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UK: No VAT recovery for university’s investment activities (CJEU judgment)

UK: No VAT recovery, university’s investment activities

The Court of Justice of the European Union (CJEU) issued a judgment in a case concerning the value added tax (VAT) recovery right of a university that collects gifts and donations and subsequently invests the amounts in order to use the proceeds to finance part of its business activities.


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The CJEU concluded that the collection and investment of gifts and donations by the university were non-economic activities. Therefore, according to the CJEU, the VAT paid on the directly related costs was not recoverable.

The case is: University of Cambridge (C‑316/18, 3 July 2019)

KPMG observation

The CJEU judgment may be important for both non-profit organizations and profit-making corporates because these entities are increasingly looking for alternatives to finance their economic and social activities. This may include fundraising for non-commercial reasons or in the context of corporate social responsibility, or the collection and investment of funds (donations, gifts, other contributions) to strengthen economic activities.

The implications for profit-making corporate entities that collect funds or that invest surplus liquidity may depend on how these investments are structured (shares, real estate, bonds, etc.), and the VAT charged on the accompanying costs may or may not be recoverable. Businesses involved in fundraising and other forms of financing and investment need to consider reviewing the right to recover VAT.

CJEU judgment

The university (a non-profit-making educational institution) provided VAT-exempt education, but also performed VAT-able activities such as commercial research, the sale of publications, and the provision of advice. The university financed its activities partly through gifts and donations that were first deposited in a fund and then invested. The university sought to recover part of the VAT on the costs of managing the fund, but this request was rejected by the UK tax authorities.

The CJEU first determined whether receiving donations and investing them constitute economic activities. According to the CJEU, this was not the case. When collecting and investing donations, the university acted as a private investor and not as a VAT-able person. In such circumstances, the receipt of donations constituted a non-economic activity.

The CJEU then deemed the investment of these donations to be a non-economic activity, since this constituted a continuation of the collection of funds. According to the CJEU, the costs associated with the investment activities were not included in the price of the goods and services supplied by the university, nor in the activities of the university as a whole. This led the CJEU to conclude that the VAT on the management of the fund was in any case not recoverable.

Implications for Dutch practice

In the Netherlands, a policy statement stipulates that economic and, in principle, non-economic activities of a VAT-able person can be so closely connected or interdependent that, taken together, there are only economic activities. For the purposes of VAT, the non-economic activities are then not regarded as independent activities. If there is such a close connection, a VAT-able person has a right to recover VAT in respect of these non-economic activities (which are then not taken into account for VAT purposes) insofar as the economic activities can be regarded as VAT-able activities. In practice, this means that such a VAT-able person is entitled to a pro rata VAT recovery in accordance with its normal business activities. This approach is also possible under European law when applying the extension theory.

In Dutch practice, it is therefore important to assess, on the basis of the policy statement, whether the collection and investment of funds constitute independent activities or whether they are so closely related to a VAT-able person’s economic activities that they become part of them.

Read a July 2019 report prepared by the KPMG member firm in the Netherlands

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