Wellcome Trust Ltd v Commissioners of Customs and Excise (Case C-155/94)
| Jurisdiction | UK Non-devolved |
| Judgment Date | 07 June 1994 |
| Date | 07 June 1994 |
| Court | Value Added Tax Tribunal |
VAT Tribunal
The following cases were referred to in the decision:
C & E Commrs v Apple & Pear Development Council VAT(1986) 2 BVC 200,198
C & E Commrs v CH Beazer (Holdings) plc VAT(1989) 4 BVC 121
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
Church of Scientology of California v C & E Commrs & AnorVAT(1979) 1 BVC 238
EC Commission v Netherlands (Case 235/85) [1987] ECR 1471
Haydon-Baillie VAT(LON/85/569) No. 2072; (1986) 2 BVC 208,095
National Society for the Prevention of Cruelty to ChildrenVAT(LON/92/602) No. 9325; [1993] BVC 701
Polysar Investments Netherlands BV v Inspecteur der Invoerrechten en Accijnzen, Arnhem VAT(Case C-60/90) [1993] BVC 88
Rompelman & Anor v Minister van Financiën VAT(Case 268/83) (1985) 2 BVC 200,157
RSPCA VAT(LON/90/1111) No. 6218; [1991] BVC 768
Satam SA v The Minister for the Budget (Case C-333/91) (not yet reported)
Three H Aircraft Hire v C & E Commrs VAT(1982) 1 BVC 480
Van Tiem v Staatssecretaris van Financiën VAT(Case C-186/89) [1993] BVC 52
Business - Economic activity - Reference to European Court of Justice - Charitable trust selling shares on substantial scale - Court order permitting almost unlimited investment powers - Trust not permitted to engage in trade - Global tender for shares to increase sums available for investment - Whether transactions amounted to economic activity so that input tax referable to zero-rated overseas sales deductible - Value Added Tax Act 1983, s. 2(2); Directive 77/388, the sixth VAT directive,eu-directive 77/388 article 4(2)art. 4(2).
The issue was whether the scale of the appellant's investment activities in carrying out the largest non-privatisation secondary offer ever made in the UK was so substantial that the activities amounted to "economic activities" within the meaning of eu-directive 77/388 article 4art. 4 of Directive 77/388, the sixth VAT directive, so that the appellant was entitled to claim input tax referable to zero-rated overseas supplies of shares.
The appellant ("the Trust") was a trust corporation limited by guarantee, having been appointed on 1 June 1992 to act as sole trustee of the Wellcome Trust, the objects of which were the advancement of research into human and animal medicine and the support of the history of medicine.
In 1985 the Trust, wishing to diversify its investment, obtained from the charity commissioners a scheme authorising the disposal of part of the shareholding held in the Wellcome Foundation Ltd ("the Foundation") which had been incorporated in 1924 to take over the business established as Borroughs, Wellcome and Co. The Trust exchanged its shares in the Foundation for shares in the new holding company, Wellcome plc, which was floated on the stock market in February 1986. The issue valued Wellcome plc at £1,000m and the company was included in the FTSE 100 share index. In July 1987 a court order was obtained approving a scheme giving the Trust further, almost unlimited, powers of investment. The scheme included a clause enjoining the trustees to "make all reasonable efforts to ensure that they do not at any time by reason of the exercise of (their) powers engage in a trade or jeopardise the continuity of any work to which they may have committed themselves in the implementation of the charitable purposes of the Wellcome Trust". At that time the appellant had appointed four major financial institutions to act as managers, each managing a quarter of investments.
The Trust's accounts for 1991 showed listed investments valued at £277m. Its shareholding in Wellcome plc was valued at £4,772m. Its expenditure during the year was £78m and its total income amounted to £90.2m.
In March 1992 the decision was taken to widen further the Trust's investment activities and a court order was obtained granting power to sell all but £215m shares held in Wellcome plc. The shares were offered for sale on a global basis and by 11 July 1992 when the tender period ended 288 million shares had been sold at £8 each, just under a third to persons outside the UK including 730 institutions. In the UK, 237 institutions approached the Trust asking to manage part of the funds, of which 10 were chosen. Challenging targets were set for the fund managers and the appellant invested in a wide range of mediums including options, LIFFE futures and other marketable securities as well as property.
The Trust, which was registered for tax in relation to certain of its ancillary activities, claimed to recover input tax of £297,832 which was 33.22 per cent of the total input tax incurred on expenses of the sale. This percentage was the proportion of shares sold to persons outside the European Union.
The appellant contended that it was entitled to claim the input tax because the tender sale was so substantial and complex and involved such lengthy preparation that it constituted an economic activity in itself. Alternatively, the overall activities of the Trust in respect of the remainder of the investment portfolio, which was worth £300m before the tender sale and £2.5 billion after it, constituted an economic activity of which the tender sale formed part. It was accepted that the receipt of normal dividends was not an economic activity but it was submitted that the sale of shares and securities and other transactions were. The test of "economic activities" in the sixth VAT directive was determinative of the meaning of "business" in the Value Added Tax Act 1983. There was sufficient continuity in the appellant's conduct of its business to render the appellant a taxable person. Most institutional investors were carrying on a business as was recognised by the regulations dealing with partial exemption. Not to treat the Trust as a taxable person in relation to its main activities offended against the principle of neutrality.
The commissioners contended that the activities of a private investor did not fall within the concept of a business and it was clear from the terms of a court order that the Trust was precluded from trading. The appellant was not predominantly concerned with the making of supplies, the test being an objective one, and it was not receiving consideration in the course of its investment activities. Moneys generated by the investment activities did not constitute part of the turnover of the Trust in the VAT sense.
In an interim decision, the tribunal directed that all further proceedings in the appeal be stayed pending a ruling of the European Court of Justice on whether the term "economic activities" was capable of covering substantial sales of shares to a large number of purchasers by a person who was not a dealer.
[The tribunal set out the facts summarised above and continued as follows.]
Both parties submitted useful and extensive skeleton arguments.
Mr Thornhill submitted that, having regard to their form and extent, the tender sales constituted supplies in the course of a business; he submitted secondly that the day-to-day management of the Trust's share portfolio from 14 February 1986 constituted a business and the tender sale involved supplies in the course or furtherance of that business. He said that the tender sale had sufficient substance, it was business-like and had sufficient continuity. He said that the portfolio management was that of a large scale systematic investor working to realise capital gains on a regular basis with constant switching to maximise income growth.
He said that the observations of the Advocate General in Polysar Investments Netherlands BV v Inspecteur der Invoerrechten en Accijnzen, Arnhem (Case C-60/90) [1993] BVC 88do not apply where there are recurring sales of investments. Continuing sales of investments can constitute an economic activity: it is a question of fact and degree. All systematic investors should be treated in the same way; the Trust's activities were comparable to those of a pension fund or an investment trust.
Mr Thornhill distinguished the decision of the tribunal in National Society for the Prevention of Cruelty to Children VAT(LON/92/602) No. 9325; [1993] BVC 701 on the ground that in that case the evidence did not establish that the activities went beyond those of an ordinary investor.
He submitted that the test of "economic activities" in Directive 77/388, the sixth VAT directive, is determinative of the meaning of "business" in the Value Added Tax Act 1983. Decisions of the European Court show that "economic activities" has a wide meaning. When considering the tender sales it is necessary to take account of the preparatory activities, see Rompelman & Anor v Minister van Financiën VAT(Case 268/83) (1985) 2 BVC 200,157. On that basis there was sufficient continuity.
Mrs Hall started from the premise that the activities of a private investor do not fall within the concept of business. She said that there is no UK or European authority to the contrary; the reason for this, she said, is that VAT is a tax on turnover and neither dividends nor investment profits are part of turnover. She submitted that the second sentence of eu-directive 77/388 article 4(2)art. 4(2)[of the sixth VAT directive] is explanatory of the first and that it followed that if this case is not within the second sentence it cannot be within the first.
She said that in order to succeed the Trust must show that the share sales were part of a business in the VAT sense. The terms of the court order precluded the trust from trading. The presumption is that a private investor is not engaged in an economic activity unless actually trading or supplying services for a consideration withineu-directive 77/388 article 2art. 2 as a taxable person.
In relation to his investment activities a private individual is not acting as a taxable person within eu-directive...
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