Revenue And Customs v The Open University

This appeal arises out of a claim under section 80 of the Value Added Tax Act 1994 (“the VAT Act 1994”) by the British Broadcasting Corporation (“the BBC”) for the repayment of VAT on supplies of services to the Open University (“the OU”) during the period 1 January 1978 to 31 July 1994 (other than the VAT period ending 30 September 1981) on the ground that the supplies were exempt under Article 13A(1)(i) of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of member states related to turnover taxes – Common system of value added tax: uniform basis of assessment (“the Sixth VAT Directive”) as supplies of education or training. The services consisted of the production and broadcasting of television and radio programmes relating to OU courses. The claim is for approximately £21 million, excluding interest.

The claim was refused by the Commissioners for Her Majesty’s Revenue and Customs (“HMRC”). The OU appealed that refusal as the recipient of the supplies made by the BBC. The BBC has agreed to pay the OU any amount it receives by way of repayment from HMRC.

Judge Greg Sinfield, sitting in the Tax Chamber of the First-tier Tribunal (“the FTT”), allowed the OU’s appeal by his decision released on 3 June 2013. Mr Justice Henderson, sitting in the Upper Tribunal (Tax and Chancery Chamber) (“the UT”), dismissed HMRC’s appeal from the FTT by his decision released on 21 May 2015.

HMRC appeals with the permission of the UT.

During the relevant period Article 13A(1)(i) of the Sixth VAT Directive (“Article 13A(1)(i)”) provided as follows

“Article 13

Exemptions within the territory of the country

A.

Exemptions for certain activities in the public interest

1.

Without prejudice to other Community provisions, Member States shall exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of such exemptions and of preventing any possible evasion, avoidance or abuse: ...

(i)

children's or young people's education, school or university education, vocational training or retraining, including the supply of services and of goods closely related thereto, provided by bodies governed by public law having such as their aim or by other organizations defined by the Member State concerned as having similar objects; ...”

Article 4(5) of the Sixth VAT Directive (“Article 4(5)”) is also relevant and provided as follows during the relevant period:

“States, regional and local government authorities and other bodies governed by public law shall not be considered taxable persons in respect of the activities or transactions in which they engage as public authorities, even where they collect dues, fees, contributions or payments in connection with these activities or transactions.

However, when they engage in such activities or transactions, they shall be considered taxable persons in respect of these activities or transactions where treatment as non-taxable persons would lead to significant distortions of competition.

Member States may consider activities of these bodies which are exempt under Article 13 ... as activities which they engage in as public authorities.”

Article 13A(1)(i) and Article 4(5) have subsequently been re-cast as Article 132(1)(i) and Article 13(1) respectively of EC Council Directive 2006/112 EC of 28 November 2006 on the common system of value added tax (“the 2006 Directive”).

Article 13A(1)(i) was implemented in the UK during the relevant period initially by Group 6 of schedule 5 to the Finance Act 1972 and then, from 26 October 1983, by Group 6 of schedule 6 to the Value Added Tax Act 1983 (“the VAT Act 1983”).

It is common ground that prior to 1 August 1994, that is to say during the entirety of the relevant period, the UK legislation failed to implement Article 13A(1)(i) correctly, in that it only exempted “closely related” supplies if they were made by the same person who supplied that education. It is common ground that, in that respect, Article 13A(1)(i) had direct effect in the UK during the relevant period in view of the failure properly to implement the Sixth VAT Directive in domestic legislation.

The provisions of the VAT Act 1994 implementing Article 13A(1)(i) were in different terms to the predecessor legislation. In 1997 HMRC accepted that under the revised wording the services supplied by the BBC to the OU were exempt pursuant to item 4 of Group 6 of schedule 9 to the VAT Act 1994 as from 1 August 1994 even though there had been no change in the factual circumstances concerning the BBC’s supply of education and training.

The following general principles applicable to the interpretation of Article 13A(1)(i) are also common ground. The exemption in Article 13A(1)(i), like all exemptions in the Sixth VAT Directive, is an autonomous concept of Community law. It is to be interpreted strictly since it constitutes an exception to the general principle that VAT is to be levied on all services supplied for consideration by a taxable person. Its interpretation must nevertheless be consistent with the objectives pursued by the exemption and must comply with the requirement of fiscal neutrality inherent in the common system of VAT. Accordingly, the requirement of strict interpretation does not mean that the terms used in Article 13A(1)(i) should be interpreted in such a way as to deprive the exemption of its intended effect. Those principles were stated by the Court of Justice of the European Communities (later the Court of Justice of the European Union, together “the "ECJ") in Case C-434/05 Stichting Regionaal Opleidingen Centrum Noord-Kennemerland/West-Friesland (Horizon College) v Staatssecretaris van Financiën [2008] STC 2145 at paragraphs 15 and 16: see also Case C-319/12 Minister Finansów v MDDP sp z oo Akademia Biznesu, sp komandytowa [2014] STC 699 at para. 25.

A strict interpretation in this context does not mean a restricted interpretation. In Insurancewide.Com Services Ltd v HMRC [2010] EWCA Civ 422, [2010] STC 1572 at [83] the Court of appeal approved the following statement of Chadwick LJ in Expert Witness Institute v Customs and Excise Commissioners [2001] EWCA Civ 1882, [2002] STC 42 at [17]:

"A 'strict' construction is not to be equated, in this context, with a restricted construction. The court must recognise that it is for a supplier, whose supplies would otherwise be taxable, to establish that it comes within the exemption, so that if the court is left in doubt whether a fair interpretation of the words of the exemption covers the supplies in question, the claim to the exemption must be rejected. But the court is not required to reject a claim which does come within a fair interpretation of the words of the exemption because there is another, more restricted, meaning of the words which would exclude the supplies in question."

The issues between the parties are whether, for the purposes of Article 13A(1)(i), during the relevant period: (1) the BBC was a “body governed by public law”; and if so (2) it had the requisite educational aim; and if not satisfying both those conditions, nevertheless (3) the BBC was “defined” by the UK as having “similar objects”, and, if it was not so “defined” but did have “similar objects”, it can still claim the direct benefit of the Article 13A(1)(i) exemption.

HMRC has always accepted that the OU had the university educational aim required by Article 13A(1)(i) and that the services supplied by the BBC to OU during the relevant period were closely related to the university education provided by the OU.

The FTT recorded (in para. 16 of its decision) that there was no real dispute between the parties as to the facts, only as to the interpretation to be placed on those facts.

Witness statements were produced on behalf of the OU by Mr Andrew Law, the director of the “Open Media Unit” of the OU and a former BBC employee, Mr Colin Robinson, a former BBC employee in the BBC’s Open University Production Centre (“the OUPC”), and Sir David Attenborough, who was employed by the BBC in various roles since 1952, including as a producer, the controller of BBC 2 and the director of television programmes. The witness statements of Mr Law and Mr Robinson stood as their evidence in chief and they were cross-examined. The witness statement of Sir David Attenborough was admitted.

I gratefully take the following facts from the clear and helpful factual account of the FTT.

The BBC was first established as a limited company in 1922. John Reith, who subsequently became Lord Reith, was the first General Manager (later called the Director General) of the BBC. On 31 December 1926 the company was dissolved and its assets were transferred to the BBC constituted under a royal charter dated 20 December 1926. The BBC continued in existence by virtue of a succession of royal charters.

Lord Reith stated that the BBC's purpose and duty was to educate, inform and entertain. The BBC had an education director and established an education department from its earliest days. The BBC made its first broadcast for schools in 1924. In 1927, the BBC set up an adult education department. By 1929 schools broadcasts and talks accounted for a total weekly output of about 80 hours.

In 1962 the Postmaster General granted the BBC the right to extend its broadcasting hours on television for the purpose of adult education. This led to the formation of a further education television department in the BBC which, in turn, led to the creation of specialist education departments within the BBC that produced 300 new television programmes annually.

In March 1963 a Labour Party study group under the chairmanship of Lord Taylor presented a report about the continuing exclusion from higher education of people from lower income groups. It proposed a University of the Air to deliver serious, planned, adult education by radio and television.

The fifth royal charter, which was granted to the BBC in 1964 (“the 1964 Charter”), was the one in force during the first part of the period covered by the claim.

The first of the objects of the BBC set out in Article 3 of the 1964 Charter was "to provide, as public services, broadcasting services ..."

The Prime Minister, Harold Wilson, asked Lord Goodman (the then chairman of the Arts Council of Great Britain) to consider the technical means of transmitting programmes for the University of the Air. Lord Goodman discussed how the arrangements might work with Sir Hugh Greene, the then Director General of the BBC. In a letter dated 29 March 1966 to Lord Goodman, Sir Hugh Greene stated that the BBC had assumed that:

"... the relationship between the University and the BBC would be one of close partnership between two educational bodies, recognising on the one hand the sovereign authority of the University in setting the degree requirements and the degree courses, and on the other that the BBC will make an educational as well as a technical contribution."

The letter also referred to the possible use of existing BBC adult-education programmes, which had been approved by the Further Education Advisory Council, by the proposed university for its courses.

In September 1967 the Government appointed a planning committee to work out a comprehensive plan for, what had come to be called, the OU. A report by the planning committee in 1969 indicated that the committee had already decided to contract with the BBC for all production and transmission services, at least during the early years of operation, in order to ensure a high standard of production. The report set out the planning committee's view of the nature of the relationship between the OU and the BBC as follows:

"The relationship between the University and the BBC will be one of educational partnership, based on mutual confidence. ... The basic principles behind [the partnership] are that the University has the ultimate responsibility for the academic content of course material and the manner in which this material is taught, whilst respecting the BBC's judgement and expert advice on matters relating to the preparation and presentation of the broadcasts. This advice will not be set aside for any but cogent academic reasons."

The OU opened to its first students in January 1971. The first agreement between the BBC and the OU was entered into on 16 December 1971 (“the 1971 agreement”). Schedule 1 to the 1971 agreement, stated:

"The radio and television programmes required by the University and provided by the BBC are to be planned on the basis of an educational partnership between the University and BBC staff.”

Clause 2 of the 1971 agreement imposed an obligation on the BBC to produce and broadcast programmes relating to the OU's courses. Throughout the relevant period the BBC operated the OUPC, a specific department for the production and editing of OU programming. The OUPC was located initially at the BBC studios at Alexandra Palace and then, from 1980, on the OU campus at Milton Keynes. The functions of the OUPC involved close co-operation between BBC and OU employees.

Clause 3 of the 1971 agreement provided that the BBC would be represented on the course teams. The collaboration, which took place in the OUPC, is described in the evidence of Mr Law and Mr Robinson. The course teams comprised both OU and BBC staff. They determined the means by which the course material was to be communicated to the students, that is to say whether it was by print or broadcasting or other means. All members of the course team were generally encouraged to participate. Producers were equal members of the course teams and often contributed much more to a course than just the design and production of broadcasts.

The BBC decided from the early days that it should recruit people with good academic knowledge and then train them in broadcasting techniques rather than rely on people with experience in film, television and radio with no academic background. Mr Law's evidence was that he was an academic when he joined the BBC to work at the OUPC and that was the reason that he was recruited. He said that he was trained as a producer at the BBC and at the OUPC. Mr Robinson's evidence was that the majority of producers working in the OUPC had a strong academic background.

The BBC and the OU entered into a second agreement in February 1976 which was simply a continuation of the 1971 agreement, with relatively minor modifications and amendments.

In 1981 a new royal charter was granted to the BBC (“the 1981 Charter”). The material terms were the same as, or very similar to, the 1964 Charter. The first objective was, again, to provide broadcasting services as public services.

In May 1983 the BBC and the OU entered into a third agreement (“the 1983 agreement”). The second recital stated that the BBC:

"... has assisted in the planning and development of the University and has collaborated in the design and preparation of its courses and has had a responsibility for the production, recording and transmission of the broadcast components of such courses."

The last recital provided that the OU and the BBC jointly wished to continue and to promote their partnership in furtherance of the objects of the OU and, to that end, to collaborate in, among other things, the production and recording of audio and audio- visual materials.

Clause 1 of the 1983 agreement provided that:

"The working partnership between the [OU] and the [BBC] which has been successfully created and developed in the first years of the [OU]'s operation shall be continued and promoted in the light of that experience and in accordance with the principles of the preceding Agreements, the practices which have been accepted and the spirit of understanding which has evolved."

The FTT held that the BBC is not a body governed by public law within Article 13A(1)(i). Judge Sinfield referred to Article 4(5) of the Sixth VAT Directive, Case 235/85 EC Commission v Netherlands [1987] ECR 1471, Case C-202/90 Ayuntamiento de Sevilla v Recaudadores de las Zonas Primera y Segunda [1993] STC 659, University of Cambridge v HMRC [2009] EWHC 434 (Ch), [2009] STC 1288, Case C-359/97 EC Commission v United Kingdom [2000] STC 777, and Case C-174/06 Ministero delle Finanze-Ufficio IVA di Milano v CO.GE.P Srl [2008] STC 2744. He said that he was bound by the decision of the High Court in the Cambridge University case that, in order to be a body governed by public law, the BBC must, as a matter of EU law, be part of the public administration of the UK. He said that if a body, other than states and regional and local government authorities of the member state, was to be a part of the public administration, it had to be a body similar in form to states and regional and local government authorities. He said that the phrase “part of the public administration” indicates that the body must not be independent of or separate from the public administration of the state or regional and local government authorities, but rather the body must be within the public administration by reason of an organisational or legal relationship. He considered that the body governed by public law must be concerned with the general administration or management of the state or authority or its interests.

The FTT concluded (at [67]) that the BBC is not a body governed by public law because it is not similar to the state or any regional or local authority since it provides services to the OU for consideration, that is to say in the form of an independent economic activity; and, in entering into an agreement with the OU, the BBC was not acting as part of the public administration of the UK.

In case he was wrong on that point, and because it was relevant to the question of whether the BBC had “similar objects” within Article 13A(1)(i), the FTT then turned to the question whether the BBC had the requisite educational aim.

The FTT said that it was clear from the Horizon College case that the supplier of closely related services must be a body within Article 13A(1)(i), that is to say a body governed by public law that has the required educational aim (or another organisation defined by the member state as having similar objects). The supplier of closely related services had to have education, in the Horizon College sense, as its aim. The FTT said that the ECJ in the Horizon College case had held that educational activity in Article 13A(1)(i) referred to a combination of elements, namely the transfer of knowledge and skills between teachers and students as well as the organisational infrastructure in which teaching takes place. The FTT held (at [84]) that, although the BBC had always had education, in a broad sense, as one of its aims, the BBC had never provided or aimed to provide education in the Horizon College sense because its broadcasts did not provide that necessary combination.

The FTT then turned to the question whether the BBC was an organisation defined by the UK as having similar objects. The FTT said that “defined” meant “specified”, and found (at [94]) that the UK had never defined in that sense the objects of the BBC as similar to the required educational aim during the relevant period. He said that the royal charters fell far short of doing so.

The FTT held (at [95] to [97]), nevertheless, that the BBC was entitled to the benefit of the exemption in Article 13A(1)(i) because (1) “similar objects” suggested something other than children’s or young people’s education, school or university education, vocational training or retraining in the Horizon College sense; (2) the BBC’s educational aim, specifically in relation to school, university and college education and adult further education, was close enough to education in the Horizon College sense to be a similar object, and (4) the BBC could rely on the direct effect of Article 13A(1)(i), as had been done in Case C-363/05 JP Morgan Fleming Claverhouse Investment Trust plc and another v HMRC [2007] ECR I-5517, [2008] STC 1180.

For those reasons the FTT held that the services supplied by the BBC to the OU during the relevant period were exempt under Article 13A(1)(i) and upheld the claim for repayment and allowed the OU’s appeal.

On HMRC’s appeal, the UT reached the same conclusion as the FTT on the question whether the BBC was a body governed by public law. Henderson J cited many of the same cases as the FTT and some others. He said (at [28]) that, although the UT was not bound as a matter of precedent by the decision in the Cambridge University case, he agreed with its reasoning and conclusion that the concept of a body governed by public law has an autonomous meaning under EU law and that the body in question must be identified as forming part of the public administration of the relevant member state. He said (at [31]) that the FTT had not committed any error of law and (at [33]) that (subject to certain of HMRC’s arguments which he went on to reject) the FTT’s conclusion on this issue was clearly correct in view of the deliberate establishment of the BBC with full operational and editorial independence. He said (at [50]) that, its conclusion was, at the very lowest, one to which it was fully entitled to come.

Turning to the question whether the BBC had the requisite educational aim and to the principles laid down by the ECJ in the Horizon College case, Henderson J said (at [60]) that, in the context of “distance learning”, it would be wrong to apply the test in that case in a mechanical fashion, and the organisational framework that is required will vary according to the type of education being provided.

He then turned to the material relied on in support of the argument that the BBC had the requisite educational aim, in particular the royal charters and the BBC’s annual reports to Parliament during the relevant period giving details of the BBC’s activities in educational broadcasting. He quoted passages in a number of those reports.

He concluded (at [70]) that the FTT had taken too narrow a view of what the Horizon College case required in the context of distance learning provided by a public sector broadcaster. He also concluded that the FTT’s analysis failed to do justice to the scale and variety of the forms of distance learning provided by the BBC during the relevant period. He held that, since the FTT’s conclusion was erroneous in law, he should re-determine the position himself. He found that the BBC did at all material times have the requisite educational aim.

Having reached the conclusion that the relevant objects of the BBC were not merely similar but the same, the UT said that the question of similarity did not require separate consideration.

The UT disagreed with the reasoning and conclusion of the FTT on whether the UK had defined the BBC as having the requisite educational aim during the relevant period. It considered that the FTT was wrong to hold that the organisation had to be expressly so defined (or specified or designated) in primary or secondary legislation. The UT concluded (at [81]) that the only reasonable conclusion was that the UK, acting through a combination of the royal prerogative and Parliament, had brought about a situation where the BBC was defined by it as an organisation having the requisite educational aim. The UT considered that the FTT had viewed the question too narrowly and therefore erred in law in reaching the opposite conclusion.

For those reasons, the UT dismissed HMRC’s appeal.

HMRC’s grounds of appeal to this court are that (1) the UT erred in law in concluding that the BBC had the requisite educational aim specified in Article 13A(1)(i), and (2) the UT erred in law in concluding that the UK had defined the BBC as having similar objects to the requisite educational aim specified in Article 13A(1)(i).

The OU filed a respondent’s notice seeking to uphold the UT’s decision on the additional grounds that (1) the BBC has “similar objects” within Article 13A(1)(i) for the reason stated by the FTT, and/or (2) the BBC is a “body governed by public law within the meaning of Article 13A(1)(i).

Mr Lasok’s criticism of this part of the UT’s judgment falls broadly into two parts. First, he submitted that the UT was wrong to rely as heavily as it did on the meaning of the expression “other bodies governed by public law” in Article 4(5). Secondly, he submitted that both the BBC Charter and Case C-174/14 Saudaçor v Fazenda Publica lead to the conclusion that the BBC is a “body governed by public law” within Article 13A(1)(i).

On the first of those issues, his starting point was that Article 4(5) and Article 13A(1)(i) are dealing with different matters. Article 4(5) is concerned with the identity of a “taxable person”. Article 13A(1)(i), like the other sub-paragraphs of Article 13A(1), identifies an exemption from VAT in respect of particular supplies. Mr Lasok submitted that the difference in the context and the objectives of the two provisions shows that the meaning of the expression “other bodies governed by public law” in Article 4(5) must be modified in the context of Article 13A(1)(i).

In support of this line of argument Mr Lasok mentioned Case C-287/00 Commission v Germany [2002] ECR I-5811, Case C-85/11 Commission v Ireland [2013] STC 2336 and Case C-98-07 Nordania Finans A/S v Skatteministeriet [2008] ECR 1-1281.

Mr Lasok did not refer to any particular part of the judgment in the Germany case or the Nordania case. I cannot see anything in the facts or the judgment in the Germany case which could possibly assist on the point in issue on this appeal. No purpose would be served by referring to it further.

Mr Lasok also did not refer to any particular part of the judgment in the Nordania case. In that case the ECJ held that the expression “capital goods” in Article 17 of the Second Council Directive 67/228/EEC of 11 April 1967 on the harmonisation of legislation of member states concerning turnover taxes (“the Second VAT Directive”) and the same expression in Article 19(2) of the Sixth VAT Directive did not refer to the same type of goods. It also contrasted, on the one hand, the concept of “capital goods” in Article 19(2) of the Sixth VAT Directive as having an autonomous and uniform interpretation within the Community and, on the other hand, the same expression in Article 20 of the Sixth VAT Directive which, in accordance with the express terms of Article 20(4), could be defined by member states for the purposes of applying Article 20(2) and (3).

The issue in the Ireland case was whether, by permitting non-taxable persons to be members of a VAT group and so treating them as a single taxable person for the purpose of VAT in its domestic legislation, Ireland had failed to comply with Articles 9 and 11 of the 2006 VAT Directive. This turned on whether the expression “any persons” in Article 11 of the 2006 VAT Directive, which permitted member states to “regard as a single taxable person any persons established in the territory of that Member State who, while legally independent, are closely bound to one another by financial, economic and organisational links” was restricted to “taxable persons” as defined in Article 9 of the 2006 Directive. Both Articles 9 and 11 were included in Title III of the 2006 VAT Directive entitled “Taxable Persons”.

The ECJ held that “any persons” in Article 11 was not restricted to taxable persons for VAT purposes. The Court began its findings by observing (at para. 35) that:

“in determining the scope of a provision of European Union law, its wording, context and objectives must all be taken into account”.

The Court noted that the wording of Article 11 did not make a distinction between taxable persons and non-taxable persons. It then traced the derivation of Article 11. It further said (at para. 39) that the fact that other provisions of the 2006 VAT Directive, which did not come within Title III dealing with the concept of a “taxable person”, used the term “persons” to designate taxable persons made no difference to the outcome as the term was used in a different context to that of Article 11. The Court also observed (at para. 44) that the context of Article 11 was not inconsistent with the conclusion that Article 11 included a person who was not taxable for VAT: Article 9(1) contained a general definition of the concept of a “taxable person” and Articles 9(2), 10, 12 and 13 provided details of the concept, either by including in it, or by permitting member states to include in it, persons who did not satisfy that general definition, such as persons who carried out certain transactions on an occasional basis, or by excluding other persons from it, such as employed persons or public authorities.

Other than as stating the self-evident proposition that, in determining the meaning of words in an EU directive, the context and purpose of the provision are relevant, I cannot see that any assistance is gained from the Nordania case or the Ireland case. Their facts and context are very specific and not remotely comparable to those relevant to the meaning of the expression “bodies governed by public law” in Article 13(A)(1)(i).

I do not accept Mr Lasok’s submission that the context and objectives of Article 4(5) and Article 13(A)(1)(i) are so different that the meaning of the expression “other bodies governed by public law” in the former, as established by case law, cannot apply to the same expression in the latter. Both concern exceptions to the general rule that a person who carries out any activity of an economic nature is liable for VAT in respect of that activity. As such, they both are to be interpreted strictly but not in such a way as to deprive them of their intended effect. The final paragraph of Article 4(5) contains an express cross-reference to the exemption in Article 13 of the activities of bodies governed by public law. In short, everything points in favour of an identical meaning of the expression “other bodies governed by public law” in both Article 4(5) and Article 13A(1)(i). I therefore consider that Sir Andrew Morritt C was correct to take that approach in the Cambridge University case.

The case law in respect of Article 4(5) shows that the distinction is between, on the one hand, those bodies which are part of the public administration and pursue the relevant economic activity in fulfilment of that role and, on the other hand, bodies which independently carry on an economic activity otherwise than as part of the public administration: see the Netherlands case, the Ayuntamiento de Sevilla case and EC Commission v United Kingdom. That approach has most recently been endorsed by the ECJ in the Saudaçor case, on which both parties on this appeal rely. The ECJ’s judgment was only delivered after the UT had published its decision. It is necessary to refer the Saudaçor case in some detail.

The case concerned the issue whether Saudaçor was exempt from VAT pursuant to Article 13(1) of the 2006 VAT Directive in respect of its activities concerning the planning and management of the health service of the Autonomous Region of the Azores (“the RAA”). Article 13(1) of the 2006 VAT Directive is in all material respects the same as Article 4(5) of the Sixth VAT Directive.

Saudaçor was created by legislative decree of the RAA transforming the Institute of Financial Management of the Health Service of the RAA into a limited company with exclusively public capital. Under the legislative decree Saudaçor had the task of providing general health services, including, in particular, the planning and management of the regional health system and associated systems, infrastructure and facilities. The legislative decree provided that Saudaçor was governed by the decree, by articles of association annexed to it, by the legal regime for public undertakings as provided in a decree of 17 December 1999 and by private law. Saudaçor was required to respect the rules governing the organisation and operation of the regional health service of the RAA. The legislative decree provided that, in the performance of its functions, Saudaçor held the same powers conferred by public law as the RAA, including, for example, the power to carry out expropriations.

Saudaçor performed its activities in accordance with programme agreements concluded with the government of the RAA, as required by Saudaçor’s articles of association. Saudaçor was paid for its services an amount designed to cover its operating costs.

The Portuguese Public Treasury took the view that Saudaçor could not rely on the exception from VAT for public bodies pursuant to Article 2(2) of the Portuguese VAT Code, which sought to transpose the first paragraph of Article 4(5) of the Sixth Directive/Article 13(1) of the 2006 VAT Directive.

The ECJ held, on a reference from the Portuguese Supreme Court, that it was for the national court to classify the activities of Saudaçor as those of a public or private body in the light of the criteria adopted by the ECJ.

The ECJ said (at para 51) that it had consistently held that two conditions must both be fulfilled for the treatment of a person as a non-taxable person pursuant to Article 13(1) of the 2006 VAT Directive, namely that “the activities must be carried out by a body governed by public law, and they must be carried out by that body acting as a public authority.”

The ECJ elaborated on those conditions. It said (at para 56) that a person which, not being part of the public administration, independently performs acts falling within the powers of a public authority cannot be classified as a body governed by public law, within the meaning of Article 13(1). It said (at para 57) that the court had made it clear that the status of a “body governed by public law” cannot stem from the mere fact that the relevant activity consists of the performance of acts falling within powers conferred by public law. The ECJ went on to say (at para 58), however, that while the fact that the body in question has, under the applicable national law, powers conferred by public law is not decisive for the purposes of the classification, it does constitute a factor of definite importance in determining whether the body must be classified as a body governed by public law.

Turning to the specific situation of Saudaçor, the court said that it could not be ruled out that Saudaçor was part of the public administration of the RAA. The court acknowledged that Saudaçor resembled a legal person governed by private law in so far as it had been established as a limited company and it enjoyed a degree of autonomy vis-a-vis the state in its operation and day-to-day management. The ECJ noted, however, that some of the characteristics of Saudaçor seemed to support its classification as a body governed by public law. In that regard, the ECJ said (at para 63) that genuine autonomy on the part of Saudaçor seemed limited because of the fact that its capital, which was not open to equity investment by individuals, was 100% owned by the RAA and that the RAA was in substance was its only “client”. The ECJ said that those considerations were “capable of showing that the RAA was in a position to exercise decisive influence over the activities of Saudaçor”. The ECJ observed that this was also confirmed by the fact that, in accordance with the provisions of the programme agreements concluded between Saudaçor and the RAA, Saudaçor was to accomplish its tasks in accordance with the guidelines set by the RAA and subject to supervision by the RAA.

The ECJ further observed that, within the legal framework specified by the legislative decree, private law was secondary to the rules establishing the legal regime for Saudaçor as a public undertaking. The ECJ also attributed significance to the fact that the services of planning and management of the regional health service were performed exclusively by Saudaçor in accordance with the legislative decree and were not awarded to private operators, for example following a tender procedure. Further, the ECJ said that an organisational link appeared to exist between Saudaçor and the RAA if only due to the fact that Saudaçor was established by a legislative act adopted by the legislature of the RAA for the purpose of providing that region with “services of general economic interest in the field of health” as apparent from the terms of the legislative degree.

For those reasons the ECJ held that, in the light of an overall assessment taking account of the national law applicable to Saudaçor, it could not be ruled out that the referring court would conclude that Saudaçor might be classified as a body governed by public law within the meaning of Article 13(1) of the 2006 VAT Directive.

Mr Lasok submitted that the Saudaçor case is authority for the following two propositions: (1) a body governed by private law that has operational and management autonomy vis-à-vis the state and is neither majority owned by the state nor economically dependant on the state is not a body governed by public law; and, by contrast, (2) a private law body is part of the public administration of the state and therefore governed by public law if it has been created by the state in order to perform a public service and has operational and management autonomy but the state is in a position to exercise decisive control over it.

Mr Lasok submitted that, on the evidence, the BBC satisfies the second of those propositions and so is a body governed by public law within Article 13A(1)(i). In advancing that submission, he relied heavily on the provisions of the 1981 Charter continuing the BBC as an incorporated body, a licence and agreement between the BBC and the Home Secretary made on 2 April 1981 (“the 1981 Licence) and a resolution of the board of Governors of the BBC dated 8 January 1981 (“the 1981 Resolution”) annexed to the 1981 Licence. Those documents applied to the BBC during the relevant period.

The provisions on which Mr Lasok relied in those documents are set out in the annex to this judgment. They may be broadly and generally described in the following way.

The 1981 Charter states that the provision of broadcasting by the BBC is in the public interest. There are provisions in the 1981 Charter which highlight the powers of the Secretary of State (who assumed the supervisory powers formerly vested in the Postmaster General) and the Crown over the BBC. They state that the BBC must conduct itself in accordance with licences granted by, and agreements made with, the Secretary of State; the Governors of the BBC and their chairman are to be appointed by the Queen and their pensions and pay are to be determined by the Secretary of State; the funding of the BBC will be provided by the Secretary of State out of money granted by Parliament and the BBC must conduct itself in accordance with any terms and conditions attached to that grant and must not, without the prior approval of the Secretary of State, seek money from any other person for broadcasting; if there is any breach of the 1981 Charter or any licence by or agreement with the Crown, the Crown may revoke the 1981 Charter, and the BBC’s assets, after discharge of liabilities, shall be disposed of in accordance with the directions of the Secretary of State. The 1981 Charter provides that the BBC must prepare an annual report and accounts for presentation to Parliament.

Mr Lasok relied on the fact that the 1981 Charter was not made by the Queen in a private capacity.

By the 1981 Licence the Home Secretary granted the BBC licence to use certain wireless stations and apparatus. It provides that the Secretary of State may require the BBC to use other installations and to broadcast from particular stations and may prescribe hours of broadcasting. It provides that the BBC must make such announcements as a Government Minister may require and any other matter that a Minister may require in an emergency, and that it must send programmes to such countries, in such languages and at such times as Government departments may, with the approval of the Secretary of State and the Treasury, prescribe. The 1981 Licence may be revoked and determined by the Secretary of State if the BBC fails to broadcast efficiently or is in breach of the terms of the Licence.

The 1981 Resolution was a reaffirmation by the board of Governors of the BBC of their recognition of their duty to ensure that programmes maintain a high general standard and to provide a properly balanced service with a wide range of subject matter and to place programmes at an appropriate time.

Mr Lasok also referred to the evidence of Sir David Attenborough in his witness statement that, in the early days of the Open University, “the number of hours that the BBC was allowed to broadcast was limited by the Post Office”. Sir David said that general programmes were given a weekly maximum, and outside broadcasts an annual maximum, but that educational programmes were exempt from that restriction.

Despite the sustained submissions of Mr Lasok on this issue, I would dismiss the OU’s appeal against the UT’s conclusion that the BBC was not a body governed by public law within Article 13A(1)(i). In the first place, the conclusion of the UT on this point was a multi-factorial evaluation in respect of which the UT did not make any error of law and which was not plainly wrong. This court ought not in those circumstances to carry out a fresh evaluation: Assicurazioni Generali SpA v Arab Insurance Group [2002] EWCA Civ 1642, [2003] 1 WLR 577.

Secondly, I do not accept Mr Lasok’s submission that the Saudaçor case is authority for the proposition that a private law body is a body governed by public law for the purposes of Article 4(5) if it has been created by the state in order to perform a public service and has operational and management autonomy but the state is in a position to exercise decisive control. Nor do I accept Mr Lasok’s further elaboration in oral submissions that the Saudaçor case is authority that the state has decisive control if it owns all the shares in a private body and provides its finances. In both those submissions Mr Lasok seeks to reduce to categorical principles what the ECJ was merely describing, on the facts of the case, as ingredients in an evaluative exercise of deciding whether Saudaçor was part of the public administration.

The ECJ made clear both in its reasoning and in the statement of its answers at paragraph 75 of its judgment that it was for the referring court to carry out that evaluation and that there was not one inevitable answer. In paragraph 60 of its judgment, for example, the ECJ said: “it does not seem, subject to verification by the referring court, that it can be ruled out that Saudaçor is to be considered part of the public administration of the RAA.” It said in paragraph 63, in relation to the 100% ownership of Saudaçor by the RAA, that genuine autonomy on the part of Saudaçor “seems limited” and that, as a whole, those consideration “are capable of showing” that the RAA, was in a position to exercise decisive influence over Saudaçor’s activities.

Thirdly, the relevant and well-established legal principle endorsed by the ECJ in paragraph 56 of its judgment is that a person which, not being part of the public administration, independently performs acts falling within powers of the public authority cannot be classified as a body governed by public law. In the application of that principle, I do not consider that the BBC is at all comparable to Saudaçor. Highly important factors in relation to Saudaçor were that it was incorporated by the RAA in order to take over the RAA’s existing role of providing public health services; the RAA was Saudaçor’s sole legal owner and client and paid Saudaçor only an amount sufficient to cover costs; Saudaçor’s work was defined in programme agreements concluded with the RAA and was to be undertaken in accordance with guidelines set by the RAA and subject to supervision by the RAA.

By contrast and critically, as expressly acknowledged by the 1981 Resolution, there was no power on the part of the state under the documents governing the BBC during the relevant period to dictate the subject matter and content of the BBC’s radio or television broadcasts. The FTT found as a fact that the BBC had operational and editorial independence from the state. That being so, notwithstanding all the provisions in the BBC’s governing documents concerning the powers of the Crown and the Secretary of State, the promotion of the public benefit by the BBC’s activities, the BBC’s funding, and the fact that the BBC is governed by a royal charter and must report and account to Parliament, it seems to me plain (as it did to the FTT and the UT) that during the relevant period the BBC was not carrying on its activities as part of the public administration.

The Secretary of State, the Crown and Parliament may separately or together have been able to exercise a decisive influence over the BBC in the sense of being able to close it down by depriving it of finance or revoking the 1981 Charter or the 1981 Licence but that is not what is critical for the purpose of these proceedings. What is critical was the independence of the BBC, so long as it remained in existence, in the production and content of its broadcasting, which was the very purpose for its existence, and control over the deployment of its staff for that purpose: compare British Broadcasting Corporation v Johns [1965] Ch 32, in which the Court of Appeal held that the BBC was not entitled to Crown immunity from income tax because it was not properly to be regarded as a body exercising functions required and created for the purposes of government but rather it was deliberately incorporated in the form in which it was created because it was thought to be in the public interest that broadcasting should not be conducted by a government agency or as a government function (see especially pp 62, 74 and 79 and 81).

“Similar objects”

The next issue is whether the BBC had during the relevant period, for the purposes of Article 13A(1)(i), “similar objects” to “children’s or young people’s education, school or university education, vocational training or retraining…”.

In order to understand the debate on this issue it is necessary to separate the following matters which arise. (1) It is common ground that the first part of Article 13A(1)(i) is not satisfied unless the body governed by public law (“the public body”) supplies one of the six specified types of education, that is to say children or young people’s education, school or university education, vocational training or retraining. It is not sufficient if the public body only aims to supply “services and goods closely related thereto”. (2) On the other hand, a public body which supplies and aims to supply one of those six types of education (say, university education) does not fall outside the first part of Article 13A(1)(i) if it supplies closely related services to another body which has a different one of the six specified educational aims (say, assisting a school’s education programme). (3) There is disagreement between the parties as to what organisational requirements must be met by the public body to enable the supply of education to fall within the first part of Article 13A(1)(i). (4) There is disagreement between the parties as to whether the word “similar” in the expression “similar objects” at the end of the second part of Article 13A(1)(i) means “the same” or denotes a broader “likeness”.

HMRC contends that the expression “similar objects” at the end of the second part of Article 13A(1)(i) means “the same objects”, in the sense that the “other organisations” must have the object of providing one or more of the six specified types of education in the Horizon College sense. HMRC contend that the FTT was wrong to decide otherwise. The UT did not address that point. HMRC’s explanation for the use of the word “similar” is that, unlike public bodies or most public bodies, the principal aim of many private bodies is to make a profit and so it would be wrong to say that they have a purely educational aim.

The OU contends that “similar” does not mean “the same” and that the FTT was correct on this point. At first sight that argument faces the difficulty that it would be contrary to the principle of fiscal neutrality if entitlement to the exemption in Article 13A(1)(i) was different for public bodies, on the one hand, and private bodies, on the other hand. That principle precludes economic operators, who are carrying out the same transactions, from being treated differently in relation to the levying of VAT, and, in particular, treating similar supplies of goods and services, which are in competition with each other, differently for VAT purposes.

Mr Lasok sought to meet that difficulty in two ways. Firstly, he cited Case C-174/11 Finanzamt Steglitz v Zimmermann 15.11.2012 (at paragraphs 43 and 53) as authority that the principle of fiscal neutrality does not require equal treatment for bodies governed by public law and other organisations within Article 13A(1)(i). The case did not in fact concern the exemption in Article 13A(1)(i). It concerned Article 13A(1)(g) and turned on the wording of that particular provision. I do not regard it as authority for the proper application of the principle of fiscal neutrality to Article 13A(1)(i).

Secondly, Mr Lasok submitted that Article 13A(1)(i) does not make a simple distinction between public bodies falling within the first part of the Article, on the one hand, and private bodies falling within the second part, on the other hand. He pointed out that, unlike Article 13A(1)(b)(g)(h) and (n), the expression “bodies governed by public law” in Article 13A(1)(i) is qualified by the words “having such as their aim.” He submitted that, if a public body could not satisfy that qualification, it might nevertheless be entitled to the exemption by falling within the second part of Article 13A(1)(i).

I do not accept Mr Lasok’s submissions on this issue. In the first place, it seems to me that the natural reading of Article 13A(1)(b)(g)(h)(i) and (n) is to make a consistent distinction between public bodies, on the one hand, and private bodies, on the other hand. Secondly, I am doubtful that an interpretation of Article 13A(1)(i) which places in the second part of Article 13A(1)(i) certain public bodies as well as private bodies achieves fiscal neutrality if “similar objects” means something other than “same objects” in the sense I have mentioned. Such an interpretation would still mean that certain bodies operating in the same market, namely all those bodies falling within the second part of Article 13A(1)(i), would have to satisfy less rigorous conditions to obtain the benefit of the exemption. Thirdly, irrespective of the principle of fiscal neutrality, it makes no logical, economic or practical sense to make it easier for private bodies to claim the exemption than for public bodies, which have to satisfy the full requirements of the first part of Article 13A(1)(i). Mr Lasok advanced no justification for such a distinction.

I turn to the dispute over the requisite organisational structure. This issue arises from the decision in the Horizon College case. Horizon College was a teaching establishment in the Netherlands, which mainly provided secondary and vocational education. It also seconded teachers in its employment to other educational establishments to meet temporary shortages of teaching staff. Under the contract of secondment it was for those other establishments to define the duties of the teacher concerned. The teacher's salary continued to be paid by Horizon College, which then claimed the cost back from the other establishment, without taking any profit or charging VAT. The Dutch tax authorities considered that the secondment services provided by Horizon College were not covered by the exemption in Article 13A(1)(i), and assessed them to VAT. The ECJ held that the provision of teachers in those circumstances did not fall within the expression “children’s or young people’s education, school or university education, vocational training or retraining” within Article 13A(1)(i) but might be exempt from VAT as a supply of services “closely related” to education if such a teacher placement was a means of better enjoying the education deemed to be the principal service – which it was for the national court to decide.

The important point for present purposes is that the ECJ held that the transfer of knowledge and skills between a teacher and students as a result of the secondment was not sufficient to amount to a supply of one of the six types of education specified in Article 13A(1)(i) and that an organisational framework was also necessary.

Advocate General Sharpston said in paragraph 49 of her opinion as follows:

“When one educational establishment makes teachers available to another such establishment, where they teach the latter's students under its instructions and responsibility, the supply made by the first establishment is not of "education" but of teaching staff. And, as the Commission pointed out at the hearing, the "education, vocational training or retraining" which students receive in an educational establishment is not merely what is provided by teachers from their own knowledge and skills. Rather, it includes the whole framework of facilities, teaching materials, technical resources, educational policy and organisational infrastructure within the specific educational establishment in which those teachers work.”

The ECJ agreed. It said as follows:

“18.

Admittedly, as Horizon College essentially submits, the transfer of knowledge and skills between a teacher and students is a particularly important element of educational activity.

19.

However ... the fact that such a transfer is taking place is not, by itself, sufficient for the mere supply of a teacher to an educational establishment, for the purpose of carrying out teaching duties under the responsibility of that establishment, to be described as educational activity.

20.

Indeed, as the Commission submitted … the educational activity referred to in Article 13A(1)(i) consists of a combination of elements which include, along with those relating to the teacher/student relationship, also those which make up the organisational framework of the establishment concerned.”

Paragraphs 18 to 20 of the Horizon College case were endorsed by the ECJ in Case C-473/08 Eulitz v Finanzamt Dresden [2010] ECR I-0907.

It is common ground, and was common ground before the FTT and the UT, that the requisite educational aim (and organisational framework) must be considered in relation to all the BBC’s educational activities and not merely those which it provided for the OU. The FTT and the UT nevertheless reached different conclusions on whether the Horizon College requirements were met in the present case, the FTT deciding that they were not and the UT deciding that they were. I find that UT was plainly correct on this issue.

One of the aims of the BBC since its first charter in 1926 has always been the provision of education through broadcasting. It is expressly mentioned in the third recital of the 1981 Charter. It is what is now called distance learning. There was considerable evidence before the FTT of the BBC’s educational aims, policies and provision. The UT’s decision refers at paragraphs 62 to 66 to important parts of the evidence relating to the relevant period including, in particular, extracts from the BBC’s annual reports to Parliament. Importantly, the evidence shows that the BBC produced and transmitted educational and vocational training courses, with appropriate supporting material, for direct use by viewers without the mediation of schools or other educational organisations or teachers. Neither the decision of the FTT nor the decision of the UT referred to the provision of vocational training.

The 1978 report stated under the heading “Further Education, Radio” that:

“special in-service training series have been provided for private music teachers, for those concerned with New Developments in Technician Education, and for teachers of young readers at the primary level.”

The 1980 report gave the following example:

“To assist in the education of the mentally handicapped School and Further Education Television have jointly transmitted a series called Let's Go. This is for older pupils and young adults who are mentally handicapped and it has had both daytime and evening transmissions so that it can be viewed either in schools and other institutions or at home ... The series was supported by a wide range of back-up materials, and each programme was broadcast three times per week to be of maximum benefit to the viewer.”

The 1980 report also stated the following under the heading “Further Education Television:

“Programmes for specialist audiences included a series for teachers, Modern Language Teaching, supported by a booklet produced in association with the Centre for Information on Language Teaching, Working for Safety, a series of films made in response to recent legislation and designed to help safety representatives and others responsible for workplace health and safety, and Working with young People designed for adults in industry, the public service and education and those working on special training projects such as the Youth Opportunities Programmes …”

The FTT made no reference to any of that evidence. The FTT’s reasoning appears to have been based on an assumption that the Horizon College organisational requirement can only ever be satisfied by or through the medium of a conventional school or university or the OU or an equivalent institution to the OU. In paragraph 71 of its decision the FTT said that the aim required by Article 13A(1)(i) “is education at school or university and training” (my emphasis). In paragraph 83 the FTT said that the combination of elements required by paragraph 20 of Horizon College is “the transfer of knowledge and skills between teachers and students as well as the organisational infrastructure in which the teaching takes place” (my emphasis).” In stating its conclusion and reasoning on this point, the FTT said as follows as paragraph 84:

“I find that, since its creation, the BBC has had education, in a broad sense, as one of its aims. Throughout its history, the BBC has provided a range of programmes aimed at educating or training persons of different ages. I do not consider, however, that the BBC has provided or ever aimed to provide education in the sense explained by the ECJ in Horizon College. The BBC's educational broadcasts, whether for the OU or more generally, do not provide the necessary combination of teaching and organisational infrastructure within which teachers transfer knowledge and skills to students to constitute education in the Horizon College sense. My view is that the BBC provides only a part of the package and its educational broadcasts must always be complemented by the activities and infrastructure of other institutions such as schools, colleges and the OU in order to provide the viewers and listeners with education in the Article 13A(1)(i) sense.” (my emphasis)

I do not consider that the Horizon College case is authority for such a restrictive approach to Article 13A(1)(i). The ECJ was, on the facts of that case, dealing with conventional schools. Neither the Court nor the Advocate General addressed the provision of distance learning. It is possible to deduce from the reasoning and decision in the Horizon College case that, as the UT observed at paragraph 60 of its decision, the mere provision of course material with an educational content for use by other educational institutions would not be sufficient even in the context of the supply of distance learning. As the evidence plainly shows, however, the BBC’s educational broadcasting during the relevant period was not so restricted. Nor was it restricted to the broadcasting of a number of single, stand-alone, programmes. The BBC was producing complete series or courses for the education of children and young people and for vocational training or retraining.

Mr Mantle submitted that, nonetheless, a critical element missing from the BBC’s educational broadcasting, required by the Horizon College case, was the facility for a two way exchange between teachers and those being taught and it was that necessary element which provided the context for the organisational requirement specified in the Horizon College case. HMRC contrasted, in that respect, the BBC’s arrangements, on the one hand, and the teaching arrangements in College of Estate Management v HMRC [2005] UKHL 62, [2005] STC 21, on the other hand. In that case the House of Lords held that a college, whose distance learning courses involved attendance at face-to-face teaching sessions and academic fora for students and tutors accessed through the college’s website, was making an exempt supply of education within section 31(1) of, and Group 6 in schedule 9 to, the VAT Act 1994. Mr Mantle went so far as to specify that one of the following is essential: (1) an opportunity to question the teachers; (2) an opportunity to have discussions with teachers; (3) an opportunity to receive feed-back from teachers; (4) an opportunity to have progress assessed by teachers.

Neither the Advocate General nor the ECJ said anything in the Horizon College case about the necessity for such a two way teacher/student exchange, let alone the need to satisfy one of those four specific conditions. Nor has the ECJ in other cases concerning VAT exemption for educational supplies mentioned such a two way exchange as an essential element. In Case C-445/05 Haderer v Finanzamt Wilmersdorf [2007] ECR I-4841, which concerned the exemption in Article 13A(1)(j), the ECJ (at para. 26) described the Community concept of “school or university education” for the purposes of the VAT system, as including “activities which are taught in schools or universities in order to develop pupils’ or students’ knowledge and skills, provided that those activities are not purely recreational”. In the Eulitz case (at para. 30) the ECJ referred to “the transfer of knowledge and skills between a teacher and students” as being a particularly important element of educational activity referred to in Article 13A(1)(i). In the absence of any expert or other evidence on the point, I do not accept that the two way teacher/student exchange, and specifically one or more of the four examples of such an exchange specified by Mr Mantle, is an essential element in education or vocational training within Article 13A(1)(i). The essence of Article 13A(1)(i) education and training is the imparting of knowledge, information and instruction with a view to educating and training the recipient.

In any event, as Mr Lasok pointed out, there is evidence in the 1980 report that one of the courses provided by the BBC involved a “terminal assessment of learning achievement”. Furthermore, the 1987 report stated that Micro Live, a 50 minute programme broadcast monthly dealing with an extensive range of computer applications, including word processing, data processing, robotics, artificial intelligence and communications systems, had “an interactive page on Prestel, and its own computer bulletin board system, enabling anyone with a computer and a modem to dial in, read information, leave messages or even download associated software.”

Moreover, as Mr Lasok pointed out, it is not necessary for the OU to demonstrate that all or a majority or indeed any particular proportion of the educational and training services provided by the BBC in the relevant period satisfied the particular prerequisites. It is sufficient that the supply of such services were part of its objects both as a matter of legal vires and economic and operational reality.

For those reasons I consider that the decision of the FTT on this issue was flawed both as a matter of legal principle and because it failed to reflect or indeed to cite any of the relevant evidence. The UT rightly considered the matter afresh and came to a contrary view. I can see no error of law in the decision of the UT or any other reasons to reverse its decision. Applying the words of the Advocate General in the Horizon College case to the facts of the present case, the BBC provided the whole framework of facilities, teaching materials, technical resources, educational policy and organisational infrastructure to deliver its distance learning direct to children and young people and those seeking vocational training or retraining.

“Defined by the Member State”

The final issue is whether the UT was correct to hold that the FTT wrongly decided that the UK had not defined the BBC as having “similar objects” within Article 13A(1)(i). I do not regard this issue as straightforward and, if it had been essential to decide it in order to dispose of the appeal, I would have considered whether it would be appropriate to refer the issue to the ECJ for a preliminary ruling. We received no submissions from either side on the possibility of such a reference.

As a preliminary observation, it is to be noted that, for reasons which are unclear, the OU has not argued that the BBC provided training or re-training for any trade, profession or employment within the express terms of Item No. 2 of schedule 6 to the VAT Act 1983 (so avoiding any problem of definition under Article 13A(1)(i)) even though we were pressed by Mr Lasok with examples of vocational training mentioned in the annual reports and I have concluded that it provided such training.

Turning to the issue of what is required for the purpose of being “defined by [a] Member State as having similar objects” within Article 13A(1)(i), the starting point is that Group 6 of schedule 5 to the Finance Act 1972 and Group 6 of schedule 6 to the VAT Act 1983 designated schools, universities and some other institutions for the purposes of the education exemption. The BBC was not among them.

HMRC’s argument is that it is not permissible to look outside the tax statute in which Parliament has chosen to define who is entitled to the education exemption. Although the FTT agreed with HMRC in the outcome on this point, it is not at all clear that the FTT took such a restrictive approach. In paragraphs 93 and 94 of its decision the FTT stated that the phrase “defined by the Member State as having similar objects” means that the member state “has specified that the objects of the organisation shall or must be similar to the required educational aim”. The FTT did not, however, say that the scope of the enquiry was limited to the taxing legislation but went on to consider whether or not the BBC’s royal charters defined education as an aim or object of the BBC and held that they did not.

The UT said (at [79]) that what matters is that the member state should in fact have established and/or designated the organisation in question as one having objects which (viewed objectively) are similar to (or, a fortiori, the same as) the education aim set out in Article 13A(1)(i). The UT held in paragraph 81 that the only reasonable conclusion is that the UK, acting through a combination of the royal prerogative in the form of the 1964 and 1981 Charters (which clearly contemplated that the BBC would continue to provide the educational broadcasting services which had formed part of its core aims and activities since the foundation of the BBC in the 1920s) and Parliament (which provided money to enable the BBC to fulfil its aims) had brought about a situation where the BBC was defined by it as an organisation having the requisite aim.

Mr Mantle criticised the UT for its reliance on the provision of finance for the BBC by Parliament and the fact that the BBC was incorporated by exercise of the royal prerogative in the grant of a royal charter as indications that the UK had “defined” the BBC as having “similar objects”. He also submitted that the UT’s approach of looking outside the VAT legislation to find the definition satisfying Article 13A(1)(i) produced a lack of legal certainty.

I am inclined to agree with the UT that the FTT took too narrow a view of the aims specified in the royal charters as not including education. The ECJ appears to have taken a much more expansive approach in Case C-498/03 Kingscrest Associates Ltd v Montecello Ltd [2005] ECR I-04427 (at para. 53) and the Zimmermann case (at paras. 29 to 33). On the other hand, I am also inclined to think that the UT placed insufficient weight on the requirement in Article 13A(1)(i) that only the six specified types of education and training fall within the exemption and that the designation by a member state of an organisation as having general educational aims may be insufficient.

Furthermore, I do not consider that the UT analysed sufficiently HMRC’s argument that, in the present case, Parliament had deliberately chosen to use the VAT Acts to define and restrict those entities entitled to the benefit of Article 13A(1)(i).

I am also troubled that neither the FTT nor the UT appear to have grappled sufficiently and explained clearly the opinion of the Advocate General in the MDDP case that, in order to satisfy the “definition” condition in Article 13A(1)(i), members States must lay down “an abstract rule on recognition” (see paras. 66 to 69 of the opinion) and the statement of the ECJ in its judgment in that case that the member state must lay down “the rules in accordance with which the definition may be granted” to private organisations (para. 37).

I do not consider, however, that it is either necessary or indeed desirable for this court to reach a concluded view on this important issue, which I do not consider to be “acte clair” since what is plain is that the OU is entitled to rely directly on Article 13A(1)(i) in the present case. The jurisprudence of the ECJ would seem to indicate that member states have a discretion in deciding whether or not to define an organisation as having “similar objects” within Article 13(1)(i). Such a discretion was recognised by the ECJ in the Kingscrest case in relation to the phrase “other organisations recognised as charitable by the Member State concerned” in Article 13A(1)(g) and (h). It was also recognised by the ECJ the JP Morgan case and Case C-595/13 Staatssecretaris van Financien v Fiscale Eenheid X NV cs 9.12.2015, both of which concerned the VAT exemption for “the management of special investment funds as defined by Member States” in Article 13B(d)(6) of the Sixth VAT Directive. Those two cases are also authority, however, that there are limits on the discretion and that, if a member state does not exercise the discretion in a way which is compliant with Article 13A(1), the relevant exemption provisions of that Article can be relied upon directly by the supplier.

In the JP Morgan case the applicants claimed, among other things, that HMRC had wrongly failed to implement Article 13B(d)(6) by refusing to recognise that the supply of management services to a closed-ended investment trust such as an investment trust company was entitled to VAT exemption, and that in those circumstances the taxpayer could rely directly on Article 13B(d)(6). The ECJ said that it is clear from its case law concerning VAT that, when member states come to define certain terms of an exemption, they may not prejudice the objectives pursued by the Sixth VAT Directive or the general principles underlying it.

The Court held that special investment funds within Article 13B(d)(6) were capable of including closed-ended investment trusts. It further held that, while the task of defining the meaning of the words “special investment funds” conferred a certain discretion on the members states, it did not permit the member states to select certain funds and grant them exemption and exclude others from that exemption. The power to define the funds which met the definition of “special investment funds” had to be exercised subject to the objective pursued by the Sixth VAT Directive and the principle of fiscal neutrality. The Court said (at para. 58) that it was clear from settled case law that wherever the provisions of a directive appear, so far as their subject matter is concerned, to be unconditional and sufficiently precise, they may, in the absence of implementing measures adopted within the prescribed period, be relied on against any national provision which is incompatible with the directive or in so far as they define rights which individuals are able to assert against the state. It held that the subject matter of Article 13B(d) of the Sixth VAT Directive was sufficiently precise and unconditional as to the exemption and so, even though it conferred a discretion on member states to define special investment funds, it did not prevent persons concerned from relying directly on that provision where a member state exercising that discretion adopted national measures which were incompatible with that directive.

In the present case, for the reasons I have given, during the relevant period the BBC had the same objects as public bodies specified in the first part of Article 13A(1)(i) and, if it had been a public body, the BBC would have satisfied all the requirements for exemption for educational and training supplies. Either the UK had defined the BBC as having “similar objects” within Article 1A(1)(i) or, if the United Kingdom had not, the BBC and the OU are entitled to rely directly on that Article because the failure of the UK was a failure to implement the Sixth VAT Directive. The object of the education and training exemption was intended to increase access to the services specified in Article 13A(1)(i) by avoiding the increased costs that would result if they were subject to VAT: the MDDP case at paragraph 26. To exclude the BBC from the exemption would both be contrary to the objective of the Sixth VAT Directive and contrary to the principle of fiscal neutrality.

For all those reasons above I would dismiss this appeal.

I agree with the Chancellor that HMRC’s appeal should be dismissed. I agree with the Chancellor for the reasons that he gives that the BBC is not a body governed by public law. I agree also that the BBC had the requisite educational aim, although my reasoning differs slightly. In my view the key points which lead to that conclusion are HMRC’s acceptance that:

I begin with a consideration of what is entailed in an “educational aim”. As the Chancellor has explained the leading case on this subject is (Case C-434/05) Stichting Regionaal Opleidingen Centrum Noord-Kennemerland/West-Friesland (Horizon College) v Staatssecretaris van Financiën [2008] STC 2145 (“Horizon College”). The facts were set out by Sharpston A-G. Horizon College was, she said:

“…a teaching establishment at Alkmaar in the Netherlands. For the purposes of art 13A (1) (i) of the Sixth Directive, it appears to be an organisation defined by the member state as having educational objects. It principally provides secondary-level and vocational education.”

However, what was in issue was the supply, by Horizon College, of seconded teachers in its employment to other such establishments (“a host establishment”), to meet temporary shortages of teaching staff. The host establishment decided what work the seconded teacher was to do, although Horizon College continued to pay that teacher’s salary and made a recharge to the host establishment. The Dutch Supreme Court referred three questions to the CJEU:

“(1)

Is art 13A(1)(i) of the Sixth Directive to be interpreted as meaning that the provision of education includes the making available, for consideration, of a teacher to an educational institution in order that he may temporarily provide teaching services there within the area of responsibility of that educational institution?

(2)

If the answer to that question is in the negative, can the concept of “services closely related to education” be interpreted as including the service described in Question 1 above?

(3)

Are the answers to the above questions affected by the fact that the body which makes the teacher available is itself also an educational institution?”

The first question therefore required an attempt to explain what the directive meant by “education”. At [46] of her opinion the Advocate-General said:

“When one educational establishment makes teachers available to another such establishment, where they teach the latter's students under its instructions and responsibility, the supply made by the first establishment is not of 'education' but of teaching staff. And, as the Commission pointed out at the hearing, the 'education, vocational training or retraining' which students receive in an educational establishment is not merely what is provided by teachers from their own knowledge and skills. Rather, it includes the whole framework of facilities, teaching materials, technical resources, educational policy and organisational infrastructure within the specific educational establishment in which those teachers work.”

Before the court Horizon College argued that the first question should be answered in the affirmative. The Court set out its argument thus:

“Horizon College takes the view that that question should be answered in the affirmative, since the effective transfer of knowledge and skills which occurs directly between a teacher and students or pupils, irrespective of the legal framework in which such a transfer takes place, is the very essence of education.”

The Court agreed with the Advocate-General. Its assessment was:

“18.

Admittedly, as Horizon College essentially submits, the transfer of knowledge and skills between a teacher and students is a particularly important element of educational activity.

19.

However, in view of the requirements of the case law referred to in paras 14 to 16 of this judgment, the fact that such a transfer is taking place is not, by itself, sufficient for the mere supply of a teacher to an educational establishment, for the purpose of carrying out teaching duties under the responsibility of that establishment, to be described as educational activity.

20.

Indeed, as the Commission submitted, in essence, at the hearing, the educational activity referred to in art 13A(1)(i) of the Sixth Directive consists of a combination of elements which include, along with those relating to the teacher/student relationship, also those which make up the organisational framework of the establishment concerned.”

It is true, as the Chancellor has pointed out, that Horizon College was not concerned with distance learning, but it seems to me to be clear from the court’s assessment, and in particular its rejection of Horizon College’s argument at [18], that something more than an effective transfer of knowledge and skills is required. It follows, in my judgment, that the mere provision of educational materials cannot satisfy the requirements of the educational aim. If, therefore, I acquire a teach-yourself language course consisting of a course book and accompanying DVDs the supplier of that course would not have the requisite educational aim. I do not consider that it would make any difference if the course-book contained a key to the exercises at the back of the book so that I could assess my progress or, if the course were provided by computer software, that the program itself was capable of assessing my efforts. The view that I take is therefore somewhat narrower than the Chancellor’s. Accordingly I am not convinced that the broadcasting of a course to be undertaken by a listener or viewer without any support at all would satisfy the requisite educational aim. Thus I am not convinced that the example that the Chancellor quotes at [102] would amount to “education”. Nor am I convinced that merely to describe the transfer of knowledge and skills as “distance learning” is an answer to the question. In my judgment it depends on what underpins that transfer. In a case like that of the College of Estate Management (College of Estate Management v HMRC [2005] UKHL 62, [2005] STC 21) or indeed in the case of the OU itself, the transfer of knowledge and skills is provided to persons who have joined or otherwise become accredited to the educational institution, with the result that there is an underpinning of organisational structure.

However, even on the narrower view that I take, I agree with the Chancellor that the BBC had the requisite educational aim. At [101] he has quoted from the 1978 report which described special in-service training series for teachers. That seems to me to be “vocational training” even if it does not amount to “education” as interpreted by the CJEU.

The same report also described a radio series called “What Rights Have You Got” and went on to say in connection with that series that:

“Local classes and tutorial help have been available in many areas so that adult students can gain an O-level as an optional product of their studies.”

The same report referred to a television series called “Wordpower” which was accompanied by a correspondence course which, I infer, would have involved two-way interchange between the student and the course provider. The 1980 report referred to three language courses “for all of which a terminal assessment is available”, as well as a re-broadcast of “What Rights Have You Got.”

These supported courses would in my judgment, even on a narrow interpretation of Horizon College, satisfy the requisite educational aim.

I agree also with the Chancellor, for the reasons that he gives, that even if the BBC was not “defined by” the United Kingdom it was entitled to rely on the directly applicable effect of article 13A(1)(i). As the Chancellor has pointed out in the JP Morgan case the CJEU held that a member state’s discretion to implement a directive was limited by (a) the purpose of the exemption (see [45]) (b) the principle of fiscal neutrality (see [46]) and (c) the elimination of distortion of competition, even if that distortion is not substantial (see [47]). In those circumstances if the United Kingdom, exercising its discretion, had refused to define the BBC as having “similar objects” to those specified in article 13A (1)(i) it would have exceeded its discretion. The JP Morgan case also shows that the existence of a discretion conferred upon a member state does not preclude a provision in a directive from being sufficiently precise as to be directly enforceable, at least where the member state could not legitimately have exercised its discretion so as to exclude the claimant from the exemption.

Accordingly, I agree with the Chancellor that the appeal should be dismissed.

I agree with the Chancellor that the appeal should be dismissed for the reasons that he gives.  On the question of the application of the Horizon College argument to the BBC’s arrangements, I would be concerned to limit the imparting of knowledge, information and instruction with a view to educating and training the recipient in the way suggested by HMRC.   If the combination of elements that must exist to constitute the educational activity referred to in art 13A(1)(i) of the Sixth Directive is to be narrowly defined then, in my judgment, that may require expert or other evidence on the point.

The objects of the Corporation are as follows:

To provide, as public services; broadcasting services of wireless telegraphy by the method of telephony for general reception in sound, by the method of television for general reception in visual images and by the method of television and telephony combination for general reception in visual images with sound, in Our United Kingdom of Great Britain and Northern Ireland, the Channel Islands and the Isle of Man and the territorial waters thereof, and on board ships and aircraft (such services being hereinafter referred to as “the Home Services”) and elsewhere within the Commonwealth and in other countries and places overseas (such services being hereinafter referred to as “the External Services”).

Subject to the prior approval of Our Secretary of State, to provide, as public services, by means of wireless telegraphy, other services whether or not broadcasting services.

For all the purposes of aforesaid to acquire from time to time from Our Secretary of State a licence or licences for period and subject to such terms, provisions and limitations as he may prescribe, and to exercise the powers herein granted to the Corporation in conformity in all respects therewith and with any agreement or agreements which may from time to time be made by Our Secretary of State with the Corporation, and not in any part manner whatsoever.

Subject to the prior approval of Our Secretary of State and to the acquisition (subject as hereinafter provided) of any requisite licences, concessions, rights or privileges, to construct or acquire and establish, install, equip and use stations for wireless telegraphy and apparatus for wireless telegraphy in countries or places without Our United Kingdom, the Channel Islands and the Isle of Man, or in space, for the purpose of providing, within the scope or ambit of any such approval for the time being in force, and as may be permitted thereby or thereunder, broadcasting services by such method or methods of wireless telegraphy as may in such consent be specified , for reception in such countries or places as may in or under such approval be designated; and for the purpose of receiving wireless telegraphy conveying such matter by such methods and for such purposes as may be or under such approval be permitted.

To perform services in any part of the world for and on behalf of any Department of Our Government in Our United Kingdom, and in particular to provide, erect, equip and install, or supervise the provision, erection, equipment and installation of stations, studios, apparatus, machinery, plant and other equipment for transmitting and receiving matter by wireless telegraphy by the methods of telephony and television, and to work or manage, or to supervise the working or management of such stations, studios, apparatus, machinery, plant and equipment.

(1) The Governors of the Corporation shall be such persons as shall from time to time be appointed by Us, Our Heirs or Successors in Council. There shall be twelve Governors or such other number as may from time to time be ordered by Us, Our Heirs or Successors in Council. The Governors shall be appointed for such respective periods, not exceeding five years, as may be ordered by Us, Our Heirs or Successors in Council.

One of such governors shall be nominated from time to time to be the Chairman of the Corporation and another of such Governors shall be nominated from time to time to be the Vice-Chairman thereof. Such nomination shall be made by Us, Our Heirs or Successors in Council and may be made at the time when the Governor nominated is appointed to the office of Governor or at any time while he holds that office.

(3) The Corporation may pay or make provision for paying to or in respect of any Governor out of the funds or moneys of the Corporation such sum or sums by way of pension, allowances or gratuities as Our Secretary of State may, with the approval of Our Minister for the Civil Service, from time to time determine.

(1) It shall be the duty of the Corporation, except in so far as the Corporation is satisfied that adequate machinery exists for achieving the purposes of this paragraph, to seek consultation with any organisation appearing to the Corporation to be appropriate with a view to the conclusion between the Corporation and that organisation of such agreements as appear to the parties to be desirable with respect to the establishment and maintenance of machinery for –

the settlement by negotiation of terms and conditions of employment of persons employed by the Corporation, with provision for reference to arbitration in default of such settlement in such cases as may be determined by or under the agreements; and

The Corporation is hereby authorised, empowered and required to provide from time to time all such broadcasting services and facilities and to do all such acts and things as shall from time to time be required by or under any licence granted by Our Secretary of State to the Corporation or any agreement made by Our Secretary of State with the Corporation.

(1) The Corporation is hereby authorised, empowered and required –

To receive all funds which may be paid by Our Secretary of State out of moneys provided by Our United Kingdom Parliament in furtherance of the purposes of this Our Charter and to apply and administer such funds in accordance with the terms and conditions which may be attached to the grant thereof.

To receive all other moneys which may be obtained by or given to the Corporation or derived from any source not hereinbefore mentioned and to apply and administer such moneys exclusively in furtherance of the purposes of this Our Charter and in accordance with any terms and conditions upon which such moneys may have been obtained, given or derived: Provided that the Corporation shall not, without the prior approval of Our Secretary of State, receive any moneys as consideration for the provision of broadcasting services for general reception form those persons to whom such services are provided.

(3) The Chairman shall, on the completion of every such General Report, Account or Accounts and Balance Sheet, forthwith submit the same, together with the Reports for the same year or residual part thereof made under paragraph (8) of Article 10 of this Our Charter by the National Broadcasting Councils, to Our Secretary of State to be considered by him and presented to Our United Kingdom Parliament.

(1) The grant of this Our Charter is made upon the express condition that the Corporation shall strictly and faithfully observe and perform and cause to be observed and performed the provisions prescribed therein or thereunder, and also the provisions prescribed in or under any licence which Our Secretary of State may from time to time grant to the Corporation or contained in or prescribed under any agreement which Our Secretary of State may from time to time make with the Corporation.

If it is made to appear or appears to Our Secretary of State either on the representation of any person or body politic or corporate appearing to be interested in any other manner howsoever, that there is reasonable cause to suppose that any of the provisions prescribed in or under this Our Charter or in or under any such licence or in or under any such agreement (including any stipulations, directions or instructions of Our Secretary of State) have not been observed, performed, given effect to or complied with by the Corporation, Our Secretary of State may require the Corporation to satisfy him that such provisions have been observed, performed, given effect to or complied with, and if within a time specified by him the Corporation shall fail so to do Our Secretary of State may, if he thinks fit, certify the same under his hand to Us, Our Heirs or Successors, and upon such certificate being given it shall be lawful for Us, Our Heirs or Successors, if We or They shall be so minded, by Letters made patent under the Great Seal, absolutely to revoke and make void this Our Charter, and everything therein contained: Provided that the power of revocation hereby reserved shall not have or be construed to have the effect of preventing or barring any proceedings which may be lawfully taken to annul or repeal this Our Charter.

Upon the voluntary or compulsory dissolution of the Corporation the property and assets of the Corporation shall be applied in satisfaction of the debts and liabilities of the Corporation and subject thereto shall be disposed of in accordance with the directions of Our Secretary of State.

Subject to the terms, provisions and limitations hereinafter contained the Secretary of State, in exercise of the powers conferred by section 1 of the Wireless Telegraphy Act 1949 and now vested in him, hereby grants to the Corporation, for the form beginning on the 1^st August 1981 and ending on the 31^st December 1996 a licence -

to use for the purposes hereinafter stated the existing stations established by the Corporation by virtue of licences granted by predecessors in office of the Secretary of State or by the Secretary of State and to establish from time to time and use for the said purposes additional stations at such places as the Secretary of State may approve;

to use for the said purposes the existing apparatus installed by the Corporation by virtue of such licenses, and to install from time to time and use for the said purposes additional apparatus at the stations of the Corporation and at such other places and in such vehicles, vessels and aircraft as the secretary of State may approve;

The Secretary of State may at any time by notice in writing:

require the Corporation to radiate such of its broadcast transmissions as may be specified in the notice from a mast, tower or other installation belonging to the Independent Broadcasting Authority (in this clause referred to as ‘the Authority’); or

Unless prevented by circumstances beyond its control the Corporation shall send efficiently programmes in the Home Services and the External Services from such stations as, after consultation with the Corporation, the Secretary of State may from time to time in relation to those services respective in writing prescribe.

The Corporation shall, whenever so requested by any Minister of Her Majesty’s Government in the United Kingdom at the Corporation’s own expense, send from all or any of the stations any announcement (with a visual image of any picture of object mentioned in the announcement if it is sent from the television stations or any of them) which such Minister may request the Corporation to broadcast and shall also, whenever so requested by any such Minister in whose opinion an emergency has arisen or continues, at the like expense send as aforesaid any other matter which such Minister may request the Corporation to broadcast Provided that the Corporation when sending such an announcement or other matter may at its discretion announce or refrain from announcing that it is sent at the request of a named Minister.

The Corporation shall send programmes to the External Services to such countries, in such languages and at such times as, after consultation with the Corporation, may from time to time be prescribed, with the approval of the Secretary of State and the Treasury , by such Departments of Her Majesty’s Government in the United Kingdom as may from time to time be specified in writing by the Secretary of State, and shall perform such other services by way of monitoring emissions of wireless telegraphy and recording matter intended to be broadcast by wireless telegraphy as after such consultation as aforesaid may from time to time be prescribed as aforesaid. The Corporation shall consult and collaborate with the Department so specified and shall obtain and accept from time such information regarding conditions in, and the policies of Her Majesty’s Government aforesaid towards, the countries so prescribed and other countries as will enable the Corporation to plan and prepare its programmes in the External Services in the national interest.

The Secretary of state may from time to time by notice in writing give directions to the Corporation as to the maximum time, the minimum time, or both the maximum and the minimum time which is to be given in any day, week or other period to broadcast in the Home Services, and as to the hours of the day in which such broadcasts are or are not to be given.

A direction under paragraph 1) may be framed in any way and in particular -

In any of the following cases that is to say –

if at any time during the continuance of these presents the Corporation shall not in the opinion of the Secretary of State have adequately performed the covenant on its part herein before contained to send efficiently programmes in the Home Services, and the External Services; or