The Public Markets Trust and GST

The matter of whether or not the leases of the Public Markets are subject to Goods and Services Tax is the subject of the ongoing case before the Royal Court of Jersey.

Whilst I am one of the parties I hope to be able to demonstrate the situation and the matters that the Court will have to consider in an objective manner.

For simplicity's sake I have not written the full arguments which are now over 400 pages long and hope I have distilled the essence of the matters under consideration.

The following shows the importance of determining the capacity and status of all 'persons' be they human being, corporation, trust or similar.

The leases of the Public Markets are signed between 'the Department of Public Services and Environment for and on behalf of the Public of the Island of Jersey' and each stallholder.

So the first step is to determine who the parties are, who the agents are and who is providing what service and to whom.

To me it seems that 'the States of Jersey' are providing administrative services to the Public of the Island of Jersey and the Public of the Island of Jersey are providing the benefit of a lease to the stallholders. This is how the matter is determined for tax purposes if for example a property owner employs a lettings agent.

Of the 47 tenants of the markets only 4 are registered and taxable persons under the Goods and Services Tax (Jersey) Law 2007 ("GST Law"). The Public of the Island of Jersey are nor a registered person, nor are they ever a taxable person as they are the beneficiaries of the 'government trust' as defined in a previous blog posting. Therefore no GST is due.

The States of Jersey however is a registered person and a taxable person under the GST Law -

19    Application to the States of Jersey

(1)    This Law shall not apply to the supply of goods or services by the States, being a supply for which no charge or fee is payable by the person to whom the goods or services are supplied.

(2)    For the purposes of this Law –

(a)     the States are liable to be registered and the Comptroller shall register them;

(b)     the States shall be registered as one person;

(c)     the States however shall be a taxable person only to the extent that the States prescribe by Regulations;

(d)     a Minister, department, or administration, of the States shall be taken to be the same person as the States; and

(e)     the States shall keep the same accounts and records, and provide to the Comptroller the same information, as a taxable person.

However in the Goods and Services Tax (Jersey) Regulations 2007 ("GST Regulations"):

2      States a taxable person: Article 20 of Law

The States shall for the purposes of this Law be a taxable person to a full extent corresponding to the supplies to and importations by the States.

4      Article 19(1) of Law modified: Article 20 of Law

Article 19(1) of the Law is hereby modified so that it applies as if for the words “for which no charge or fee is payable by the person to whom the goods or services are supplied” there were substituted the words “that is not in the course of or furtherance of a business”.

So reading the GST Law and the GST Regulations together Article 19(1) of the GST Law as it applies to the States of Jersey reads:

This Law shall not apply to the supply of goods or services by the States, being a supply that is not in the course of or furtherance of a business.

So is the leasing of the Public Markets a 'business' of the States of Jersey?

A business may mean 'any undertaking earnestly pursued' or any 'activity not undertaken purely for social or entertainment purposes' (CCE v Lord Fisher 1981). There is however no Jersey case law to establish its meaning.

It is my supposition that this is to ensure that the same definition of 'business' applies to GST as it does to VAT in the UK, the government suggests that the word business in the context of the GST law means something other than what it does in the VAT Law.

In the VAT Law the definition of business as it applies to local authorities is as defined in West Devon Borough Council v Commissioners of Customs and Excise [CH/2001/APP/294]. Following this case HMRC issued VAT Notice 749.

Basically when government is operating under a 'special legal regime' they should not be treated like a business, when government operates under the same terms as those that apply to 'private traders generally' then they should be treated LIKE a business.

As both the leases and the Public Markets Administration (Jersey) Regulations 1947 allow the Inspector of Markets to issue summary fines and dictate other terms such as opening hours, how produce is displayed, arrangements for cleaning etc. The leases clearly do not operate on the same terms as those that 'apply to private traders generally' and it constitutes a 'special legal regime'.

Whilst their is an additional EU directive on competition which applies to the UK this does not apply to Jersey and is not part of the definition of the term 'business'. Incidentally, the leasing of Market Stalls is exempt from VAT in the UK.

If the leasing of the stalls is not 'a business' then they are not subject to GST.

However even if it is a business the States are supplying the administration service to the 'Public of the Island of Jersey' and not to the individual tenants.

But there is a further complication, the Trust (Jersey) Law 1984.

Whilst for the purposes of the GST Law the States may be treated as one person, for the purposes of the Trusts Law each trust is an entity in its own right.

Thus the Public Markets Trust for which the Trustees are the States of Jersey is a different entity to the States of Jersey (who might also be call 'the Trustees of the Public Markets Trust' when acting in that capacity)

Article 21 of the Trusts Law reads (emphasis mine)

21    Duties of trustee

(1)    A trustee shall in the execution of his or her duties and in the exercise of his or her powers and discretions –

(a)     act –

(i)     with due diligence,

(ii)    as would a prudent person,

(iii)   to the best of the trustee’s ability and skill; and

(b)     observe the utmost good faith.

(2)    Subject to this Law, a trustee shall carry out and administer the trust in accordance with its terms.

(3)    Subject to the terms of the trust, a trustee shall –

(a)     so far as is reasonable preserve the value of the trust property;

(b)     so far as is reasonable enhance the value of the trust property.

(4)    Except –

(a)     with the approval of the court; or

(b)     as permitted by this Law or expressly provided by the terms of the trust,

a trustee shall not –

(i)     directly or indirectly profit from the trustee’s trusteeship;

(ii)    cause or permit any other person to profit directly or indirectly from such trusteeship; or

(iii)   on the trustee’s own account enter into any transaction with the trustees or relating to the trust property which may result in such profit.

(5)    A trustee shall keep accurate accounts and records of the trustee’s trusteeship.

(6)    A trustee shall keep trust property separate from his or her personal property and separately identifiable from any other property of which he or she is a trustee.

If the States of Jersey collect GST from the rents on the leases of the Public Markets (the administration of which is entrusted to them) then they (in their capacity as trustees of the Public Markets Trust) are profiting either directly or indirectly from their trusteeship.

The 'Trust Instrument' of the Public Markets Trust is the Loi (1885), Touchant L'Administration des Marches Publiques which states that the proceeds of the leases are to be used for administration and maintenance of the Public Markets only.

There have been prior breaches of the Public Markets Trust as funds have been transferred to the consolidated fund from the Assets Held in Trust fund. (See Public Finances (Jersey) Law 2005 for more info on the various funds the States hold).