The taxpayer has lost its appeal in this case concerning the supply of deed poll services by a Jersey company to UK customers.
This is a place of supply case about whether a Jersey entity had a UK establishment. Multimedia Computing Ltd (MCL) was a UK company with an office in the UK, employing 12 people, which supplied deed poll services to (mainly) UK customers. In 2010 the company was sold to a Trust and its IP rights transferred to a Special Purpose Vehicle in Jersey called Deed Poll Services Ltd (DPSL), which the Trust also owned. Going forward DPSL then contracted with the customers to make the deed poll supplies. One of the directors of MCL, a Mr Barratt, who had effectively run the deed poll business when MCL was the supplier, also became an employee of the Jersey company and worked in Jersey, returning to his home and family in the UK at weekends. The First-tier Tribunal (FTT) decided that DPSL had a UK establishment through the dependent agency of MCL.
MCL entered into an outsourcing agreement with DPSL to provide clerical and support services to DPSL, so that the 12 MCL staff would not be made redundant. DPSL’s only resource was the MCL director, so the outsourcing agreement with MCL was key to DPSL’s ability to fulfil its contracts with its customers. Most of the deed poll applications were in actual fact quite straightforward and could be dealt with by the staff in the UK.
This structure meant that the supplies by DPSL were UK VAT free (B2C normal rule – taxed where the supplier belongs) and the supplies to DPSL by MCL were UK VAT free (B2B normal rule taxed where the customer belongs).
HMRC challenged this. HMRC accepted that the deed poll supplies were made by DPSL and did not cite that the arrangements were abusive or artificial. However, HMRC considered DPSL to have a UK establishment through the auxiliary organ of MCL. This meant that the supplies by DPSL to customers were made in the UK as that (fixed) establishment was the one most closely associated with the supplies.
The taxpayer tried to make this a case about contractual arrangements relying on SecretHotels2, Newey etc arguing that the customers contracted with DPSL, DPSL was a Jersey entity, and the contracts were not a sham, but this was found to be a red herring. The conclusion that the customers contracted with a Jersey entity did not answer the key question which was whether that Jersey entity had a UK fixed establishment that was more closely associated with the supplies.
The FTT decided that DPSL’s operational base was the MCL UK office. It based this conclusion on DFDS. All the resources that DPSL needed to make deed poll services, apart from Mr Barratt, were located in the UK. MCL did nothing apart from support DPSL. The websites and literature suggested the supplier (DPSL) had a UK base and customer perception was important in such matters. The UK establishment of DPSL was then most closely associated with the supply of the deed poll services, as everything, apart from Mr Barratt’s input when needed, was done from the UK. This meant DPSL had to charge UK VAT on the supplies.
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