The Upper Tribunal has released its judgment in relation to HMRC's appeal from the first-tier Tribunal (FTT) in the case relating to the British Film Institute (BFI). The issue under appeal was whether the FTT had erred in law by deciding that Article 13A(1)(n) of the 6th Directive on VAT had direct effect. The consequences of that finding meant that the cultural services supplied by BFI (admission to film screenings) should have been exempt from VAT rather than taxable at the standard rate. The Upper Tribunal has agreed entirely with the FTT and has dismissed HMRC's appeal. For EU law to have direct effect, the terms of the law have to be sufficiently clear and precise. HMRC submitted that the wording of the Directive in relation to the supply of cultural services lacked such clarity and precision. The Directive provides exemption for 'certain' cultural services provided by bodies governed by public law or other cultural bodies recognised by Member States. According to HMRC, the use of the word 'certain' in the legislation provides Member State's with a discretion to exempt some cultural services but to tax others. As such, HMRC contended that by being given discretion in this way, the provision was neither clear nor precise and was, therefore, not directly effective. The Upper Tribunal dismissed these arguments and confirmed that the provision should be read as if it said 'those' cultural services rather than 'certain' cultural services. When the word 'those' is substituted, the provision is clear and precise and has direct effect. The Upper Tribunal was of the view that HMRC's interpretation of the particular provision of EU law was somewhat semantic and preferred a teleological (or purposive) approach to interpretation. According to the Judge, it is clear from the Directive that the purpose of the VAT exemption is to avoid divergences in the application of the VAT system as between one Member State and another. Moreover, if the Article is interpreted in the way suggested by Counsel for HMRC he concluded that it would inevitably lead to divergences between the tax treatment of the supplies in different Member States. HMRC's appeal was therefore dismissed. Comment – This judgment will come as a blow to HMRC as it cannot now claim that it has discretion to allow exemption for some cultural services whilst taxing others. What matters is the status of the body supplying the cultural service. Provided the body is a body governed by public law or is a similar cultural body recognised by the Member State and the service being supplied is of a cultural nature, it should qualify for VAT exemption. The judgment opens the door for other suppliers of cultural services (such as botanical gardens etc) to submit retrospective claims to reclaim overpaid VAT and interest.

1. Upper Tribunal
HMRC v British Film Institute [2014] UKUT 0370 (TCC)
The Upper Tribunal has released its judgment in relation to HMRC's appeal from the first-tier
Tribunal (FTT) in the case relating to the British Film Institute (BFI). The issue under appeal
was whether the FTT had erred in law by deciding that Article 13A(1)(n) of the 6th Directive on
VAT had direct effect. The consequences of that finding meant that the cultural services
supplied by BFI (admission to film screenings) should have been exempt from VAT rather than
taxable at the standard rate.
The Upper Tribunal has agreed entirely with the FTT and has dismissed HMRC's appeal. For
EU law to have direct effect, the terms of the law have to be sufficiently clear and precise.
HMRC submitted that the wording of the Directive in relation to the supply of cultural services
lacked such clarity and precision. The Directive provides exemption for 'certain' cultural
services provided by bodies governed by public law or other cultural bodies recognised by
Member States. According to HMRC, the use of the word 'certain' in the legislation provides
Member State's with a discretion to exempt some cultural services but to tax others. As such,
HMRC contended that by being given discretion in this way, the provision was neither clear nor
precise and was, therefore, not directly effective. The Upper Tribunal dismissed these
arguments and confirmed that the provision should be read as if it said 'those' cultural services
rather than 'certain' cultural services. When the word 'those' is substituted, the provision is clear
and precise and has direct effect. The Upper Tribunal was of the view that HMRC's
interpretation of the particular provision of EU law was somewhat semantic and preferred a
teleological (or purposive) approach to interpretation. According to the Judge, it is clear from
the Directive that the purpose of the VAT exemption is to avoid divergences in the application
of the VAT system as between one Member State and another. Moreover, if the Article is
interpreted in the way suggested by Counsel for HMRC he concluded that it would inevitably
lead to divergences between the tax treatment of the supplies in different Member States.
HMRC's appeal was therefore dismissed.
Comment – This judgment will come as a blow to HMRC as it cannot now claim that it has
discretion to allow exemption for some cultural services whilst taxing others. What matters is
the status of the body supplying the cultural service. Provided the body is a body governed by
public law or is a similar cultural body recognised by the Member State and the service being
supplied is of a cultural nature, it should qualify for VAT exemption. The judgment opens the
door for other suppliers of cultural services (such as botanical gardens etc) to submit
retrospective claims to reclaim overpaid VAT and interest.
For further information in
relation to any of the
issues highlighted in this
Case Alert please contact:
The Regions
Stuart Brodie
stuart.brodie@uk.gt.com
London/South East
Karen Robb
karen.robb@uk.gt.com
The Midlands
Mike Sheppard
mike.sheppard@uk.gt.com
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