Zero-rating and digital newspapers

The Supreme Court has held that the UK’s zero-rating provisions for the supply of newspapers did not apply to digital editions: News Corp UK and Ireland Ltd v HMRC [2023] UKSC 7. On a proper reading of the legislation, when taken together with the principles of EU law, the zero-rating provisions were limited to physical newspapers.

Whilst the decision is largely of historical interest, it does provide important guidance on the correct approach to the interpretation of domestic legislation in the context of technological developments and casts some doubt on the scope of the “always speaking” doctrine of statutory interpretation in an EU law context.

Background

The case concerns supplies of digital versions of The Times, The Sunday Times and the Sun by the appellants. The point at issue was a relatively straightforward one - did supplies of the digital versions of these newspapers fall within the UK's zero-rating provisions. The appellant argued that the digital editions of the titles were newspapers on the basis that they were the digital equivalent of the physical daily editions produced on ordinary newspaper. HMRC argued that they do not fall within the definition of newspapers which was confined to newsprint newspapers.

The FTT had considered that the description of the items zero-rated by VATA 1994 Schedule 8 Group 3, including newspapers, taken as a whole, was clearly aimed at only supplies of goods and rejected the appellants claim. The Upper Tribunal (UT), however, concluded that the FTT had been wrong on this point. The FTT had also been wrong to hold that the need to apply a strict construction to the zero-rated items and the operation of the standstill rule in relation to pre-existing zero-rating provisions precluded the application of the principle of construction of statutory construction referred to as the "always speaking" doctrine. This principle required the original 1973 legislation (which was enacted at a time when digital newspapers were not contemplated) to be read as including digital versions as the zero-rating of such publications fell within the legislative intent and purpose of zero-rating newspapers.

The Court of Appeal disagreed and held that, whilst the always speaking doctrine was not excluded in principle in this case, the actual statutory wording indicated that it was intended to apply only to tangible or physical objects.

Decision of the Supreme Court

The judgment of the Supreme Court was given by Lords Hamblen and Burrows with whom two other justices of the Supreme Court agreed. The judgment notes that the “always speaking” principle of statutory construction requires that “as a general rule, a statute should be interpreted taking into account changes that have occurred since the statute was enacted. Those changes may include, for example, technological developments, changes in scientific understanding, changes in social attitudes and changes in the law. Very importantly it does not matter that those changes could not have been reasonably contemplated or foreseen at the time that the provision was enacted. Exceptionally, the always speaking principle will not be applied where it is clear, from the words used in the light of their context and purpose, that the provision is tied to an historic or frozen interpretation”.

(Lord Leggatt gave a separate judgment where he took a rather more narrow view of the always speaking doctrine. In particular, in relation to technological changes, Lord Leggatt suggested that there was no justification for any general rule or presumption that a statute is intended to apply to a newly invented object or process.)

On the other hand, the Court noted that principles of EU law meant that the zero-rating provisions must be interpreted strictly as exemptions from the general principle that all supplies should be subject to VAT. In addition, Article 110 of the Principal VAT Directive requires that categories of zero-rating cannot be expanded or extended. As such, the Court noted that the application of the always speaking doctrine was subject to significant constraints in this context. “Here these constraints mean that the always speaking principle is significantly limited so as to ensure that it does not conflict with the requirement for zero-rating for newspapers to be strictly construed and not extended.”

The taxpayer relied heavily on the fact that the social policy underpinned by the zero-rating provisions was the promotion of literacy and dissemination of knowledge and that policy was served equally by digital newspapers as physical ones. However, the Court agreed with HMRC that, in the realm of taxation, the fact that the same social purpose may be served by two related items does not mean that they should be treated in the same way. “Taxation involves budgetary and political decision-making and how far to extend exemptions from tax is a budgetary choice. Such decisions are made on a granular basis.”

The Court considered that the defining characteristics of a newspaper for the purposes of the zero-rating provisions involved two elements which indicated that it should not apply to digital editions. Firstly, it should be in a physical printed form – it would not have applied to news communicated through the medium of radio and TV at the time for example. Secondly, there was no requirement for any other device or service to access the information, whereas digital newspapers required both a device to access the file and connectivity. These differences were such that the term newspapers in the zero-rating provisions could not be applied to digital editions.

Moreover, the technical development that led to digital editions is a radical one which takes one a long way from the physical item and opens up all sorts of possibilities for interactive communication that were not possible with print newspapers. As a result, the Court concluded that, having regard to the constraints of EU law, the always speaking principle cannot be applied so as to interpret newspapers as covering digital
editions.

The rationale of the decision was also borne out by the fact that the distinction had also been drawn in EU law by the CJEU in European Commission v Luxembourg (Case C-502/13)), albeit in the context of reduced rates of VAT.

Finally, the Court rejected the taxpayer’s arguments based on fiscal neutrality. It was well established that the principle of fiscal neutrality could not be used to extend the scope of an exemption, as such the principle would only have assisted the taxpayer if the Court had held that some forms of digital newspaper were within the zero-rating provisions and some outside. That was not the case.

Comment

At an EU level, the CJEU in European Commission v Luxembourg (Case C-502/13)) held that the EU provisions applying reduced rates to publications did not extend to digital or electronic books. However, Council Directive (EU) 2018/1713 of 6 November 2018 amended the Principal VAT Directive to give Member states a discretion to apply reduced VAT rates to e-publications. The UK Government introduced zero-rating for digital versions of books and newspapers with effect from 1 May 2020, see UK Government announces zero-rating of electronic publications.

However, this decision is relevant to the VAT treatment of digital publications going back before this period and, as such, the decision of the Supreme Court will be disappointing to the industry.