Introduction

The case of Capernwray Missionary Fellowship of Torchbearers v. Revenue and Customs ([2015] UKUT 368 (TCC)) addresses pivotal issues surrounding the determination of what constitutes an economic activity under the Value Added Tax Act 1994 (VATA). This judgment delves into whether the activities of a charitable organization involved in constructing and operating a conference hall qualify as zero-rated supplies for VAT purposes. Central to this case is the consideration of whether questions of EU law should be referred to the Court of Justice of the European Union (CJEU) for preliminary rulings.

Summary of the Judgment

The Upper Tribunal (Tax and Chancery Chamber) dismissed the joint application by the appellant, Capernwray, and the respondent, HM Revenue and Customs (HMRC), to refer specific questions regarding the interpretation of EU VAT law to the CJEU. Capernwray contested HMRC's ruling that its supplies related to the construction of a conference hall were not eligible for zero-rating under VAT, arguing that the hall was used solely for charitable purposes. The Tribunal assessed whether it possessed the necessary confidence to interpret EU law without a CJEU reference. Concluding that the existing jurisprudence provided sufficient guidance, the Tribunal refused the application for an early referral, leaving the possibility open for reference at a more advanced stage of the substantive appeal.

Analysis

Precedents Cited

The judgment extensively references seminal cases that define the scope and interpretation of economic activities within EU VAT law. Key precedents include:

• Commission for the European Communities v Republic of Finland (Case C-246/08) – Discusses the criteria for determining economic activities based on permanence and remuneration.
• Hutchison 3G UK Ltd v Customs and Excise Commissioners (Case C-369/04) – Clarifies that not all permanent remunerated activities are economic activities.
• Reg. v. Pharmaceutical Society of Great Britain, Ex parte Association of Pharmaceutical Importers – Establishes the Lord Fisher indicia for assessing economic activities.
• Floridienne SA and Another v Belgian State (Case C-142/99) – Examines the necessity of a business or commercial purpose in economic activities.
• SPÖ Landesorganisation Kärnten v Finanzamt Klagenfurt (Case C-267/08) – Differentiates between income derived from economic activities and that from charitable objectives.

These cases collectively inform the Tribunal's approach to evaluating whether an organization's activities qualify as economic activities under EU VAT law.

Legal Reasoning

The Tribunal employed a nuanced interpretation of Article 267 of the Treaty on the Functioning of the European Union (TFEU), which governs the preliminary ruling procedure. Central to this is the "complete confidence" test derived from ex parte Else, which determines whether national courts can adequately resolve EU law issues without CJEU intervention. The Tribunal assessed the application at a preliminary stage, considering whether existing CJEU jurisprudence sufficed to address Capernwray's arguments. Given the alignment of the case facts with established precedents, the Tribunal concluded that it could confidently interpret EU law without seeking a preliminary ruling.

Furthermore, the Tribunal analyzed the Lord Fisher indicia to assess the economic nature of Capernwray's activities. While acknowledging that some activities, such as religious worship and evangelism, may not inherently be economic, the Tribunal found that services like board and lodging provided for remuneration were economic in nature. The reliance on volunteers and donations was deemed insufficient to negate the economic aspect of these services.

Impact

This judgment reinforces the principle that national tribunals must exercise discretion before seeking CJEU intervention, particularly when established EU jurisprudence provides clarity on the issues at hand. For charities and similar organizations, the decision underscores the importance of assessing the economic nature of their activities in the context of VAT regulations. It also emphasizes that operational characteristics, such as remuneration and permanence, play a crucial role in determining VAT obligations.

Additionally, the refusal to refer at an early stage sets a precedent for future cases, promoting efficiency in judicial proceedings by encouraging tribunals to rely on existing case law unless faced with novel or highly ambiguous EU law questions.

Complex Concepts Simplified

Preliminary Ruling Procedure

Under Article 267 TFEU, national courts can request the CJEU to interpret EU law to ensure uniform application across member states. This is known as a preliminary ruling.

Economic Activity under VAT Law

For an organization’s activity to be taxable under VAT, it must be deemed an economic activity. This generally requires the activity to be permanent and carried out for remuneration, but exceptions exist, particularly for charitable organizations.

Complete Confidence Test

This legal standard assesses whether a national tribunal is sufficiently certain in its interpretation of EU law without needing a CJEU ruling. If there is significant doubt, a preliminary reference should be made.

Lord Fisher Indicia

A set of criteria used to determine whether an activity is economic. These include the seriousness of the undertaking, continuity, substance, regularity, consumer-focused supplies, and market-typical business principles.

Conclusion

The Upper Tribunal's decision in Capernwray Missionary Fellowship v. HMRC notably clarifies the thresholds for referring VAT-related economic activity questions to the CJEU. By affirming that established EU case law provides sufficient guidance, the Tribunal promotes judicial efficiency and reinforces the application of existing legal frameworks. For charitable organizations like Capernwray, the judgment delineates the boundaries of economic activity for VAT purposes, emphasizing the importance of operational factors over charitable intent in VAT assessments. This case thereby contributes to the evolving landscape of VAT law, particularly in balancing tax obligations with the non-commercial objectives of charitable entities.