VBNB72700 - Legal history: cases about having a profit motive
Morrison’s Academy Boarding Houses Association 1978 STC 1
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.
Morrison’s Academy Boarding Houses Association 1978 STC 1
The association was a charity and limited company. Its object was to establish and maintain boarding houses for the accommodation of pupils attending Morrison’s Academy. The Memorandum of Association stated that all income had to be put towards the promotion of its objects. The income could not be distributed by way of profit or dividend.
A charge was made to the parents of pupils attending the school for the provision of accommodation. It was accepted by both sides that these constituted taxable supplies and that the association was a taxable person.
The question at issue was whether they were supplies carried out in the course of business. The tribunal found they were not. This was because there was an absence of profit and therefore of commercial purpose.
The case was referred to the Court of Session. The Court decided that whether an activity carried on by a taxable person constituted a business was to be determined by considering the whole of the activities carried on. The Court found a taxable person can still be in business if the profit motive is absent because VAT is not charged on profit or income but on taxable supplies by taxable persons.
Finanzamt Freistadt Rohrbach Urfahr & Anor v Unabhängiger Finanzsenat Außenstelle Linz (Case C-219/12) [2013] BVC 269
Mr Fuchs installed a photovoltaic panel on the roof of his house and recovered the VAT incurred on the purchase of the installation. Mr Fuchs supplied all the electricity generated and bought what is required for his household use at the same price he supplied to the network. The electricity generated was always lower than the power consumed by Mr. Fuchs for his household use. The National court decided that he was not entitled to recover the VAT because he did not carry out economic activity.
The CJEU found that the installation of the solar panels on the operator’s residential house where the electricity produced is fed into the network for renumeration must be held as exploitation of the installed panel with the purpose of obtaining income on a continuing basis.
Paragraph 25 of the CJEU decision states:
It is clear both from the wording of article 4(1) of the Sixth Directive and the case-law of the Court that, for a finding that the exploitation of tangible or intangible property is carried out for the purpose of obtaining income therefrom, it is irrelevant whether or not that exploitation is intended to make a profit.
The CJEU added that the fact that the electricity produced from the panes is lower than the amount of electricity consumed by Mr Fuchs for household use is irrelevant.