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EXTRA DIVISION, INNER HOUSE, COURT OF
SESSION
[2006] CSIH 46
XA30/05
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Lord Macfadyen
Lord Abernethy
Lord Marnoch
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OPINION OF THE COURT
delivered by LORD
MACFADYEN
in
APPEAL
under section 11 of
the Tribunals and Inquiries Act 1992
by
THE COMMISSIONERS FOR
HER MAJESTY'S REVENUE AND CUSTOMS
Appellants;
against
EMPOWERMENT
ENTERPRISES LIMITED
Respondents:
in respect of
a decision of the
Edinburgh VAT and Duties Tribunal dated 19 January 2005 and communicated to the appellants on 22 February 2005
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Act:
Young; Shepherd
& Wedderburn
Alt:
Ghosh; Burness
LLP
11 October 2006.
Introduction
[1] The issue in this appeal is whether Value Added Tax (VAT) is
chargeable on tuition provided by the respondents to students, where the
tuition is carried out by teachers who are employees of the respondents. In the circumstances which we shall explain,
that turns on the proper construction, not of the domestic legislation (the
Value Added Tax Act 1994, schedule 9, group 6, item 2) but of the Directive
77/388/EEC (the Sixth Directive) Article 13A.1(j). The Commissioners of Customs and Excise decided
that VAT was chargeable on the tuition in question and issued an
assessment. The respondents appealed
against the decision and the assessment, and the Edinburgh VAT and Duties
Tribunal (the Tribunal) allowed the appeal.
The Commissioners of Revenue and Customs (the Commissioners) have in
turn appealed to this Court.
The facts
[2] The parties presented to the Tribunal a Statement of Agreed
Facts, which is set out at pages 3 to 6 of the Tribunal's decision. For present purposes it is sufficient to
record only certain facts drawn from that Statement.
[3] The respondents, Empowerment Enterprises Limited, are a
company incorporated under the Companies Acts, which was incorporated in about
October 2002. The respondent company is,
and has been since 1 February 2003,
registered for VAT purposes. It has
since that date traded as the Upledger Institute, and is engaged in the
provision of training courses in Craniosacral Therapy.
[4] Prior to 1 February
2003 Mr John Page, who is a director of the respondent company, was
registered for VAT purposes as a sole trader.
He had been so registered since 1
June 1994. During that
period he carried on a business of the same nature under the same trading name.
[5] The following details about the way in which the respondents
operate are agreed.
(i) Mr Page is a director and employee of the respondent
company.
(ii)
There is no written agreement between Mr Page and the
respondent company.
(iii)
Mr Page is the only permanent member of the teaching
staff of the respondent company.
(iv)
Occasionally additional teaching staff
are required to provide tuition, and are engaged as employees of the
respondent company to do so.
(v)
The tuition supplied by the respondent company is
provided by Mr Page and other members of the teaching staff.
(vi)
Students who receive tuition are invoiced by the
respondent company.
(vii)
Mr Page does not invoice the respondent company.
(viii)
Payments made by students in settlement of the
respondent company's invoices are deposited in the respondent company's bank
account, and the money is treated as income of the respondent company.
(ix)
All overheads and running costs are incurred by the
respondent company and recorded through its books and records.
The domestic legislation
[6] Section 31 of the Value Added Tax Act 1994 provides inter alia that:
"(1) A supply
of goods or services is an exempt supply if it is of a description for the time
being specified in Schedule 9 ...".
Schedule 9, group 6, item 2 is in
the following terms:
"The supply of
private tuition, in a subject ordinarily taught in a school or university, by
an individual teacher acting independently of an employer."
[7] It is common ground that, if the matter fell to be judged by
the application of the domestic legislation, the tuition supplied by the
respondent company through Mr Page and other teachers employed by the company
would not constitute an exempt supply, because he and they are not "acting
independently of an employer".
The Sixth Directive
[8] The respondent company maintains, however, (1) that the
domestic legislation does not accurately transpose the corresponding provision
of the Sixth Directive, namely Article 13A.1(j), and
(2) that on a proper construction of that provision of the Directive the
tuition supplied by it is an exempt supply.
The Commissioners dispute those propositions, but do not dispute that,
if the respondents are right on those matters, the Directive has direct effect,
and the tuition in question is therefore an exempt supply.
[9] Article 13A of the Sixth Directive is headed "Exemptions for certain activities in the
public interest." Paragraph 1 then
begins:
"Without
prejudice to other Community provisions, Member States shall exempt the
following under conditions which they shall lay down for the purpose of
ensuring the correct and straightforward application of such exemptions and of
preventing any possible evasion, avoidance or abuse".
There then follow a number of
sub-paragraphs describing exempt activities.
The one which is of direct relevance to the present case is
sub-paragraph (j), which is in the following terms:
"tuition given privately by teachers and covering school or
university education".
[10] It is not suggested that there is any difference in meaning
between the phrase "in a subject ordinarily taught in a school or university"
in Schedule 9, group 6, item 2, and the phrase "and covering school or
university education" in Article 13A.1(j).
It is common ground that the tuition in question in this appeal falls
into that category. The issue in the
appeal is therefore confined to the proper construction of the phrase "tuition
given privately by teachers".
Submissions for the appellants
[11] For the Commissioners, as appellants before this court, it was
submitted that, although there was no jurisprudence of the European Court of
Justice (ECJ) on the meaning of Article 13A.1(j), there was guidance on the
proper approach to the construction of Community provisions in general, and
exemptions in particular. First, it was
settled law that the wording used in one language version of a Community
provision cannot serve as the sole basis for the interpretation of that
provision, or be made to override the other language versions in that regard;
in the event of divergence between versions the provision in question must be
interpreted by reference to the purpose and general scheme of the rules of
which it forms part (Institute of the
Motor Industry v Customs and Excise
Commissioners [1998] STC 1219 at paragraph 16). Secondly, exemptions fall to be construed
strictly, since they form exceptions to the general principle that turnover tax
is levied on all services supplied for consideration by a taxable person (Institute of the Motor Industry,
paragraph 17; Gregg v Commissioners of Customs and Excise [1999] STC 934 at paragraph 12; Hoffmann [2004]
STC 740, per Advocate General at paragraph 28).
The concepts used in Article 13 are independent concepts of Community
law designed to promote harmonisation; however, they provide exemption not for
every activity performed in the public interest but only for those listed and
described in great detail in the Article, mostly for organisations whose
activities are directed to non-commercial purposes (Hoffmann, paragraph 30).
[12] Turning to the wording of sub-paragraph (j), counsel for the
Commissioners submitted that it was the most restrictively expressed exemption
contained in Article 13A. It was
concerned with "tuition", which had to be given "by teachers" and
"privately". It thus defined by whom the
tuition must be given, and how it must be given, to fall within the scope of
the exemption. Unlike some other
sub-paragraphs (e.g. (c)), sub-paragraph (j) conferred no discretion on the Member
State as to how the scope of the
exemption was to be defined. Unlike
certain other sub-paragraphs (e.g. (m) and (q)), it
was not confined to non-profit-making or non-commercial entities. Comparison with sub-paragraph (i) was
instructive. That paragraph also dealt
with education, indeed was the main education exemption. It was of broader scope, encompassing
education other than education of the same sort as school or university
education. It covered education provided
by public law bodies, and also education provided by other organisations
defined by the Member State
as having similar objects. The power
conferred by Article 13A.2(a) on Member States in granting exemption to
non-public law bodies to impose conditions prohibiting the making of profit,
the distortion of competition and the like applied to the sub-paragraph (i)
exemption, but not to the sub-paragraph (j) exemption.
[13] Counsel submitted that there were three possible views of the
content of the word "privately" in sub-paragraph (j). First, it might be intended to contrast the
tuition to which the exemption applied with tuition supplied in the public
sector. Secondly, it might be intended
to denote tuition given by means of direct contact between the student and the
teacher, in contrast with distance learning.
That had been the meaning accepted by the Tribunal (decision, page 13). Thirdly, it might be intended to connote that
the tuition was given by the teacher in a personal capacity, and not on behalf
of any other body or organisation.
[14] Counsel submitted that the first possibility should be
rejected. It had a superficial
attraction. Public sector bodies were
specifically mentioned in sub-paragraph (i).
But, sub-paragraph (i) also covered private sector bodies in so far as
the Member State
exercised its discretion to include them.
It would be odd if sub-paragraph (j) then exempted all private sector
tuition (in the restricted school/university category) without reference to the
exercise of any discretion by the Member
State. It would also be odd if sub-paragraph (j)
exempted all such private sector tuition but did not include the supply of
service and of goods closely related thereto, as sub-paragraph (i) did.
[15] Counsel submitted that the second possibility should also be
rejected. It was hard to discern any
rationale for exempting tuition given by a teacher face-to-face with the
student, but to exclude from the scope of the exemption tuition given from a
remote location. At the time when the
Directive was made in 1977, distance learning by means of the internet was not
available. That made it even less likely
that the intention was to treat distance learning differently from face to face
tuition. This interpretation also left
an inelegant overlap between sub-paragraphs (i) and (j).
[16] The third possibility was, in counsel's submission, the correct
construction of the word "privately".
What was exempt was tuition given by a teacher acting on his or her own
behalf, in a private or personal capacity, and not as the agent or employee of
a body or organisation which was the supplier of the service. That made sense of the relationship between
sub-paragraphs (i) and (j). On that view
there was no overlap between them.
Sub-paragraph (i) dealt with public sector bodies, and private sector
organisations defined by the Member State. Sub-paragraph (j) dealt with individual
teachers giving tuition in a personal capacity.
Some support for that interpretation of "privately" could be found in Ellicott (VAT Tribunal Decision 11472, 5
October 1993).
[17] Counsel also sought to support that construction of
sub-paragraph (j) by reference to other language versions of it. He laid before us the following versions:
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French:
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"les leçons données, à titre
personnel, par des enseignants et portant sur l'enseignement scolaire ou
universitaire";
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Italian:
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"le lezioni impartite da
ensegnanti a titolo personale e relative all' insegnamento scolastico o universitario";
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Spanish:
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"las clases dadas a titulo
particular por docentes y que se relacionen con la enseñanza escolar o
universitaria";
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Dutch:
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"privelessen die particulier
door docenten worden gegeven en betrekking hebben op het school of
universitaire onderwijs";
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German:
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"den
von Privatlehrern erteilten Schul-und Hochschulunterricht".
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Counsel submitted that the
wording of those versions supported the construction of the exemption as
applying only to tuition given by teachers acting in a personal capacity.
[18] Counsel for the Commissioners cited three cases which dealt
with aspects of the construction of Article 13A, but ultimately submitted that
they afforded only limited assistance in construing sub-paragraph (j). Gregg v
Commissioners of Customs and Excise (supra) was concerned with sub-paragraphs
(b) and (g). It was held that the words
"establishment" and "organisation" in these sub-paragraphs were broad enough to
include natural as well as legal persons.
The Advocate General, at paragraph 29 of his opinion (page 945 e-g),
referred to the general principle of tax neutrality, in accordance with which
supplies of the same kind should in principle be taxed in the same way, but
observed:
"Of course the
principle of neutrality can in no circumstances constitute the basis for an
interpretation contra legem of the
provisions in question."
The court held, however, (at
paragraph 20 of its judgment, page 950) that:
"The principle
of fiscal neutrality precludes, inter
alia, economic operators carrying on the same activities from being treated
differently as far as the levying of VAT is concerned. It follows that that principle would be
frustrated if the possibility of relying on the benefit of the exemption
provided for activities carried on by the establishments or organisations
referred to in article 13A(1)(b) and (g) was dependent on the legal form in
which the taxable person carried on his activity."
Ambulanter Pflegedienst Kügler GmbH v Finanzamt für Körperschaften I in Berlin [2002] ECR I-6833 was concerned with
Article 13A(1)(c) and (g). Sub-paragraph (c) exempts "the provision of
medical care in the exercise of the medical and paramedical professions as
defined by the Member State
concerned". The Court repeated what was
said in paragraph 20 in Gregg, and
held on that basis that the exemption applied to the provision of care of a
therapeutic nature by a capital company running an out-patient service under
which care was provided by qualified nursing staff. Counsel accepted that the circumstances of Kügler were closer to those of the
present case than were those of Gregg,
but nevertheless submitted that they were distinguishable because sub-paragraph
(c) contained no such concept as "given privately by teachers" which, in
sub-paragraph (j), should be construed as expressly dictating the form of the
persons carrying on the exempt activity, and thus overcoming the presumption of
fiscal neutrality. Hoffmann (supra) applied
the ratio of Gregg to sub-paragraph (n).
It was held that soloist musicians could be regarded as "other cultural
bodies". Counsel, however, referred to
passages in the opinion of the Advocate General in which he expressed the views
(1) that sub-paragraph (n) does not treat all taxable persons equally,
benefiting only certain taxable persons; that it was thus at odds with the
principle of fiscal neutrality; and that that principle is not always the
deciding factor (paragraph 60); and (2) that in any event that principle does
not preclude a difference of treatment between activities that are similar, but
not the same (paragraph 61).
[19] In summary, the submission of counsel for the Commissioners was
that while in general the principle of fiscal neutrality meant that the precise
legal form adopted by a supplier of services did not matter, and that an
exemption should prima facie be
construed in a way which accorded with that principle, the application of the
principle could be overcome if the wording of the provision made it clear that
an exemption was available only to a supplier operating in a particular
form. In the case of sub-paragraph (j),
the words used - "tuition given privately by teachers" - made it clear that the
exemption was available only where tuition was given by teachers acting in a
personal or individual capacity, and not available where the tuition, albeit
given by teachers, was given by them on behalf of some other person or body,
such as an employer. That interpretation
of the wording of the English version of sub-paragraph (j) was strongly
reinforced by consideration of the other language versions. It was also consistent with a coherent scheme
in which sub-paragraphs (i) and (j) did not overlap. The wording of sub-paragraph (j) thus
demonstrated that, notwithstanding the principle of fiscal neutrality, the
exemption was not intended to be available to organisations such as the
respondent company, which provided tuition through employed teachers. So to construe sub-paragraph (j) was in
accordance with the principle of strict construction of exemptions. To construe it as contended for by the
respondents would give it much wider effect.
Submissions for the respondents
[20] Counsel for the respondents began with certain general
submissions. He emphasised that VAT is a
turnover tax; it focuses on the transaction, not the identity of the
supplier. The fact that VAT is a
turnover tax explains the principle of fiscal neutrality. Supplies of goods or services which are the
same should be treated as the same for VAT purposes. What matters is that the transactions are the
same, not that the suppliers are transacting in the same form. While the principle of fiscal neutrality
draws a line between the same and similar, in doing so it concentrates on the
transaction. Transactions which are the
same should be treated in the same way.
Differences relating to the identity or form of the supplier do not
reduce transactions which are the same to mere similarity. Such differences are irrelevant. It is not disputed that the respondents are
supplying services which would be the same if they were supplied by individual
teachers. The Commissioners' only
complaint is that the respondents' services are provided by a company, not by
individuals.
[21] Counsel submitted that certain of the sub-paragraphs contained
in Article 13A.1 did specify the identity of the supplier as part of the
definition of the scope of the exemption (e.g. sub-paragraphs (a), (c), (f),
(g) and (h)), but others, including sub-paragraph (j), did not. A distinction was to be drawn between the
person who supplied tuition, as a service, and the person who actually gave the
tuition. The respondents were suppliers
of tuition services, but it was Mr Page and the other teachers employed by them
who "gave" the tuition. The exemption
created by sub-paragraph (j) was only available when the tuition was given by
teachers, but it was not confined to cases where the teachers who give the
tuition are also themselves the suppliers.
The supplier need not be a teacher, so long as the tuition was given by
a teacher.
[22] Counsel recognised, however, that one of the critical words in
sub-paragraph (j) was "privately".
Although the Tribunal had found in the respondents' favour on the view
that "privately" connoted face-to-face tuition, as distinct from distance
learning, counsel did not seek before us to support that view. Rather, his submission was that "privately"
connoted what he described as "legal or physical specificity". As we understood the submission, it was that
there had to be some contractual or other transactional link between the
supplier of the tuition and the student which meant that the tuition was
supplied to the student, as distinct from being made generally available in
circumstances which enabled the student to gain access to it. It was not necessary that the tuition be
supplied to a single student; tuition could be supplied to a group, but still
be supplied to the members of the group privately. Tuition, on the other hand, in a form such as
a public lecture was not tuition given privately, even if those attending the
lecture were charged an admission fee.
Counsel submitted that we should reject the Commissioners' submission
that "privately" connoted that the tuition was given by the teacher in a
private, personal or individual capacity.
The more natural word to convey such a meaning would be "independently"
(cf Article 4 of the Directive).
[23] It was wrong in principle and on authority, counsel submitted,
to treat sub-paragraph (j) as focusing on a particular type of supplier. In Kügler,
at paragraphs 26 and 27, the court pointed out that Article 13A.1(c) defines
the exempt transactions by reference to the nature of the services supplied
without mentioning the legal form of the person supplying them, and that on a
literal interpretation the provision does not require the medical services to
be supplied by a taxable person endowed with a particular form in order for
them to be exempt.
"Just two
conditions need to be met: medical services must be involved and they must be
supplied by persons who possess the necessary professional qualifications."
That was so despite the fact that
a company cannot possess professional qualifications. That interpretation was not contradicted by
the need for strict interpretation of exemptions (paragraph 28). The same approach applied to sub-paragraphs
(g) and (h) (Kingscrest Associates Ltd v
Commissioners of Customs and Excise [2005]
ECR I - 04427 paragraph 34). It also
applied to sub-paragraph (j). If there
were competing possible meanings for "privately", it was necessary to accept the
one which was consistent with the principle of fiscal neutrality and the
jurisprudence of the ECJ. There was
neither authority nor principle in favour of the view that sub-paragraph (j)
activity required to be on a small scale.
When the Directive meant to deal with small-scale activities, it said so
(cf Article 24). There was no need for
the exemption to be construed particularly narrowly; the interpretation had to
be consistent with the objectives pursued by the exemptions and had to comply
with the requirements of the principle of fiscal neutrality (Kingscrest, paragraph 29). The principle of fiscal neutrality pointed to
the irrelevance of the legal form of the supplier. If the language of the exemption admitted of
two possible interpretations, the one which regarded the legal form of the
supplier as irrelevant must be preferred.
[24] Counsel further submitted that the respondents should in any
event succeed on an alternative argument.
That was that the expression "teacher" did not necessarily connote an
individual. A teacher could be a company
as well as an individual. Just as, in Kügler, a company could provide medical care in the exercise of the
medical and paramedical professions, so under sub-paragraph (j) a company could
be a teacher. It could not be said that
the meaning of "teacher" was so clear that it precluded the adoption of a
construction which, in accordance with the principle of fiscal neutrality,
rendered the legal form irrelevant. It
was thus wrong to adopt a meaning of "teachers" which was confined to
individuals and excluded companies (Kügler
at paragraphs 30 and 31, Gregg at
paragraphs 17 to 20 and Hoffmann at
paragraphs 24 to 27). Thus, even if the
respondents failed on their principal argument that "privately" did not mean "in
a private capacity", they were still entitled to succeed on the basis that it
was the respondent company, rather than the teachers employed by it, which was,
for the purpose of the sub-paragraph, the "teacher" by which the tuition was
"given privately".
[25] Counsel accepted that if an exemption was clearly to the effect
that it applied only to suppliers who operated in a particular legal form, that would override the principle of fiscal
neutrality. In the context of
sub-paragraph (j), however, that clarity had to be found in the words
"teachers" and "privately". Neither of
these words could be said to be so clear as to overcome the principle of fiscal
neutrality and the authority of Gregg,
Kügler and Hoffmann. There had to be
good reason to depart from that principle and that line of authority. No sufficiently good reason for doing so had
been advanced on the Commissioners' behalf.
The Commissioners' response
[26] In response to the respondent's alternative submission based on
the contention that the word "teachers" was wide enough to encompass a company,
counsel for the Commissioners submitted that it could not stand with acceptance
of the Commissioners' submissions as to the meaning of "privately". The interpretation of the sub-paragraph
required proper value to be given to both words. If "privately" meant "in a private or
individual capacity", tuition could not be given "privately" by a company, or
indeed by anyone other than an individual.
The submission based on the contention that "teachers" could in the
abstract include companies thus could not be advanced as a true alternative to
the submission that "privately" did not mean in a personal capacity. A company might, in another context, be a
teacher, but tuition supplied by a company through employees could not be
"tuition given privately by teachers" if the Commissioners' construction of
"privately" was correct.
Discussion
[27] Our task is to construe Article 13A(1)(j)
of the Sixth Directive. In doing so, we
accept the submission of counsel for the respondents that VAT is a turnover
tax, the focus of which is on the nature of the transaction, not the identity
of the supplier. We accept the principle
of fiscal neutrality, that supplies of goods and services which are the same
should be treated in the same way for VAT purposes, and that differences
relating to the identity or form of the supplier are generally irrelevant (Gregg, paragraph 20; Kügler, paragraph 30). On the other hand, the principle of fiscal
neutrality cannot provide the answer to every question of interpretation: as
was recognised by the Advocate General in Hoffmann
(paragraph 60), it is not always the deciding factor. An exemption may be expressed in language
which dictates, contrary to the principle of fiscal neutrality,
that its scope does depend on the identity or form of the supplier. An examination of Article 13A(1)
demonstrates that that is so. For
example, sub-paragraph (a) exempts supply "by the public postal services"; sub-paragraph
(g) exempts inter alia supply "by old
people's homes"; sub-paragraph (i) exempts inter
alia supplies "provided by bodies governed by public law" having
educational aims; sub-paragraph (m) exempts certain services supplied "by
non-profit-making organisations". The
relevance of the principle of fiscal neutrality in construing an exemption
comes therefore to be that if the language used admits of two constructions,
one which treats the identity of the supplier as relevant and one which does
not, the latter is to be preferred. The
principle of fiscal neutrality cannot, however, constitute the basis for a
construction which is contrary to the clear language of the provision in
question (Gregg, per the Advocate
General at paragraph 29).
[28] It is necessary, therefore, to undertake an examination of the
language of Article 13A(1)(j). The relevant part of the sub-paragraph refers
to "tuition given privately by teachers".
There is no dispute that the respondents supply tuition of the sort
specified in the later words of the sub-paragraph. The focus, for the purpose of interpretation,
is therefore on the words "given privately by teachers". Various constructions of these words were
canvassed in the course of counsel's submissions. One was that the word "privately" was
intended to contrast with tuition provided by a public sector supplier. Neither party submitted that that was the
correct interpretation. We accept that,
for the reason given by counsel for the appellants (see paragraph [14] above),
it falls to be rejected. The
interpretation adopted by the Tribunal can also be disposed of briefly. It was that "privately" connoted face-to-face
tuition as distinct from distance learning.
Although that interpretation was in the respondents' favour, counsel for
the respondent did not seek to support it before us. For the reason identified in paragraph [15]
above, we do not consider that that interpretation is satisfactory. That leaves for consideration the competing
interpretations put forward in the course of the appeal on behalf of the
Commissioners and the respondents respectively.
[29] The Commissioners' contention was that "tuition given privately
be teachers" connoted tuition given by a teacher
acting on his or her own behalf, in a private or personal capacity, and not as
the agent or employee of a body or organisation which was the supplier of the
service. Various reasons were advanced
for preferring that interpretation. It
made sense of the relationship between sub-paragraphs (i) and (j). The former dealt with tuition provided by
public sector bodies and by private sector organisations defined by the
state. The latter dealt with individual
teachers acting in a personal capacity.
There was thus no overlap. It
would be odd if sub-paragraph (i) required private sector organisations to be defined
by the state in order to qualify, but sub-paragraph (j) entitled private sector
organisations such as the respondents to qualify without state definition. It would also be odd, if private sector
organisations such as the respondents qualified under sub-paragraph (j), that
the power of the state to impose conditions prohibiting the making of profit,
the distortion of competition and the like afforded by Article 13A(2)(a) was not applicable to them although it was
applicable to state-defined private sector organisations under sub-paragraph
(i).
[30] The Commissioners also pointed to the language used in other
language versions of sub-paragraph (j) as supporting the interpretation for
which they contended. Of the versions
set out in paragraph [17] above, the French, Italian and Spanish versions were
of particular assistance. In these
versions the equivalents of the English word "privately" were respectively "à
titre personnel", "a titolo personale" and "a titulo particular". An interpretation which gave proper content
to those phrases was to be preferred to one which did not. They each laid emphasis on the personal or
individual capacity in which the teacher was acting.
[31] The submission for the respondents was that "privately"
connoted "legal or physical specificity".
In other words it related not to the capacity in which the teacher was
acting, but to the relationship between the teacher and the student. There had to be a contractual or other
transactional link between teacher and student that meant that the tuition was
given to the student, as distinct from being made available to students
generally. The link might be with one or
more students. It was, however, something
different from the situation exemplified by a public lecture, where the tuition
is made available to all who might choose to take the benefit of it.
[32] We prefer the Commissioners' submissions. In the first place, their interpretation, in
our opinion, makes better sense of the structure of Article 13A(1),
and in particular of the relationship between sub-paragraphs (i) and (j). On their approach, sub-paragraph (j) is
concerned with a different sort of educational supply from that covered by sub-paragraph
(i). On the respondent's interpretation,
however, sub-paragraph (j) provides a second route to exemption for private
sector bodies, allowing them exemption, even if they are not within the
definition laid down by the state under sub-paragraph (i), so long as they
provide tuition under some form of contractual or transactional link with the
student. The respondent's interpretation
offers no explanation of why Article 13A(2)(a) should apply to private sector
bodies qualifying under sub-paragraph (i), but not those qualifying under their
interpretation of sub-paragraph (j).
[33] In the second place, the Commissioners' interpretation in our
opinion derives substantial support from consideration of other language
versions of sub-paragraph (j). The
French, Italian and Spanish versions all, in our opinion, place emphasis on the
capacity in which the teacher is acting.
The respondents' interpretation, on the other hand, while it might be
available if regard were confined to the English language version, appears to
give no content to the phrases that appear in the French, Italian and Spanish versions.
[34] In the third place, we have difficulty in identifying precise
borderlines for the respondents' counsel's concept of "legal or physical
specificity". It is not that there is a
one-to-one relationship between the teacher and the student, because it is
accepted that tuition may be given privately to a group of students. The notion of some form of contractual or
transactional link is vague. When tested
by examples it is difficult to see why one situation qualifies as tuition given
privately and another does not. Where
the borderline lies between a public lecture for which an admission charge is
made and the teaching of a class, membership of which is open to all who enrol,
is not clear, yet we understand that the respondents would regard the latter as
private tuition and the former as not.
We therefore do not find the respondents' submissions as to how
"privately" falls to be interpreted satisfactory.
[35] The respondents' alternative submission, which concentrated on
the concept of a "teacher" rather than on the concept of "privately", does not
in our view provide a satisfactory solution to the problem of the
interpretation of sub-paragraph (j). We
do not say that the expression "teacher" is incapable of being applied to a
company or other organisation, but it is, in our view, a relatively strained
application. More importantly, however,
that alternative approach does not, in our view, adequately address the meaning
of "privately". If "privately" means in
a personal capacity, an institutional "teacher" cannot provide tuition
"privately". If "privately" has the
meaning primarily contended for by the respondents, there is no need for the
alternative approach to the interpretation of "teacher".
[36] We have therefore come to the conclusion that, of the two
interpretations of sub-paragraph (j) put forward by the parties, the
Commissioners' interpretation is to be preferred for the reasons we have given In particular,
it is the only one which gives proper value to the concept of "privately" as
that concept is expressed in the various language versions of the sub-paragraph
that we have considered. The situation
is not one in which two interpretations are possible and the principle of
fiscal neutrality can be relied on as pointing to the one which makes the form
or identity of the supplier irrelevant.
Rather, sub-paragraph (j) is an example of an exemption expressed in
language which, despite the principle of fiscal neutrality, makes the nature or
identity of the provider of the tuition an essential element in the definition
of the scope of the exemption. On a
sound construction of sub-paragraph (j), it applies only where the tuition is
provided by a teacher acting in an individual or personal capacity, and does
not apply to tuition provided by a teacher as an employee of a company or other
organisation. Kügler is therefore distinguishable, because there sub-paragraph
(c) contained nothing to the same effect as the reference in sub-paragraph (j)
to the concept of supply in a private capacity.
[37] To construe sub-paragraph (j) as we have done has the further
justification of being the narrower or stricter of the suggested constructions
of the exemption contained in it (Institute
of the Motor Industry, paragraph 17; Gregg,
paragraph 12).
Preliminary Reference
[38] Neither party adopted, as its primary position, the contention
that we should make a preliminary reference to the ECJ. Both, however, suggested that we should not
find against them without first doing so.
The approach which we must adopt in deciding whether to make a
preliminary reference is set out in Regina
v International Stock Exchange of the
United Kingdom and the Republic of Ireland Ltd, Ex parte Else (1982) Ltd [1993]
QB 534 per Sir Thomas Bingham MR at 545D-G.
Applying that approach, we are satisfied with sufficient certainty that
the Commissioners' interpretation of Article 13A(1)(j)
is correct, and we therefore do not consider it appropriate to make a
preliminary reference.
Result
[39] For the reasons which we have set out, we conclude that the
Tribunal erred in holding that on a proper construction of Article 13A(1)(j)
the exemption therein provided for applies to the provision of tuition by
teachers employed by the respondents acting as such employees on the respondents'
behalf. We therefore allow the appeal.
