NewsCorp Supreme Court VAT ruling has wide implications

The ‘always speaking’ principle of statutory interpretation was considered in a case brought by the publisher NewsCorp in which it argued that digital versions of newspapers it published between September 2010 and 4 December 2016 should be zero-rated for VAT purposes.

Since 1 May 2020, electronic supplies of books, newspapers and magazines have been zero-rated for VAT purposes. Prior to May 2020, VAT was charged at 20% on digital publications, even though physical versions of the same book or newspaper were not subject to VAT under the Value Added Tax (VAT) Act 1994.

NewsCorp argued that the underlying purpose behind the VAT zero-rating of physical newspapers carries through to digital versions of publications such as The Times and The Sun, for e-readers, tablets, phones and websites. However, the Supreme Court rejected that position (45-page / 512KB PDF), ruling that the term ‘newspapers’ under the VAT Act did not extend to digital editions and were therefore subject to standard rate VAT during the period.

In deciding that digital editions could not be zero-rated, the Supreme Court gave clear guidance on the ‘always speaking’ principle of statutory interpretation, which is likely to have wider interest.

The Supreme Court reiterated the general principles of statutory interpretation, being “to ascertain the meaning of the words used in a statute in the light of their context and the purpose of the statutory provision” and confirmed that, in general, any provision is always speaking.

It said: “What is meant by the always speaking principle is 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.”

However, the Supreme Court said there is an important exception to the application of the ‘always speaking’ principle – where it is clear from the words used, their context and purpose, that the provision is tied or frozen to the historic interpretation.

In the matter of zero-rating provisions, the Supreme Court identified two areas of EU law that represented clear limitations on the ‘always speaking’ principle, namely that zero-rating provisions are always to be interpreted narrowly and secondly that, when the EU VAT regime was introduced, national exceptions such as zero-rating were expressly required to be limited to their existing scope at a specified time – 31 December 1975 in this case.

Applying these principles, the Supreme Court decided that it was not possible to interpret the word “newspapers” as covering digital editions. The two characteristics of newspapers that the Court considered rendered the difference one of “kind” and not “degree” were the physical printed form of a newspaper and the fact that a person buying a newspaper obtains complete access to its content without the need for any other device or connectivity.

The Court also stated that the limitations identified do not completely block out the application of the ‘always speaking’ rule – smaller developments, such as the use of colour photographs or a different physical medium for a newspaper, would fall within the scope of the doctrine.

Jake Landman of Pinsent Masons said: “Although the specific VAT consequences of this decision are of narrow impact, the clear guidance on the ‘always speaking’ principle of statutory interpretation will have a much wider significance, not just in tax. This is particularly so in a world where technology evolves ever more quickly, in a way that legislation cannot hope to keep pace with. It is useful to have clear guidance from the Supreme Court as to how far statutory interpretation can go in taking into account changes since enactment. That said, it seems likely that questions over whether a variation is one of ‘kind’ or one of ‘degree’ will continue to be hard fought.”