Whether input VAT on Cambridge University’s investment management fees is residual input VAT

Wed 04 Apr 2018

The Court of Appeal has decided to refer to the CJEU  the question of whether input VAT on Cambridge University’s investment management fees were residual overheads of the University’s overall business (and so subject to a PESM apportionment), or were totally used up in the management of its investment portfolio (and therefore directly related to exempt supplies).

The decision runs through a range of case-law on the issue such as:

• BLP (Case C-4/94 – input VAT on professional fees in relation to sale of a German subsidiary not deductible);
• Midland Bank (Case C-98/98 – input VAT on professional fees incurred in litigation arising from acting for a client in a takeover bid – held to be overhead costs);
• Abbey National (C-408/98 – input VAT on professional fees connected with the sale of leases regarded as overheads of the main business);
• Kretztechnik (C-465/03 – input VAT on Frankfurt stock exchange listing fees connected with a share issue to refinance the business – overheads of the main business);
• SKF (C-29/08 – input VAT on fees connected with valuing two companies it wanted to dispose of to refinance the group – overheads of the main business).  In this case the Court of Appeal seemed to place significance on the following comment: “However, if the right to deduct input VAT paid on consultancy costs relating to a disposal of shares which is exempted because of involvement in the management of the company whose shares are sold was not allowed, and if the right to deduct input VAT in respect of such costs relating to a disposal which is outside the scope of VAT was allowed on the ground that those costs constitute general costs of the taxable person, that would amount to treating objectively similar transactions differently for tax purposes, and would be an infringement of the principle of fiscal neutrality.”;
• Sveda (Case C-126/14,– input VAT on the construction of a pathway was recoverable as overheads in relation to the business’s main activity – selling food and souvenirs to tourists);
• Iberdrola (Case 132/16 – input VAT on repairing pumps for a local authority deemed to be overheads of its general property construction activity);
• Associated Newspapers ([2017] EWCA Civ 54 – input VAT on provision of vouchers given away free held to be part of the business of supplying newspapers);
• Wellcome Trust (Case C-155/94 – no deduction for input tax on professional fees incurred in connection with the sale of some of its shares in order to fund medical research as it fell to be treated as a private investor).

Determining what is residual input VAT and the partial exemption calculation method to apply to this figure is not always straight forward. For a further discussion of the issues involved, please get in touch with a member of the Mazars VAT team.