Arachchige v Revenue and Customs

For VAT purposes, the sale of a phone card may be a supply of a telecommunications service, rather than merely a supply of a right to services. A phone card represents a promise to make telecommunications available or to procure their availability. That characterisation applies to sales to private consumers as well as to traders. The place of supply is therefore in the United Kingdom where the UK retailer supplies the service to the customer. Article 21(1) of the Value Added Tax (Place of Supply of Services) Order 1992 cannot be inverted so that identifying the place of supply of the underlying service automatically identifies the place of supply of the right. The appeal was dismissed. It was unnecessary to resolve the alternative arguments based on non-taxation or conforming interpretation.

The appellant operated a UK shop selling phone cards issued by telecommunications suppliers established in other EU member states. HMRC assessed him for VAT on sales made between May 2003 and January 2005. The VAT Tribunal allowed his appeal, holding that the pre-August 2006 version of Article 21 of the Value Added Tax (Place of Supply of Services) Order 1992 located the supply where the telecommunications service was supplied. Lewison J allowed HMRC's appeal. The central issue before the Court of Appeal was whether the card sale was a supply of a right to services located in the supplier's member state, or a service supplied in the United Kingdom by the appellant.

Etherton LJ delivered the judgment, with Sullivan and Mummery LJJ agreeing. The appeal was dismissed.

1. The Court rejected the algebraic construction of Article 21(1) adopted by Lewison J. The provision could not be read so that identifying the place of supply of the underlying services automatically identified the place of supply of the right. That would reverse the operation of the provision.
2. The decisive point was the character of the transaction. The appellant's sale of a phone card was a supply of a service, not merely a supply of a right to services. A card is a promise to make telecommunications services available or to procure that they are made available. The place of supply was consequently the United Kingdom, where the appellant supplied the service to his customers.
3. The Court applied the general description in HM Revenue and Customs Commissioners v IDT Card Services Ireland Ltd [2006] EWCA Civ 29. The fact that IDT concerned supplies to business customers did not make its description of a phone card artificially narrow. The definition of telecommunications services in Article 9(2)(e) of the Sixth Directive and paragraph 7A of Schedule 5 to the Value Added Tax Act 1994 provided useful interpretive support, although it was not binding in the non-business context.
4. The statutory description of a face-value voucher as representing a right to receive goods or services did not prevent the card from being characterised in substance as a promise to supply or procure a telecommunications service.
5. The Court did not need independently to invoke the EU principles concerning avoidance of non-taxation or conforming interpretation under Marleasing SA v La Comercial Internacional de Alimentation SA [1990] ECR I-04135. The appeal was resolved by the proper construction of the domestic provisions and the characterisation of the phone-card supply.

1. Court of Appeal (Civil Division) [2010] EWCA Civ 1255: dismissed the appellant's appeal.
2. High Court, Chancery Division: Lewison J allowed HMRC's appeal from the VAT Tribunal on 20 May 2009.
3. VAT Tribunal: allowed the appellant's appeal against the VAT assessment in a decision released on 4 June 2008.