Advocate General Hogan has delivered his opinion in Wellcome Trust Ltd (C-459/19), setting out his view that a “taxable person” who receives services exclusively for the purposes of non-economic activities will nevertheless be treated as a “taxable person” for the purpose of determining the place of supply of those services (for VAT purposes).
Article 2(1)(c) of the Principal VAT Directive (2006/112/EC, the “Directive”) provides that the supply of services for consideration within the EU by a taxable person, acting as such, is subject to VAT.
Prior to 1 January 2010, Article 43 of the Directive (as it was then in force) deemed the place of supply of services to be the place where the supplier had established its business, irrespective of the identity or the nature of the recipient of the services.
This position was changed by Council Directive 2008/8/EC (the “Amending Directive”) which came into force on 1 January 2010. The changes introduced by the Amending Directive brought the EU place of supply rules more in line with the principle that VAT is a tax on consumption and should be charged, so far as possible, where consumption takes place.
Following the amendments, Articles 44 and 45 of the Directive set out the general rules for determining where a supply of services takes place. For a supply of services to “a taxable person acting as such”, Article 44 provides that the place of supply is generally a place associated with the taxable person. Depending the circumstances of the supply, that place could be the taxable person’s place of establishment; the place of its fixed establishment (to which the services are provided); or its permanent address or usual residence (in the absence of a place of establishment or a fixed establishment). For a supply of services to a non-taxable person, Article 45 provides that the place of supply is a place associated with the supplier.
For these purposes, a “taxable person” is “any person who independently carries out in any place any economic activity, whatever the purpose or results of that activity” (Article 9(1) of the Directive). For the purposes of determining the place of supply of services:
- pursuant to Article 43(1), a taxable person who also carries out activities or transactions that are not taxable supplies of goods or services is regarded as a taxable person in respect of all services provided to him;
- pursuant to Article 43(2), a non-taxable legal person who is identified for VAT purposes is to be regarded as a taxable person; however
- if a taxable person (or a non-taxable legal person deemed to be a taxable person) receives services exclusively for private use, including use by their staff, such a taxable person shall be regarded as a non-taxable person (Article 19 of Council Implementing Regulation (EU) No 282/2011 of 15 March 2011 laying down implementing measures for Directive 2006/112/EC on the common system of value added tax).
A taxable person (or a non-taxable legal person deemed to be a taxable person) who receives a supply of services from a supplier not established within the EU is liable for VAT on those services. In the UK, taxable supplies of services received from non-EU suppliers (that are non-exempt under local VAT rules) are subject to the reverse charge mechanism. Under the reverse charge mechanism, recipients of the taxable supply, rather than the suppliers, are responsible for accounting to HMRC for VAT on the supply received.
Wellcome Trust Ltd (“WTL”) is a UK registered charity with a large endowment portfolio, and uses investment management services to generate income from that portfolio. In relation to the majority of its investment activities, the suppliers of investment management services are established outside the EU (the “Non-EU Services”). WTL also carries out a number of, comparatively, minor activities including sales, catering and rental of properties in respect of which it is registered for VAT in the UK.
In a previous reference to the ECJ (as the CJEU was known at the time) in a case also involving WTL (C-155/94), the Court found that the investment activities carried out by WTL were not economic activities for VAT purposes, and that WTL was not “a taxable person acting as such” for the purposes of Article 2(1) of the Directive (when WTL itself engaged in those investment activities). As a consequence, WTL was denied input tax recovery on the entirety of the costs incurred on the Non-EU Services because those services were provided exclusively for the purpose of WTL’s investment activities.
Following enactment of the amendments to the place of supply rules in 2010 (see above), WTL had accounted to HMRC for output VAT on the Non-EU Services under the reverse charge mechanism on the basis that the place of supply was the UK. However, between April 2016 and June 2017, WTL submitted claims under Section 80 of the Value Added Tax Act 1994 (“VATA”) for overpaid output tax in relation to the Non-EU Services on the basis that it was not “a taxable person acting as such” within the meaning of Article 44 of the Directive in respect of the Non-EU Services it received and therefore the place of supply of those services was not the UK and no VAT was due in the UK.
The repayment claims were rejected by HMRC and WTL appealed that decision to the First-tier Tribunal (Tax Chamber) (the ”F-tT”). The F-tT allowed the appeal and found that the words “acting as such” in Article 44 of the Directive effectively excluded WTL from the place of supply rules for services received by a taxable person in respect of the Non-EU Services supplied for the purposes of its non-economic activities (i.e. the investment activities). The F-tT also found that the UK implementing legislation (s7A of VATA) was incompatible with the Directive, but could be read in conformity with the Directive if the definition of “relevant business person” excluded, in addition to persons receiving services for wholly private purposes, persons receiving services for non-economic purposes.
HMRC appealed against the F-tT’s decision to the Upper Tribunal (Tax and Chancery Chamber) (the “Upper Tribunal”). The Upper Tribunal stayed the proceedings and made a reference to the Court for a preliminary ruling on two issues:
- whether a taxable person should be regarded as “a taxable person acting as such” for the purposes of Article 44 of the Directive if that taxable person received a supply of service exclusively for the purpose of the taxable person carrying on an non-economic activity; and
- if such a taxable person was not “a taxable person acting as such” for the purposes of Article 44, whether Article 45 of the Directive (supply of service rules for non-taxable persons) applied, or neither Article 44 nor Article 45 applied.
Advocate General’s opinion
Advocate General Hogan opined that the term “acting as such” did not exclude from Article 44 of the Directive taxable persons in receipt of services for non-economic business purposes.
The Advocate General’s view was that the term “taxable person acting as such” should not be considered in isolation and needed to be considered in the particular context in which it occurred and the objective pursued by the rules of which it formed part. In particular, Advocate General Hogan opined that:
- although there was a general presumption that words and phrases as they appear in different places in a particular directive should generally have the same meaning, context should take precedence. As such, even though for the purposes of Article 2(1) WTL was not a “taxable person acting as such” in respect of its investment activities, this was not determinative of WTL’s status under Article 44 if context would indicate differently;
- Article 44 must be read in the context of the changes introduced by the Amending Directive and cannot be read separately from Article 43;
- in respect of the Amending Directive, recital 4 of the Amending Directive clarified the scope of the place of supply rules for services and confirmed there was an exception where services were received for personal use by the taxable person or its staff (but not one where services were received for non-economic activities); and
- in respect of Article 43:
- the deeming provisions in Article 43 specifically provided that, for the purposes of determining the place of supply of a service, a taxable person would be deemed as such in respect of the supply of all services supplied to it, irrespective of whether or not they would otherwise be taxable services for the purposes of Article 2(1), and that rules which applied to taxable persons would also apply to non-taxable legal persons identified for VAT;
- the inclusion of certain non-taxable activities and non-taxable persons, and the use of the term “all”, in Article 43 indicated that the place of supply rules for services should have a broad application; and
- the objective of Article 43 was to ensure that taxable persons were treated as such for the purposes of the place of supply rules even in respect of services used for activities or transactions which would not be considered taxable supplies under Article 2(1).
Further, the Advocate General did not consider that his findings gave rise to unequal treatment or compromised the principle of fiscal neutrality. Given that WTL used the Non-EU Services for a non-economic business activity, it was not comparable to a private investor. In addition, it was settled law that input VAT incurred by a taxpayer on expenditure connected with non-economic activities is not deductible (University of Cambridge (C-316/18)).
In the light of the answer given in relation to the first issue, it was not necessary for the Advocate General to deal with the second issue. He did note, however, that given that it was common ground that WTL was a taxable person, Article 45 of the Directive (which relates to the place of supply rules for services received by non-taxable persons) did not apply.