Trinity Mirror Plc v Commissioners of Customs and Excise

A company’s issue of its own shares for cash is a transaction which constitutes a supply of services for VAT purposes. It is therefore an exempt supply where the statutory exemption for transactions in shares applies.

There is no additional requirement that the subscription money must be commercial or accounting turnover. For VAT, turnover describes consideration obtained for a supply; it is not an autonomous preliminary test for deciding whether a supply has occurred.

Input tax on professional fees directly attributable to such an exempt share issue is not deductible as general overhead input tax, subject to the statutory treatment of supplies to persons outside the European Union.

Trinity Mirror issued its own shares to raise finance for the expansion of its business. It incurred VAT on legal and financial advisory fees connected with the issue. The Commissioners treated the issue as an exempt supply of services and denied recovery of the attributable input tax, except insofar as the shares were issued to non-EU residents.

A VAT Tribunal upheld that treatment. Lightman J dismissed the company’s statutory appeal. The company appealed to the Court of Appeal, contending that an issue of a company’s own shares was not a supply of services and, alternatively, that a reference should be made to the Court of Justice.

The central question was whether a taxable person’s issue of its own shares in the United Kingdom to finance business expansion constituted a supply of services under the VAT legislation.

1. Appeal dismissed unanimously. Chadwick LJ, with whom Wright J and Pill LJ agreed, held that the issue by a company of its own shares for subscription money was a supply of services. It was a transaction for consideration, was not a supply of goods, and conferred intangible property on identified subscribers. The issue was accordingly an exempt supply under Value Added Tax Act 1994, section 31 and Schedule 9, Group 5, item 6.

2. The court rejected the proposed further requirement that the consideration received must be part of the issuer’s commercial or accounting turnover. In the VAT scheme, turnover is a description of the consideration obtained for supplies. The proper inquiry begins with the statutory and Directive definitions of a supply, rather than with an autonomous conception of turnover.

3. The analogy with a simple interest-bearing loan failed. A borrower in that transaction receives the lender’s service of granting credit and supplies nothing to the lender. By contrast, a company issuing shares supplies the subscribers with the rights represented by the shares for monetary consideration. The court left open questions concerning security and loan or debenture stock, since they did not arise.

4. The exemption was a strong contextual indication that the legislature intended an issue of shares to be, or to be treated as, a supply. The listing of an activity as exempt was not by itself conclusive, because the character of the activity remained governed by the provisions defining supplies.

5. No reference under Article 177 of the Treaty was necessary. Existing Community authority provided sufficient guidance, and the bare fact of differing administrative practice in Member States did not create real doubt. The court regarded the answer as acte clair.

• Court of Appeal (Civil Division): dismissed Trinity Mirror’s appeal and refused to make a reference to the Court of Justice.
• High Court: Lightman J, on 8 February 2000, dismissed the company’s appeal from the VAT Tribunal.
• Value Added Tax Tribunal: in a decision released on 24 September 1998, held that the issue of the company’s own shares was a supply of services.