The judge at the Med Hotels appeal tribunal was today urged to look at the “true nature of the relationship” between Med Hotels and the hotels it featured.
A two-day hearing is taking place at the Royal Courts of Justice to determine whether the accommodation-only supplier was acting as an agent or a principal during the period 2004-07.
Med Hotels lost its tribunal last year and was ordered to pay £7 million in unpaid VAT.
Representing HM Revenue & Customs, Sam Grodzinski QC said the judge must look at the “true nature of the contractual relationship”.
“The fact that the party used the ‘agency’ label cannot be determinative of the economic reality,” he said.
“One must look at the substance of their relationship, not just the labels they have used.”
Grodzinski said the fact that Med Hotels did not pass on a customer’s deposit to the hotel if they cancelled their holiday was indicative that the bed bank was not an agent.
“If the customer cancelled when their 25% deposit was paid, there was no obligation on Med Hotels to pass that on to the hotel. That’s as far as one can get from someone acting as an agent,” he said.
Grodzinski also mentioned that Med Hotels had, in many cases, taken allocations of rooms from hotels and paid “significant” advance payments for them.
“This is consistent, we say, only with Med purchasing the right to supply hotel accommodation.”
The hearing concludes today.
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