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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Wakefield College v Revenue And Customs [2018] EWCA Civ 952 (01 May 2018) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2018/952.html Cite as: [2018] EWCA Civ 952, [2018] BVC 22, [2018] STC 1170, [2018] STI 947 |
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ON APPEAL FROM THEUPPER TRIBUNAL
(TAX AND CHANCERY CHAMBER)
Mr JUSTICE BARLING and JUDGE BISHOPP
UTC/2014/0013, [2016] UKUT 19 (TCC), [2013] UKFTT 731 (TC)
Strand, London, WC2A 2LL |
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B e f o r e :
LORD JUSTICE DAVID RICHARDS
and
LORD JUSTICE MOYLAN
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WAKEFIELD COLLEGE |
Appellant |
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- and - |
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THE COMMISSIONERS FOR HER MAJESTY'S REVENUE AND CUSTOMS |
Respondent |
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James Puzey (instructed by the General Counsel and Solicitor to HM Revenue and Customs) for the Respondents
Hearing dates: 7-8 February 2018
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Crown Copyright ©
Lord Justice David Richards:
Introduction
"The supply in the course of construction of
(a) a building … intended solely for use for … a relevant charitable purpose…
of any services related to the construction other than the services of an architect, surveyor or any person acting as a consultant or in a supervisory capacity".
Note (6) to group 5 provides:
"Use for a relevant charitable purpose means use by a charity… -
(a) otherwise than in the course or furtherance of a business."
The law
"The following transactions shall be subject to VAT:
…
(c) The supply of services for consideration within the territory of a Member State by a taxable person acting as such."
Art 9(1) provides:
" "Taxable person" shall mean any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity.
Any activity of producers, traders, or persons supplying services, including mining and agricultural activities and activities of the professions, shall be regarded as "economic activity". The exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis shall in particular be regarded as an economic activity."
Borsele
i) For journeys of up to 6 km the municipality did not cover the cost of transporting schoolchildren.
ii) For journeys of between 6 km and 20 km transport was provided in return for a fixed contribution (equal to the cost of public transport covering a distance of 6km).
iii) For journeys of more than 20 km, transport was provided in return for a payment which could not exceed the price of the transport and which was, in the case of each child, calculated taking into account the parents' income.
About one third of parents using the service were required to make contributions, and their contributions were equivalent to 3% of the amount paid by the municipality to fund the service. The municipality claimed that it was a taxable person, so that it was liable to pay VAT on payments made by parents and was entitled to deduct as input tax the VAT charged to it by the transport undertakings providing the service, and reclaim the balance of the input tax from the tax authorities.
"(1) Should Article 2(1)(c) and Article 9(1) of the VAT Directive be interpreted as meaning that, with regard to the transport of school pupils, on the basis of an arrangement as described in the present judgment, a municipality should to this extent be regarded as a taxable person within the meaning of that directive?
(2) For the purpose of answering that question, should the arrangement as a whole be considered, or should this assessment be made for each transport operation separately?
(3) If the latter is the case, should a distinction be made according to whether pupils are transported over a distance of between 6 and 20 kilometres or over a distance exceeding 20 kilometres?"
"Even though the same outcomes may often be expected, a strict separation must be observed between the determination of any consideration for the purposes of art 2 of the VAT Directive, on the one hand, and the question of whether any income is obtained that falls to be examined in the context of art 9 of that directive, on the other."
"the fact that a taxable person seeks in connection with an activity consideration within the meaning of the events chargeable to VAT is not sufficient for a finding, required by art 9(1) of the VAT Directive, that its activity is also carried out for the purpose of obtaining income or, therefore, to support the assumption that an economic activity is present."
"30 Comparing the circumstances in which the person concerned supplies the services in question with the circumstances in which that type of service is usually provided may therefore be one way of ascertaining whether the activity concerned is an economic activity (see, by analogy, judgment of 26 September 1996 in Enkler, C-230/94, EU:C:1996:352, paragraph 28).
31 Other factors, such as, inter alia, the number of customers and the amount of earnings, may be taken into account along with others when that question is under consideration (see, by analogy, judgment of 26 September 1996 in Enkler, C-230/94, EU:C:1996:352, paragraph 29).
32 While it is, of course, ultimately for the national court to assess all the facts of the case in the main proceedings, the Court, which is called on to provide answers of use to the national court, may provide guidance, based on the file in those proceedings and on the written and oral observations which have been submitted to it, which may enable the national court to give judgment in the specific case before it.
33 In that regard, it should be noted, first, that the municipality of Borsele recovers, through the contributions that it receives, only a small part of the costs incurred. The contributions at issue in the main proceedings are not payable by each user and were paid by only a third of the users, with the result that they account for only 3% of the overall transport costs, the balance being financed by public funds. Such a difference between the operating costs and the sums received in return for the services offered suggests that the parental contribution must be regarded more as a fee than as consideration [in the French version: "une rémunération"] (see, by analogy, judgment of 29 October 2009 in Commission v Finland, C-246/08, EU:C:2009:671, paragraph 50).
34 It therefore follows from that lack of symmetry that there is no genuine link between the amount paid and the services supplied. Hence, it does not appear that the link between the transport service provided by the municipality in question and the payment to be made by parents is sufficiently direct for that payment to be regarded as consideration [in the French version: "une rémunération"] for that service and, accordingly, for that service to be regarded as an economic activity within the meaning of Article 9(1) of the VAT Directive (see, by analogy, judgment of 29 October 2009 in Commission v Finland, C-246/08, EU:C:2009:671, paragraph 51).
35 It should be noted, second, that the conditions under which the services at issue in the main proceedings are supplied are different from those under which passenger transport services are usually provided, since the municipality of Borsele, as the Advocate General observed in point 64 of her Opinion, does not offer services on the general passenger transport market, but rather appears to be a beneficiary and final consumer of transport services which it acquires from transport undertakings with which it deals and which it makes available to parents of pupils as part of its public service activities.
36 It follows from all the forgoing considerations that, in answer to the questions submitted by the referring court, Article 9(1) of the VAT Directive must be interpreted as meaning that a regional or local authority which provides a service for the transport of schoolchildren under conditions such as those described in the main proceedings does not carry out an economic activity and is not therefore a taxable person."
Finland
"the question was whether Finland could legitimately treat as non-taxable (that is, outside the scope of VAT) supplies of legal aid provided by the public legal aid office while taxing similar supplies made by lawyers in private practice. The amount a recipient of legal aid was required to contribute to the cost of the legal aid with which he was provided was dependent upon his income and capital: some were required to pay nothing, some were disqualified because their income or capital, or both, exceeded certain thresholds, and others in between paid an amount up to 75% of the cost of the service. In most cases the public legal aid office, acting by its employed lawyers, provided the relevant service but it was possible for a recipient of legal aid instead to engage a lawyer in private practice. In the former case the contributions supplemented the office's income, most of which was derived from public funds. In the latter, the State paid for the lawyer's services, which were subject to VAT. It made no difference to the recipient's contribution if he instructed a private lawyer rather than the public office"
"Therefore, in light of the foregoing, it does not appear that the link between the legal aid services provided by public offices and the payment to be made by the recipients is sufficiently direct for the payment to be regarded as consideration [French version: une rémunération] for those services and, accordingly, for those services to be regarded as economic activities for the purposes of Article 2(1) and Article 4(1) and (2) of the Sixth Directive."
Longridge
"5. Longridge successfully appealed this determination to the First-tier Tribunal ("FTT"). HMRC then appealed to the Upper Tribunal ("UT"). Both the FTT and the UT followed domestic authorities where the courts have looked at the wider context in order to determine whether the provision of services for a money consideration constituted an economic activity for VAT purposes.
6. The nub of HMRC's case is that this approach is not consistent with EU law. HMRC contend that the Court of Justice of the European Union ("the CJEU", in which expression I also include its predecessor the European Court of Justice) has recently clarified the test for determining whether there is an economic activity and that this now focuses on whether there is a direct link between the service which the recipient receives and the payment which he makes, not the wider context in which the payment was made. If the direct link is not present, there is no economic activity.
7. To answer this question, this court needs to examine many authorities. At the end of the day, and for the detailed reasons given below, I consider that HMRC are correct. The correct test is one of direct link. In this case, the FTT and UT misdirected themselves. In my judgment, the appeal should therefore, be allowed."
"All the factors which generally make a payment to the supplier of a service consideration for it, were present. There was a link in terms of reciprocity but the charge bore little relation to the actual cost, so the link was not sufficiently direct for there to be economic activity for VAT purposes."
"The activity must be carried out in return for remuneration and there must be a direct link between the service and the money received by the service-provider: the Finland case, paras 44-45. The CJEU held in the Finland case that there was no link between the services provided and the paying party."
The present state of the law
The FTT and UT Decisions
The facts
The application of the law to the facts of this case
Lord Justice Moylan:
Lord Justice Patten: