1999 (3) TMI 624 - HC - VAT and Sales Tax

Issues Involved:
1. Whether section 4 of the Value Added Tax Act 1994 and article 4 of the Sixth Council Directive (77/388/E.E.C.) make certain activities carried out by the Institute of Chartered Accountants in England and Wales chargeable to VAT.
2. If the activities are chargeable to VAT, whether the Institute is a body governed by public law and engages in these activities as a public authority, thereby not being considered a taxable person for these activities.

Issue-wise Detailed Analysis:

Issue 1: VAT Chargeability of Activities
The primary question is whether the activities carried out by the Institute of Chartered Accountants in England and Wales are subject to VAT under section 4 of the Value Added Tax Act 1994 and article 4 of the Sixth Council Directive (77/388/E.E.C.). According to the Directive, "the supply of goods or services effected for consideration by a taxable person acting as such" is subject to VAT. The Act states that "VAT shall be charged on any supply of goods or services made in the United Kingdom where it is a taxable supply made by a taxable person in the course or furtherance of any business carried on by him."

The Institute performs three key functions under statutory regulations:
1. Financial Services Act 1986: The Institute is recognized as a professional body authorized to issue certificates for investment business, ensuring high standards of integrity.
2. Companies Act 1989: The Institute is recognized as a supervisory body for company auditors, ensuring that only fit and proper persons are appointed and monitored.
3. Insolvency Act 1986: The Institute is recognized as a professional body with the authority to grant, review, or terminate licenses for insolvency practitioners.

The Institute charges fees for these regulatory activities, which are aimed at breaking even over time. The Tribunal and subsequent courts held that these activities are not chargeable to VAT as they are regulatory functions carried out for the protection of the public, not economic activities.

Issue 2: Public Authority and Taxable Person Status
If the activities were chargeable to VAT, the next question is whether the Institute is a body governed by public law and engages in these activities as a public authority. According to article 4(5) of the Directive, "State, 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."

The Institute's activities under the three statutes are regulatory functions performed on behalf of the State to ensure public protection. The European Court of Justice has clarified that not all activities involving the supply of services for consideration qualify as economic activities. Activities must have an "economic character." In this case, the Institute's functions are regulatory, not commercial or trading activities, and thus do not qualify as economic activities.

Conclusion:
The House of Lords concluded that the Institute's regulatory functions are not economic activities and do not fall within the scope of VAT chargeability. The Institute's activities are performed on behalf of the State for public protection and do not constitute a business or economic activity. Consequently, the appeal was dismissed, and the Institute is not considered a taxable person for these activities.

Judgment:
The appeal was unanimously dismissed by the House of Lords, affirming that the Institute's activities are not subject to VAT and are not economic in nature. The decision emphasized the regulatory and public protection nature of the Institute's functions, aligning with previous rulings and interpretations of the Directive and the Act.

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