INPUT TAX – Exclusion of credit for input tax – Business entertainment – Taxpayer’s business is promoting boxing matches – Taxpayer obtaining licence of box at Arsenal football ground – Taxpayer conducting business meetings at box on occasions of football matches – Whether box used for “business entertainment” – Value Added Tax (Special Provisions) Order 1992 (SI 1992 No.3222) Art 5 

LONDON TRIBUNAL CENTRE

	FRANK WARREN T/A SPORTS NETWORK EUROPE	Appellant

-	and –

	HER MAJESTY’S  REVENUE AND CUSTOMS 	Respondents

				Tribunal:	STEPHEN OLIVER QC (Chairman)
						SHEILA EDMONDSON FCA 

Sitting in public in London on 11 and 12 July 2005

Les Allen of Dorsey & Whitney, solicitors, for the Appellant 

Owain Thomas, counsel, instructed by the Acting Solicitor for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2005

DECISION

1.	Mr Frank Warren appeals against part of an assessment for the 09/02 period.  The disputed amount is £6,562 plus interest.  It relates to input tax claimed in the 09/02 period for the use of a box at the Arsenal Stadium “the box”).

Background
2.	Mr Warren trades under the name Sports Network Europe. He is a boxing promoter. The head office of the business is in Hertford. The business includes consulting activities for BSkyB. He writes a weekly column for the News of the World.  

3.	For some years Mr Warren has been licensee of Box Number 40 under an agreement with the Arsenal Football Club Plc. On 1 July 2002 he paid a licence fee of £50,000.  The assessment for the 09/02 period, so far as it relates to the licence fee, allows for a 25% reduction from the £50,000 to reflect that 25% of that amount related to the advertizing of the Sports Network business.  Mr Warren appealed on 19 August 2004.  

The statutory provisions
4.	Article 17.6 of the EC Sixth Council Directive provides that:
“Value added tax shall in no circumstances be deductible on expenditure which is not strictly business expenditure, such as that on luxuries, amusements or entertainment”.

Section 24(1) of VAT Act 1994 states that “input tax” means in relation to a taxable person: 

“(a)	VAT on the supply to him of any goods or services … being goods and services used or to be used for the purposes of any business carried on or to be carried on by him.”

Article 5(1) of the Value Added Tax (Input Tax) Order 1992 (SI 1992 No.3222) directs that:

“Tax charged on any goods or services supplied to a taxable person … is to be excluded from any credit under section 25 of the Act where the goods or services are used or to be used by the taxable person for the purposes of business entertainment”.

Article 5(3) states that for the purposes of Article 5 “business entertainment” means:
“… entertainment including hospitality of any kind provided by a taxable person in connection with a business carried on by him ….”

The decided cases
5.	There is no dispute that Article 5 admits of apportionment of a supply between entertainment and non-entertainment business use.  See for example Thorn EMI Plc v Customs and Excise Commissioners [1995] STC 674.  Hence the Commissioners accept that the provision of advertizing space at the Arsenal’s grounds in conjunction with the hire of the box amounts to a business expense on which input tax can be claimed.  

6.	It is common ground that the outcome of this appeal depends on the answer to two questions identified by Woolf  J (as he then was) at paragraph 19 of the decision in Shaklee Investments v Customs and Excise Commissioners [1980] STC 708; the decision was affirmed by the Court of Appeal in [1981] STC 776.  First, to what use did the claimant, i.e. Mr Warren, put the supply at the box.  Second, was that use business expenditure?  

7.	Before coming to that we need to mention something about business entertainment. The expression is defined widely in Article 5(3). It covers  a particular sector of business expenditure. The tax element of that class of expenditure is excluded from relief as input tax. There is no dispute here that Mr Warren’s expenditure on the box is sufficiently connected to his business to rank as business expenditure.

8.	What may or may not rank as a business entertainment has been the subject matter of a number of appeals.  In the tribunal decision in D P A (Market Research) Ltd VAT Dec 14751 the cost incurred by a market research company of supplying alcoholic drinks to participants in trials of those drinks was held not to be business entertainment.  The use to which the object of the expenditure was put was for product trials; and because that use was a necessary part of the product trials it was not business entertainment.  There was no entertainment element in the business use.  Another example expenditure that would in most situations rank as business entertainment but did not in the particular circumstances do so was W R Ltd.  W R Ltd was the playwright Willy Russell’s marketing and exploitation vehicle.  It claimed relief as input tax for the tax on three theatre tickets purchased by it and used by being supplied to persons who were negotiating performance rights to Mr Russell’s plays.  As the demonstration and the exploitation of its product was the business of W R Ltd, the use to which the tickets were put was a pure business use and not a business entertainment use. 

9.	P R Promotions (VAT Dec 2122) whose business was providing and selling hospitality services at sporting events launched the business by taking two tables with food and drink provided in a hospitality tent at the 1985 Open Golf Competition.  The tribunal accepted that the tables were used to demonstrate the services that P R Promotions could offer but noted that the tables, the food and the drink were used as a means of improving P R Promotions’ relations with prospective clients.  On that basis the tribunal concluded that, because P R Promotions was promoting its business by providing entertainment, the tables, on which the tax was incurred, were used for business entertainment.  In Medicare Research Ltd (VAT Dec 1045) food and drink provided for focus groups invited to Medicare Research’s premises were held to be hospitality and business entertainment. In Shaklee International the appellant sold its products through distributors and held a training course for them at which food and accommodation were provided.  The Court of Appeal (following Woolf J) decided that the supplies of goods and accommodation were made for the purposes of entertaining the distributors and were made in connection with Shaklee International’s business.  It followed that they constituted business entertainment.

10.	In all these cases that followed Shaklee International Woolf J’s test provided the answer.  We turn now to find the relevant facts.

Mr Warren’s business
11.	Mr Warren promotes boxing matches and manages boxes.  We accept his evidence that he is the leading British Boxing promoter in Europe.  The trading name of his business is Sports Network Europe.  He has a staff of fourteen who are based at premises in Hertford.  

12.	Mr Warren, in partnership with other entities, granted to Sky Broadcasting, in July 2003, the exclusive right to film and record fights promoted by Mr Warren.  Mr Warren acts as television consultant to BSkyB.  In this connection he has advised them on “Pay TV”, for example.  

13.	Mr Warren is a media consultant for the News of the World for whom he writes a weekly column.

14.	Recently Mr Warren has negotiated an agreement with ITV giving the latter broadcasting rights over fights promoted by Mr Warren.  

15.	Other than the licence agreement relating to the box to which this appeal relates, Mr Warren, in the course of his business, has no contractual relationship with any soccer club or soccer related organization; he does not manage any footballers.

16.	Mr Warren acquired a flat in Chesham Street, London, for business use.  This is used for business meetings, which take place there either because the box cannot be accessed at the time or because greater privacy is required than the box allows.  

The Licence Agreement  
17.	We were provided with an unsigned and undated agreement between Arsenal Football Club and Sports Network.  We understand that this governs the box licensing arrangement in the period 09/02.  A replacement agreement, containing substantially the same terms, covers the 2005/06 season.

18.	Mr Warren, named as Sports Network, is given the sole use of the box by up to eight persons for himself, his guests and invitees; and he is given the right at his expense to exhibit “name, business or products” on an advertizing board fixed to the front of the balcony to the box: and he is given the right to advertise the name, Sports Network at the pitch-side on an advertizing board on at least four occasions during each season at a club first team match played at the stadium.  (The later agreement restricts this to two occasions.)

19.	Mr Warren, as licensee, is permitted to use the box at all first team matches.  When the kick-off is for a Saturday match, the hours of Mr Warren’s licence are from mid-day until 6.00pm; with weekday matches the hours are from 5.00pm until one hour after the end of the match and, in other cases, for 2½ hours before kick-off to one hour after the end of the match.

20.	When other events take place at the stadium, Mr Warren as licensee may use the box for the duration of the event in question and for such periods before and after the event as the club shall reasonably determine.

21.	The club agrees to supply Mr Warren, before the start of the season, with eight admission tickets for each event and with a car pass for each match.  Access to the box is given on presentation of a ticket.  

22.	The club agrees to procure the provision by its appointed catering agents of a refreshment service during the hours of the licence.  The refreshments are to be paid for by Mr Warren as licensee.  

The Box
23.	The box licenced to Mr Warrant is at the centre of 27 boxes on the upper tier of the South Stand.  We visited it during the hearing.  Access is by a common stairway and lift and a common passageway.  Inside the box is a table and eight chairs, a shared kitchen and a toilet.  Outside, and separated by a sliding plate glass door, which when shut excludes the sound from the ground, are two rows of four seats overlooking the ground.  The caterers can enter the box through a separate door into the kitchen.  Meals are provided before the match.

The use to which Mr Warren puts the Box
24.	Normally Mr Warren invites guests to attend the box on match days.  A meal and drinks are usually provided.  Guests are never charged.  Guests include fighters, sponsors and agents, boxing journalists, broadcasting executives, media and sports lawyers and accountants.

25.	There are a few exceptional match days when Mr Warren cannot attend.  On those days and on some five to ten other occasions in a season the box has been occupied by Mr Warren’s friends and family.

26.	Mr Warren said of the normal occasions that the box was used for meetings which often started long before the kick-off.  On some such occasions deals had been negotiated with TV companies.  On other occasions deals had been struck with events sponsors. On some occasions championship bouts had been arranged between fighters, their managers and other promoters.  Mr Warren referred to the fact that the Sky deal (paragraph 12 above) had resulted in a lack of general prominence for boxing matches; to bring boxing back to the attention of the Press, Mr Warren had held a Press conference at the box. 

27.	Use of the box for meetings, Mr Warren said (and we accept), had enabled him to combine soccer with business discussions and the result had been the generation of a great deal of business.  Every meeting had been concerned with the sport of boxing.  Examples he gave included the successful negotiations leading to the Kostya Tszyu v Ricky Hatton fight and the Amir Khan v Kindelan “re-match”.  New Russian sponsors had been brought in.  Russians, Mr Warren said, are “huge football fans” and the box at the Arsenal provides him with the facility for negotiating deals with them  Another example was a meeting with ITV’s head of sport, being another “huge football fan who would not have met with me easily”; the box provided a facility which had led to Mr Warren returning to ITV.

28.	Mr Warren explained that he promotes thirty to forty fights a year.  If he did not have the box he would have to bring the participants together at restaurants.  A soccer match was “much more relaxed”.

Advertizing
29.	The licence agreement, as already noted, gives the licensee the right to display his name at the front of the balcony at all times and to advertise at the pitch-side for a limited number (initially four and now two) occasions each season. The Commissioners accept that the supply of advertising services is a supply to Mr Warren upon which he is entitle to reclaim input tax; they have allowed 25% of the total input tax incurred by him under the licence agreement.

Conclusions
30.	The subject matter of the supply to Mr Warren is access to the box for Mr Warren and his invitees under the terms of a licence agreement.  Access to the box is limited to match days and gives the ticket-holding invitee the opportunity to watch the match.

31.	The use to which Mr Warren puts the box is, save on the exceptional occasions when it is used for friends and family entertainment, a business use.  It is used to great effect to generate business and profit for boxing matches promoted by Mr Warren. That is not disputed.  At the same time, any person attending the box for a soccer match is attending an entertainment.  Mr Warren uses the box for business purposes because it is in the Arsenal Football ground.  The matches played there are entertainment.  It is that feature that makes the use of the box, in contrast to the expenditure on the acquisition of the Chesham Street flat, a use for business entertainment.  

32.	There is nothing “incidental” or ancillary about the soccer match taking place on the occasions when the box is used by Mr Warren.  The match is the entertainment. 

33.	Because Mr Warren’s business is not the promotion of soccer or soccer players, the present circumstances are quite different from those found in W R Promotions or, indeed, in D P A (Market Research) – referred to in paragraphs 8 and 9 of this Decision.

34.	For all those reasons we have concluded that the expenditure on the box is, save as regards the 25% attributable to advertising, expenditure on business entertainment.  We therefore dismiss the appeal.

STEPHEN OLIVER QC
CHAIRMAN

RELEASED: 8 August 2005

LON/04/1250