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HMRC internal manual

VAT Place of Supply of Services

Belonging: Business carried on through an agency

A fixed establishment can include a branch or agency (provided it satisfies the rules to be regarded as an establishment). An agency is a separate company that acts in the same way as a branch.

Following DFDS A/S and Chinese Channel Ltd (HK) (see below) the key test for agency, so far as the place of belonging rules are concerned, is one of independence. An agency cannot operate independently of its principal. In deciding independence, what matters is the reality, function and substance, and not any mere label or legal form. You should therefore have particular regard for the actual arrangements which exist between the prima facie agency and its principal, rather than any mere wording in contracts. Where there is no independence, agencies may include

  • a subsidiary acting for its parent principal
  • a company acting for its associated principal, and
  • a company acting for an unrelated principal.

A non-UK company can operate through a branch or agency as either a supplier or a recipient of services. Any charge for its services made by a branch or agency in the UK to its non-UK parent or principal is itself regarded as supplied in the UK, since such services are used most directly at the UK establishment created by the agency itself.


In the ECJ case of DFDS A/S (C- 260/95 ), the Court considered whether DFDS A/S, a Danish tour operator, had a fixed establishment in the UK through the agency of its wholly owned subsidiary, DFDS Ltd. DFDS A/S had no premises or staff of its own in the UK. The resources needed to make the supplies of services belonged to the UK company. In deciding this case, the Court asked whether the UK agency was independent of the Danish company. The Court was influenced by both ownership and contractual obligations. The UK Company was found to be wholly owned by the Danish company and had various contractual obligations imposed upon it by the Danish parent. In particular, it had

  • to seek prior approval from the parent regarding its management, for example appointment of senior staff
  • conclusion of major contracts
  • appointment of advertising and public relations agents
  • any work it wished to perform for other transport companies, and
  • no discretion in setting prices.

This showed that it acted as a mere auxiliary organ of its parent and it was therefore a fixed establishment of the Danish company.

Chinese Channel

In Chinese Channel Ltd (HK), The Tribunal stated that the test for whether an overseas business had a fixed establishment in the UK through the agency of another business, was that UK business must

  • be of a certain minimum size with the permanent human and technical resources necessary for providing services
  • not, in function and substance, operate independently of the overseas business, and
  • actually supply the service.

The High Court said that although the typical agency was a subsidiary acting as a mere auxiliary organ of its overseas parent, it was not restricted to that description. For example, it was possible to conceive of a non-independent company which was not a mere auxiliary organ.

It held that there were a number of features which would support Chinese Channel (UK) Ltd (CCUK) not acting independently of Chinese Channel Ltd (HK)

  • it shared a grandparent company with CCUK
  • it bore no financial risk, and
  • it was under an obligation not to act for competitors.

Thus, CCUK shared many of the characteristics of the UK subsidiary in DFDS A/S. However, there was a danger in conducting a mechanical exercise in comparing features of one case with another. It was the substance and reality which mattered.

Interbet Trading Ltd

In Interbet Trading Ltd (MAN 76/132), [1978] VATTR 235, (VTD 696), Interbet, registered in Jersey, provided advice of forecasting the performance of race horses to the general public via JGFL Ltd, a company registered and trading in the UK. The Tribunal considered whether there was an agency relationship between the companies, and, if there was, whether Interbet belonged in the UK for the purposes of the supplies.

The Tribunal was influenced by the popular definition of agency given in Kidd and Zigrino (1974) VATTR 173: a person (A) who performs an act on the instructions of another (B) in relation to a third party (C) with whom such other person (B) contracted to procure the act to be done.

In spite of a contractual document saying that there was no agency relationship between the two companies, the Tribunal found that in substance there was such a relationship in the popular sense. This being the case, Interbet was held to be making supplies in the UK under the equivalent provision then operating, Section 8(4) of the Finance Act 1972.


In a decided case, Company A had established its telephone dating business in the USA and wished to expand into the UK market. Company A had no offices or staff in the UK and set up an associated Company B with offices and staff there. Company A installed technical equipment, which it owned, at Company B’s offices. This recorded and played back subscribers’ messages. Company B’s directors were resident in the USA or Canada and one was also a director of Company A. The contract between them demonstrated that Company B was wholly dedicated to Company A, but was vague about precisely what services Company B performed. Company A argued that the mere location of its equipment in the UK was insufficient to create a fixed establishment there.

It was ascertained that Company B’s staff actively used the equipment by vetting subscribers’ messages and either putting them onto the system or excluding them from it. Company B advertised Company A’s dating service using Company A’s trading style, took payments by credit card from Company A’s subscribers over the telephone, arranged for repairs to the equipment, and provided a point of contact for subscribers’ complaints. The subscribers were based in the UK. We were therefore able to argue successfully that Company B was a mere auxiliary organ of Company A. Thus, Company A had a fixed establishment in the UK through the agency of Company B, which actually made Company A’s supplies of dating services in the UK.