HM Revenue & Customs v Zurich Insurance Company

Under Article 9(2)(e) of the Sixth Council Directive on the harmonisation of the laws of Member States relating to turnover taxes (77/388/EEC), where a customer has both a head-office establishment and a fixed establishment, the court must determine whether the services were supplied to the fixed establishment. The place of contracting is not decisive. The focus is the actual provision of the contracted services and the economic reality, tested against rationality and avoidance of double taxation, non-taxation and distortion of competition. Evaluating primary facts and applying Article 9 is a question of law. An appellate court may intervene under the [1956] AC 14 principles, but with circumspection.

HMRC assessed Zurich Insurance Company to VAT on consultancy services supplied by PwC AG for installing SAP software in Zurich’s United Kingdom operations. Zurich’s head office was in Switzerland and its United Kingdom branch was a fixed establishment.

The VAT and Duties Tribunal set aside the assessment, holding that the place of supply was Switzerland. On HMRC’s appeal under the Tribunals and Enquiries Act 1992, Park J allowed the appeal and held that the place of supply was the United Kingdom. Zurich appealed to the Court of Appeal, raising the scope of appellate review, whether the Tribunal had erred in law, and the proper application of Article 9(2)(e).

Appeal dismissed. The Chancellor gave the leading judgment. Lord Justice Longmore agreed, and Lord Justice Lawrence Collins agreed in the result.

1. The statutory appeal was confined to points of law. Applying Edwards v Bairstow [1956] AC 14, an appellate court may intervene where the primary facts, properly understood in law, admit only one reasonable conclusion inconsistent with the tribunal’s decision. The evaluation of primary facts and the application of Article 9 of the Sixth Council Directive on the harmonisation of the laws of Member States relating to turnover taxes (77/388/EEC) constituted a question of law, although the appellate court had to act with circumspection.
2. Under Article 9(2)(e), the relevant inquiry was whether the services were supplied to the customer’s fixed establishment. The place where the contract was made was not the most important factor and was generally unimportant in identifying the place to which services were supplied. The proper focus was the actual performance and receipt of the contracted services, considered in the light of economic reality and rationality.
3. The Tribunal had misunderstood Customs and Excise Commissioners v DFDS A/S [1997] ECR I-1005. That decision did not establish that the place of contracting determined the place of supply. Its references to contracting were made in the context of deciding whether an agent constituted a fixed establishment. The Tribunal’s reliance on place of contracting as the dominant factor was therefore an error of law.
4. The unchallenged facts showed that the consultancy services were performed by PwC UK personnel at the United Kingdom premises, as part of installing SAP into the United Kingdom operations. Zurich’s head office had an important interest in the project, but that did not alter the conclusion that the services were supplied to the United Kingdom fixed establishment. That was the only tenable conclusion and produced a rational result avoiding non-taxation and distortion of competition.
5. Lord Justice Lawrence Collins additionally explained that the relevant provisions of domestic VAT law had to be construed consistently with the Directive and that Article 9 had direct effect, relying on the European Communities Act 1972 and the authorities cited in his judgment.

• Court of Appeal (Civil Division): dismissed Zurich’s appeal and upheld Park J’s conclusion that the place of supply was the United Kingdom.
• Chancery Division: Park J allowed HMRC’s appeal from the VAT and Duties Tribunal and set aside the Tribunal’s decision.
• VAT and Duties Tribunal: set aside HMRC’s assessment, holding that the place of supply was Switzerland.