BUPA Hospitals Ltd v Commissioners of Customs and Excise
| Jurisdiction | UK Non-devolved |
| Judgment Date | 01 January 2003 |
| Date | 01 January 2003 |
| Court | Value Added Tax Tribunal |
Revenue - Value added tax - Chargeability of VAT - Tax chargeable on receipt of payment in case of payment on account before goods delivered - Whether applicable to prepayment for unascertained goods -
Supplies by health providers in the United Kingdom were zero-rated for value added tax purposes until 1 January 1998 when they became exempt rather than zero-rated supplies, with the consequence that after that date, health providers were no longer able to deduct input tax on purchases of medical supplies. Between the Government's announcement in August 1997 of its intention to change the law and the entry into force of the new law, the first claimant, an operator of private hospitals, set up a scheme whose purpose was to take maximum advantage of the right of deduction that was shortly to end, before it did so. The scheme relied on the provision in the second sub-paragraph of article 10(2) of the Sixth (VAT) Council Directive 77/388/EECF1 that “where a payment is to be made on account before the goods are delivered … [VAT] shall become chargeable on receipt of the payment”, and its central element was that the claimant made a contract with an associated company whereby, in consideration of the immediate payment by the claimant of a sum of money including £17.5m for VAT, the associated company agreed to make future supplies to the claimant of drugs and prostheses described in a schedule which was subject to amendment. It was provided that either party could terminate the contract on notice, and that in that event the claimant would recover the value not yet delivered. After the defendant commissioners had refused the claimant's claim to recover £17.5m of input tax, the claimant brought proceedings in the course of which a reference was made to the Court of Justice of the European Communities.
On the reference for a preliminary ruling—
Held, that in order for VAT to be chargeable under the second sub-paragraph of article 10(2) of the Sixth Directive, the goods or services had already to be precisely identified when the payment on account was made, and that prepayments such as those at issue, whereby lump sums were paid for goods referred to in general terms in a list which could be altered at any time by agreement between the buyer and the seller and from which the buyer could possibly select articles, on the basis of an agreement which he could unilaterally resile from at any time, thereupon recovering the unused balance of the prepayments, did not fall within the scope of that provision (post, paras 48, 51, operative part).
The following cases are referred to in the judgment:
Caisse nationale des prestations familiales v Weide (Case C-153/03) (not yet reported), 7 July 2005,
Cantor Fitzgerald International v Customs and Excise Comrs (Case C-108/99) [
Wolff & Müller GmbH & Co KG v Pereira Félix (Case C-60/03) [
REFERENCE by the High Court of Justice, Chancery Division
By order of 8 November 2002, in proceedings between the claimants, BUPA Hospitals Ltd and Goldsborough Developments Ltd, and the defendants, the Customs and Excise Commissioners, the Chancery Division referred to the Court of Justice for a preliminary ruling under article 234 EC seven questions (see post, para 39) on the interpretation of provisions of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the member states relating to turnover taxes-Common system of value added tax: uniform basis of assessment (OJ 1977 L145, p 1), as amended by
The Judge Rapporteur was Judge von Bahr. The facts are stated in the judgment.
Robert Venables QC and Timothy Lyons QC for the claimants.
Christopher Vajda QC and R Caudwell, agent, for the United Kingdom Government.
AM Collins SC and DJ O'Hagan, agent, for the Irish Government.
HG Sevenster, agent, for the Netherlands Government.
R Lyal, agent, for the Commission of the European Communities.
The joint opinion of ADVOCATE GENERAL POIARES MADURO in this case and in Halifax plc v Customs and Excise Comrs (Case C-255/02) and University of Huddersfield Higher Education Corporation (Case C-223/03) [
21 February 2006. THE COURT (GRAND CHAMBER) delivered the following judgment in Luxembourg.
1 This reference for a preliminary ruling relates to the interpretation of articles 2(1), 4(1)(2), 5(1), 10(2) and 17 of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the member states relating to turnover taxes-Common system of value added tax: uniform basis of assessment, as amended by
2 The reference was made in proceedings brought by BUPA Hospitals Ltd (“BUPA Hospitals”) and Goldsborough Developments Ltd (“Goldsborough Developments”), two companies in the BUPA group, against the Customs and Excise Commissioners (“the commissioners”) in relation to the latter's refusal to permit the deduction by BUPA Hospitals or by Goldsborough Developments of the sum of £17.5m (approximately EUR 26.2m) paid by way of input VAT on payments on account for future supplies to be made by two other companies in the BUPA group.
Legal framework
Community law
3 Article 2(1) of the Sixth Directive provides that the supply of goods and services effected for valuable consideration within the territory of the country by a taxable person acting as such is to be subject to VAT.
4 Under article 4(1) of that Directive, “taxable person” means any person who independently carries out any economic activity specified in article 4(2). “Economic activities” are defined in article 4(2) as comprising all activities of producers, traders and persons supplying services, including the exploitation of tangible or intangible property for the purpose of obtaining trading income therefrom on a continuing basis.
5 The second sub-paragraph of article 4(4) states:
“Subject to the consultations provided for in article 29, each member state may treat as a single taxable person persons established in the territory of the country who, while legally independent, are closely bound to one another by financial, economic and organisational links.”
6 Article 5(1) states: “‘Supply of goods’ shall mean the transfer of the right to dispose of tangible property as owner.”
7 Article 10 is worded:
“(1)(a) ‘Chargeable event’ shall mean the occurrence by virtue of which the legal conditions necessary for tax to become chargeable are fulfilled. (b) The tax becomes ‘chargeable’ when the tax authority becomes entitled under the law at a given moment to claim the tax from the person liable to pay, notwithstanding that the time of payment may be deferred. (2) The chargeable event shall occur and the tax shall become chargeable when the goods are delivered or the services are performed. Deliveries of goods other than those referred to in article 5(4)(b) and supplies of services which give rise to successive statements of account or payments shall be regarded as being completed at the time when the periods to which such statements of account or payments pertain expire. However, where a payment is to be made on account before the goods are delivered or the services are performed, the tax shall become chargeable on receipt of the payment and on the amount received. By way of derogation from the above provisions, member states may provide that the tax shall become chargeable, for certain transactions or for certain categories of taxable person, either:-no later than the issue of the invoice or of the document serving as invoice, or-no later than receipt of the price, or-where an invoice or document serving as...
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