TC09596 - [2025] UKFTT 00895 (TC)

The case of Secret Hotels concerned the liability to VAT of a company which marketed and arranged holiday accommodation through an online website. The outcome turned on the appropriate characterisation of the relationship between the company, the operators of the hotels and the holiday-makers or their travel agents (which is an English law issue), and the impact of certain provisions of the relevant EU Directive on that relationship once it had been characterised (which is an EU law issue). The appeal essentially considered the question of whether the tour operator was acting solely as an ‘intermediary’, for the purposes of art. 306. The FtT and the Court of Appeal concluded that Med, in fact, marketed and sold the hotel accommodation to customers as a ‘principal’.

At the end of his judgment in Secret Hotels, Sir John Chadwick summarised the main factors as follows:

HMRC also relied on the points that: (7) hoteliers would invoice Med for the net sum in respect of each customer at the end of the relevant holiday, and (8) Med reserved a number of rooms - and sometimes specific rooms - in many hotels, for which it paid the net sum in advance.

In the Supreme Court, Lord Neuberger held that the meaning of art. 306 - and how it was to be applied - was a matter of EU law and the decisions of the Court of Justice were binding on national courts, but in so far as the provisions of art. 306 depended upon the precise nature and character of the contractual relationship between parties, the issue was to be determined by reference to the proper law of the contract or contracts. Lord Neuberger held, at [27], that in most cases an ‘intermediary’, for these purposes, would be the equivalent of an agent in English law and so proceeded to analyse the arrangements under which the tour operator made rooms available to its clients by considering whether it offered those rooms as principal or as agent for the hoteliers. At [35], he said this:

“when assessing the VAT consequences of a particular contractual arrangement, the court should, at least normally, characterise the relationships by reference to the contracts and then consider whether that characterisation is vitiated by [any relevant] facts.”

And, at [42], he noted that the contract between the tour operator and the consumer contained the following provision:

“the [tour operator] provides information concerning the price and availability of hotels [and]…any reservations you make on this site will be directly with the company whose hotel services you are booking.”

At [54] to [56], he said this:

“54.

The reformulated issue effectively assumes the correctness of the proposition that, once it is concluded as a matter of English law, that the effect of the contractual documentation and the way in which the parties conducted their relationship was that Med was an agent for the hotelier with whom a customer booked accommodation, as opposed to a principal who booked accommodation with the hotelier and then booked it on to a customer, Med fell within art 306(1)[b], rather than art 306(1)[a]. That is not an assumption which can safely be made in every case, but it seems to me that in the general run of cases, such a proposition will be correct.

…

“56.

Thus, in deciding whether art 306(1)[a] or art 306(1)[b] applies, theapproach laid down by the CJEU in order to decide whether a person such as Med is an intermediary is very similar to the approach which is applied in English law in order to determine whether Med was an agent, ie the very exercise undertaken in paras [31]–[50] above. One starts with the written contract between Med and the customer, as it is the customer to whom the ultimate supply is made. However, one must also consider the written contract between Med and the hotelier, as there would be a strong case for saying that, even if Med was the hotelier’s agent as between it and the customer, Med should none the less be treated as the supplier as principal (in English law) or ‘in its own name’ (in EU law) if, as between the hotelier and Med, the hotel room was supplied to Med.”

And, at [57]:

“57.

For the reasons set out in paras [36]–[44] above, I consider that the contractual documentation supports the notion that Med was an intermediary, and, in the light of the discussion in paras [45]–[50] above, it seems to me that ‘economic reality’ does not assist a contrary view. Further, one aspect of economic reality is that it is the hotelier, not Med, who owns the accommodation and it is the customer, not Med, to whom it is ultimately supplied: that does not, of course, prevent the hotelier supplying the accommodation to Med for supply on to the customer, but it makes it hard to argue that Med’s analysis that it is no more than an agent is contrary to economic reality. Further, one must be careful before stigmatising the contractual documentation as being ‘artificial’, bearing in mind that EU law, like English law, treats parties as free to arrange or structure their relationship so as to maximise its commercial attraction, including the incidence of taxation …”

The contract, therefore, contained a provision setting out the position as unambiguously as possible.