News Corp loses appeal over VAT on digital editions
Digital editions of newspapers were not entitled to the VAT zero rating exemption given to the print editions, prior to the time when Parliament made express provision for that extension, the UK Supreme Court ruled today.
Five Justices unanimously dismissed an appeal by News Corp UK & Ireland Ltd, the publisher of The Times, The Sunday Times, The Sun and The Sun on Sunday, against a decision of the Court of Appeal that they were not entitled to supply the editions for e-readers, tablets, smartphones and websites at zero rate VAT between 30 August 2010 and 4 December 2016. The decision also applies to the period up to 1 May 2020, from when Parliament extended zero rating to newspapers "when supplied electronically", subject to exceptions.
News Corp had sought recovery of over £35m in VAT paid, founding on the “always speaking” principal of statutory interpretation, under which a statute should be interpreted taking into account changes that have occurred since it became law, even if those changes could not have been reasonably foreseen at the time the statute was enacted.
Lord Hamblen and Lord Burrows, with whom Lord Hodge and Lord Kitchin agreed, said the court required to apply principles of statutory interpretation and European Union law. The modern approach required the courts to ascertain the meaning of the words used in light of their context and purpose, applying the "always speaking”. Exceptionally, the principle would not be applied where it was clear, from the words used in the statute in the light of their context and purpose, that the relevant provision was tied to a historic interpretation.
With regard to EU law, it was well established that zero-rating provisions must be interpreted strictly, because they constituted exemptions to the general principle that supplies of goods and services by taxable persons should be subject to VAT. Further, categories of zero rating could not be expanded or extended beyond those which existed on 31 December 1975.
At that date, "newspapers" referred only to printed newspapers. Digital editions lay many years in the future.
From the perspective of EU law, the purpose of the standstill provision permitting the maintenance of zero rates in effect under national law as at 31 December 1975 was to prevent social hardship likely to follow from the abolition of existing national law exemptions. No social hardship could follow from the exclusion of digital editions from the ambit of the standstill provision as, at the time, nobody had access to them. Moreover, zero-rating for newspapers was seen as a transitional phase with the ultimate purpose being harmonisation across the EU with no VAT exemptions at all. This purpose, consistently with the strict approach to exemptions and the effect of the standstill provision, indicated that a narrow meaning should be given to the word "newspapers".
The EU law constraints imposed by the standstill provision, the principle of strict interpretation of VAT exemptions and the harmonising purpose of the law on VAT significantly limited the always speaking principle. As at 31 December 1975, the defining characteristics of a newspaper included that it was news communicated through the medium of print in a physical form, and that the buyer obtained complete access to the news in that paper. There was no requirement of connectivity, so that access did not depend on owning or buying a device.
This conceptual difference between newspapers, which were goods, and digital editions, which were services, was one of kind, not merely degree. Given the significant difference, it could not be said to be irrational to distinguish between the VAT treatment of printed newspapers and digital editions – a distinction that was drawn in EU VAT law.
The principle of fiscal neutrality, which requires that similar goods and services be treated the same way for VAT purposes, did not support News Corp's case, since the court had not found that some forms of digital edition were to be zero rated while others were not.
Lord Leggatt agreed, on the narrower approach that the term "newspapers" could not be taken to have included digital editions in light of the requirement to interpret VAT exemptions strictly, the nature and purpose of the legislation, and the relevance of the method of delivery of news content to consumers.