Factual and Procedural Background
The Appellant entered into a licence agreement with Company A to operate casinos and gaming machines on board certain domestic and internationally bound ships operated by Company A's ferry services. The Appellant makes payments to Company A under this agreement. The dispute concerns whether the licences to site and operate gaming machines and to operate casinos constitute separate supplies or a single supply of gambling provision, and the determination of the place of supply for VAT purposes, specifically whether the ships can be considered "fixed establishments" under the relevant VAT legislation.
The Appellant contends that the licences are separate supplies per ship and that for certain internationally bound ships, the Appellant has a fixed establishment on each ship, meaning supplies made outside UK territorial waters are outside the scope of VAT. The Respondent disputes this, arguing there is a single supply and that ships cannot be fixed establishments due to their movable nature and the nature of the personnel and equipment on board.
The Respondent issued a decision on 26 April 2012 denying the ships could be treated as fixed establishments, and this appeal concerns that decision covering the period from 1 January 2010 to 31 December 2012.
The Tribunal heard evidence from the Appellant's managing director, who provided details of the licence agreement, operational facts, and the nature of the casino and gaming machine facilities on the ships. The Appellant operates gaming machines and casinos on various ferry routes, with casinos only on certain routes. Casinos operate only once ships have left UK territorial waters, and the casino areas are fixed, dedicated spaces on the ships with controlled access, staffed by croupiers engaged by the Appellant.
Legal Issues Presented
- Whether the licence to site and operate gaming machines and the licence to operate casinos constitute separate supplies or a single supply of gambling provision.
- Whether ships can be considered "fixed establishments" for the purposes of determining the place of supply under VAT legislation, despite their movable nature.
- Whether, if a person receiving services has more than one fixed establishment, the legislation allows place of supply to be determined by reference to those fixed establishments.
- Whether the ships meet the criteria of permanence and sufficient human and technical resources to qualify as fixed establishments.
Arguments of the Parties
Appellant's Arguments
- The licences to site and operate gaming machines and to operate casinos are separate supplies, and even if combined, supplies are separate per ship.
- The ships with casinos constitute fixed establishments of the Appellant for VAT purposes, allowing supplies made outside UK territorial waters to be outside VAT scope.
- Human resources for fixed establishments need not be employees; croupiers working under contracts on the ships constitute such resources.
- The fixed establishment for casino licences is the casino area on board each ship, which has the requisite permanence and resources.
- The legal framework and case law support that ships can be fixed establishments if criteria are met.
- Where multiple fixed establishments exist, place of supply can be determined by reference to each relevant establishment.
Respondent's Arguments
- There is a single supply of gambling provision for all ships under the agreement, not separate supplies per ship or per licence type.
- Ships, being movable, cannot be fixed establishments as they lack permanence and certainty, conflicting with legal certainty principles.
- The presence of croupiers and equipment on ships is insufficient to constitute a fixed establishment.
- Human resources for fixed establishment purposes must be employees of the recipient of the supply; independent contractors do not qualify.
- Where multiple fixed establishments exist, the legislation only allows place of supply to be determined by reference to one fixed establishment, not multiple.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Card Protection Plan (Case C-349/96) |
Determining whether supplies constitute a single composite supply or multiple supplies. |
Used to establish that the supplies must be examined from the viewpoint of a typical consumer to determine if they are inseparable or independent; the court found gaming machine and casino licences were separate supplies. |
| Levob (Case C-41/04) |
Definition of single composite supply where multiple elements form a single indivisible economic supply. |
Applied to assess whether gaming machine and casino licences formed a single supply; concluded they did not. |
| HMRC v The Honourable Society of Middle Temple [2013] UKUT 0250 |
Approach to identifying single or multiple supplies considering recent CJEU decisions. |
Guided the Tribunal's principles in analyzing the nature of the supplies. |
| Gunter Berkholz (Case C-168/84) |
Whether a ship sailing on the high seas can be a fixed establishment; criteria for fixed establishment. |
Confirmed ships can be fixed establishments if there is permanent presence of human and technical resources; applied to reject HMRC's view that ships cannot be fixed establishments. |
| Faaborg-Gelting (Case C-231/94) |
Place of supply for services on board ships; rational result test for fixed establishment. |
Supported that ships can be fixed establishments; rejected that ships cannot be fixed establishments. |
| Customs and Excise Commissioners v DFDS A/S (Case C-260/95) |
Human resources for fixed establishment need not be employees; focus on independence of agent. |
Supported Appellant's argument that human resources can include non-employees acting on behalf of the business. |
| RAL (Channel Islands) and others v Customs and Excise Commissioners (Case C-452/03) |
Minimum requirements test for fixed establishment; human resources need not be employees. |
Advocate General's opinion supported a broader interpretation of human resources; Tribunal found this persuasive. |
Court's Reasoning and Analysis
The Tribunal first addressed the nature of the supplies under the licence agreement. Applying established case law, it found that the licences to site and operate gaming machines and to operate casinos are separate and distinct supplies, not a single composite supply. This conclusion was based on the differing nature of the services, the presence of separate licences in the agreement, and the fact that some routes only had gaming machines without casinos, indicating the supplies are not inseparable or indispensable to each other.
Regarding the level at which supplies are made, the Tribunal concluded supplies are made per ship rather than per route or globally, as the licences relate to specific ships and could continue independently if one licence ceased.
On the issue of whether ships can be fixed establishments for VAT place of supply purposes, the Tribunal held that the UK legislation must be interpreted consistently with the EU Directive, which refers to "place" rather than "country," allowing for fixed establishments outside national territories, including international waters. The Tribunal found no legal bar to ships being fixed establishments if they meet the criteria of permanence and sufficient human and technical resources.
The Tribunal examined the ECJ decisions in Berkholz and Faaborg, concluding these support that ships can be fixed establishments, rejecting the Respondent's argument that the concept of fixed establishment requires immovability or permanent employees.
The Tribunal rejected the Respondent's view that human resources must be employees of the Appellant, accepting that independent contractors such as croupiers can constitute human resources for this purpose, supported by case law including DFDS and Advocate General opinions in RAL.
Applying the fixed establishment criteria to the facts, the Tribunal found that the casino areas on board the ships constitute fixed establishments of the Appellant. These areas are geographically fixed, have controlled access, are staffed by croupiers working on behalf of the Appellant, and have the necessary permanence and technical resources to receive and use the casino operation licence supply.
Conversely, the Tribunal found that the ships do not constitute fixed establishments in relation to the gaming machine licence. The gaming machines are dispersed throughout the ships, and the human and technical resources on board are insufficient to meet the fixed establishment criteria for this supply. The cleaning and supervision duties performed by croupiers were deemed insufficient to constitute the necessary human resources for the gaming machine licence supply.
Regarding the determination of the "relevant establishment" for VAT place of supply, the Tribunal held that the fixed establishment (casino area) receiving the service is the relevant establishment, not the Appellant's business establishment in the UK, consistent with the Directive and Regulation. The Respondent's argument that only one fixed establishment can be relevant was rejected, as the Tribunal found supplies are made per ship and thus per fixed establishment.
The Tribunal noted that while the casino area is the fixed establishment for the casino licence supply, the issue of apportioning supplies inside and outside the UK remains to be resolved between the parties.
Holding and Implications
The Tribunal allowed the appeal in part. It held that the licences to site and operate gaming machines and to operate casinos are separate supplies made per ship. The casino areas on board the relevant ships constitute fixed establishments of the Appellant for VAT place of supply purposes, whereas the ships do not constitute fixed establishments for the gaming machine licence supply.
The implication of this decision is that supplies of casino licences can be treated as made at the fixed establishment on board the ship, potentially outside UK VAT scope when outside UK territorial waters. Supplies of gaming machine licences remain subject to UK VAT as the Appellant does not have a fixed establishment for those supplies on the ships.
No new legal precedent was established beyond the application of existing law to the facts; the decision clarifies the application of fixed establishment principles to movable objects such as ships and distinguishes between different types of gambling-related supplies.