We all know the difference three little words can make.  But in the case of VAT, those three little words turn out not to be "I love you" but the rather less romantic "acting as such".  For those of you thinking about a romantic dinner out as restaurants begin to reopen, best not to confuse the two!

HMRC v Wellcome Trust

Those three little words are at the heart of a VAT dispute in HMRC v Wellcome Trust.  Wellcome Trust Limited ("WTL") is a charitable organisation that uses the services of investment managers to assist in managing its endowment portfolio.  Some of those investment managers are based outside the EU and the issue is whether or not WTL is required to account for VAT on the receipt of those supplies under the reverse charge procedure or not.

That, in turn, is dependent on whether or not the place of supply for those services is where WTL is established under the general rule in Article 44 of the VAT Directive which provides: "The place of supply of services to a taxable person acting as such shall be the place where that person has established his business".

At this point it is helpful to know that it was accepted that:

• WTL is a "taxable person";
• the activity which WTL carries on in buying and selling securities as part of managing the assets of a charitable trust is a "non-economic business activity" (so distinguished from both "economic business activity" and "private activity");  and
• WTL is not a "taxable person acting as such" for the purposes of Article 2(1)(c) of the VAT Directive, which determines whether a supply is subject to VAT in the first place.     

And finally we have Article 43 of the VAT Directive which provides that, for the purposes of the place of supply of services rules: "a taxable person who carries out activities that are not considered to be taxable supplies of goods or services in accordance with Article 2(1) shall be regarded as a taxable person in respect of all services rendered to him".

So, put that all together, and what do we have?  

WTL says no reverse charge.  It is not a taxable person "acting as such" and so Article 44 is not engaged.  All Article 43 does is confirm WTL's status as a "taxable person", it does not tell you the capacity in which it is acting for the purposes of Article 44.  Those three little words in Article 44 must mean something and must be a capacity test.  

In 2018, the First-tier Tribunal agreed.  The FTT did not like the idea either that "acting as such" was simply meaningless in Article 44 or that, as HMRC suggested, it somehow caught taxable persons receiving supplies for non-economic business activities (such as WTL), but not taxable persons receiving supplies for private activities (which HMRC accepted were outside Article 44).  As the FTT put it:  "This is simply not a logical proposition. There is nothing in those words which permits such an interpretation".

But the question is now  before the Court of Justice of the European Union following a referral from the Upper Tribunal and Advocate General Hogan has delivered his opinion.  In his view, HMRC are right.  Those three little words are not devoid of meaning, nor do they mean what they appear to say.  Rather they do serve "to exclude services supplied to a taxable person ... 'for his own personal use or for that of his staff'" but they "do not exclude ... taxable persons in receipt of services for non-economic business purposes"!

Outside of a "Romcom", it is hard to think that three little words have ever before been so closely scrutinised for meaning.  All eyes are now on the CJEU to see which way its heart is stirred...