On 3 July 2019, the European Court of Justice (ECJ) gave its judgment in case C-316/18 (The Chancellor, Masters and Scholars of the University of Cambridge). The case concerns the VAT treatment of the management of University funds.
Simplified facts:
- The University of Cambridge (hereinafter: University) is a charitable organization that provides exempted educational services to its undergraduate and master’s students and her PhD students. It also carries out a number of taxable services.
- The University has paid VAT on the fees for the professional management of the Cambridge University Endowment Fund (hereafter: Fund). The investment activities carried by this Fund out do not in themselves constitute economic activities, so that the transactions carried out by the Fund fall outside the scope of VAT.
- Tax payable on the management fee would therefore not be deductible by the University if the reimbursement for VAT purposes should be treated as a fee that should be attributed directly and exclusively to the investment activities themselves.
- According to the UK tax authorities, the investment activities of the University should be treated in the same way as the activities of any private investor; allowing a right to deduct would otherwise give business investors an unfair advantage over private investors.
The central question is whether for VAT purposes the VAT on the management fees of a fund manager can be directly and immediately attributed to the investment activities of a university, in which case this VAT can not be reclaimed. Or should that VAT actually be regarded as overhead costs of the general activities of the university, so that an appropriate part of it may be deducted? What are the criteria on the basis of which it is determined whether VAT on the expenditure concerned is deductible for a taxable person whose transactions partly, but not exclusively, consist of taxable transactions? The Court has already expressed itself in similar cases. However, the circumstances in this case differ so that those judgments do not provide a solution.
Judgment
The European Court of Justice rules as follows:
‘A taxable person that (i) is carrying out both taxable and exempt activities, (ii) invests the donations and endowments that it receives by placing them in a fund and (iii) uses the income generated by that fund to cover the costs of all of those activities is not entitled to deduct, as an overhead, input value added tax paid in respect of the costs associated with that investment.’
Source: Curia
