Citation Codes
Equivalent Citations
citation codes
Attorney(S)
- Appellant David Milne QC Nicola Shaw QC (Instructed by Pinsent Masons LLP)
- Respondent Sam Grodzinski QC Eleni Mitrophanous Hanif Mussa (Instructed by General Counsel for HM Revenue & Customs)
Judges
- LORD SUMPTION
- LORD NEUBERGER PRESIDENT
- LORD HUGHES
- LORD REED
- LORD HODGE
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Revenue and Customs v. Secret Hotels2 Ltd (Rev 1)
Smart Summary
Factual and Procedural Background
Company A operated an online platform (“the website”) through which it promoted approximately 2,500 hotels located in Mediterranean and Caribbean destinations. During the period between December 2004 and May 2007 (“the relevant period”) about 94 % of bookings were made by travel agents and the remainder by holiday-makers directly. Under a standard written “Accommodation Agreement,” each hotel operator (“the hotelier”) appointed Company A as its selling agent. Customers using the website were presented with “Terms of Use” and “Booking Conditions” which described Company A as acting only as booking agent for the hotelier.
The Respondent (the national tax authority) assessed Company A for Value Added Tax (“VAT”) of £7,119,702 on the footing that Company A was itself supplying accommodation to customers in the United Kingdom and therefore fell within the special Tour Operators Margin Scheme (“TOMS”). Company A appealed, contending that it merely acted as an intermediary so that VAT, if any, was chargeable in the Member State where the hotel was situated.
The First-tier Tribunal (“FTT”) upheld the Respondent’s assessment. The Upper Tribunal (Judge Morgan) reversed that decision, finding that Company A acted only as agent. The Court of Appeal reinstated the FTT’s decision. Company A obtained permission to appeal to the Supreme Court, where Judge Neuberger delivered the leading judgment.
Legal Issues Presented
- Whether, for the purposes of Article 306 of Directive 2006/112/EC, Company A “dealt with customers in its own name” (Article 306(1)(a)) or “acted solely as intermediary” (Article 306(1)(b)) when arranging hotel accommodation.
- If Company A acted solely as intermediary, whether the supply of accommodation was made where the hotel is located, thereby removing any liability to UK VAT.
- The extent to which contractual documentation versus subsequent conduct determines the characterisation of the supply under both English contract law and EU VAT law.
Arguments of the Parties
Appellant's Arguments
- The contractual documents expressly designate Company A as “Agent” and the hotelier as “Principal,” evidencing an agency relationship.
- Customers contract directly with hoteliers; Company A earns only commission (the difference between gross and net room rates).
- Under English law labels are not determinative, but the substance of the agreements and economic reality confirm an agency model.
- Consequently, Article 306(1)(b) applies, removing the transactions from TOMS and any UK VAT obligation.
Respondent's Arguments
- In practice Company A behaved as principal: it collected all customer monies, retained cancellation charges, dealt with complaints, and failed to issue VAT-compliant invoices to hoteliers.
- These facts show Company A “dealt in its own name” and used services of hoteliers, thereby falling within Article 306(1)(a) and TOMS.
- The FTT was entitled to consider commercial conduct and not be confined to the written contracts.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Customs and Excise Commissioners v Madgett and Baldwin (C-308/96 & C-94/97) [1998] STC 1189 |
Article 306 applies to traders who habitually arrange travel using supplies of others. |
Confirmed that Company A, if acting as principal, would fall within the special scheme; relevance turned on agency question. |
| RBS Deutschland Holdings GmbH (C-277/09) [2011] STC 345 |
Taxable persons may structure transactions to minimise VAT, except where abusive. |
Supported the legitimacy of Company A’s chosen agency structure absent abuse. |
| Halifax plc v Customs and Excise Commissioners (C-255/02) [2006] Ch 387 |
Sets out the doctrine of abuse in VAT law. |
Cited to show that only abusive arrangements would be disregarded; no abuse was alleged here. |
| Belgium v Henfling (C-464/10) [2011] STC 1851 |
“In his own name” means two separate legal relationships: operator–customer and operator–principal. |
Used to contrast agency versus principal status under Article 306. |
| Van Ginkel (C-163/91) [1996] STC 825 |
National courts must consider all details, especially contractual obligations, to decide if the agent acts in own name. |
Guided the Supreme Court’s focus on the contracts first, then on conduct. |
| Revenue and Customs Commissioners v Newey (C-653/11) [2013] STC 2432 |
Economic and commercial reality may override contractual form where arrangements are artificial. |
Applied to test whether the agency agreements reflected genuine commercial reality; court held they did. |
| Revenue and Customs Commissioners v Aimia Coalition Loyalty UK Ltd [2013] 2 All ER 719 |
All circumstances of linked transactions must be examined to identify the supplier. |
Reinforced the need to consider both sets of contracts (with hoteliers and customers). |
| A1 Lofts Ltd v Revenue and Customs Commissioners [2010] STC 214 |
Classification requires identifying contractual rights before legal characterisation; labels are not conclusive. |
Cited as domestic authority aligning with EU approach. |
Court's Reasoning and Analysis
Judge Neuberger undertook a two-stage analysis:
- Characterisation under English law. Interpreting the Accommodation Agreement and website terms, the Court found:
- Both documents consistently described Company A as “Agent” and the hotelier as “Principal.”
- Customers were expressly informed that they contracted directly with hoteliers.
- Commission was defined as the difference between the gross customer price and the net hotel rate, a structure compatible with agency.
The Court held that none of the financial or operational provisions (e.g., retention of cancellation fees, handling of complaints, advance room reservations) displaced the agency relationship; they simply reflected Company A’s commercial leverage.
- Application of EU law (Article 306). The Court compared the English-law characterisation with CJEU guidance:
- Under Henfling and Van Ginkel, “acting in own name” is contrasted with “intermediary” status.
- Because Company A’s contracts made the hotelier the supplier to the customer, Company A functioned as intermediary.
- No evidence showed that the contracts were artifices or shams; economic reality aligned with the written terms.
Therefore Company A fell within Article 306(1)(b), outside the TOMS regime.
The Supreme Court concluded that the FTT and Court of Appeal erred by allowing conduct factors to override the clear contractual allocation of roles. Judge Morgan’s Upper Tribunal decision was restored.
Holding and Implications
HELD: The appeal is allowed. The assessment of £7,119,702 VAT under TOMS is discharged; Company A acted solely as intermediary, so the supply of accommodation is deemed to occur where each hotel is located and is not subject to UK VAT.
Immediate implication: Company A owes no UK VAT for the relevant period. The judgment re-affirms that, absent abuse, clear contractual agency arrangements will be respected for VAT purposes even where the agent wields significant commercial control. No new legal test was created, but the decision provides authoritative confirmation of the primacy of contractual terms, read in light of economic reality, when applying Article 306.
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