In Bournemouth Symphony Orchestra v Commissioners of Customs and Excise
| Jurisdiction | England & Wales |
| Judge | Lord Justice Chadwick,Lord Justice May,Lord Justice Lloyd |
| Judgment Date | 09 October 2006 |
| Neutral Citation | [2006] EWCA Civ 1281 |
| Docket Number | Case No: C3/2005/1681 CH/2004/APP/0810 and CH/2005/APP/0488 |
| Court | Court of Appeal (Civil Division) |
| Date | 09 October 2006 |
[2006] EWCA Civ 1281
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Chadwick
Lord Justice May and
Lord Justice Lloyd
Case No: C3/2005/1681
C3/2006/0369
CH/2004/APP/0810 and CH/2005/APP/0488
Mr Paul Lasok QC (instructed by Deloitte & Touche LLP, 180 Strand, London WC2R 1BL)
For Bournemouth Symphony Orchestra
Mr Nicholas Paines QC and Miss Valentina Sloane (instructed by Solicitor for H M Revenue & Customs, Somerset House, Strand, London WC2C 1LB) for H M Revenue & Customs
Mr Robert Englehart QC and Miss Arparna Nathan (instructed by Needham & James, Compton House, Moreton-in-Marsh, GL56 0AX) for Longborough Festival Opera
This appeal, in proceedings between Bournemouth Symphony Orchestra ("the BSO") and the Commissioners for H M Revenue & Customs (formerly the Commissioners of Customs & Excise) , and the application for permission to appeal in proceedings between Longborough Festival Opera ("the LFO") and the Commissioners have been heard together. The issue in each case was whether the BSO or the LFO (as the case may be) was an eligible body for the purposes of item 2 in group 13 of schedule 9 to the Value Added Tax Act 1994 (" VATA 1994") .
Section 31(1) VATA 1994 provides that a supply of services is an exempt supply (for the purposes of sections 4(2) and 31 of that Act) if it is of a description for the time being specified in schedule 9. Group 13 (Cultural Services etc) in schedule 9 VATA 1994 includes, at item 2: "The supply by an eligible body of a right of admission to—(b) a theatrical, musical or choreographic performance of a cultural nature". An "eligible body", in that context, is any body (other than a public body) which satisfies the three requirements set out in note (2) to group 13. The third of those requirements is that the body is managed and administered on a voluntary basis by persons who have no direct or indirect financial interest in its activities.
We indicated at the conclusion of oral submissions that we would refuse the Commissioners' application for permission to appeal in the LFO case for reasons which would be given in judgments which we would hand down. This judgment sets out the reasons which led me to the view that permission to appeal in the LFO case should be refused. It contains, also, the reasons why I would dismiss the appeal in the BSO case.
The cultural services exemption
Group 13 was introduced into schedule 9 VATA 1994 by an amendment effected by the VAT (Cultural Services Order) 1996 ( SI 1996/1256) . It gives effect to paragraph (n) of article 13A.1 of Council Directive (EEC) 77/388 on the harmonisation of the laws of Member States relating to turnover taxes ("the Sixth Directive") . Article 13A.1 provides that a Member State shall exempt from the charge to value added tax the supply of "(n) certain cultural services and goods closely linked thereto supplied by bodies governed by public law or by other cultural bodies recognised by the Member State concerned". But the obligation to exempt is subject to article 13A.2 which is in these terms, so far as material:
"13A.2(a) Member States may make the granting to bodies other than those governed by public law of each exemption provided for in 1(b) , (g) , (h) , (i) , (l) , (m) and (n) of this Article subject in each individual case to one or more of the following conditions:
- they shall not systematically aim to make a profit, but any profits nevertheless arising shall not be distributed, but shall be assigned to the continuance or improvement of the services supplied,
- they shall be managed and administered on an essentially voluntary basis by persons who have no direct or indirect interest, either themselves or through intermediaries, in the results of the activities concerned,
- they shall charge prices approved by the public authorities . . . or . . . prices lower than those charged for similar services by commercial services subject to value added tax,
- exemption of the services concerned shall not be likely to create distortions of competition such as to place at a disadvantage commercial organisations liable to value added tax."
Schedule 9 VATA 1994 is to be interpreted in accordance with the notes which it includes – section 96(9) . Note (2) to group 13 was clearly intended to subject the exemption conferred by item 2 in that group to the conditions allowed by both the first indent (as to part) and the second indent under article 13A.2(a) of the Sixth Directive. The note is in these terms:
"(2) For the purposes of item 2 "eligible body" means any body (other than a public body) which –
(a) is precluded from distributing, and does not distribute, any profit it makes;
(b) applies any profits made from supplies of a description falling within item 2 to the continuance or improvement of the facilities made available by means of the supplies; and
(c) is managed and administered on a voluntary basis by persons who have no direct or indirect financial interest in its activities."
In that context "public body" has the meaning given by note (1) . It may be noted that paragraphs (a) and (b) of note (2) do not give effect to the whole of the condition described in the first indent: there is no requirement that an eligible body shall not "systematically aim to make a profit". Nor does note (2) incorporate the third or the fourth indents of article 13A.2(a) .
It is common ground that, in order to ascertain the scope and effect of the requirement imposed by the domestic legislation, the correct approach is to construe the words of the directive in the Community law context in which they appear – see the observations of Sir Andrew Morritt, Vice-Chancellor, in Commissioners for Customs & Excise v BAA plc [2003] STC 35. It is pertinent to have in mind that article 13A.2(a) of the Sixth Directive provides Member States with the power to make the grant of the cultural services exemption "subject in each individual case to one or more of the . . . conditions" set out in the four indents which follow. As I have said the United Kingdom has, in fact, chosen to impose the conditions allowed by the first indent (as to part) and by the second indent; but it might have chosen to impose the condition allowed by the second indent and not that allowed by the first indent. The correct approach, as it seems to me, is to interpret the condition allowed by the second indent on the basis that it is intended to be independent of (and not merely ancillary to) that allowed by the first indent.
The European Court of Justice considered the cultural services exemption – and, in particular, the first and second indents under article 13A.2(a) of the Sixth Directive – on a reference from the High Court in Case C-267/00 Commissioners of Customs and Excise v Zoological Society of London, [2002] ECR I-3353, [2002] STC 521 ("the London Zoo case"). The underlying facts in the London Zoo case are set out at paragraphs 11 and 12 of the opinion of Advocate General Jacobs:
"11 The Society comprises some 4,000 individual members who elect a president, secretary, treasurer and council. None of the officers or members of the Society or of its council receives any remuneration from, or has any financial interest in, the Society. Members of the council, including the officers, may receive only reimbursement of proper expenses. The council is the governing body of the Society, with general responsibility for management, control and administration of its revenue, property and affairs. It meets six times a year to deal with business, and has also appointed seven management boards or committees with responsibility for supervising specific aspects of that business; they meet between four and eight times a year and their members are again unpaid but receive reimbursement of expenses in the same way as council members.
12 In addition, the Society employs several hundred staff, including a director general and four directors, who must not be members but to whom it may pay 'reasonable and proper' remuneration. The director general and directors are involved with the Society's activities in accordance with their areas of responsibility, and attend meetings of the council and the management boards and committees as appropriate but are not members thereof. There is a finance director, a personnel director and one director for each of the Society's two zoos, the latter being responsible for the day-to-day operation of the zoos."
The question referred sought guidance as to how the words in the second indent under article 13A.2(a) were to be interpreted in relation to those facts; and, in particular, (a) what were the criteria for determining by whom a body is managed and administered for the purposes of that provision and (b) what were the criteria for determining whether management and administration of a body is conducted on an essentially voluntary basis.
At paragraphs 17 to 19 of his opinion the Advocate General discussed the proper approach to the interpretation of exemptions and limitations on exemptions. He observed that both must be interpreted "in such a way that the exemption applies to that to which it was intended to apply and no more". It was appropriate to consider "the purpose of the relevant provisions in their context". At paragraphs 20 to 26 he considered the purpose of...
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