Casino on a ship is a fixed establishment for VAT purposes
We have advised Astral Marine Services Limited (“Astral”) on its successful appeal to the First Tier Tribunal.Astral is a UK company and is granted a licence by ship operators to site its casino
We have advised Astral Marine Services Limited (“Astral”) on its successful appeal to the First Tier Tribunal.
Astral is a UK company and is granted a licence by ship operators to site its casino business on-board the ships in return for a share of revenue. The casino business is carried on by Astral’s self-employed croupiers. HM Revenue & Customs ruled that the licence has an entirely UK place of supply under the general B2B rule on the basis that Astral should be treated as belonging in the UK. Astral appealed arguing that its casinos constitute fixed establishments to which the licence is supplied and therefore outside the scope of VAT to the extent that the ship is situated outside UK territorial waters, in particular on the high seas.
In seeking to deny the VAT treatment sought by Astral, HM Revenue & Customs raised a number of arguments that the casinos were not a fixed establishment to which the licence should be treated as granted:
a) The domestic VAT legislation (Section 9(3)(b) VATA) refers to the position where the recipient of a supply has a business establishment or some other fixed establishment in “more than one country” – the recipient is then treated as belonging in the establishment which is most directly concerned with the supply. HMRC argued that Section 9(3)(b) did not include the case where the fixed establishment was located on the high seas and so not in another “country”. The FTT, however, decided that Section 9, should be read in accordance with Article 44 Directive 2006/112/EC which refers to “place” rather than “country” and so would include a place outside the EU.
b) HM Revenue & Customs argued that a casino on-board a moving ship is not a fixed establishment, relying partly on the Oxford English Dictionary definition of “fixed”. However, the FTT accepted that the ECJ cases of Berholz and Faaborg-Gelting clearly indicated that it was possible for there to be a fixed establishment on-board a ship if it has the permanent presence of the human and technical resources for the provision of services. (These two cases were decided when the legislation in question was Article 9 of the EC 6th Directive which was worded so that for a supplier with a business establishment and fixed establishment in two different places, there was an effective choice between regarding the place of supply as made from the business establishment or the fixed establishment. On that basis, the ECJ’s decisions were that recourse was only made to the fixed establishment if using the business establishment led to an irrational result. However, in contrast Article 44 Directive 2006/112/EC, determining the place of supply by reference to the place where the recipient belongs rather than the supplier, mandates the place of supply to be the place of the fixed establishment where the supply is to the fixed establishment.)
c) HM Revenue & Customs argued that recourse to the fixed establishment was only possible where the recipient had one fixed establishment, not more than one. However, the FTT accepted Astral’s argument that this would lead to absurdity – it would mean that a theoretical rival to Astral operating on-board only one ship would have a different VAT treatment to Astral for no apparent reason. Although Section 9 VATA does refer to “fixed establishment” in the singular, this was easily resolved as including the plural by virtue of the Interpretation Act 1978.
d) HM Revenue & Customs argued that human resources can only be employees so that the croupiers, being self-employed, were not human resources of Astral. However, in the ECJ case of DFDS, a UK subsidiary had been held to be a fixed establishment of its parent yet clearly the UK subsidiary was not an employee of its parent. The FTT also accepted the broader approach proposed by the Advocate General in the ECJ case of RAL of interpreting the concept of human resources.
So then, the FTT decided that Astral’s casinos amounted to fixed establishment on-board the ships and that the place of supply of the licences depended upon the extent to which the ships are situated outside UK territorial waters.
This case, then, is important in giving helpful guidance on the place of supply rule for a recipient established in an EU member state, such as the UK, with one or more fixed establishment in different countries or places and where the human resources are not necessarily employees. It is also useful in confirming that a fixed establishment may exist on-board a ship, as well as clarifying the change in law which occurred when Article 9 of the EC 6th Directive was replaced by Article 44 Directive 2006/112/EC.
Astral is a UK company and is granted a licence by ship operators to site its casino business on-board the ships in return for a share of revenue. The casino business is carried on by Astral’s self-employed croupiers. HM Revenue & Customs ruled that the licence has an entirely UK place of supply under the general B2B rule on the basis that Astral should be treated as belonging in the UK. Astral appealed arguing that its casinos constitute fixed establishments to which the licence is supplied and therefore outside the scope of VAT to the extent that the ship is situated outside UK territorial waters, in particular on the high seas.
In seeking to deny the VAT treatment sought by Astral, HM Revenue & Customs raised a number of arguments that the casinos were not a fixed establishment to which the licence should be treated as granted:
a) The domestic VAT legislation (Section 9(3)(b) VATA) refers to the position where the recipient of a supply has a business establishment or some other fixed establishment in “more than one country” – the recipient is then treated as belonging in the establishment which is most directly concerned with the supply. HMRC argued that Section 9(3)(b) did not include the case where the fixed establishment was located on the high seas and so not in another “country”. The FTT, however, decided that Section 9, should be read in accordance with Article 44 Directive 2006/112/EC which refers to “place” rather than “country” and so would include a place outside the EU.
b) HM Revenue & Customs argued that a casino on-board a moving ship is not a fixed establishment, relying partly on the Oxford English Dictionary definition of “fixed”. However, the FTT accepted that the ECJ cases of Berholz and Faaborg-Gelting clearly indicated that it was possible for there to be a fixed establishment on-board a ship if it has the permanent presence of the human and technical resources for the provision of services. (These two cases were decided when the legislation in question was Article 9 of the EC 6th Directive which was worded so that for a supplier with a business establishment and fixed establishment in two different places, there was an effective choice between regarding the place of supply as made from the business establishment or the fixed establishment. On that basis, the ECJ’s decisions were that recourse was only made to the fixed establishment if using the business establishment led to an irrational result. However, in contrast Article 44 Directive 2006/112/EC, determining the place of supply by reference to the place where the recipient belongs rather than the supplier, mandates the place of supply to be the place of the fixed establishment where the supply is to the fixed establishment.)
c) HM Revenue & Customs argued that recourse to the fixed establishment was only possible where the recipient had one fixed establishment, not more than one. However, the FTT accepted Astral’s argument that this would lead to absurdity – it would mean that a theoretical rival to Astral operating on-board only one ship would have a different VAT treatment to Astral for no apparent reason. Although Section 9 VATA does refer to “fixed establishment” in the singular, this was easily resolved as including the plural by virtue of the Interpretation Act 1978.
d) HM Revenue & Customs argued that human resources can only be employees so that the croupiers, being self-employed, were not human resources of Astral. However, in the ECJ case of DFDS, a UK subsidiary had been held to be a fixed establishment of its parent yet clearly the UK subsidiary was not an employee of its parent. The FTT also accepted the broader approach proposed by the Advocate General in the ECJ case of RAL of interpreting the concept of human resources.
So then, the FTT decided that Astral’s casinos amounted to fixed establishment on-board the ships and that the place of supply of the licences depended upon the extent to which the ships are situated outside UK territorial waters.
This case, then, is important in giving helpful guidance on the place of supply rule for a recipient established in an EU member state, such as the UK, with one or more fixed establishment in different countries or places and where the human resources are not necessarily employees. It is also useful in confirming that a fixed establishment may exist on-board a ship, as well as clarifying the change in law which occurred when Article 9 of the EC 6th Directive was replaced by Article 44 Directive 2006/112/EC.