Commissioners of Customs and Excise v. Sinclair Collis Limited

The VAT exemption for the leasing or letting of immovable property is an autonomous Community law concept and must be construed strictly. A right to place an object on another’s premises does not become a letting merely because the object occupies space for a sustained period.

The transaction must have the characteristic features of a letting. The relevant inquiry includes whether the grantee has possession or control, a right of occupation linked to a defined area, and the ability to admit or exclude others. Commercial purpose and all the circumstances must also be considered. On the majority view, an agreement concerning movable vending machines in undefined positions, while the site owner retained possession and control, did not confer occupation of land. The House nevertheless referred the governing Community law question to the European Court of Justice and adjourned final determination.

A tobacco company placed cigarette vending machines in public houses, clubs and hotels under two-year agreements. The site owner selected suitable positions, received a percentage of gross profits and granted exclusivity. The machines, cigarettes and takings remained the company’s property, and the company had contractual rights of access.

The VAT and Duties Tribunal held that the agreements concerned the machines rather than the use or enjoyment of land. Lightman J reversed that decision: [1998] STC 841. The Court of Appeal affirmed, holding that the site owner supplied a licence to occupy land within section 31 and Schedule 9 to the Value Added Tax Act 1994: [1999] STC 701.

The appeal raised whether the agreements amounted to the leasing or letting of immovable property under article 13B(b) of the Sixth Council Directive and therefore constituted exempt supplies.

1. Disposition. The House referred to the European Court of Justice the question whether the right to install, operate and maintain a vending machine on another’s premises could amount to the letting of immovable property under article 13B(b) of the Sixth Council Directive. Final consideration of the appeal was adjourned. All five Law Lords accepted that a reference should be made, although they differed on the answer to the substantive issue.

2. Lord Slynn, with whose proposed order Lord Steyn agreed, considered that the agreement involved one principal supply. Its essential purpose was to enable the company to bring its machines onto the premises and keep them there for two years. A machine could occupy land to the exclusion of others, notwithstanding that its location might be varied consensually or that consideration took the form of a share of profits. Lord Slynn inclined to affirm the courts below but regarded the Community law question as insufficiently settled to decide without a reference.

3. Lord Nicholls would have allowed the appeal. The commercial objective of selling cigarettes did not itself characterise the supply, but the mere occupation of space by a physical object, even for a substantial period, was not conclusive. The agreement concerned use of land rather than occupation because no particular position mattered materially to the parties and the arrangement lacked the salient features of occupying property as one’s own.

4. Lord Millett also would have allowed the appeal. The characteristic features of a letting must predominate. The agreements identified no defined area, room or number of machines. The site owner retained custody and possession of the machines and the surrounding floor, while the company merely retained ownership of the machines and contractual access rights. The company therefore occupied no part of the premises.

5. Lord Scott likewise would have restored the tribunal’s order. A licence to occupy, construed consistently with the Directive, requires possession or a sufficient degree of control. Neither was present because the site owner remained in possession and control of the entire room. The statutory exclusions identify transactions capable of being lettings; they do not establish that every transaction within an excluded category would otherwise qualify. Lord Scott nevertheless supported a reference because the permissible breadth of “letting” remained uncertain.

1. House of Lords: Referred the Community law question to the European Court of Justice and adjourned final consideration of the appeal: [2001] UKHL 30.
2. Court of Appeal: Affirmed Lightman J and held that the single supply was a licence to occupy land and therefore exempt: [1999] STC 701.
3. High Court: Lightman J reversed the VAT and Duties Tribunal and held that the agreement supplied a licence to occupy land with ancillary rights: [1998] STC 841.
4. VAT and Duties Tribunal: Held that the real subject of the agreement was the vending machine, not the use or enjoyment of land, and that the supply was not exempt.