European Court to Rule In U.K. VAT Dispute With Film Institute

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By Joe Kirwin

The European Court of Justice is due to rule Feb. 15 on the extent to which EU value-added tax law can allow member states’ national tax authorities discretion in deciding which cultural services are entitled to VAT exemptions.

The ruling stems from a long-running legal battle that erupted between the non-profit British Film Institute and the U.K. tax authority, Her Majesty’s Revenue & Customs, in 1996.

HMRC refused to grant exemptions to the BFI, which believed it should have been exempted from the tax over the preceding six years.

The BFI succeeded in overturning HMRC’s decision in the U.K.'s First-Tier Tribunal and subsequently won a higher court case. Lawyers for the BFI successfully argued that EU VAT law allowing exemptions for “certain cultural services” meant all cultural services were included. The argument is supported by ECJ case law.

Highly Anticipated

The BFI could face fresh litigation in the U.K. if the ECJ Advocate General’s opinion, issued in September of 2016, holds sway. At the time, the ECJ legal adviser, Yves Bot, insisted that cultural VAT exemptions allowed by the EU law were at the discretion of each EU member state.

A key legal issue also at stake concerns whether an entity such as the BFI should be allowed VAT exemptions if it is competing with commercial entities that provide similar services and are required to pay VAT.

The AG’s 2016 opinion stated further that VAT exemptions were only meant to cover “non-commercial purposes.”

Just as important, the AG also said the VAT exemptions must be provided “in compliance with the principle of fiscal neutrality” and the Court of Appeal in the U.K. should take this into consideration.

The ECJ ruling is highly anticipated as legal experts believe numerous other non-profit groups in the U.K. will demand VAT exemptions should the ECJ rule in favor of the film institute.

The legal battle over the VAT exemptions for cultural services stems from a failure of EU member states to accept a specific list of exemptions proposed by the European Commission in 1977 as part of the overall VAT directive.

To contact the reporter on this story: Joe Kirwin in Brussels at

To contact the editor responsible for this story: Penny Sukhraj at

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