vase was properly described as being immovable
property. It would not be easy to move or to separate from the others in the
group. We also thought it relevant that the agreement of the parties was that
it should not be moved.
66.
We do not think that the customer is given merely the right to place the
tablet on the marble vase. What is intended is that the customer should have
the use of the particular fixed marble vase complete with the affixed tablet.
That conclusion is strengthened by the presence of the flower holder clearly
intended for use by the customer and at his or her disposal.
67.
It seems to us that what a typical customer wants is a place that can be
identified with the deceased. At a minimum that requires an allocated space and
an inscription. If ashes are to be contained or covered it requires space for
the ashes.
68.
Mr Singh says that if the transaction was in essence the provision of a
space, then the customer could do what he wanted with that space – perhaps even
put a memorial there of his own choosing. The restriction to Sandwell’s
memorial means that the customer is not occupying land as his own.
69.
We disagree. The fact that a customer may have no access to the inside
of a piece of solid marble or granite and may not move it does not to our minds
prevent the transaction being one in which immovable property is supplied: a
person who leases a house will generally have no access to the interior of the
stones of its construction or right to move them. What the typical customer
wants is a fixed space (occupied by a fixed memorial) which is identified with
the deceased, just as a person letting a house wants the house – not to build
his own walls and roof.
70.
Mr Singh said that location played second fiddle to the appearance of
the memorial. We disagree: although a customer could not choose the location,
once chosen it was essential that it could not be changed: a memorial, be it
ever so grand, would not be acceptable to the typical customer if it could be
moved around at the whim of Sandwell. The comely appearance of a house which
attracts a lessee does not prevent its letting being of immovable property.
71.
Mr Singh says that the occupation of the land is a means to an end and
not the end in itself. We agree that the space is to be used as a focal point.
But a house is used to live in. The question is not what the customer wants to
do with what he or she gets, but objectively what he or she wants to get. Here
what the typical customer wants is a space accompanied by a fixed memorial
identified with the deceased. The commemorative focal point is the
memorial and attached plaque and the immoveable property is the space occupied
by them of which they form a part.
72.
The requirement for customers that a space be identified with the
deceased makes the inscription an important part of what is provided. It is not
possible to regard the space as incidental to the inscription, or the
inscription as incidental to the space.
73.
But there is a difference between the inscription and the means by which
it is delivered: just as there is between the writing and the page. The tablet
is the means by which the inscription is delivered identifying the space with
the deceased.
74.
It seems to us that in this way the tablet shares much in common with the
box in which cereals are provided (whatever their respective nutritional
values) or the jar in which honey is supplied. Like the box and the jar, the
tablet is largely a means of providing, and is incidental to, the provision of
the required supply, although the inscription could not be provided without it.
75.
The incidental nature of the tablet is apparent from the fact that 90%
of customers do not collect it at the end of the lease. For the average
customer it seems to us that obtaining title to, or possession of, the tablet
(rather than its presence in the particular relevant space in the crematorium
gardens identifying that place with a deceased) is not an object of the supply,
any more than obtaining title to the cereals box is an object of a customer buying
cereals.
76.
In Card Protection Plan v Customs & Excise Commissioners
[1999] STC 270 (“CPP”) the ECJ said:
"[30]. There is a single supply in particular in
cases where one or more elements are to be regarded as constituting the
principal service, whilst one or more elements are to be regarded, by contrast,
as ancillary services which share the tax treatment of the principal service. A
service must be regarded as ancillary to a principal service if it does not
constitute for customers an aim in itself, but a means of better enjoying the
principal service supplied ...".
77.
It is not possible however to say that the acquisition of the right to
the tablet is "a means of better enjoying the principal service"
because whatever the principal service it could not be provided without the
inscription, and the inscription could not be provided without the tablet.
However it does not seem to us that the ECJ were intending to limit the meaning
of ancillary in this paragraph but to set out a sufficient condition for something
to be ancillary. In College of Estate Management v Customs and
Excise Commissioners [2005] STC 1597, Lord Walker, after quoting the
passage above from CPP said:
"[30] ... ‘Ancillary’ means (as Ward LJ rightly
observed ...) subservient, subordinate and ministering to something else."
78.
We also note that in Everything Everywhere the ECJ said:
“[25] In particular, a service must be regarded as
ancillary to a principal service if it does not constitute for customers an aim
in itself, but a means of better enjoying the principal service supplied.”
thus suggesting that the formulation quoted in [33] of CPP
above could be one of many cases where one service was ancillary to
another.
79.
It seems to us that the supply of (the title to) the stone for the
tablet can properly be regarded as subservient or ministering to the provision
of a fixed space identified with the deceased by the inscription, and as such
not constituting for the customer an aim in itself. On that basis the provision
of title to the tablet is ancillary to the provision of the immovable space
occupied by it and the rest of the memorial.
80.
If that is right then what is supplied is an exempt supply of the
letting of immovable property: the supply is passive in nature, is for a fixed
period, is for a consideration, confers an exclusive right to occupy a fixed
space, and is not a means of conferring any other right upon the customer.
81.
We should at this stage discuss Sinclair Collis which was relied
upon by both parties. This concerned the granting of the rights to install
cigarette vending machines in pubs and similar places. No particular area for
the location of the machines was provided in the agreements and the site owner
could move the machines about. While the claimant had exclusive access to the
inside of the machines they did not have the right to control access to the
area where the machines were placed. The ECJ held that there was not a letting
of immovable property because the agreement did not relate to a fixed space and
the claimant's occupation of a site owner’s space was merely the means of
effecting the service supplied by the site owner, namely the guaranteeing of
the exercise of exclusive rights to sell cigarettes at the premises through the
machines.
82.
It had been argued that the installation of a machine was a way of
taking possession of the site on which it was placed and excluding all third
parties from occupying the land by the machine. The advocate general concurred
in the view that this was not the case because the agreement did not specify a
site for a machine and because Sinclair Collis had only limited rights of
access. It was left to the site owner to determine where the machine was to
stand from time to time.
83.
He then turned to the object of the arrangement:
"[41] Moreover, under the agreement in this case,
unlike in a classic lease of property, the actual site is immaterial. It is
only relevant in so far as it is intended to generate maximum sales. In this
case the occupation of a particular site is therefore not an end of the
contract in itself, but a means to that end.
“[42] The fact that machines that are not intended to be
mounted on the wall may be moved around the room by the site holder at will
lends further support to the view that there is no occupation of a specific
piece of land.”
...
“[46] It is clear from all of the foregoing that the
principal elements of the agreement in this case is not the occupation of a
specific piece of land but the supply of the service, namely installation of
the machine, for which the land itself is an incidental, albeit essential,
pre-requisite.
84.
The court held that the subject matter of the agreement was not the
passive provision of an area or space together with the grant of a right to
occupy it as though the grantee were owner and to exclude other persons’
enjoyment of the right because (1) the agreement did not define any precisely
defined area and (2) the agreement did not confer on the claimant the rights to
control or restrict access to the places where the machines were placed:
"[29] Secondly, the agreement does not confer upon
SC[Sinclair Collis] the right to control or restrict access to the area where
the machines are placed. Whilst it is true that under the agreement SC retains
an exclusive right of access to the machines to maintain them, keep them
stocked with cigarettes and to remove the cash inside, that right concerns only
access to the machine itself, in particular its inner mechanism, and not access
to that part of the premises where the machine is situated. In any event
according to information provided by SC at the hearing, the right is restricted
to the opening hours of the commercial establishment and cannot be exercised
without the owner's consent. Furthermore third parties have access to the
machines within such practical parameters as are imposed by the site owner, in
particular during opening hours of the establishment and not according to
limits determined by SC.
"[[30] In those circumstances, the occupation of an
area or space in the commercial premises is, under the terms of the agreement,
merely the means of effecting the supply which is the subject matter of the
agreement, namely the guarantee of exercise of the exclusive rights to sell
cigarettes at the premises by installing operating automatic vending machines,
in return for a percentage of the profits."
85.
Mr Singh points to the concentration of the court on the purpose of the
contract – which was to grant the exclusive right to sell cigarettes rather
than rather than the excusive right to occupy land. But it seems to us that the
position of Sandwell is different. First, we have found that once a memorial
has been identified and allocated and the inscription affixed neither the
memorial nor the tablets may be moved by either party during the currency of
the lease. Second, the object of the customer is not to obtain an exclusive
license to do something on Sandwell’s land but to have a piece of Sandwell’s
land for the purposes of commemoration. Third, the customer has access to the
crematorium gardens on foot at all times.
86.
In EC Commission v Ireland the ECJ considered whether tolls for
the use of roads fell within the expression “letting of immovable property”.
The court held that they did not. It said:
"[56 ] Accordingly, that the term cannot be
considered to cover contracts in which, as here, the parties have not agreed on
any duration for the right of enjoyment of the immovable property, which is an
essential element of the contract to let.
[57] Where access to roads is provided, what interests
the user is a possibility offered to him of making a particular journey rapidly
and more safely. The duration of the use of the road is not a factor taken into
account by the parties, in particular in determining the price."
87.
By contrast the letting by Sandwell is for a fixed period of 10 years.
What interests the user is the presence of a memorial for that period. That
fact is taken into account in determining the price because a further sum is
payable for an extended period
88.
The customer does not have the right to exclude others from access to
the area around the memorial, but the memorial itself excludes interference
with the space it occupies and in our view the contract between Sandwell and
the customer gives the customer the right to exclude others from interfering
with the memorial (including the affixed tablet) itself.
89.
If we are wrong and the supply of the title to the plaque is not
ancillary to the provision of the fixed Vase (together with the space for the
tablet), then we need to consider whether the combined supply may properly be called
the letting of immovable property notwithstanding the inclusion of the right to
the tablet.
90.
In our opinion the transaction is properly regarded as the provision of
a fixed memorial for 10 years. Like the supply of education in College of
Estate Management it involves the provision of goods (the books or the
tablets) but their provision does not prevent the nature of the supply being
that of the supply of something else – in this case immovable property for a
fixed period. Its essence is the letting of a particular form of immovable
property for a fixed period. This is a case where the nature of the complex
supply is self evident.
The other memorials.
91.
The memorials which provide a chamber for the storage of ashes more
clearly provide a fixed space which is used by the customer. It seems to us
clear that the nature of the supply in those cases is that of the letting of an
interest in immovable property for the same reasons as discussed above in
relation to the White Marble Vase.
92.
The Ashby Garden Memorial is similar to the White Marble Vase and more
easily moved. But the essence of the contract is that it should not be moved
during the 10 year term of the lease. It seems to us that even if the plaque
could be moved the contract gives the customer the right to replace it in the
space allocated or to require it to be replaced, and that that space is
immovable. The right is then to occupy the space with the plaque and to refuse
others' enjoyment of it. It is a smaller space than a table in a coffee shop
might occupy but it is to be occupied for a much longer period then the table
in the example in Briggs J’s principle (6): it did not appear to us to be de
minimis. For the same reasons as we have set out in relation to the White
Marble Vase it seems to us that the provision of the plaque is ancillary to the
provision of a fixed space identifiable with the deceased by the inscription.
The treatment of the Path Edge Plaque follows similarly.
93.
Where the wall Mounted Plaques are to be absolutely fixed for the
duration of the term the same analysis applies.
94.
However so far as concerns the Rose Nameplate and any of the Wall
Mounted Plaques which could be moved during the term of the lease we concluded
that nothing immovable was granted to the customer and therefore they could not
be a license or leasing of immovable property. In this case there is a single
supply but that single supply is not a principal/ancillary supply in which the
principal element is exempt, or an overarching supply which falls within any
particular group of Sch 8 or 9, and is therefore standard rated.
Mr Mitchell’s alternative argument
95.
We should mention briefly Mr. Mitchell's alternative analysis that that
the supply could be exempt as being ancillary to the supply of interring of
ashes. This relied upon Group 8 Schedule 9 which specifies an exemption for:
1. The disposal of the
remains of the dead.
2. The making of arrangements
for or in connection with the disposal of the remains of the dead.
Discussion
96.
Item 6 Annex F of the Sixth Directive provides for member states to
continue to exempt:
"Services supplied by
undertakers and cremation services together with goods related thereto".
97.
We ask first whether the interring of ashes falls within Item 6 Annex F.
98.
Mr. Day told us that when a body was cremated, the demarcation line
between the role of the undertaker and that of Sandwell was at the end of the
funeral service. After the funeral the undertakers would deliver the body to
Sandwell for cremation. (When bodies were buried undertakers tended to have a role
in relation to cemetery memorials; that was not generally the case in
crematoria).
99.
There are two principal parts to Item 6: (1) services supplied by an
undertaker and (2) cremation services. Although the words of that Item must be
words of autonomous EU law meaning, that division appears to us to reflect the
division in the UK between the activities of a funeral director and those of a
body like Sandwell.
100. So far as limb
(1) is concerned we do not believe that it requires the provider of the service
to be an undertaker; it is enough if the service is such as is provided by an
undertaker.
101. It seems to us
that the interring of remains or their sprinkling in the grounds are not
services such as those supplied by undertakers. They therefore do not fall
within limb (1).
102. That leaves the
question of whether they are "cremation services". In our view they
are not: we consider that as a matter of ordinary language, and bearing in mind
the need to apply a strict construction to an exemption, “cremation services”
refers to the actual cremation of the dead, and not later dealing with their
ashes.
103. So far as
possible Group 8 Schedule 9 must be read so as to implement Item 6 Annex F: so
that it exempts those services exempted by Annex F and confines the exempt
services in Group 8 to such services as are supplied by an undertaker or are
cremation services. That would require Item 1 (the disposal of the remains of
the dead) to be read, in the context of cremation, as limited to cremation
services, and Item 2 be confined to the type of arrangement made by undertakers
(such as dealing with the body and funeral arrangements). Such restriction
requires in our view very little violence to language of Group 8 and indeed is
possible.
104. Thus we conclude
that the interring or sprinkling of ashes does not fall within Group 8.
105. Accordingly if
the provision of a memorial and tablet were ancillary to the interring of a
deceased's ashes (or if, which we very much doubt, the interring and the
memorial could be seen as a single supply without a principal element which, as
a whole, was properly described as the interring of remains) we would not find
that supply except by virtue of Group 8.
Conclusions
106. In the case of
each type of memorial Sandwell makes a single supply.
107. The nature of
that supply is in all cases but those in the following paragraph, a supply of
the letting of immovable property. That is an exempt supply.
108. In the case of
the Rose Nameplate and the Wall Mounted Plaques which are not fixed to a
particular space on the wall, that supply is not of immovable property, and
does not, as a single supply, fall within any exemption. It is thus standard
rated.
Rights of Appeal
109. 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.
CHARLES HELLIER
TRIBUNAL JUDGE
RELEASE DATE: 18 February 2013
