CORPORATE TAX Jones Day CORPORATE TAX Jones Day First-tier tribunal IN AIRTOURS HOLIDAY TRANSPORT LTD v HM ■ liaising with and making representations Revenue & Customs (HMRC) [2009], the tax to banks and other creditors or applies Redrow to chamber of the fi rst-tier tribunal decided bondholders of Airtours; that Airtours Holiday Transport Ltd (Airtours) accountancy services was entitled to a credit for input VAT on fees ■ carrying out a strategic review of that it had paid to PricewaterhouseCoopers Airtours’ business and restructuring (PwC). HMRC argued that Airtours was proposals; and merely a third-party payer and that PwC’s services had been provided to fi nancial ■ liaising with the Civil Aviation Authority institutions, not to Airtours. The tribunal and creating an entity priority model. applied the ratio of the decision of the House of Lords in Commissioners of PwC entered into fi ve engagement letters, Customs & Excise v Redrow Group Plc each one addressed to ‘the engaging [1999] and determined on the facts that institutions’, which were accepted by these the supply of accountancy services was institutions and Airtours. The relevant made both to Airtours and the banks. provisions were that: Accordingly, Airtours was entitled to an input tax credit as it had been a recipient ■ PwC had been engaged by the engaging of a supply of services. institutions who had counter-signed the engagement letter (the engaging The decision in Airtours is an important one institutions); in the current economic climate because it is not unusual for businesses, along with ■ the reports and letters prepared by PwC their creditors, to seek the services of were for the sole use of the engaging professionals, such as accountants, in an institutions; attempt to rescue their businesses. ■ PwC had been requested to assist in providing information to the institutions BACKGROUND In 2002 Airtours (then known as MyTravel) providing facilities to Airtours to enable faced a severe fi nancial crisis that them to develop views on Airtours' threatened its survival. The crisis was fi nancial position and fi nancing needs; caused because Airtours’ share price had collapsed as a result of an announcement ■ information and advice arising from by Airtours of certain accounting diffj culties the engagement was to be addressed it had encountered. As a result of this, to the engaging institutions, with a some of its creditor banks refused to allow copy to the directors of Airtours, with it to drawdown funds. At the time, Airtours the exception of any part of the report was heavily indebted to banks, and other prepared exclusively or confi dentially for fi nancial institutions and creditors. Airtours the engaging institutions; had issued unsubordinated bonds to holders that amounted to fi nance of over ■ PwC had a duty of care to the engaging £2bn. It was imperative, therefore, that a institutions and also to specifi c rescue package involving the banks and institutions where Airtours had other creditors was entered into if Airtours requested an extension to its existing was to survive. fi nancing facilities that required specifi c advice to be given to those institutions; The banks formed a steering committee and PwC was engaged to provide professional ■ PwC limited its aggregate liability services comprising: for any breach of contract, tort or ‘In the current economic climate it is not unusual for businesses to seek the services of professionals in an attempt to rescue their businesses.’ Charlotte Sallabank, partner, Jones Day E-mail: csallabank@jonesday.com 2 The In-House Lawyer December 2009/January 2010
CORPORATE TAX Jones Day negligence in respect of Airtours, or the engaging institutions, or any other party ‘There was no dispute between HMRC and Airtours as to whom PwC later agreed to assume a duty of care; to whether Airtours was a taxable person, and whether ■ Airtours was responsible for PwC's it was conducting a business. What was in dispute was fees, expenses and disbursements, and original invoices would be sent to whether there was any supply to Airtours at all.’ Airtours with a copy to a representative of the engaging institutions; and ■ Airtours would indemnify PwC against accepted as entirely truthful. In his evidence who had requested work from PwC and claims brought by any third party. McMahon stated: those who were owed a duty of care by PwC, included Airtours. PwC's terms and conditions of service ‘MyTravel were keen to have an adviser included the following: reviewing the plans for the business There was no dispute between HMRC and and to provide confi rmation to the Airtours as to whether Airtours was a taxable ‘These terms and conditions apply to steering committee that, based on the person, and whether it was conducting a the services that we will provide to information available at the time, the business. What was in dispute was whether you pursuant to the attached letter of agreed actions were reasonable. When there was any supply to Airtours at all. HMRC engagement. The letter of engagement determining who to appoint to provide accepted that if there was a supply then and the terms and conditions are this assistance it was necessary to it was in the course of Airtours’ business. together referred to as “the contract”. appoint an adviser that was acceptable In reaching its conclusion that there was a The contract forms the entire to the steering committee and MyTravel supply of services by PwC to Airtours the agreement between us relating to the and I note that MyTravel had a role in the tribunal derived the following propositions services. It replaces and supersedes any decision-making process as to who was drawn from Redrow , Loyalty Management previous proposals, correspondence, going to be appointed.’ UK Ltd v HM Revenue & Customs [2007] and understanding, or other communication WHA Ltd & anor v Customs & Excise [2004]: whether written or oral. Airtours argued that it had received a supply or supplies consisting of the services 1) If a service has been provided there is For the avoidance of doubt, “we” and provided by PwC and had paid for those no need to defi ne it. Indeed to do so “our” refers to PwC, a UK partnership… supplies, and that they were received for might lead to error. and “you” and “your” refers to the entity the purposes of its business. or entities on whose behalf the attached 2) If a supply is made for a consideration letter of engagement was acknowledged HMRC accepted that Airtours paid for the and it is not a supply of goods then it is and accepted.’ services and was a party to the agreements a supply of services. with PwC but argued that the supply was Both the engaging institutions and Airtours only to the banks and other institutions, and 3) A supply of a service may consist of a signed the letters of engagement, thereby not to Airtours. right to have the service supplied to a agreeing to PwC's terms and conditions. third party. Clause 10 of the terms and conditions DECISION provided: The fi rst-tier tribunal upheld Airtours’ 4) The correct approach is to look at the appeal. HMRC had argued that the reference question from the point of view of ‘You agree to indemnify us to the fullest to ‘you’ in the engagement letters only the paying party. The person claiming extent permitted by law against all referred to the engaging institutions and not the right to deduct input tax must liabilities, losses, claims, demands and to Airtours except in the one provision where identify the payment they claim to have expenses, arising out of or in connection ‘you’ was stated in the letter of engagement made and by which they claim to have with your breach of any terms of the (clause 26.1) to refer to Airtours alone. The obtained something for the purposes contract.’ tribunal did not agree with this analysis of their business, which they therefore and was of the view that clause 26.1 of the claim gave rise to the deduction. The letter of engagement (clause 26.1) letter of engagement indicated that in all confi rmed that the reference to ‘you’ in other places ‘you’ included both Airtours and 5) Provided they obtained anything at all clause 10 of PwC’s terms and conditions the engaging institutions apart from the one that was used for the purpose of their and ‘only in that clause’ referred to Airtours clause (clause 10) where it only referred to business the right to deduct input tax and not the engaging institutions. Airtours. From this conclusion it followed will arise. that elsewhere in the letter of engagement Airtours' company secretary, Greg references to ‘you’, in particular those 6) The fact that someone else also McMahon, gave evidence that the tribunal clauses where the ‘you’ referred to those received a service as part of the same December 2009/January 2010 The In-House Lawyer 3
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