VIT64300 - Legal history: cases about entertainment
British Airways plc VTD 16446
British Car Auctions Ltd VTD 522
Danfoss A/S and Astra Zeneca 2009 STC 701
Ernst & Young VTD 15100
Italian Republic 1997 STC 1062
KPMG Peat Marwick McLintock VTD 10135
KPMG (No 2) VTD 14962
Paine Leisure Products Ltd VTD 1836
Plant Repair & Services (South Wales) Ltd 1994 STC 232
PR Promotions VTD 2122
Shaklee International & Another 1981 STC 776
Thorn EMI plc 1995 STC 674
Please note that the following material is not a full summary of the case - it merely highlights the principle referred to in the appropriate section of this manual.
British Airways plc VTD 16446
British Airways gave vouchers to passengers whose flights had been delayed for more than two hours. 皇冠体育app vouchers could be used to get food to a specified value at a number of restaurants in the airport. British Airways paid the restaurants for the value of food supplied to its delayed passengers.
皇冠体育app tribunal held that British Airways could recover input tax on the cost of the food. This was because:
- 皇冠体育app restaurants supplied the food to British Airways; and
- British Airways made onward supplies of the food to the passengers.
皇冠体育app onward supply was held to be zero rated as part of the overall supply of transport.
British Car Auctions Ltd VTD 522
皇冠体育app company bought two racehorses. It tried to claim input tax on the grounds that the horses were used to advertise the business. 皇冠体育app tribunal held that the horses had been bought so that the company could entertain customers at race meetings. 皇冠体育apprefore, the purchase of the horses was for the purpose of business entertainment. As a result, input tax was not recoverable under what is now Input Tax Order, Article 5.
Danfoss A/S and Astra Zeneca 2009 STC 701
Two companies provided canteen meals to business contacts and staff at business meetings. 皇冠体育app Court held that Article 6(2) of the EC Sixth Directive had to be interpreted so that:
- it does not cover the provision of free meals in canteens to business contacts when meetings are held on company premises and when those meals are for strictly business related purposes;
- it applies in principle to the provision of free meals to staff on a company鈥檚 own premises unless the needs of the business require the employer to ensure that meals are provided.
皇冠体育app Court said that giving employees sandwiches in meeting rooms could be treated as a supply for business purposes since, 鈥榯he personal advantage which employees derive from such provision appears to be merely accessory to the requirements of the business.鈥�
Ernst & Young VTD 15100
皇冠体育app partnership held a party and dinner dance for its employees. Each employee had to pay 拢10 towards the cost of the party and could bring a guest to the dinner dance at a cost of a further 拢15. On another occasion the partnership had held a conference for its partners. 皇冠体育app conference included a cabaret.
皇冠体育app tribunal held that the partnership had incurred the costs of the party and dinner to reward its staff. 皇冠体育app spending was therefore for a business purpose. Commenting on the charge made for guests, the tribunal said that 鈥渢he crucial characteristic of entertainment within the phrase 鈥榖usiness entertainment鈥� is that it is provided to people who enjoy it free of charge.鈥� Although the 拢15 charge was much less than the cost of the party, the tribunal said, 鈥渋t was not so small that one can say that the meal was effectively supplied free of charge.鈥�
On the subject of the conference the tribunal held that the cabaret was 鈥減ure entertainment鈥�. 皇冠体育apprefore, the cost of the cabaret had not been incurred for the purpose of the partnership鈥檚 business.
Italian Republic 1997 STC 1062
皇冠体育app EC took proceedings against Italy for not implementing Article 13B(c) of the EC Sixth Directive. That Article exempts supplies of goods used wholly for an exempt activity when the goods have not given rise to the right to deduct input tax.
Italian VAT law treated the supplies as outside the scope of the tax. This did not always have the same effect as exempting the supplies. In cases where a business was partly exempt Italy鈥檚 rules resulted in the denominator of the fraction used in the partial exemption calculation being reduced.
皇冠体育app Court held that by enacting legislation which did not exempt from VAT supplies of goods used wholly for an exempted activity Italy had not fulfilled its obligations under Article 13B(c).
KPMG Peat Marwick McLintock VTD 10135
皇冠体育app partnership held a dinner dance for its staff, each of whom could bring a guest. 皇冠体育app tribunal found that the attendance of the guests was incidental and ancillary to the attendance of the staff. 皇冠体育apprefore the cost was not within the definition of business entertainment.
KPMG (No 2) VTD 14962
皇冠体育app partnership held dinner dances for its staff, each of whom could bring a guest. 皇冠体育app tribunal upheld HMRC鈥檚 decision to allow 55% recovery on the costs of the dinner dance because the rest of the costs constituted business entertainment of the guests.
皇冠体育app decision in KPMG Peat Marwick McLintock was disapproved because in that case both parties had accepted that the tax could not be apportioned. However in the subsequent case of Thorn EMI plc the Court of Appeal had held that Article 5 of the Input Tax Order should be construed to allow apportionment when supplies are used partly for business entertainment and partly for other business purposes.
皇冠体育app tribunal held that the tribunal in KPMG Peat Marwick McLintock had made a mistake when drawing a distinction between the use of goods and services for business reasons and for social reasons. It had also been wrong to use a test of 鈥榩redominance or paramount purpose鈥�.
皇冠体育app tribunal held that there was nothing in the Input Tax Order 鈥渨hich stated or implied that the provision of entertainment for non-employees was to be treated as not being business entertainment where its provision was incidental to the provision of entertainment for employees, in contrast to the specific provision made in the converse case.鈥� As a result, the business could only claim input tax attributable to the entertainment of its staff.
Paine Leisure Products Ltd VTD 1836
A company, whose main director had been a professional racing driver, manufactured and sold sunbeds. 皇冠体育app director raced cars which bore the name of the company鈥檚 product. 皇冠体育app company invited potential customers to the pits and entertained them there. 皇冠体育app tribunal held that input tax could not be claimed on the costs of entertaining because this was business entertainment.
Plant Repair & Services (South Wales) Ltd 1994 STC 232
A company took a hospitality suite at a rugby ground. It used the suite as an office for two days a week. It invited customers to watch matches from the suite, and under the terms of the licence for the suite, also made use of some season tickets for the grandstand.
皇冠体育app Court upheld HMRC鈥檚 view that only one third of the input tax on the cost of the suite could be claimed because it was primarily occupied to provide business entertainment. It was held that Input Tax Order, Article 5 disallows input tax on any supply which is used to a measurable extent for business entertainment. Indeed the effect of the Article is that none of the tax was deductible (although HMRC had allowed recovery of one third of it).
PR Promotions VTD 2122
皇冠体育app partnership entertained prospective clients at a golf tournament. 皇冠体育app tribunal held that the hospitality was within the definition of 鈥榖usiness entertainment鈥�.
Shaklee International & Another 1981 STC 776
Two corporations sold goods via a pyramid of agent distributors. 皇冠体育appy held regular courses for the distributors and provided food and accommodation. 皇冠体育app Court held that the provision of free food and accommodation was within the definition of 鈥榚ntertainment鈥� so that input tax could not be claimed.
Thorn EMI plc 1995 STC 674
皇冠体育app company made electronic systems. It displayed and sold them at air shows, where it had exhibition stands and 鈥榟ospitality chalets鈥�. 皇冠体育app company felt the chalets were needed for confidential discussions with potential buyers.
皇冠体育app Court held that the tax on the chalets should be apportioned. It held that Article 5 of the Input Tax Order should be construed to allow apportionment when supplies are used partly for business entertainment and partly for other business purposes. 皇冠体育app Court decided that allowing no claim to input tax at all would go against Article 17 of the EC Sixth Directive.