Matchmaking services were subject to special place of supply rule for B2C consultancy services

In Gray & Farrar International LLP v HMRC [2021] UKUT 293 (TCC), the Upper Tribunal (UT) decided that matchmaking services supplied to clients outside the EU fell within Article 59(c) of Council Directive 2006/112/EC (the Principal Directive) and were therefore outside the scope of VAT.

Background

Gray & Farrar International LLP (G&F) provided exclusive matchmaking services to clients in several jurisdictions.

HMRC decided that G&F's services to its clients who were outside the EU did not constitute "services of consultants … and other similar services … and the provision of information …”, within Article 59(c) of the Principal Directive (which is enacted in UK domestic law as paragraph 16(2)(d), Schedule 4A, Value Added Tax Act 1994 (VATA)), and so did not fall to be treated as supplied outside the EU and therefore outside the scope of VAT. HMRC issued related VAT assessments to G&F.

G&F appealed to the First-tier Tribunal (FTT).

FTT decision

 The appeal was dismissed.

The FTT reached the following conclusions:

(1) The supply made by G&F was a single composite supply of services. The question as to whether that supply of services falls within Article 59(c) should be determined by reference to the “principal components” of the supply. A component which is ancillary to a principal component can be treated as subsumed within the principal element for the purpose of characterising the supply.

(2) The nature of what is supplied should be decided from the point of view of a typical consumer of the supply. In this case, the typical consumer was a person seeking a partner with a view to a long-term relationship.

(3) G&F’s service comprised a combination of information and advice. That was all that was provided to the client. The way in which G&F provided or created the advice or information – the preparation of the brief, the use of intuition and experience to determine an appropriate match – were simply part of the process by which G&F provided the advice and information to its client.

(4) The information was given but was given within the framework of the provision of the advice.

(5) Claire Sweetingham (the managing partner of G&F) was an expert. The advice given by Ms Sweetingham as part of the supply made by G&F was within the domain of her expertise as a matchmaker and was expert advice.

(6) The post-introduction liaison provided by the support team was not expert advice. Although there was no reference to the post-introduction liaison services in G&F’s terms and conditions, it was an important and material feature of G&F’s service that distinguished its approach from other matchmaking businesses. It was not merely incidental to other parts of the supply.

The panel diverged in their views. The member, Ms Wilkins, concluded that the post-introduction liaison provided by the support team was ancillary to the provision of information and expert advice, in that it was designed to enable the expert advice and information to be better used. On that basis, she decided that the only material elements of the supply for the purposes of its characterisation were the expert advice of Ms Sweetingham and the provision of information. Those elements fell within Article 59(c).

The presiding panel member, Judge Hellier, concluded that the services provided by the support team were a material element of the supply which could not be regarded as assisting the provision of information concerning a potential partner or the expert advice provided by Ms Sweetingham. Accordingly, the services provided by the support team could not be regarded as ancillary to the other elements of the supply. The effect of the inclusion of the support team’s services in the service provided by G&F was that the service went beyond the provision of information and expert advice and so could not fall within Article 59(c).

On that basis and on the casting vote of Judge Hellier, the FTT dismissed the appeal.

G&F appealed to the UT.

UT decision

The appeal was allowed.

The following issues were before the UT for determination:

(1) the proper characterisation of the supply made by G&F to its clients;

(2) the meaning of “services of consultants” in Article 59(c) and whether the phrase is limited to supplies made by members of the “liberal professions” (as HMRC argued); and

(3) whether or not the phrase “data processing and the provision of information” in Article 59(c) should be read as a single composite phrase, or whether the phrase should be read as applying separately to data processing and the provision of information.

The UT decided that the listed activities in Article 59(c) are not confined to services provided by members of the liberal professions, and that the phrase “data processing and the provision of information” in Article 59(c) and paragraph 16(2)(d), Schedule 4A, VATA, specifies two activities: (i) the processing of data; and (ii) the provision of information.

The UT decided that the FTT erred in law by failing properly to characterise the supply made by G&F and, in particular, by failing to consider the application of the predominant element test as set out by the Court of Justice of the European Union in Levob Verzekeringen BV and OV Bank NV v Staatssecretaris van Financien (Case C-41/04) [2006] STC 766 and Mesto Zamberk v Financni reditelvsti (Case C-18/12) [2014] STC 1703 (which permits of the possibility that there may be a material element of the supply which is not ancillary to a principal element but which does not govern the characterisation of the supply because another element predominates).

The UT decided that, given the findings of the FTT, the predominant element of the supply (from the point of view of the typical consumer) was the advice which was provided as part of the matchmaking service, combined with the information relating to a potential match. The UT did not regard the addition of the post-introduction liaison services as sufficient to disturb this conclusion.

The UT therefore concluded that the services provided by G&F were “consultancy services … or similar services … and the provision of information” falling within Article 59(c) of the Principal Directive and paragraph 16(2)(d), Schedule 4A, VATA. The UT remade the FTT's decision to that effect and allowed G&F's appeal.

Comment

Since the end of the Brexit transitional period, paragraph 16(1), Schedule 4A, VATA, provides that B2C supplies of the services set out in paragraph 16(2) to recipients which belong in a country other than the UK, or Isle of Man, are to be treated as made in the country in which the recipient belongs and are therefore outside the scope of VAT. This means that paragraph 16(2)(d), which was in issue in this case, now has a broader application than in the period to which this decision relates (in which paragraph 16(2)(d) applied to recipients outside the EU). The decision elucidates the scope of this specific provision. It also provides a useful contribution to the general case law on the characterisation of complex supplies.

The decision can be viewed here.