Revenue and Customs Commissioners v Open University
| Jurisdiction | England & Wales |
| Judge | Sir Terence Etherton,Lord Justice Lewison |
| Judgment Date | 02 March 2016 |
| Neutral Citation | [2016] EWCA Civ 114 |
| Docket Number | Case No: A3/2015/2905 |
| Court | Court of Appeal (Civil Division) |
[2016] EWCA Civ 114
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM UPPER TRIBUNAL
MR JUSTICE HENDERSON
Royal Courts of Justice
Strand, London, WC2A 2LL
THE CHANCELLOR OF THE HIGH COURT
Lord Justice Lewison
and
SENIOR PRESIDENT
Case No: A3/2015/2905
Mr Peter Mantle (instructed by the Solicitor for HM Revenue & Customs) for the Appellant
Mr Paul Lasok QC (instructed by KPMG LLP) for the Respondent
Hearing dates: 2nd and 3rd February 2016
The Chancellor ( Sir Terence Etherton):
This appeal arises out of a claim under section 80 of the Value Added Tax Act 1994 ("the VAT Act 1994") by the British Broadcasting Corporation ("the BBC") for the repayment of VAT on supplies of services to the Open University ("the OU") during the period 1 January 1978 to 31 July 1994 (other than the VAT period ending 30 September 1981) on the ground that the supplies were exempt under Article 13A(1)(i) of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of member states related to turnover taxes – Common system of value added tax: uniform basis of assessment ("the Sixth VAT Directive") as supplies of education or training. The services consisted of the production and broadcasting of television and radio programmes relating to OU courses. The claim is for approximately £21 million, excluding interest.
The claim was refused by the Commissioners for Her Majesty's Revenue and Customs ("HMRC"). The OU appealed that refusal as the recipient of the supplies made by the BBC. The BBC has agreed to pay the OU any amount it receives by way of repayment from HMRC.
Judge Greg Sinfield, sitting in the Tax Chamber of the First-tier Tribunal ("the FTT"), allowed the OU's appeal by his decision released on 3 June 2013. Mr Justice Henderson, sitting in the Upper Tribunal (Tax and Chancery Chamber) ("the UT"), dismissed HMRC's appeal from the FTT by his decision released on 21 May 2015.
During the relevant period Article 13A(1)(i) of the Sixth VAT Directive ("Article 13A(1)(i)") provided as follows
"Article 13
Exemptions within the territory of the country
A. Exemptions for certain activities in the public interest
1. Without prejudice to other Community provisions, Member States shall exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of such exemptions and of preventing any possible evasion, avoidance or abuse: …
(i) 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, provided by bodies governed by public law having such as their aim or by other organizations defined by the Member State concerned as having similar objects; …"
Article 4(5) of the Sixth VAT Directive ("Article 4(5)") is also relevant and provided as follows during the relevant period:
"States, regional and local government authorities and other bodies governed by public law shall not be considered taxable persons in respect of the activities or transactions in which they engage as public authorities, even where they collect dues, fees, contributions or payments in connection with these activities or transactions.
However, when they engage in such activities or transactions, they shall be considered taxable persons in respect of these activities or transactions where treatment as non-taxable persons would lead to significant distortions of competition.
Member States may consider activities of these bodies which are exempt under Article 13 … as activities which they engage in as public authorities."
Article 13A(1)(i) and Article 4(5) have subsequently been re-cast as Article 132(1)(i) and Article 13(1) respectively of EC Council Directive 2006/112 EC of 28 November 2006 on the common system of value added tax ("the 2006 Directive").
Article 13A(1)(i) was implemented in the UK during the relevant period initially by Group 6 of schedule 5 to the Finance Act 1972 and then, from 26 October 1983, by Group 6 of schedule 6 to the Value Added Tax Act 1983 ("the VAT Act 1983").
It is common ground that prior to 1 August 1994, that is to say during the entirety of the relevant period, the UK legislation failed to implement Article 13A(1)(i) correctly, in that it only exempted "closely related" supplies if they were made by the same person who supplied that education. It is common ground that, in that respect, Article 13A(1)(i) had direct effect in the UK during the relevant period in view of the failure properly to implement the Sixth VAT Directive in domestic legislation.
The provisions of the VAT Act 1994 implementing Article 13A(1)(i) were in different terms to the predecessor legislation. In 1997 HMRC accepted that under the revised wording the services supplied by the BBC to the OU were exempt pursuant to item 4 of Group 6 of schedule 9 to the VAT Act 1994 as from 1 August 1994 even though there had been no change in the factual circumstances concerning the BBC's supply of education and training.
The following general principles applicable to the interpretation of Article 13A(1)(i) are also common ground. The exemption in Article 13A(1)(i), like all exemptions in the Sixth VAT Directive, is an autonomous concept of Community law. It is to be interpreted strictly since it constitutes an exception to the general principle that VAT is to be levied on all services supplied for consideration by a taxable person. Its interpretation must nevertheless be consistent with the objectives pursued by the exemption and must comply with the requirement of fiscal neutrality inherent in the common system of VAT. Accordingly, the requirement of strict interpretation does not mean that the terms used in Article 13A(1)(i) should be interpreted in such a way as to deprive the exemption of its intended effect. Those principles were stated by the Court of Justice of the European Communities (later the Court of Justice of the European Union, together "the "ECJ") in Case C-434/05 Stichting Regionaal Opleidingen Centrum Noord-Kennemerland/West-Friesland (Horizon College) v Staatssecretaris van Financiën [2008] STC 2145 at paragraphs 15 and 16: see also Case C-319/12 Minister Finansów v MDDP sp z oo Akademia Biznesu, sp komandytowa [2014] STC 699 at para. 25.
A strict interpretation in this context does not mean a restricted interpretation. In Insurancewide.Com Services Ltd v HMRC [2010] EWCA Civ 422, [2010] STC 1572 at [83] the Court of appeal approved the following statement of Chadwick LJ in Expert Witness Institute v Customs and Excise Commissioners [2001] EWCA Civ 1882, [2002] STC 42 at [17]:
"A 'strict' construction is not to be equated, in this context, with a restricted construction. The court must recognise that it is for a supplier, whose supplies would otherwise be taxable, to establish that it comes within the exemption, so that if the court is left in doubt whether a fair interpretation of the words of the exemption covers the supplies in question, the claim to the exemption must be rejected. But the court is not required to reject a claim which does come within a fair interpretation of the words of the exemption because there is another, more restricted, meaning of the words which would exclude the supplies in question."
The issues
The issues between the parties are whether, for the purposes of Article 13A(1)(i), during the relevant period: (1) the BBC was a "body governed by public law"; and if so (2) it had the requisite educational aim; and if not satisfying both those conditions, nevertheless (3) the BBC was "defined" by the UK as having "similar objects", and, if it was not so "defined" but did have "similar objects", it can still claim the direct benefit of the Article 13A(1)(i) exemption.
HMRC has always accepted that the OU had the university educational aim required by Article 13A(1)(i) and that the services supplied by the BBC to OU during the relevant period were closely related to the university education provided by the OU.
The factual background
The FTT recorded (in para. 16 of its decision) that there was no real dispute between the parties as to the facts, only as to the interpretation to be placed on those facts.
Witness statements were produced on behalf of the OU by Mr Andrew Law, the director of the "Open Media Unit" of the OU and a former BBC employee, Mr Colin Robinson, a former BBC employee in the BBC's Open University Production Centre ("the OUPC"), and Sir David Attenborough, who was employed by the BBC in various roles since 1952, including as a producer, the controller of BBC 2 and the director of television programmes. The witness statements of Mr Law and Mr Robinson stood as their evidence in chief and they were cross-examined. The witness statement of Sir David Attenborough was admitted.
I gratefully take the following facts from the clear and helpful factual account of the FTT.
The BBC was first established as a limited company in 1922. John Reith, who subsequently became Lord Reith, was the first General Manager (later called the Director General) of the BBC. On 31 December 1926 the company was dissolved and its assets were transferred to the BBC constituted under a royal charter dated 20 December 1926. The BBC continued in existence by virtue of a succession of royal charters.
Lord Reith stated that the BBC's purpose and duty was...
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