Revenue & Customs v Gray & Farrar International LLP

Factual and Procedural Background

This appeal concerns the liability of Company A for Value Added Tax ("VAT") on matchmaking services provided to clients outside the UK and EU. The central issue is whether the single service supplied constitutes "services of consultants and other similar services and the provision of information" within article 59(c) of Council Directive 2006/112/EC ("the Principal VAT Directive"). If so, and the client is outside the UK and EU, the services are treated as supplied outside the EU and therefore outside the scope of VAT.

Company A charged no VAT on services supplied to clients outside the EU from December 2012 to September 2016, relying on article 59(c). The tax authority concluded that Company A's matchmaking services did not qualify as consultancy and were within the scope of VAT. Following an unsuccessful review, Company A appealed. The First-tier Tribunal ("FTT") agreed with the tax authority and dismissed the appeal. Company A obtained permission to appeal.

The Upper Tribunal ("UT") allowed Company A's appeal, holding that the FTT erred in law by failing to apply the "predominant element test" derived from EU law when characterising the single service supplied. The UT remade the decision, holding that Company A's services were consultancy or similar services and the provision of information within article 59(c).

The tax authority appealed with leave, raising four grounds challenging the UT's conclusions regarding the applicability of article 59(c) and the domestic legislation implementing it. Company A resisted the appeal.

Legal Issues Presented

1. Whether the UT was correct to set aside the FTT's decision on the basis that the FTT failed to consider the predominant element test, and whether such a test is mandatory.
2. If the predominant element test applies, whether the UT correctly characterised Company A's supply for VAT purposes as an introductory service not within article 59(c).
3. Whether the UT was correct in finding that Company A provided "services of consultants" or similar services within article 59(c).
4. Whether the UT erred in interpreting the phrase "data processing and provision of information" in article 59(c) disjunctively.

Arguments of the Parties

Appellant's Arguments (Tax Authority)

• The predominant element test identified in EU jurisprudence is not mandatory. The FTT's approach was permissible under domestic law.
• If the predominant element test applies, the UT erred by identifying two combined elements as predominant rather than a single element; the supply should be characterised as a single introductory service.
• The phrase "services of consultants" in article 59(c) should be limited to members of the "liberal professions," which Company A does not meet.
• The phrase "data processing and provision of information" should be read conjunctively, not disjunctively, to avoid an overly broad interpretation.

Respondent's Arguments (Company A)

• Company A's supply consists of consultancy services (expert advice), provision of information, and customer liaison support forming one composite supply.
• The predominant element test is the primary test for characterising a single complex supply under EU law and should be applied.
• The UT correctly applied the predominant element test, identifying expert advice and information as predominant elements.
• Article 59(c) applies to the nature of the services supplied, not the identity of the provider, consistent with EU case law.
• The phrase "and" in article 59(c) is used disjunctively; the services include data processing as part of Company A's offering.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by affirming the legal framework under the Principal VAT Directive and its UK implementing legislation, focusing on article 59(c) which exempts certain services supplied to non-taxable persons outside the EU from VAT. The key question was whether Company A's matchmaking service fell within "services of consultants and other similar services and the provision of information" under article 59(c).

The court accepted that the service supplied was a single composite supply. The central legal issue was how to characterise this supply for VAT purposes.

The UT had applied the "predominant element test" from EU jurisprudence, particularly the CJEU decisions in Levob and Mesto, which requires identifying the predominant element of a composite supply from the viewpoint of the typical consumer considering qualitative importance.

The tax authority challenged the mandatory nature of this test, citing domestic cases supporting an "overarching supply" or "economic reality" test. The court analysed these competing approaches, concluding that the predominant element test is the primary test under EU law and must be applied where possible, with the principal/ancillary and overarching tests as secondary or alternative approaches.

In applying the predominant element test, the UT found that the predominant element from the typical consumer's perspective was the provision of introductions to prospective partners, incorporating expert advice and information. However, the UT characterised the predominant element as a combination of advice and information, rather than a single element.

The court scrutinised the contract between Company A and its clients, which expressly obligated Company A only to provide a minimum number of introductions, with no explicit contractual obligation to provide advice or information separately. The court concluded that the economic and commercial reality was that the introductions were the predominant element of the supply.

The court found that the UT and FTT erred by dissecting the introduction service into separate elements of advice and information, rather than recognising the service as a single composite supply of introductions.

Accordingly, the court held that Company A's services did not fall within the consultancy or information services described in article 59(c), but rather were subject to VAT as supplies made within the UK.

The court did not address the third and fourth grounds of appeal as its conclusion on the second ground was dispositive.

Holding and Implications

ALLOW the appeal. The court held that the service supplied by Company A was not a consultancy service or similar service nor the provision of information within article 59(c) of the Principal VAT Directive. Instead, the service was a single composite supply of introductions to prospective partners, which is within the scope of VAT.

The direct effect of this decision is that Company A is liable for VAT on its matchmaking services supplied to clients outside the UK and EU. No broader precedent was established beyond the facts of this case and the application of the predominant element test in this context.