Institute of Chartered Accountants in England and Wales v Commissioners of Customs and Excise
| Jurisdiction | UK Non-devolved |
| Judgment Date | 13 February 1996 |
| Date | 13 February 1996 |
| Court | Value Added Tax Tribunal |
VAT Tribunal
Queen's Bench Division (Crown Office List).
Tuckey J.
Andrew Thornhill QC and Rupert Baldry (instructed by Denton Hall, Milton Keynes) for the Institute.
Kenneth Parker QC (instructed by the Solicitor for Customs and Excise) for the Crown.
The following cases were referred to in the judgment:
Ayuntamiento de Sevilla v Recaudadores de las Zonas Primera y Segunda VAT(Case C-202/90) [1993] BVC 186
Becker v Finanzamt Münster-Innenstadt (Case 8/81) [1982] ECR 53
C & E Commrs v Apple and Pear Development Council VAT(1986) 2 BVC 200,198
C & E Commrs v Lord Fisher VAT(1981) 1 BVC 392
C & E Commrs v Morrison's Academy Boarding Houses Association VAT(1977) 1 BVC 108
EC Commission v Netherlands (Case 235/85) [1987] ECR 1471
Duke v GEC Reliance Ltd ELR[1988] AC 618
Foster v British Gas plc (Case C-188/89) [1990] ECR I-3313; [1990] 2 CEC 598
National Water Council v C & E Commrs VAT(1978) 1 BVC 199
Polysar Investments Netherlands BV v Inspecteur der Invoerrechten en Accijnzen, Arnhem VAT(Case C-60/90) [1993] BVC 88
SAT Fluggesellschaft mbH v European Organisation for the Safety of Air Navigation (Eurocontrol) (Case C-364/92) [1994] ECR I-43; [1994] 1 CEC 541
Srl CILFIT v Italian Ministry of Health (Case 283/81) [1982] ECR 3415
Van Tiem v Staatssecretaris van Financiën VAT(Case C-186/89) [1990] ECR I-4363; [1993] BVC 52
Value added tax - Business or economic activity - Delegated regulatory powers - Licensing of investment, auditing and insolvency practitioners - Fees charged to members of Institute to cover cost of issuing licences - Whether supplies made in the course of a business - Whether economic activity -Value Added Tax Act 1994 section 4 subsec-or-para (1)Value Added Tax Act 1994, s. 4(1) - Sixth VAT Directive 77/388 of 17 May 1977 (OJ 1977 L145/1), eu-directive 77/388 article 4(1) article 4(2)art. 4(1) and (2).
This was an appeal by the chartered accountants' regulatory body ("the Institute") from a decision of the tribunal (chairman Stephen Oliver QC) ((LON/94/705) No. 13,294; [1996] BVC 2308) that in carrying out its regulatory functions it was not acting in the course of a business or an economic activity within the Value Added Tax Act 1994 section 4 subsec-or-para (1)Value Added Tax Act 1994, s. 4(1) or the sixth VAT directive, eu-directive 77/388 article 4(1) article 4(2)art. 4(1) and (2).
The Institute was a VAT registered body for the purposes of its main activities. It was also a regulatory body in respect of its members in the fields of investment, auditing and insolvency. In the investment field it was recognised under the statutory framework of the Financial Services Act 1986 and the Securities and Investment Board as competent to issue certificates to its members and their firms to enable them to carry on investment business. The Institute was authorised by the Secretary of State under the Companies Act 1989 to appoint a registration committee with responsibility for granting and withdrawing registration of members acting as company auditors. It was also a professional body recognised by the Secretary of State under the Insolvency Act 1986 to regulate the functions and qualifications of insolvency practitioners. For all those functions the Institute charged fees on a break even basis to cover its costs.
Customs ruled that, although fees were charged in respect of its licensing functions in each field of activity, nevertheless the Institute's regulatory functions were not supplies made in the course or furtherance of a business for the purposes of theValue Added Tax Act 1994 section 4 subsec-or-para (1)Value Added Tax Act 1994, s. 4(1).
The Institute contended that as long as an activity was connected to economic life, the fact that services were supplied for a fee was enough to bring the supply within the scope of a taxable person defined byeu-directive 77/388 article 4art. 4 of the sixth directive as a person carrying out an "economic activity". In the interests of neutrality "economic activity" had to be given a very wide meaning; it would involve a regular supply of services for payment; and it did not matter that the activities concerned were regulated by law or were performed by order of a public authority. The activity had only to be connected with economic life.
Customs contended that the licensing function constituted the regulation of economic activity but was not itself an economic activity.
Held, dismissing the Institute's appeal:
Both under eu-directive 77/388 article 4(1) article (2)art. 4(1) and (2) and the 1994 Act, the real nature of the activities were identified as licensing activities, essentially regulatory, which despite the fact that they were carried out regularly and for consideration, did not cross the line between "economic activities" in the wide sense and other activities. The true nature of the licensing activities were regulatory.
Under statutory schemes for self-regulation the Institute of Chartered Accountants ("the Institute") is authorised to license its members to carry on investment business, to act as company auditors and to act as insolvency practitioners. The question on this appeal is whether these regulatory functions are "economic activity" within the meaning of the Sixth VAT Directive (77/388) and/or are carried out "in the course or furtherance of any business" within the meaning the Value Added Tax Act 1994. Customs and the VAT tribunal (chaired by Stephen Oliver QC) ([1996] BVC 2308) decided they are not. The Institute's contention is that they are, with the result that the fees they charge for licensing should bear VAT against which they can set the VAT they pay on supplies to them.
In their decision the tribunal set out the statutory provisions establishing the three self-regulatory schemes in some detail. I need only outline their provisions since both parties to the appeal agree the tribunal's summary of the activities relevant to the issue.
Regulation of investment business is effected by the Financial Services Act 1986. No person may carry on such business unless he is authorised by a recognised professional body. The Institute is such a body by order of the SIB, to whom the Secretary of State's function has been delegated. In obtaining such recognition the SIB approved the Institute's Capital Investment Business Regulations, which contain detailed provisions for granting or refusing applications for authorisation, renewing authorisations, governing and monitoring the way in which investment business is conducted and disciplinary proceedings. These activities are carried out by the Institute's authorisation committee.
Eligibility to act as a company auditor is governed by Pt. II of theCompanies Act 1989. No person may so act unless he is a member of a recognised supervisory body. The Institute is such a...
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