IDT Card Services Ireland Ltd, R (on the application of) v HM Customs & Excise

The place-of-supply rules in the Sixth Directive allocate taxing jurisdiction between Member States. The United Kingdom cannot impose VAT on telecommunications supplied from Ireland to a United Kingdom consumer where the service falls within the general rule in article 9(1), rather than the business-customer rule in article 9(2)(e). The domestic face-value voucher provisions must be construed consistently with that allocation. The principle of conforming interpretation cannot create a United Kingdom power or obligation to tax a supply allocated to another Member State. In Schedule 10A to the Value Added Tax Act 1994, “person” means a legally independent person, not a taxable person or members of an overseas VAT group.

IDT Card Services Ireland Ltd supplied multifunctional cards from Ireland through United Kingdom distributors and retailers. The cards gave access to telecommunications supplied by an associated Irish company and to sports information supplied by a United Kingdom company. The dispute concerned whether VAT arose when the cards were supplied or redeemed, despite the telecommunications service being supplied from Ireland to United Kingdom end-users.

HM Customs and Excise relied on paragraphs 3, 4 and 6 of Schedule 10A to the Value Added Tax Act 1994. It argued that the phrase “VAT due” included VAT due under the Sixth Directive and that the two Irish companies were the same “person”. The central issues were the proper construction of Schedule 10A and the effect of the Sixth Directive’s place-of-supply rules.

1. The application succeeded. The United Kingdom was not entitled to charge VAT on the telecommunications supplied by Interdirect from Ireland to persons redeeming the cards, and the card transactions did not fall outside paragraph 3 of Schedule 10A.
2. The supply of telecommunications was within the general scope of the Sixth Directive. However, article 9 provided territorial rules allocating the place of supply. Under article 9(1), the service was supplied where Interdirect was established, namely Ireland. Article 9(2)(e) did not apply because the end-users were not taxable business persons.
3. The avoidance of non-taxation could not justify disregarding those jurisdictional rules. The Sixth Directive gave the United Kingdom neither a power nor an obligation to tax an Irish supply merely because Ireland had not charged VAT. Paragraph 3(3) therefore could not be read as referring to VAT due somewhere in the European Union rather than VAT due under the applicable place-of-supply rules.
4. The Marleasing principle required domestic legislation to be interpreted consistently with an applicable directive so far as possible. It did not authorise an interpretation contrary to the directive’s allocation of taxing jurisdiction or create a power to tax where none existed.
5. “Person” in paragraph 3(1) meant a legally independent person. It could not be expanded to mean “taxable person”, and the Irish VAT-group relationship did not make ICSIL and Interdirect one person for the purposes of the United Kingdom legislation. Paragraphs 4 and 6 were therefore inapplicable.
6. The judge rejected the allegation of abusive tax avoidance. The structure had a commercial rationale and there was no evidence of the objective and subjective elements required to establish abuse. Costs were awarded to the claimant, and permission to appeal was granted with time extended for serving notice.

This was a first-instance judicial review in the Administrative Court. The judgment records that permission to appeal was granted, with time for serving notice extended to 31 January; no appellate decision is stated.