Revenue And Customs v The Open University

The EU education exemption must be interpreted strictly, but not restrictively. The expression ‘body governed by public law’ has the same meaning in the relevant VAT provisions and principally asks whether the body forms part of the public administration. Educational activity may be supplied through distance learning where the supplier provides the necessary combination of knowledge transfer and organisational framework. No fixed two-way exchange between teacher and student is essential. An educational aim need not be the supplier’s sole or principal aim. Where a Member State has failed to implement the exemption correctly, sufficiently precise and unconditional rights may be relied on directly, subject to fiscal neutrality and the exemption’s purpose.

The BBC supplied television and radio production and broadcasting services relating to Open University courses between 1 January 1978 and 31 July 1994. The BBC claimed repayment of approximately £21 million in VAT, on the basis that the supplies were exempt educational or closely related services under the Sixth VAT Directive.

HMRC rejected the claim. The First-tier Tribunal allowed the Open University’s appeal. The Upper Tribunal dismissed HMRC’s appeal. HMRC appealed to the Court of Appeal, challenging the findings that the BBC had the requisite educational aim and that the United Kingdom had defined it as having similar objects. The central questions were whether the BBC was a body governed by public law, whether it supplied qualifying education or training, and whether direct effect could be relied on if the domestic implementation was defective.

Appeal dismissed. The court unanimously upheld the result reached by the Upper Tribunal.

1. The expression ‘other bodies governed by public law’ in Article 4(5) and Article 13A(1)(i) of the Sixth VAT Directive has the same meaning. The relevant question is whether the body forms part of the public administration and pursues the activity in fulfilment of that role. The assessment is multi-factorial. Public ownership, public funding, a royal charter, public-law powers, supervision, or a power to close the body are not by themselves decisive.
2. The BBC was not a body governed by public law. Its operational and editorial independence, particularly its independence over the subject matter and content of broadcasting and the deployment of staff, showed that it did not carry on its activities as part of the public administration. The Court of Appeal should not disturb the Upper Tribunal’s multi-factorial evaluation absent an error of law or a plainly wrong conclusion.
3. Following Horizon College, educational activity requires a combination of knowledge transfer and an organisational framework. That requirement is not confined to conventional schools or universities and must be adapted to distance learning. A fixed requirement for questioning, discussion, feedback, or assessment by teachers was unsupported by the authorities. The BBC’s complete courses, supporting materials, educational policies and organisational infrastructure were capable of satisfying the requirement.
4. The BBC’s educational aim was established by its objects and its economic and operational reality. It was unnecessary for education to be its sole or principal aim, or for its aim to match the precise type of education supplied by the Open University. It was sufficient that qualifying education and vocational training formed part of its objects.
5. The court did not finally determine the difficult question whether the United Kingdom had defined the BBC as having similar objects. It was unnecessary to do so. The Open University and the BBC could rely directly on Article 13A(1)(i), because the provision was sufficiently precise and unconditional and exclusion of the BBC would conflict with the exemption’s purpose and fiscal neutrality. Lord Justice Lewison adopted a somewhat narrower view of unsupported distance learning but agreed that the BBC’s supported courses qualified. The Senior President agreed with the Chancellor, while observing that expert evidence might be needed if the organisational requirement were narrowly defined.

• Court of Appeal (Civil Division) dismissed HMRC’s appeal and upheld the Upper Tribunal’s decision.
• Upper Tribunal (Tax and Chancery Chamber) dismissed HMRC’s appeal from the First-tier Tribunal.
• First-tier Tribunal (Tax Chamber) allowed the Open University’s appeal against HMRC’s refusal of the repayment claim.