EU Judgment: Member States can decide which supplies of cultural services may be exempt from VAT

On 15 February 2017, the Court of Justice of the European Union (CJEU) released its decision in the British Film Institute’s (BFI) UK VAT case concerning HMRC’s decision to refuse BFI’s claim for overpaid VAT in the period 1990 to 1996 on the sale of tickets for admission to screenings of films.

The First-Tier Tribunal had held that admission to a cinema or other venue showing films by a non-profit making body and registered charity, was a cultural service for the purpose of Article 13A(1)(n) of the Sixth Directive, now Article 132(1)(n) of the VAT Directive (Directive) and that in the absence of domestic implementing legislation during the claim period, the EU provisions had direct effect. Thus in its view BFI’s film admission income was exempt from VAT.

The Upper Tribunal upheld this decision and HMRC appealed to the Court of Appeal. The Court of Appeal referred the case to the CJEU asking whether the cultural services exemption has direct effect, so as to
exempt BFI’s supplies in the absence of any domestic implementing legislation. The referral also asked whether any discretion is given to Member States to discriminate between cultural services in their application of the exemption.

The CJEU, agreeing with the Advocate General (AG), found that where the subject matter of the provisions of an EU directive appear to be unconditional and sufficiently precise, they may be relied upon before the national courts by individuals where the Member State has failed to implement the directive in domestic law within the period prescribed or where it has failed to implement the directive correctly. However, in the current case the exemption laid down in the Directive refers only to ‘certain cultural services’ and the Directive does not specify which cultural services the Member States are required to exempt. The CJEU held that as Member States have discretion in the application of the exemption for cultural services, the Directive cannot be relied on directly by a taxable person. That meant HMRC’s interpretation of the EU provision applied.

Why it matters: This judgment is disappointing for those hoping to widen the narrow interpretation the UK placed on the exemption- for example those operating botanical gardens and holding events that may be cultural but are not theatrical, choreographic, or musical. It confirms that HMRC does have discretion to allow exemption for some cultural services whilst taxing others. Post Brexit however, there could be an opportunity for those in the cultural charity sector to lobby for an amendment to the UK legislation.

C-592/15 British Film Institute