Revenue and Customs v IDT Card Services Ireland Ltd

Domestic VAT legislation must, so far as possible, be interpreted consistently with the wording and purposes of the Sixth Directive, including avoidance of non-taxation, double taxation and distortion of competition. Conforming interpretation may depart from unambiguous wording and imply words, provided it preserves the legislation’s fundamental features and remains within the judicial role. Where different national methods of taxing credit vouchers would leave telecommunications services untaxed, the statutory disregard of consideration must be disapplied to prevent a taxable UK supply escaping VAT. This construction respects the Directive’s exclusive place-of-supply rules: phonecards supplied to UK taxable distributors, to the extent subsequently used for telecommunications services, fall within article 9(2)(e). Legal certainty does not preclude that construction where the obligation to interpret VAT legislation consistently with the Directive is well known.

IDT Card Services Ireland Ltd, an Irish company, issued multifunctional phonecards to distributors in the United Kingdom. Customers could redeem them for sports information supplied by Teamtalk.com Ltd, a UK company, or telecommunications services supplied by Interdirect Tel Ltd, an Irish company in the issuer’s corporate group. Because the issuer and redeemers were different persons, the cards were credit vouchers.

Irish law treated the issue of phonecards as the relevant supply. Supplies to UK traders attracted no Irish VAT, and redemption attracted no further Irish VAT. UK law generally disregarded consideration for credit vouchers and taxed the services supplied on redemption. The interaction of these methods could leave the telecommunications services untaxed.

The revenue authorities decided that UK distributors were liable under section 8 and Schedule 10A to the Value Added Tax Act 1994. Moses J allowed the issuer’s judicial review claim on 21 December 2004. The authorities appealed. The central issue was whether paragraph 3(3) of Schedule 10A could be interpreted consistently with the Sixth Directive to disapply the disregard where redemption attracted no Irish VAT.

The appeal was allowed unanimously and the respondent’s notice dismissed. Arden LJ delivered the principal judgment, with which Latham LJ agreed. Pill LJ agreed substantially with her reasoning, while confining his observations to the particular circumstances.

1. Avoidance of non-taxation, avoidance of double taxation and prevention of distortion of competition were general principles of the Sixth Directive. Although the taxation of credit vouchers was not harmonised, the underlying supply of telecommunications services was governed by the Directive. Allowing both the issue and redemption of the phonecards to escape VAT infringed the principles of avoidance of non-taxation and competitive neutrality (paras 94–101).

2. The place-of-supply rules were exclusive. Article 9(2) took precedence over the residual rule in article 9(1). The relevant supply was the supply of phonecards to UK traders, rather than Interdirect’s supply to private end-users. To the extent subsequently used for telecommunications services, a phonecard represented a promise to provide or procure those services. Its supply to UK taxable distributors therefore fell within article 9(2)(e) and was taxable in the United Kingdom. The authorities were seeking VAT from those distributors, rather than taxing Interdirect’s Irish supply (paras 102–107; 127–130).

3. Under the principle in Marleasing SA v La Commercial Internacionale de Alimentación SA [1990] ECR 1-4135, domestic legislation had to be interpreted, so far as possible, in the light of the Directive’s wording and purposes. That duty extended to its general principles and did not depend on a directly effective provision. The guidance in Ghaidan v Godin-Mendoza [2004] 2 AC 557 could generally be used to identify the domestic limits of conforming interpretation. Ambiguity was unnecessary, and words could be implied. The construction had to preserve fundamental legislative features and avoid policy choices beyond the court’s competence (paras 79–92; 108–111).

4. Paragraph 3(3) of Schedule 10A to the Value Added Tax Act 1994 was accordingly to be widened so that paragraph 3(2)’s disregard was disapplied where it would produce non-taxation, contrary to the Directive’s objectives, of a taxable UK supply. No precise textual insertion was required. This widened an existing safeguard and raised no consequential policy issues beyond those inherent in the provision. Legal certainty was preserved because conforming interpretation and the taxable nature of telecommunications services were well known (paras 110; 112–114).

5. The court left open the wider extent of paragraph 3(3)’s operation where an ultimate supplier failed to account for VAT for other reasons, or another state failed to impose or enforce tax. It also left open aspects of conforming interpretation affecting other domestic rules. A preliminary reference was unnecessary following the disposition of the appeal (paras 91; 115–118).

• Court of Appeal (Civil Division): In [2006] EWCA Civ 29 , the court unanimously allowed the revenue authorities’ appeal and dismissed the respondent’s notice. The High Court’s construction of the credit-voucher provisions was displaced.
• High Court, Queen’s Bench Division: By an order dated 21 December 2004, Moses J allowed the issuer’s judicial review claim challenging the revenue authorities’ decisions of 13 and 14 July 2004. He concluded that paragraph 3(3) of Schedule 10A to the Value Added Tax Act 1994 did not permit the proposed VAT charge where the telecommunications services attracted no tax in Ireland.