Finance and Business Training Ltd v Revenue and Customs Commissioners
| Jurisdiction | England & Wales |
| Judge | Lady Justice Arden,Lady Justice Gloster,Lady Justice Sharp |
| Judgment Date | 19 January 2016 |
| Neutral Citation | [2016] EWCA Civ 7 |
| Docket Number | Case No: A3/2014/0428 |
| Court | Court of Appeal (Civil Division) |
[2016] EWCA Civ 7
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM Upper Tribunal Tax Chamber
Mr Justice Morgan
Royal Courts of Justice
Strand, London, WC2A 2LL
Lady Justice Arden
Lady Justice Gloster
and
Lady Justice Sharp
Case No: A3/2014/0428
Melanie Hall QC and Elizabeth Kelsey (instructed by Lsbf Legal Department) for the Appellant
Raymond Hill (instructed by HM Revenue and Customs Solicitors Office) for the Respondents
Hearing dates: 7 – 8 October
Principal issue: Does EU law mean that a provider of university courses is entitled to the education exemption from VAT in the same way as a university even if not so entitled under UK VAT law?
Many providers of education are exempt from VAT because EU law, from which the VAT law is derived, contains an exemption ("the education exemption") for that purpose. But not all providers of education are exempt. The question on this appeal is whether, the appellant, Finance and Business Training Ltd ("FBT"), is entitled to the education exemption for courses which lead to the grant by the University of Wales of degrees. Universities are entitled to rely on the education exemption but FBT has failed to meet the conditions laid down in domestic law. It now seeks to rely on EU law principles, particularly the principles of fiscal neutrality and legal certainty. This Court has permitted FBT to argue this point even though it was not raised below because the Court of Justice of the European Union ("CJEU") handed down a decision on the education exemption, which, submits FBT, undermines the decisions of the First-tier and Upper Tribunal against it, just two days after the Upper Tribunal's decision was released.
EU legislation
The relevant EU legislative measure is the Principal VAT Directive ("PVD"). The relevant provision of the PVD is Article 132, which is to be read with Article 131. The material provisions of those Articles provide:
Article 131
The exemptions provided for in Chapters 2 to 9 shall apply without prejudice to other Community provisions and in accordance with conditions which the Member States shall lay down for the purposes of ensuring the correct and straightforward application of those exemptions and of preventing any possible evasion, avoidance or abuse.
CHAPTER 2
Exemptions for certain activities in the public interest
Article 132
1. Member States shall exempt the following transactions:
…
(i) the provision of children's or young people's education, school or university education, vocational training or retraining, including the supply of services and of goods closely related thereto, by bodies governed by public law having such as their aim or by other organisations recognised by the Member State concerned as having similar objects; …
Domestic legislation
As the PVD is a directive, the UK was bound to implement it by national law. The supply of education by a college of a university is exempt from VAT under item 1(a) of Group 6 in Schedule 9 to the Value Added Tax Act 1994 (" VATA"), when read with Note (1)(b). So far as material, Group 6 of Schedule 9 provides as follows:
Item No.
1. The provision by an eligible body of —
(a) education
…
Notes:
(1) For the purposes of this Group an "eligible body" is —
….
(b) a United Kingdom university, and any college, institution, school or hall of such a university;
CJEU: development of its case law in its new decision
The relevant decision of the CJEU is Case C-319/12 Minister Finansow v MDDP sp z oo Akademia Biznesu, sp komandytowa [2014] STC 699 (" MDDP"). Polish law gave a general exemption from all supplies of education. This case concerned a reference from the Supreme Administrative Court of Poland for a preliminary ruling on the questions (1) whether a commercial body (which did not wish to benefit from the education exemption) was required to be excluded from the education exemption if it was profit-making and (2) whether it could still deduct input tax if the exemption was non-EU law compliant. Question (2) is not relevant to this appeal. Question (1) is, however, relevant because FBT is a profit-making enterprise.
Any exemption had to be construed strictly. It had also to comply with the doctrine of neutrality: [25].
The purpose of the exemption was to facilitate access to educational services: [26].
A profit-making enterprise could still meet the conditions for the exemption, unless the member state had chosen to use the option in Article 133 to exclude profit-making entities: [27]—[29].
The PVD did not permit member state to give a general exemption for all supplies of educational services without regard to the objects pursued by the non-public organisation providing the service: [35],[39]. To qualify for the exemption, the body in question needed to be recognised by the member state as a body having objects which were similar to those of a body governed by public law having such as their aim (see Article 132.1(i)): [35]. (The word "such" refers back to "the provision of children's or young people's education, school or university education, vocational training or retraining, including the supply of services and of goods closely related thereto"). I will call this "the PVD supplier condition".
Each member state had to lay down conditions for this purpose, to the extent that the conditions were not specified in Article 133.1(i). However, member states had a discretion as to what those conditions were (citing C—498/03 Kingscrest Associates Ltd v HMRC [2005] STC 1547 at [49] and [51], and C-174/11 Steglitz v Zimmerman at [26]): [37].
National courts had to determine whether national law imposed EU law-compliant conditions ( Kingscrest at [52]). The conditions had to comply with EU law principles, including the principle of fiscal neutrality: [38]. The national courts have to compare the activities of the person whose entitlement to the exemption is in issue with those of bodies who (1) are of the member state, (2) are governed by its public law and (3) provide educational services (see [54]).
Direct effect — common ground
This much is common ground: if the defective implementation of the education exemption in the PVD resulted in FBT being improperly denied the exemption, FBT had an EU law right to the exemption which was directly enforceable against the UK state under the EU law doctrine of direct effect. Ms Hall cited authority on direct effect — C-453/02 and C-462/02 Finsmzamt Gladbeck v Linneweber [2008] STC 1069— but I need not go to it as direct effect is not in issue.
The EU law issues have been raised only in this Court. However, as an appellate court, this Court is not concerned with any fact-finding unless a party successfully applies to put in further evidence. FBT attempted on this appeal to refer to further factual material as to the way in which HMRC applies the education exemption, though it was not clear to what issue on this appeal that evidence went. This Court is only concerned with whether FBT should have the exemption. FBT did not make any application to adduce fresh evidence and ultimately accepted that it did not need to refer to any further factual matter.
First-tier and Upper Tribunal decisions still relevant on factual points
Despite the change of direction in this case after MDDP, the findings of fact made by the Tribunals remain relevant to resolving this appeal. What follows is a summary of the presently relevant parts of the decisions.
The University of Wales had accredited FBT as a provider of education to a sufficient standard to prepare and examine candidates for its degrees. The First-tier Tribunal held that FBT provided a university education. However the FTT went on to hold that, to fall within Note 1(b) (paragraph 3 above), FBT had in essence to show that it was an integrated part of the University. It could not do that. The provision of university education was only a minor part of FBT's activities. Both the First-tier and Upper Tribunals applied the law as laid down in HMRC v School of Finance and Management (London) Ltd [2001] STC 1690. In that case, Burton J held that the tribunal was entitled to consider some other factors referred to below as the " SFM factors". The factors collectively enable the tribunal or court to ascertain whether the body which claims exemption as a "college or hall" of a university is sufficiently integrated with the university to meet that description for the purposes of Note 1(b).
The First-tier Tribunal made three important points in particular. The first related to the degree of permanence of the link between FBT and the University of Wales. It found that the parties had a commercial arrangement which was in essence quite short-term. The second was the nature of the link between FBT and the University of Wales. The link was held out to students as being one of partnership. FBT considered the Masters course to be "our MBA". The First-tier Tribunal concluded that it was not consistent with being a college or hall of a university that the parties were working in partnership. Third, FBT had other activities which did not involve the University of Wales. Those activities did not negate integration. However it was the primary purpose of FBT's activities and they were not part of university education (FTT, Judgment, para 49). In summary, the First-tier Tribunal concluded that the relationship was not close enough.
In the Upper Tribunal, Morgan J pointed out that there was...
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