Revenue and Customs v Zurich Insurance Company

For the purposes of the Sixth Directive, article 9.2(e), the place of supply of consultancy services is determined by asking whether the customer has a fixed establishment elsewhere and whether the services were supplied to that establishment. If so, the supply is located there; otherwise it is located where the customer has established its business. The decisive consideration is where the contracted services were actually performed and consumed, rather than where the contract was made or the cost was borne. The interpretation should avoid double taxation, non-taxation and distortion of competition. Domestic charging provisions must first impose the liability, but the Directive may reduce or remove a domestic liability where it requires a different result.

HM Revenue and Customs appealed against the VAT and Duties Tribunal’s decision allowing Zurich Insurance Company’s appeal in principle against assessments exceeding £2 million. The assessments concerned consultancy services supplied by PwC AG, a Swiss company, for the installation of SAP software in Zurich’s United Kingdom operations. PwC AG contracted with Zurich’s Swiss head office and subcontracted the work to PwC (UK), whose personnel performed it at United Kingdom premises.

The Tribunal held that the services were supplied in Switzerland under article 9.2(e) of the Sixth Directive. The central issue was whether the services were supplied to Zurich’s established business in Switzerland or to its fixed establishment in the United Kingdom.

1. Appeal allowed in principle. Figures remained to be agreed.
2. The domestic legislation had to be considered before the Sixth Directive. Under Value Added Tax Act 1994, sections 8 and 9, the consultancy services were relevant services supplied by a person belonging outside the United Kingdom to a recipient belonging in the United Kingdom for business purposes. The services were most directly used for the United Kingdom establishment, so the reverse charge applied.
3. The Directive did not itself impose a domestic charging liability on an individual. Domestic law had to impose the charge, subject to consistent interpretation. A sufficiently precise relieving provision could nevertheless be relied on, and a domestic charge exceeding the Directive’s requirements had to be reduced to the permitted level.
4. Article 9.2(e) required a two-stage inquiry. First, it was necessary to ask whether the customer had a fixed establishment elsewhere and whether the services were supplied to it. If so, the place of supply was that establishment. If not, the place of supply was where the customer had established its business.
5. The services were supplied to Zurich’s United Kingdom establishments. The contract’s execution in Switzerland and the involvement of the head office were outweighed by the fact that the services were performed almost wholly in the United Kingdom by PwC (UK) personnel, at United Kingdom premises, to install SAP into the United Kingdom operations. The work was therefore consumed in the United Kingdom.
6. This conclusion also avoided non-taxation and a manifest distortion of competition. A United Kingdom competitor would ordinarily bear VAT on equivalent consultancy services, while Zurich’s predominantly exempt insurance business could recover only a small proportion of that VAT.
7. The Tribunal’s emphasis on the place of contracting was therefore wrong. The same conclusion was reinforced by Zurich’s corporation tax treatment of the expenditure, the equivalent treatment of the first work order, and the allocation of part of the project costs to United Kingdom subsidiaries.

• High Court (Chancery Division): allowed HMRC’s appeal in principle from the Tribunal’s decision of 30 June 2005. Detailed figures remained to be agreed or determined.