VBNB72050 - Legal history: cases about the business test
Wakefield College [2018] BVC 22
Borsele (Case C-520/14) [2016]
Vereniging Noordelijke Land-en Tuinbouw Organisatie (VNLTO) 2009 STC 935
Please note that the following material is not a full summary of the case - it merely highlights the principle referred to in the appropriate section of this manual.
Wakefield College [2018] BVC 22
The issue before the Court of Appeal (CoA) was whether the provision of further education courses to subsidised fee-paying students was an economic activity. Wakefield considered its activities were non-economic and therefore not in business for VAT purposes. The CoA considered whether there is a supply for consideration and whether that supply constitute economic activity following the two-stage test (Articles 2 and 9 test) in Borsele the Court states that because a payment is made in exchange for a supply does not automatically imply that the supply constitute an economic activity, all the circumstances under which the supply is made must be considered to determine if it is economic/business.
This case confirms our policy that where the charges for the supply is fixed with reference to the cost of the goods or services provided and the supplier operates in the market, the activity constitutes an economic activity.
The Court found that the supply of courses to subsidised fee paying students is an economic activity for the following reasons:
- the sole activity of the college is education, this is not comparable to Borsele where transport was ancillary to its other activities .
- courses provided to subsidised fee-paying students is a significant, albeit minority, part of the College's total undertaking .
- fees paid by such students are significant in amount.
- subsidised fees made a significant contribution to the cost of providing courses to subsidised fee-paying students (25-30%).
- the level of fees was fixed by reference to the cost of the courses .
- the fees were not fixed by reference to the means of the students or employers or others paying the fees .
- there’s a market in the provision of further and higher education
Borsele (Case C-520/14) [2016]
Borsele (Case C-520/14) [2016] is a local authority who provided school transport to parents of whom one third paid a contribution amounting to just 3% of total costs. This charges paid were fixed in reference to the ability of the recipients contribution, it was depended on the journey distance and in some cases on what the parents can afford. The Municipality saw this as a taxable supply to parents and therefore entitled to input tax recovery. The ECJ followed the Advocate-generalʼs two-stage test finding that although there was consideration there was no genuine link between the parentʼs contributions and the service supplied to make it an economic activity. Furthermore, the Municipality was not undertaking economic activities in the market for transportation but rather was a final consumer.
She went on to consider ‘a specific, implicit condition that must be satisfied in order for an activity to be carried out for the purpose of obtaining income within the meaning of art 9: market participation’.
The Court confirmed that to be an economic activity the service must be supplied ‘in return for remuneration’, and that, in order to determine whether that is so, ‘all the circumstances in which it is supplied’ have to be examined.
Such a difference between the operating costs and the sums received in return for the services offered suggests that the parental contribution must be regarded more as a fee than as consideration
Vereniging Noordelijke Land-en Tuinbouw Organisatie (VNLTO) 2009 STC 935
An organisation claimed input tax on the costs of the general promotion of its members’ interests. The Court was asked to rule on when Articles 6(2) and 17(2) of the Sixth Directive apply.
It held that they do not apply to the use of goods and services allocated to the business for the purpose of transactions which are not taxable transactions of the taxable person. This is because the tax on goods and services that relates to transactions that are not taxable cannot be claimed.
The Court stated that 'business' extends beyond economic activities giving rise to supplies within the scope of VAT. It also includes any activity that forms part of the wider purpose of the taxable person's undertaking or enterprise.
So if the activity is part of the taxable person’s wider purpose, the term ‘business’ covers even those activities that are not economic activities (such as those outside the scope of VAT) and which are not normally regarded as 'business' for UK VAT purposes.