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VAT blow for cultural charities and public bodies

Sharon Parker

The European Court of Justice (ECJ) has finally crushed hopes that more public bodies and charities engaged in cultural activities could claim VAT exemption on their admission charges. Its recent judgment in the VAT case of the British Film Institute (BFI), released in February, draws a line under an argument that has been running for the last four years.

The case concerned the scope of the VAT cultural exemption and whether it could be deemed to include admission to films shown by the BFI. It also had much wider reaching implications, considering whether the EU legislation could be taken to have direct effect: firstly in the absence of any domestic implementing provisions; and secondly where there were differences between the construction of the domestic and overarching EU law.

EU and UK law

The EU VAT Directive says that member states can exempt ‘certain cultural services and goods’ supplied by bodies governed by public law or by other public bodies recognised by the member state concerned. This cultural exemption was implemented in UK law in June 1996. The UK legislation exempted the supply by a public or eligible body of a right of admission to specified cultural activities (such as a museum or gallery or a theatrical performance) – but did not mention film screenings.

BFI case

In 2009 the BFI, a non-profit-making body with the aim of promoting cinema in the UK, submitted a claim for a repayment of VAT it had charged on rights of admission to film showings between 1 January 1990 and 31 May 1996. It claimed that those rights of admission constituted exempt cultural services, as construed in the EU VAT Directive.

The BFI argued that, in the absence of the exemption in domestic legislation, it should be able to rely on the EU Directive as having direct effect. It also challenged the UK law’s narrower scope of the cultural exemption. On both issues, the First Tier and Upper Tribunals found in favour of the BFI. When HMRC appealed the decisions, the Court of Appeal referred the issues to the ECJ for further clarification.

The ECJ found in favour of HMRC on both matters. It concluded that the absence of mirroring provisions in the domestic legislation did not mean the EU Directive had direct effect. Neither did differences in the wording and scope of the UK legislation. On this second point, the ECJ interpreted the term ‘certain’ used in the EU Directive to mean that it was at the discretion of member states to determine which cultural services should benefit from the exemption i.e. they could exempt certain cultural services while subjecting others to VAT. It is then up to the national court to decide whether the exclusion of certain cultural services from the exemption complies with the principle of fiscal neutrality. 

A blow to charities and public bodies

If the ECJ judgment had reflected the rulings of the UK courts and found in favour of the BFI, the implications would have been far reaching in terms of the scope of the cultural exemption in general.  It would have paved the way for public bodies and charities to apply the VAT exemption to activities not specifically falling within the scope of the cultural exemption as construed in the UK legislation. This outcome is therefore a blow for public bodies and charities engaged in activities of a cultural nature.

For further information please contact the VAT team.