University of Cambridge v Revenue and Customs

In November 2004 the University of Cambridge (“the University”) went into occupation of a building it had newly constructed for the purposes of its faculty of education. The building is used by the University both for the provision of education at undergraduate and graduate level and for purposes of research. The University applied to Her Majesty’s Revenue & Customs [“HMRC”] for the necessary consent to entitle it to issue a certificate to the supplier of electricity to the building requiring the supplier to charge VAT in respect of those supplies at the reduced rate of 5% allowed by s.29A of and Note 3 of Group 1 to Schedule 7A to the VAT Act 1994. Those provisions allow payment of the reduced rate of 5% in respect of supplies of electricity for:

“use by a charity otherwise than in the course or furtherance of a business”.

The University is a charity but, as it admits, its provision of higher education is a business activity.

The University seeks to avoid the likely consequence of that admission by relying on Article 13 EU Principal VAT Directive (2006/112/EC). That article is in the same terms as article 4(5) of the Sixth VAT Directive and provides:

“Article 13

1.

States, regional and local government authorities and other bodies governed by public law shall not be regarded as 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 those activities or transactions.

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

In any event, bodies governed by public law shall be regarded as taxable persons in respect of the activities listed in Annex I, provided that those activities are not carried out on such a small scale as to be negligible.

2.

Member States may regard activities, exempt under Articles 132, 135, 136, 371, 374 to 377, and Article 378(2), Article 379(2), or Articles 380 to 390, engaged in by bodies governed by public law as activities in which those bodies engage as public authorities.”

The case for the University involves three propositions, namely:

These contentions were rejected by HMRC on 1st September 2005 and by the VAT and Duties Tribunal (Mr Edward Sadler and Miss Sheila Wong Chong) on the appeal of the University in a decision released on 12th March 2008. It is from that decision of the VAT and Duties Tribunal that the University now appeals pursuant to s.11 Tribunals and Enquiries Act 1992 on the ground that it is dissatisfied with it “in point of law”.

The Tribunal heard extensive evidence from Mr Kerry Sykes, the deputy director of finance of the University, and Mr Ian Lewis, the head of finance of Higher Education Funding Council for England (“HEFCE”) as to the constitution and funding of the University. So far as material to the first two propositions set out in paragraph 3 above, the Tribunal summarised that evidence in paragraphs 49 to 63 of its decision. For immediate purposes the following broad summary will suffice.

The University was incorporated by Statute in 1571. It is currently regulated by the Universities of Oxford and Cambridge Act 1923 and the secondary and tertiary legislation made thereunder. That legislation provides a complete code for the powers, governance and administration of the University. In addition, as the Tribunal recorded in paragraph 54 of its decision:

“...over the centuries an abundance of statutory and prescriptive rights have accreted to the [University], conferring special privileges or regulating aspects of its historic activities or assets and property rights.”

The funding of the University is derived from a number of sources, including the Cambridge University Press, public examination and assessment services, research grants and contracts, endowment and investment income, student fees and government funding almost entirely through HEFCE. The latter represents 20% of the University’s income from all sources (30% of the University Press and public examination fees are excluded). With regard to HEFCE funding the Tribunal recorded in paragraph 61:

“...the greater part of the funding is a block grant for teaching based simply on the number of students, and under current policy no conditions are attached to such per capita funding beyond standard conditions such as accounting for the spending of the funds and submitting to quality assurance supervision if requested. The [University] has full liberty to allocate the block grant funding as it sees fit. The [University] may be funded for a specific purpose beyond the block grant in which case, of course, the funding must be applied for that purpose and the University must comply with any special conditions imposed by HEFCE relating to the relevant project or funding.”

Whilst HEFCE funding is available to other universities on a similar basis their constitutions vary widely. The Tribunal recorded the evidence of Mr Lewis on that topic in paragraph 56 in these terms:

“...universities other than Oxford and Cambridge may be established in a number of ways: those created before 1992 were established by Royal Charter granted through the Privy Council or, in the case of some universities, incorporated under the Companies Act as companies limited by guarantee. In the case of those created since 1992, which changed status from polytechnics under local authority control to universities, they derive their university status and degree-awarding powers under the Further and Higher Education Act 1992. The University of Buckingham is a private university (that is, not funded by the State), and is incorporated as a non-profit-making company with degree-awarding powers granted by the Privy Council.”

As recorded by the Tribunal in paragraph 58 of its decision Mr Lewis described all English Universities as:

“...legally independent bodies responsible for the governance, management and direction of their own affairs which are funded from a range of public and private sources. They are not regarded as part of the public sector in the way that, say, a maintained school or NHS hospital is so regarded - thus, for example, their accounts are not classified to the public sector for National Accounts purposes, and they are not subject to direction from the government except to the extent that they receive public funding and thereby render themselves subject to any conditions attaching to such funding.”

The Tribunal noted in paragraph 4 of its decision that if the University failed on the third proposition, to which I have referred in paragraph 3 above, its appeal would be dismissed but that for its appeal to succeed it must establish all the three propositions on which it relied. The Tribunal dealt with the third proposition first in paragraphs 34 to 46. It noted in paragraph 35 the University’s concession that it was in fact carrying on an economic activity or business. It concluded in paragraph 45 that for the reasons expressed in the intervening paragraphs the University had not made out the convincing case required if it was to establish that Article 13 deemed it not to be carrying on a business when in fact it is.

The Tribunal recognised that this conclusion necessitated the dismissal of the University’s appeal but, in case it was wrong, went on to consider whether the University was within the ambit of Article 13. The Tribunal noted that this required the University to satisfy the two conditions reflected in the first and second of the propositions set out in paragraph 3 above. It considered the first of those propositions in paragraphs 76 to 91. For reasons I will consider in detail later the Tribunal concluded that the University is not “a body governed by public law”.

The Tribunal noted in paragraph 92 that if it was wrong in its conclusion on the first proposition then in order to succeed the University must show that in carrying out its activities it is acting as a public authority. It considered that issue in paragraphs 106 to 122. It concluded that even if the University is a body governed by public law it does not engage in its activities of providing higher education as a public authority.

Accordingly the University failed to establish any of the three propositions on which the success of its appeal depended. I propose to deal with them in the order in which I have set them out. That is the logical order and as the University must succeed on all of them if its appeal is to be allowed I see no reason to depart from it.

I start with the detailed reasons given by the Tribunal for answering that question in the negative. The Tribunal’s starting point was that:

“....the relevant expression, "States, regional and local government and other bodies governed by public law" must be understood in its proper context, namely as Community law which must apply fairly, uniformly and sensibly across the range of Community states and the diverse entities and organisations which are to be found in those states and through which those states organise their affairs.” [77]

The Tribunal then rejected a submission advanced by Counsel for the University to the effect that Community Law looks to the domestic law of the member state concerned to determine the conditions which a body must satisfy. The Tribunal considered that:

“...even if Article 13 has effect so that a Member State determines whether or not, under its domestic law, there is a special legal regime under which the public law body is operating, it [does not] follow[s] that Article 13 requires the Member State to determine what is a body governed by public law by reference to its domestic law: the two issues are distinct, the one looking to the bodies which are within Article 13, and the other to the way those bodies carry out functions within the domestic law.” [79]

The Tribunal then recorded a submission of counsel for HMRC to the effect that it was for the member state to identify “a body by its attributes or its conformity to a concept” derived from Community law so as to ensure consistent and uniform application in all member states “in compliance with the principle of fiscal neutrality”. It described the case of JP Morgan Fleming Claverhouse Investment Trust plc v HMRC [2007] ECR I-5517 as a recent example of the application of that principle. The Tribunal accepted the submission of counsel for HMRC as

“...self-evidently correct in applying a Community law provision such as Article 13 of the 2006 VAT Directive, as it ensures a uniformity of treatment within each Member State and across all Member States. It results in all bodies which have the same broad function and attributes (in this case, in the domestic context, English universities) having equal standing and treatment in relation to the application of Article 13...” [81]

The Tribunal noted in paragraphs 82 to 84 that such an approach also avoided difficulties arising from the fact that under English law some bodies are governed by public law and susceptible to judicial review in relation to only some of their activities and that in the case of universities only some are incorporated. In paragraph 85 the Tribunal considered what the relevant concept for identifying a body governed by public law is. In that context the Tribunal considered the decisions of the European Court of Justice in The European Commission v The Netherlands [1987] ECR 1471; Ayuntamiento de Sevilla v Recaudadores de Tributos de los Zonas primera y segunda [1991] ECR I-4135; European Commission v UK [2000] ECR I-6355 and CO.GE.P Srl v Ministero delle Finanze-Ufficio IVA di Milano (2007) C-174/06. The Tribunal concluded:

“We take from these cases the principle that, for Article 13 purposes, an entity, to be a body governed by public law, must be "part of the public administration", in the phrase used in the Netherlands case. It is not sufficient that it is carrying out by delegation a public function which could be, and sometimes is, carried out by the State itself. It is not sufficient that it is entrusted with powers and duties of a public nature in the performance of which it is amenable to judicial review in the English law context..... It is not sufficient that it is highly regulated by the State and operates within a comprehensive statutory regime. If it is a body which is inherently and by its nature not a creature or extension of the State it is not part of the public administration and is not a body governed by public law for these purposes.” [86]

The Tribunal agreed with counsel for HMRC that this conclusion is consistent with the language of Article 13 itself, and the Explanatory Memorandum on the Sixth Directive issued by the European Commission.

In paragraphs 87 to 91 the Tribunal applied that test and concluded that the University is not part of the public administration and therefore not a body governed by public law for the purposes of Article 13. Its reasons were that the University is a legally independent and autonomous institution; it is self-governing and independent in its management of its affairs. The Tribunal did not consider that the receipt of public funds through HEFCE on conditions designed to ensure the implementation of certain government policies could result in the University being part of the public administration.

Counsel for the University contends that the Tribunal was wrong in both its reasoning and its conclusion. He submits that it is illogical to justify the conclusion that a body governed by public law is a concept of European law by reference to the principle of fiscal neutrality when Article 13 is itself a departure, and a deliberate departure, from that principle. He submits that the authorities relied on by the Tribunal, which he subjected to detailed analysis, do not justify its conclusion either. He contends that other authorities on which he relies support his case. I propose to consider first the principle of fiscal neutrality, its application to Article 13 and whether it necessitates a European concept of a body governed by public law.

The principle of fiscal neutrality precludes economic operators carrying out the same or similar transactions from being treated differently for the purposes of VAT. It is designed to eliminate the distortion which will arise if supplies of goods or services in competition with each other are treated unequally for the purposes of VAT. It is a principle fundamental to the system of VAT imposed on member states and their nationals throughout the European Union by EU Principal VAT Directive (2006/112/EC) and, formerly, The Sixth VAT Directive. See generally JPMorgan Fleming Claverhouse Investment Trust plc v HMRC [2007] ECR I-5517, 5550 paras 45-47 and HMRC v Isle of Wight Council (2008) C-288/07 para 42.

Counsel for the University submits that any exemption from VAT is to that extent a departure from the principle of fiscal neutrality, as recognised by Rimer J in HMRC v Isle of Wight Council [2007] EWHC 219 (Ch) para 15. Further, he submits that, given the terms of Article 13(1) second sub-paragraph, there is no need, by reference to the principle of fiscal neutrality, to interpret the first sub-paragraph by reference to it because the necessary corrective is introduced by the second sub-paragraph. He submits that this effect was recognised by the European Court of Justice in Fiorenzuola d’Arda District Tax Office v Commune di Carpaneto Piacentino [1989] ECR 3323, 3275 paras 15 and 16 and Fazenda Publica v Camara Municipal do Porto [2000] ECR I-11435, 11470 para 16.

In my view this issue was authoritatively determined by the European Court of Justice in HMRC v Isle of Wight Council (2008) C-288/07. That case concerned the provision of off-street parking by local authorities. Historically local authorities had charged VAT on parking charges at the standard rate and accounted for it as output tax. Following the decision of the European Court of Justice in Fazenda Publica v Camara Municipal do Porto [2000] ECR I-11435 various local authorities reclaimed VAT so accounted for on the basis that Article 4(5) of the Sixth Directive, the predecessor of Article 13, applied so as to exempt the parking charges from VAT. These claims first came before Pumfrey J in 2004, see Customs & Excise v Isle of Wight Council [2005] STC 257, on the question whether the provisions of Article 4(5) second sub-paragraph had been incorporated into English law as well as the first sub-paragraph. He concluded that the second sub-paragraph was of direct effect and the matter was remitted to the VAT and Duties Tribunal.

The matter returned to the High Court, Rimer J, in 2007 in relation to the meaning of the phrase in Article 4(5) second sub-paragraph “would lead to significant distortions of competition”. For the reasons given in his judgment ([2007] EWHC 219 Ch) Rimer J referred three questions to the European Court of Justice. In his judgment giving his reasons for making that reference Rimer J observed in paragraphs 14 and 15

“14.

As to the correct interpretation of article 4.5, [counsel for HMRC] emphasised that this depends not just on an interpretation of its text but on its consideration against the relevant principles of Community law. He said the most relevant principle is that of fiscal neutrality, one which "precludes, inter alia, economic operators carrying on the same activities from being treated differently as far as the levying of VAT is concerned" (paragraph 20 of the ECJ's judgment in Gregg and another v Commissioners of Customs and Excise [1990] STC 934).

15.

The importance of that principle in VAT law is not in dispute although it is unclear to me how it can be relevant to the interpretation of article 4.5. The scheme of article 4.5 is that article 4.5(1) confers an exemption from taxability on public bodies in relation to their activities as such; but that article 4.5(2) cancels it in relation to any activity where its conferring would significantly distort competition. It does not, however, cancel it in cases in which an exemption would only distort competition insignificantly, a situation in which those carrying on the same activities are intended to be treated differently as regards the levying of VAT. If fiscal neutrality is the sacred watchword, there would be no scope for the article 4.5(1) exemption in such a case; and the only case in which any exemption might harmonise with the principle would or might be one in which the local authority is performing an activity which is not carried on in competition with others at all.”

The three questions Rimer J referred were:

“1.

Is the expression 'distortions of competition' to be ascertained on a public body by public body basis such that, in the context of the present case, it should be determined by reference to the area or areas where the particular body in question provides off-street parking or by reference to the totality of the national territory of the Member State?

2.

What is meant by the expression 'would lead to'? In particular, what degree of probability or level of certainty is required for that condition to be satisfied?

3.

What is meant by the word 'significant'? In particular, does 'significant' mean an effect on competition that is more than trivial or de minimis, a 'material' effect or an 'exceptional' effect?'”

In its judgment in HMRC v Isle of Wight Council (2008) C-288/07 the European Court of Justice explained the interrelationship of the various subparagraphs of Article 4(5) of the Sixth Directive. In paragraphs 40 to 43 it added:

“40.

It follows that the treatment of bodies governed by public law as taxable persons, either on the basis of the second subparagraph of Article 4(5) of the Sixth Directive, or on that of the third subparagraph of that provision, results from the carrying-on, as such, of a given activity, irrespective of whether or not those bodies face competition at the level of the local market on which they engage in that activity.

41.

That conclusion is supported by the general principles of Community law applicable to fiscal matters, such as the principles of fiscal neutrality and legal certainty.

Thus, the principle of fiscal neutrality, a fundamental principle of the common system of VAT (see, particularly, Case

C-255/02 Halifax and Others [2006] ECR I-1609, paragraph 92), precludes economic operators carrying on the same activities from being treated differently as far as the levying of VAT is concerned (see, particularly, Case C-216/97 Gregg [1999] ECR I-4947, paragraph 20).

42.

In that regard, it must be recalled that the second subparagraph of Article 4(5) of the Sixth Directive is intended to ensure compliance with the principle of fiscal neutrality (Case C-430/04 Feuerbestattungsverein Halle [2006] ECR I-4999, paragraph 24).

43.

Whilst it is true that the Sixth Directive provides for certain derogations which may interfere to some extent with the application of the principle of fiscal neutrality, like the derogation under the second subparagraph of Article 4(5) of the Sixth Directive (see, to that effect, Case C-378/02 Waterschap Zeeuws Vlaanderen [2005] ECR I-4685, paragraph 43), since that provision permits the treatment of bodies governed by public law as non-taxable persons provided that such treatment would only distort competition insignificantly, the fact remains that that derogation must be interpreted in such a way that the least possible damage is done to that principle.”

Counsel for the University submits that these observations only go to the second and third sub-paragraphs of Article 13.1 and not the first. The response of counsel for HMRC is to point to a later passage in the judgment of the court in which it deals with observations made by some member states in relation to the second question referred to it by Rimer J. In that context the European Court of Justice added in paragraphs 60 and 61:

“60.

It is important to record, as is clear from paragraph 30 of the present judgment, that the treatment of bodies governed by public law as non-taxable persons under the first subparagraph of Article 4(5) of the Sixth Directive constitutes a derogation from the general rule that any activity of an economic nature be subjected to VAT, and that this provision must, therefore, be interpreted strictly. But the second subparagraph of Article 4(5) restores that general rule in order to avoid such treatment of those bodies leading to significant distortions of competition. The latter provision cannot therefore be construed narrowly.

61.

The scope of the first subparagraph of Article 4(5) of the Sixth Directive would be enlarged unduly if the treatment, under the second subparagraph of Article 4(5), of those bodies as taxable persons had to be confined to cases of distortion of actual competition, which would, were they confronted only with potential competition, permit their treatment as non-taxable persons.”

In my view it is not possible, when reading the judgment of the court as a whole, to conclude that the principle of fiscal neutrality does not apply to all the subparagraphs of Article 13.1. If the second sub-paragraph is to be narrowly construed, as the court considered in paragraph 43, so as to minimise the effect of the derogation then so must the first because that is the primary derogation. That, albeit in a different context, is what the court said in paragraph 60. It follows that, in my judgment, the Tribunal was right when, in paragraph 16, it tested the submissions of counsel for the University by reference to the principle of fiscal neutrality.

I turn now to the second limb of the attack on the decision of the Tribunal mounted by counsel for the University, namely that the cases relied on by the Tribunal did not justify their conclusion that the concept of ‘a body governed by public law’ is one of Community law. They are those to which I have referred in paragraph 17 above. I will consider them in chronological order. The first is The European Commission v The Netherlands [1987] ECR 1471. That case concerned the supply of services in the Netherlands by notaries and bailiffs. The European Commission considered that notaries and bailiffs carried on an economic activity in the Netherlands and that the Kingdom of the Netherlands had infringed the Sixth Directive in failing to levy VAT on such activities. In a direct action the Commission sought a declaration as to the alleged default of that member state. The Kingdom of the Netherlands defended the action on two bases, first that in view of the statutory organisation of the profession of notary and bailiff their activities were not economic; second, that Article 4(5) Sixth Directive applied to their official acts.

The Court concluded that the activities of the notaries and bailiffs were independent of the state and economic in nature. In relation to the second point the court stated:

“20.....it should be observed that article 4(5) provides an exemption only for bodies governed by public law, and even then only for the activities or transactions in which they engage as public authorities.

21.

It is clear from that provision, when examined in the light of the aims of the directive, that two conditions must be fulfilled in order for the exemption to apply; 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. This means that bodies governed by public law are not automatically exempted in respect of all the activities in which they engage but only in respect of those which form part of their specific duties as public authorities.... and, secondly, that an activity carried on by a private individual is not exempted from VAT merely because it consists in carrying out acts falling within the prerogatives of the public authority.

22.

Consequently, even assuming that in performing their official services notaries and bailiffs exercise the powers of a public authority by virtue of their appointment to public office, it does not follow that they may enjoy the exemption provided for in article 4(5). The reason is that they pursue those activities, not in the form of a body governed by public law, since they are not part of the public administration, but in the form of an independent economic activity carried out in the exercise of a liberal profession.”

Counsel for the University submits that the last sentence of paragraph 22 is a mere reprise of the court’s conclusion on the first issue. Counsel for HMRC contends that it is an explicit recognition of its submission that the concept of ‘a body governed by public law’ is one to be determined in accordance with Community law and not by reference to the domestic law of member states. Further, he submits, it is indicative of the content of that concept, namely that a body governed by public law is one which forms “part of the public administration”. Before expressing my conclusion on those submissions I should refer to the other cases on which the Tribunal relied.

The second was Ayuntamiento de Sevilla v Recaudadores de Tributos de los Zonas primera y segunda [1991] ECR I-4135. That case concerned the addition of VAT to the premiums (being a proportion of the tax collected) paid to tax collectors appointed by local authorities in Spain. Such tax collectors were regulated by statute. The local authority refused to pay the VAT added to the premiums on the ground amongst others that Article 4(5) applied to exempt the activities of the tax collectors. The court in Spain referred to the European Court of Justice the question whether the activity of the tax collector must be considered to be non-taxable because it comprised activities or transactions in which those concerned engaged as public authorities in accordance with Article 4(5) of the Sixth Directive. The conclusion of the Court is tersely given in paragraphs 17 to 20 of its judgment in these terms:

“17.

The second question concerns the interpretation of Article 4(5) of the Sixth Directive, the first subparagraph of which provides as follows:

"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."

18.

As the Court has held on numerous occasions, it is clear from that provision, when examined in the light of the aims of the directive, that two conditions must be fulfilled in order for the exemption to apply: 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 (judgments in Case 107/84 Commission v Germany [1985] ECR 2655, paragraph 11; Case 235/85 Commission v Netherlands, cited above, paragraph 21; Joined Cases 231/87 and 129/88 Comune de Carpaneto Piacentino and Others [1989] ECR 3233, paragraph 12).

19.

With regard to the first of those two conditions, the Court has already held in its judgment in Commission v Netherlands (at paragraph 21) that an activity carried on by a private individual is not excluded from the scope of VAT merely because it consists in the performance of acts falling within the prerogatives of the public authority.

20 It follows that, if a commune entrusts the activity of collecting taxes to an independent third party, the exclusion from VAT provided for by the abovementioned provision is not applicable.”

Counsel for the University points out that the court did not in that case refer to the need for the activity in question to form part of the public administration. In contrast counsel for HMRC points out that the final sentence in paragraph 19 points to a concept which is at least similar.

The third case on which the Tribunal relied is European Commission v UK [2000] ECR I-6355. That case was concerned with whether VAT should be levied on tolls charged for the use of roads and bridges in the UK. They fell into three categories. The first category included bridges owned and operated by central government, the second related to bridges and tunnels owned and operated by local passenger authorities and the third comprised what are known as PFIs, namely Private Finance Initiatives. These are concessionaires of central government which operated certain crossings and bridges. The UK did not levy VAT on the toll charges. By this direct action the Commission sought to compel the UK to do so. The UK relied on Article 4(5) of the Sixth Directive as a defence to the claim.

The defence failed. The Court considered that the various operators were carrying out an economic activity (paragraph 42). The fact that the facilities provided were in the public interest was irrelevant (paragraph 43). There being a direct link between the services provided and the consideration paid for them entailed a relevant supply of services (paragraph 46). The Court then considered the defence under Article 4(5). The court noted that there were two conditions for the application of that Article. In relation to the first it said:

“54.

However, as also noted in paragraph 49 of this judgment, the non-taxable status provided for in Article 4(5) of the Sixth Directive requires that the activities be carried out not only as a public authority but also by a body governed by public law.

55.

In that regard the Court has held that an activity carried on by a private individual is not excluded from the scope of VAT merely because it consists in the performance of acts falling within the prerogatives of the public authority (Case 235/85 Commission v Netherlands, cited above, paragraph 21, and Ayuntamiento de Sevilla, cited above, paragraph 19). The Court held, in paragraph 20 of the latter judgment, that it follows that if a commune entrusts the activity of collecting taxes to an independent third party the exclusion from VAT provided for by Article 4(5) of the Sixth Directive is not applicable. Similarly, the Court held in paragraph 22 of the judgment in Case 235/85 Commission v Netherlands, cited above, that even assuming that in performing their official services notaries and bailiffs in the Netherlands exercise the powers of a public authority by virtue of their appointment to public office, they cannot enjoy the exemption provided for in Article 4(5) of the Sixth Directive because they pursue those activities, not in the form of a body governed by public law, since they are not part of the public administration, but in the form of an independent economic activity carried out in the exercise of a liberal profession.

56.

In the present case it is common ground that, in the United Kingdom, the activity of providing access to roads on payment of a toll is carried out in certain cases not by a body governed by public law but by traders governed by private law. In such cases the exemption provided for by Article 4(5) of the Sixth Directive is not applicable.”

This conclusion related to tolls levied by operators in the third category of PFI.

Counsel for the University submits that this case shows that the PFI operators were not public bodies under the domestic law of the UK but does not enunciate any proposition of Community law. But, as counsel for HMRC points out by reference to paragraphs 40 to 44, the PFI concessionaires were not operating under the aegis of private domestic law but were bound by the same statutes as the public bodies.

The last case relied on by the Tribunal under this heading is CO.GE.P Srl v Ministero delle Finanze-Ufficio IVA di Milano (2007) C-174/06. In that case the Consortium of the Port of Genoa let areas of state-owned maritime property for the storage, manufacture and handling of mineral oils. The issue was whether VAT was payable on the consideration for those lettings. The basis on which the court approached that question is clearly set out in paragraphs 24 and 25 of the Court’s decision in these terms:

“24.

It should be noted at the outset that it is apparent from the order for reference that the Consortium is a public economic entity which, as regards the management of the State property entrusted to it, acts not in the name of and on behalf of the State, which remains the owner of that property, but on its own account, in so far as it administers that property, inter alia by making independent decisions.

25.

Thus, so far as the Consortium is concerned, the cumulative conditions required to apply the rule of treatment as a non-taxable person under the first subparagraph of Article 4(5) of the Sixth 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, are not fulfilled (see, to that effect, Case C-446/98Fazenda Pública [2000] ECR I-11435, paragraph 15).”

Counsel for the University suggests that no conclusions can be drawn from this judgment. What, he asks, is meant by the apparently new concept of a ‘public economic entity’. He submits that the form of reference dictated the result, not a decision of the Court. By contrast Counsel for HMRC contends that paragraph 24 shows clearly that the relevant concept is one of Community, not domestic, law.

I can express my conclusions on this part of the appeal quite shortly. In each of the four cases the European Court of Justice went out of its way to consider the content of the concept of a body governed by public law and some of the attributes such a body must possess. If that content and those attributes were matters for the domestic law of each member state then the European Court of Justice was exceeding its jurisdiction in considering them. Thus paragraph 21 of The European Commission v The Netherlands [1987] ECR 1471, paragraph 19 of Ayuntamiento de Sevilla v Recaudadores de Tributos de los Zonas primera y segunda [1991] ECR I-4135, paragraph 55 of European Commission v UK [2000] ECR I-6355, paragraph 24 of CO.GE.P Srl v Ministero delle Finanze-Ufficio IVA di Milano (2007) C-174/06 and paragraph 60 of HMRC v Isle of Wight Council (2008) C-288/07 could not have been properly included in the judgment of the European Court of Justice if the issue of what is a body governed by public law is to be determined in accordance with the domestic law of each member state.

Counsel for the University also criticised the conclusion of the Tribunal in paragraph 86 of its decision that its construction of the relevant phrase was consistent with the Explanatory Memorandum on the Sixth Directive issued by the European Commission. Counsel contends that the Memorandum is of no assistance on the issue of whether a body governed by public law is a concept of Community law and if so what its content is. Further, he submits that in so far as it deals with the second condition imposed by Article 13.1 it was not achieved. There is substance in both those observations but the terms of the Explanatory Memorandum, whatever they are, cannot nullify the effect of decisions of the European Court. Further, as the Tribunal noted, there is nothing in the Explanatory Memorandum inconsistent with its conclusion.

I should now refer to various cases which Counsel for the University submitted supported his proposition that it was a matter for the domestic law of each member state to determine the conditions to be possessed by ‘a body governed by public law’. They are Fiorenzuola d’Arda District Tax Office v Commune di Carpaneto Piacentino [1989] ECR 3323; Commune di Carpaneto Piacentino v Piacenza District Tax Office [1990] ECR I-1869; Waterschap Zeeuws Vlaanderen v Staatssecretaris van Financien [2005] ECR I-4685 and T-Mobile Austria GmbH v Republic of Austria [2008] STC 184. Each of them was primarily concerned with the second condition imposed by Article 13.1 namely that the body should have engaged in the relevant activities “as public authorities”.

In Fiorenzuola d’Arda District Tax Office v Commune di Carpaneto Piacentino [1989] ECR 3323 the European Court of Justice was concerned with transactions entered into by local authorities in relation to graves, vaults, cemeteries and other facilities. The questions referred related to the application of Article 4(5) of the Sixth Directive in the absence of any implementing domestic legislation. In paragraphs 15 and 16 the Court said:

“15.

An analysis of the first subparagraph of Article 4(5) in the light of the scheme of the directive shows that it is the way in which the activities are carried out that determines the scope of the treatment of public bodies as non-taxable persons. In so far as that provision makes such treatment of bodies governed by public law conditional upon their acting "as public authorities", it excludes therefrom activities engaged in by them not as bodies governed by public law but as persons subject to private law. Consequently, the only criterion making it possible to distinguish with certainty between those two categories of activity is the legal regime applicable under national law.

16.

It follows that the bodies governed by public law referred to in the first subparagraph of Article 4(5) of the Sixth Directive engage in activities "as public authorities" within the meaning of that provision when they do so under the special legal regime applicable to them. On the other hand, when they act under the same legal conditions as those that apply to private traders, they cannot be regarded as acting "as public authorities". It is for the national court to classify the activity at issue in the light of that criterion.”

This passage was repeated more or less verbatim in the second of these cases, namely, Commune di Carpaneto Piacentino v Piacenza District Tax Office [1990] ECR I-1869. Counsel for the University fastens on the last sentence of paragraph 16 in the first case and submits that it must also be for the national court to classify ‘a body governed by public law’. I do not accept that submission. The application of Article 4(5) depended on satisfaction of both conditions. The court’s reference to the national court related only to the second. I can understand and accept that in the case of a body governed by public law which satisfies the criteria for such a body laid down by Community law then the test in relation to the second condition to be applied by the national court will involve ascertaining whether or not the activities in question were undertaken under the special legal regime applicable to that body under its national law. But the converse is not the case. The fact that under the national law a particular body carries on its operations under a legal regime special to itself, which might be described in that member state as public, does not, of itself, constitute that body a body governed by public law for the purposes of Article 13.1.

Waterschap Zeeuws Vlaanderen v Staatssecretaris van Financien [2005] ECR I-4685 concerned the construction of sewage works by Waterschap, which under its national legislation was governed by public law. It sought to recover the VAT paid in respect of capital items used in its construction so far as they had been used for the activities in which it engaged as a public authority. Counsel for the University points out that Advocate-General Jacobs in paragraph 11 of his opinion appears to have accepted that Waterschap was a body governed by public law because that is what it was under the relevant national legislation. But there was no issue in that case whether the body was one governed by public law in the Community sense.

In T-Mobile Austria GmbH v Republic of Austria [2008] STC 184 the control commission, TCK, was responsible to authorising the use of frequencies for mobile telecommunications in return for a fee. T-Mobile had paid such fees and sought the issue of VAT invoices so that it might deduct the amount of VAT as input tax. TCK refused to do so. The European Court of Justice concluded that Article 4(5) did not enter into the argument as the activities of TCK were not economic activities at all. But the Advocate-General in paragraphs 105 to 107 of her opinion said:

“105.

Under the first subparagraph of art 4(5) of the Sixth Directive two conditions must be fulfilled in order for there to be no liability to tax: 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.

106.

The court has ruled with regard to the first condition that an activity carried on by a private individual is not exempted from VAT merely because it consists in carrying out acts falling within the prerogatives of the public authority. There, however, the court was particularly concerned with persons pursuing an independent economic activity who were not part of the public administration.

107.

The Telekom-Control-Kommission is located at Telekom-Control GmbH. Although its form is that of a company governed by private law none of the parties involved in this case have expressed any doubt as to whether the Telekom-Control-Kommission should be considered part of the public administration. It is for the national court to examine whether this categorisation is correct under national law.”

Counsel for the University relies on the last sentence in paragraph 107 as support for his proposition that it is for the national court to determine what criteria are required by ‘a body governed by public law”. I do not agree. In the final sentence of paragraph 106 the Advocate-General recognised, in terms, the Community law concept requiring the body to be part of the public administration. In the second sentence of paragraph 107 she recorded that it was common ground that TCK should be considered to be part of the public administration. The third sentence points out, as is uncontroversial, that it is for the national court to determine in any given case whether the Community concept is satisfied.

For all these reasons I do not accept that any of the cases relied on by the University is support for the proposition that it is for the national courts to determine what are the content and attributes of a body governed by public law as opposed to the different question whether any particular body has the attributes required of such a body by Community law.

Finally I should refer to the principles by which, in the submission of counsel for the University, a body governed by public law is to be ascertained in accordance with the law of the UK. He submits that the University is such a body because it is a creature of statute, its powers or duties are derived from legislation primary or secondary. These features distinguish it from private traders. Accordingly it is by its very nature a public body governed by public law. He suggests that this approach mirrors the principles to be applied to determine whether any particular body is amenable to judicial review. Alternatively he draws an analogy with the tests for determining whether any particular body is a public authority for the purposes of the Human Rights Act 1998.

In my view it is this submission which demonstrates most clearly that the proposition in support of which it is advanced cannot be right. Not all universities are incorporated or governed by statute. Not all universities are amenable to judicial review. R v University of Nottingham, ex parte K [1998] ELR 184. Even those which are, such as the University, are not amenable to judicial review in respect of all their activities, compare R v Cambridge University, ex parte Persaud [2001] EWCA Civ. 534 and Evans v University of Cambridge [2002] EWHC 1382. Further, it is well recognised that concepts of EU law do not provide a reliable guide to the application of the Human Rights Act 1998 or vice versa, see R v Quadrant Housing Trust, ex parte Weaver [2008] EWHC Admin 1377, para 47. The recognition of any such proposition as counsel for the University advances would introduce anomalies and uncertainties into this field which no legislature could possibly have intended.

I would reject the first proposition on which the University relies. Article 13.1 is part of a directive having direct effect in all member states, see Fiorenzuola d’Arda District Tax Office v Commune di Carpaneto Piacentino [1989] ECR 3323. It would be inconsistent for such a directive to have as one of its central concepts a term the meaning of which is to be determined by the national law of member states. It would also be wholly at variance with the principle of fiscal neutrality for the ambit of an exemption to depend on the manner in which each national court interprets that concept. The decisions of the European Court of Justice on which the Tribunal relied contradict the proposition for which counsel for the University contends and the decisions on which he relied to do not support it. They establish that “a body governed by public law” must, as a matter of Community law, be identified as part of the public administration of the relevant member state. Whether or not any particular institution can be so identified is a matter for the national court. The Tribunal considered that the University could not be so identified. In my judgment they were right for the reasons they gave.

This is the second proposition on which counsel for the University relied. Given my conclusion on the first, the answer must be in the negative.

In the light of my conclusions on the first and second propositions this issue does not arise. But having heard full argument on it from counsel for the University it may be helpful if I indicate shortly my conclusion.

Counsel for the University submits that the effect of Article 13 in cases to which it applies is to remove the activity in question from the ambit of VAT altogether. He relies on what he describes as the scheme of the Directive, the observations of the Advocates-General in Waterschap Zeeuws Vlaanderen v Staatssecretaris van Financien [2005] ECR I-4685, 4694 para 41 and T-Mobile Austria GmbH v Republic of Austria [2008] STC 184, 199 para 78 and various anonomalies he suggests would otherwise arise.

The object of this argument is to persuade the court to go beyond the consequence of the application of Article 13 for which it provides. The Article states in terms that in cases to which it applies the ‘body governed by public law’ ‘shall not be regarded as [a] taxable person in respect of the activities or transactions in which [it] engage[s] as [a] public authorit[y]’. A taxable person is defined in Article 9.1 of EU Principal VAT Directive (2006/112/EC) as:

“...any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity.”

Had it been intended that the effect of Article 13 should be, as counsel for the University contends, then it would have been a simple matter for the Directive so to have provided.

I agree with the Tribunal’s view expressed in paragraph 45 that it requires a convincing case to establish that in promulgating Article 13 the Council of the European Union intended that the activities of the public body should be treated as not economic rather than that the public body should not be regarded as a taxable person. I do not consider that all or any of the arguments advanced by counsel for the University are sufficient.

For all these reasons I consider that the Tribunal was right in point of law to have concluded that the University is not a body governed by public law. Consequently Article 13 cannot have the effect of deeming the activities of the University for which the electricity is to be supplied to be undertaken otherwise than in the course of furtherance of a business. It follows that the lower rate of VAT for which s.29A of and Note 3 of Group 1 to Schedule 7A to the VAT Act 1994 provides is not applicable to the supplies of electricity to the Faculty of Education.

I dismiss this appeal.