In September 2012 the UK Tax Tribunal handed down two decisions dealing with the perennial question of whether a particular transaction gave rise to a single supply or multiple supplies for VAT purposes. These decisions are interesting because it shows that the UK Courts are still grappling with this issue. The decisions are also interesting in the context of the recent decision of the High Court in Qantas and whether the Australian Courts will continue to adopt the UK approach to the issue or now be steered into a different path.
This case involved four separate appeals which raised issues concerning a large number of golf clubs across the UK which had appeals pending before the Tribunal. Two of the appeals involved “member clubs”, which were owned and operated for the benefit of members. The remaining two appeals involved “proprietary clubs”, which were owned and operated for the benefit of the proprietors.
The Member Clubs claimed that subscriptions were consideration for multiple supplies which were exempt (input taxed), zero rated (GST-free), standard rated (taxable) or out of scope, depending on the nature of each supply. The contended supplies were as follows:
- the right to play golf (subject to VAT);
- golf union fees (disbursement out of scope);
- the supply of credit where members pay by instalments (exempt)
- the right to play in club competitions (exempt);
- the opportunity to hire club rooms (exempt or out of scope);
- various publications including newsletters, handbooks and magazines (zero rated).
The Proprietary Clubs claims that subscriptions were consideration for multiple supplies, or alternatively consideration for a single exempt supply.
The parties essentially agreed on the legal principles to be applied to the question of whether there was a single supply or multiple supplies. These primary case being Card Protection Plan v C & E Case C-25-05 1999 STC 270 where the ECJ said as follows:
29. …every supply of a service must normally be regarded as distinct and independent and, secondly, that a supply which comprises a single service from an economic point of view should not be artificially split, so as not to distort the functioning of the VAT system, the essential features of the transaction must be ascertained in order to determine whether the taxable person is supplying the customer, being a typical customer, with several distinct principal services or with a single service.
30. There is a single supply in particular in cases where one or more elements are to be regarded as constituting the principal service, whilst one or more elements are to be regarded, by contrast, as ancillary services which share the tax treatment of the principal service. A service must be regarded as ancillary to a principal service if it does not constitute for customers an aim in itself, but a means of better enjoying the principal service supplied.
In addition, the Tribunal referred to a number of principles which included the following:
- in assessing whether there is a single indivisible economic supply, it is necessary to determine whether both supplies are so closely linked that, in isolation, from the perspective of the average consumer, they do not have the necessary practical benefit for consumers and whether each element can be used without the other
- it is necessary to concentrate on the economic purpose of the transaction and to assess the substance of the supplies without entering into the realms of artificial and without undue contrivance
- account must be taken of commercial reality
Having regard to the facts of the case and the principles outlined above, the Tribunal found that, save for golf union fees (which were out of scope), the Member Clubs were making a single supply of the right to play golf on the course. The Tribunal also found that the Proprietary Clubs made a single supply of services which were taxable.
This decision involved a company which owned and operated “five a side” football pitches and organised and administered certain competitive football leagues. The applicant contended that it made separate supplies of the rights to participate in competitions (taxable) and the supply of the hire of the pitches (exempt). The Revenue contended that the applicant made a single (taxable) supply of the right to participate in football competitions.
As with the decision discussed above, there was little dispute about the legal principles to be applied in determining whether the applicant made a single supply or multiple supplies. Reliance was again placed on the decision in Card Protection Plan.
The Tribunal found that there were separate supplies. In doing so, the Tribunal concluded as follows:
- there were separate contracts and separate prices and it would be artificial to combine them and classify them as a single supply from an economic point of view;
- from the point of view of the typical customer, there is a discrete supply of the use of a pitch, on the one hand,, and the supply of league management services on the other hand.
- if, contrary to our view, we are concerned with a single composite supply, league pitch hire is the principal supply and leave management services are principal supplies.
The Australian context after Qantas?
The Federal Court has applied the UK approach to reasoning in Saga Holidays v Commissioner of Taxation at  and 111]; and on appeal at . Conti J found that what is supplied under a contract is to be determined by commercial reality and the essential features of a transaction, rather than by artificially splitting the contract into components. The Commissioner has also adopted this approach in his public rulings: see GSTR 2002/2 at paragraphs 235-250; GSTR 2006/9 at paragraph 65; GSTR 2001/8 at paragraphs 40-44.
In Commissioner of Taxation v Qantas Airways Ltd  HCA 41 the majority of the High Court appeared to limit its enquiry into whether Qantas made a “supply” within the meaning of s 9-5 of the GST Act upon entry into the contract with the passenger for which the fare was consideration. In finding that Qantas made a taxable supply on entry into the contract, for which the consideration (being the fare) was received, the majority (at ) found that the earlier decision of the High Court in Reliance Carpet:
…provides no support for the proposition for the proposition adopted by the Full Court in the present case that it was necessary to extract from the transaction between the airline and the prospective passenger the “essence” and “sole purpose” of the transaction.
This statement raises doubts as to whether the UK approach to the characterisation of supplies has any continued relevance in the context of the GST Act.