Cadbury Ireland Pension Trust Limited and CMF Trustees Limited and The Revenue Commissioners ([2007] IEHC 190)

Facts

The taxpayers, companies limited by guarantee, were pension trustees for Cadbury's pension schemes – one for employees and the other for executives. The function of each taxpayer was confined to act as trustee of the relevant pension scheme. Therefore, the objects clause which empowered the companies to exercise other functions was irrelevant. The taxpayers had their establishments in Ireland.

The investments of the pension schemes were managed by a company established in Scotland. Originally the Scottish company had invoiced Cadbury but it had been accepted by both parties that the services of the Scottish company had been supplied to the two Irish trustee companies.

The case deals with the supply of VAT fourth schedule services.

Issue

The key issue in the case was whether the services, being fourth schedule services, were received by the trustees for the purposes of any business carried on by them.

If so, then the effect would be that the service supplied by the UK supplier to an Irish-based company which did not have an establishment in the UK (and the service was received by the company for the purpose of business carried on by it), is deemed to be supplied in Ireland. The trustees would have been deemed taxable persons and would have had to account for VAT on the services under the reverse charge rules.

Decision

The decision was delivered by Miss Justice Laffoy on 24 May 2007.

There is a difference between the provisions of the Value Added Tax Act, 1972 (“VATA”) and the EU Sixth Directive in that the expression “economic activity” in the Sixth Directive is transposed as “business” in the VATA. A similar difference exists in the UK, where the House of Lords decision in Institute of Chartered Accountants in England and Wales v Customs and Excise Commissioners [1999] STC 398 concluded that the UK Act “must insofar as possible be construed to give effect to the Sixth Directive”. Miss Justice Laffoy adopted those comments as regards the transposition of the Sixth Directive in Ireland.

Definition of “business”

“includes farming, the promotion of dances and any trade, commerce, manufacture, or any venture or concern in the nature of trade, or manufacture, and any profession or vocation, whether for profit or otherwise.” - VATA s1(1).

Definition of “economic activity”

“The economic activities referred to in paragraph 1 shall comprise all activities of producers, traders and persons supplying services including mining and agricultural activities and activities of the professions. The exploitation of tangible or intangible property for the purpose of obtaining income therefrom on a continuing basis shall also be considered an economic activity.” Sixth Directive Art. 4(2).

There was detailed review of cases, including ECJ cases, which were relevant to determining if the trustees were carrying on a business. There was no Irish authority identified.

The ECJ case Wellcome Trust Limited v Customs and Excise Commissioners [1996] STC 945 was relied on by both parties. The Wellcome case dealt with a charitable trust established for the advancement of medical research and study. In 1992, the trust sold shares that it owned. It was held that the trust was not carrying an economic activity. Miss Justice Laffoy stated that the decision in the Wellcome Trust case did not present an obvious answer to the current case.

Other cases were considered, in particular Customs and Excise Commissioners v Lord Fisher [1981] STC 238, where a test consisting of six issues was noted:

1. a “serious undertaking earnestly pursued”;
2. pursued with reasonable continuity;
3. substantial in amount;
4. conducted regularly on sound and recognised business principles;
5. predominantly concerned with the making of taxable supplies to customers for a consideration; and
6. such as consisted of taxable supplies of a kind commonly made by those who seek to make profit from them.

Miss Justice Laffoy stated that the above test was one which could be usefully deployed in Ireland to determine whether the supply of service was received for the purpose of business carried on by the recipient.

The trustees' functions were of a fiduciary nature, imposed on them by the trust deeds and they received the services of the Scottish company for the purposes of those functions. Therefore the issue was whether those functions constituted business or economic activity.

In making her decision, the judge looked at the entirety of the activity which each trustee was involved in and asked whether that activity, leaving aside the question of tax liability, could be properly described as business or economic activity.

The High Court ruled that the trustees' functions constituted “business” within the VAT Act and “economic activity” within the meaning of the EU Sixth Directive, and therefore the services were supplied to the trustees for the purposes of business carried on by them.

Miss Justice Laffoy used the test in the Fisher case to reach her decision.

“I find as follows:

1. the activity of each appellant is a “serious undertaking earnestly pursued”;
2. the activity of each of the appellants is pursued with reasonable continuity, not on a one-off basis, and, in fact, it is pursued continuously;
3. as a matter of inference, the activity of each of the appellants is substantial an amount, noting that the Trustee Report of the Cadbury Ireland Pension Scheme, for 1996, which is appended to the case stated discloses that the value of the fund at 5th April, 1996 was IR£110.65million;
4. the activity of each of the appellants is conducted regularly on the basis of sound and recognised business principles;
5. having found that each of the appellants receives consideration for the performance of its functions, notwithstanding that it is precluded from pursuing profit, each is predominantly concerned with making taxable supplies to customers for consideration; and
6. the taxable supplies are of a kind commonly made by those who seek to make a profit from them.”