Wellcome Trust cannot recover more than £13 million in VAT paid to investment managers outside the European Union, a court has ruled.
The ruling comes after the UK Tax tribunal referred the case to the European Court of Justice (ECJ) in 2019, asking whether the charity’s investment activities fell under the EU’s directives on VAT.
According to reports, the UK-based charitable foundation purchased investment management services from outside the single market between 2016 and 2017, while the UK was still an EU Member State.
However, troubles arose when the organisation attempted to apply for refunds of VAT payments relating to those services.
While Wellcome Trust’s main investment activities are regarded as a “non-business activity” for VAT purposes, HM Revenue & Customs (HMRC) considered that, under the provisions of Article 43, the company must be regarded as a taxable person and is liable to account for VAT incurred on fund management services purchased from a fund manager established outside the EU.
But the charity – which helps fund medical research – argued that, because the services were not supplied in the UK, they were not subject to EU tax rules.
Agreeing with HMRC, the ECJ said the charity was subject to VAT on payments to investment managers outside the EU due to the “place of supply” rule – which determine where in the supply chain tax is due.
“Investment income, which is the source of most of the funding for the grants made, is predominantly from overseas investments in relation to which services are supplied to [the Wellcome Trust] by investment managers established within and outside the European Union,” said the ECJ.
Commenting on the ruling, a spokesperson for Wellcome Trust said: “It is important to us that we don’t leave questions over tax unresolved. We referred the question to the ECJ to help provide clarity, and we note its ruling.”
Welcoming the decision, HMRC said it “is considering the next steps to be taken”.
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