The document summarizes three court rulings: 1. The Court of Justice overturned the Advocate General's opinion in the Brockenhurst College VAT case, ruling that supplies made by the college to third parties could be considered closely related to the principal education supply. 2. The Supreme Court unanimously ruled against Investment Trust Companies in their restitution claim against HMRC for VAT wrongly paid, finding they had no direct relationship with HMRC. 3. The Advocate General issued an opinion in an input VAT recovery case, arguing that a Bulgarian developer could not reclaim VAT on works to upgrade a water pumping station as there was no link to its taxable business activities.

1. © 2017 Grant Thornton UK LLP. All rights reserved.
ITU
Summary
It’s not often that the Court of
Justice ignores the opinion of
one of its Advocate Generals. It
is more common for the full
court to agree with the AG but,
in the case of Brockenhurst
College, a case relating to
whether supplies of services to
third party customers were
closely related to the principal
supply of education made to
students, the court has overruled
the AG.
The Supreme Court has also
issued a unanimous judgment
relating to claims made by a
group of Investment Trust
Companies (ITC’s). The ITC’s
claimed VAT wrongly paid to
fund managers directly from
HMRC. The Court has ruled that
the ITC’s do not have a valid
claim against HMRC.
The AG has also issued an
opinion in a Bulgarian referral to
the court in connection with the
recovery of input tax.
05 May 2017
Court of Justice
The Brockenhurst College VAT case concerns whether supplies of catering and
entertainment services made to third party customers in return for a fee are to be
regarded for VAT purposes as being ‘closely related’ to the principal supply of
education being made to students of the College. The College is a further
education corporation which provides education services to students. The
curriculum includes courses relating to catering and hospitality and to performing
arts. In order to give students studying these courses practical hands-on
experience, the college operates a training restaurant and also puts on concerts and
other performances to which members of the public are invited. To make the
experience as real as possible, the College makes a charge to the customers. The
College asserts that, although the supply of these catering and entertainment
services are made to third party customers, they are, nonetheless, services that are
closely related to the supply of education that it makes to the students.
In her earlier opinion, Advocate General Kokott disagreed with the College. She
considered that a supply to a third party could not be a supply that was closely
related to the supply of education. In light of that opinion, it was expected that the
full Court would simply follow the guidance of the AG. However, the Court has,
in effect, ignored the AG’s opinion in this case and has ruled that, in the
circumstances the supplies in question can be regarded as closely related provided
that certain conditions are met. First, the supplies must be a necessary part of the
students education (here, the Court was satisfied that the practical experience
gained by the students was a necessary part of their course). Second, the College’s
aim in providing the courses should not be to generate additional income. (Again,
the Court seemed satisfied that the charges made to the public were at a
reasonable level and that profit was not the motive for making a charge to the
customers).
The Court concluded that whether or not the above conditions are met is a matter
for the national courts but, assuming they were met, the supplies were to be
regarded as closely related to the principal supply of education and should be
exempt from VAT.
Comment – Further education colleges and similar establishments will be
relieved that the Court has overturned what was thought by many to be a
quite reasoned and reasonable opinion from the AG. Colleges that have
claims stood behind Brockenhurst’s appeal should now see their claims
paid in full. Any college that has yet to submit a claim should now do so
albeit the claim period will be restricted to the last four years.
Issue09/2017
CJEU overturns Advocate General in
Brockenhurst College VAT case
Indirect Tax Update

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Investment Trust Companies (ITC’s)
Supreme Court
This case has a very long history. In essence, the ITC’s were all investment funds and, at the time,
they paid VAT to their respective fund managers in respect of fund management services. It
subsequently (some years later) transpired that the fund management services should, actually, have
been exempt from VAT. Following litigation in other cases, HMRC agreed to refund some of the
VAT that had been overpaid but it refused to repay the full amount on the basis that, had the
exemption been in place at the time, the fund manager would have been required to offset the VAT
overpaid by the amount of any input tax it had, as a result, overclaimed.
On this basis, the ITC’s, therefore, only received part of the VAT overpaid and decided to take a
common law case of restitution directly against HMRC. The Court’s task was to decide whether, in
the circumstances, the ITC’s were entitled to make their claim. In summary, the Court ruled
(unanimously) that the ITC’s had no direct relationship with HMRC. Their relationship was with
their supplier (the fund managers) and, as a result, under the law of unjust enrichment, the ITC’s
were not able to make a claim in restitution. If a remedy exists at all, the Court suggested that the
ITC’s may have a claim in contract against its fund manager rather than a claim in restitution directly
against HMRC.
Comment
The Court of Justice
issued a ruling (in the case
of Reemtsma) a few years
ago confirming that, in
certain circumstances,
taxpayers could claim
directly against the State
for taxes that had been
overpaid to suppliers.
A claim can still be
submitted directly against
HMRC in cases where the
supplier is now insolvent
or it is otherwise
impossible or
exceptionally difficult to
claim against the supplier.
In any other situation any
claim should be made
against the supplier.Iberdrola and input VAT
Comment
It remains to be seen
whether the full court
will follow this opinion.
If it does, then it is
likely to have a
significant impact on
developers.
In the UK, developers
will often enter into
what is known as s106
agreements with local
authorities. If the
Advocate General is
correct with her
opinion, it seems likely
that any VAT incurred
on s106 works may no
longer be recoverable
by the developer.
Court of Justice – Advocate General’s opinion
Another Advocate General’s opinion from AG Kokott. This time, the issue was whether a Bulgarian
company (Iberdrola) was entitled to reclaim VAT that it had incurred on carrying out repairs and
renovations to a water pumping station owned by the local municipality. The company was
developing a holiday park and the existing pumping station was unable to cope with the extra
demands that would be placed on it when the new holiday homes were connected to it. So, as a
condition of the planning arrangements granted by the municipality, Iberdrola agreed to renovate the
pumping station at its own cost. It sub-contracted the works to another company which charged
VAT on the supplies. Iberdrola reclaimed that VAT as input VAT but the Bulgarian tax authority
denied the claim arguing that the services provided by the sub-contractor were not used by Iberdrola
for the purpose of its business as it had made no charge to the municipality.
AG Kokott has issued her opinion and she agrees with the Bulgarian tax authority. Essentially, she
argues that there is no link between the inputs incurred and any taxable output made or to be made
by Iberdrola. She considers that the only link is with the free supply of renovation and repair works
supplied to the municipality. She distinguishes the recent case of Sveda on the basis that, in Sveda,
the taxpayer actually used the asset in question (the trail) for its own economic activity. Here, only the
municipality benefited from the repair of its pumping station. This was not part of the taxpayers
economic activity and, as such, the VAT incurred on the sub-contractor’s costs could not be
reclaimed as input VAT.
Contact
Stuart Brodie Scotland stuart.brodie@uk.gt.com (0)14 1223 0683
Karen Robb London & South East karen.robb@uk.gt.com (0)20 772 82556
Vinny
McCullagh
London & South East vinny.mccullagh@uk.gt.com (0)20 7383 5100