16 February 2021 
Andrea Marshall, Tax Specialist
Update as at 16 February 2021
Jeff Hall has advised that HMRC will not be appealing the SGU decision. So, although it does not set precedent, it is certainly an argument that we can have in our armoury.
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Thanks to Jeff Hall from PwC who has provided the following analysis and his thoughts on the St George's University Limited FTT case, which held that supplies of university education made by a Grenadian-based Taxpayer at locations in the United Kingdom are outside the scope of UK VAT because, , the place of supply of such services is where they are organised and administered, i.e. Grenada.
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Appellant: St George’s University Limited
Case reference: [2021] UKFTT 13 (TC)
Decision: In favour of the Taxpayer
Appealed: n/k
Summary
The First Tier Tribunal (FTT) has held that supplies of university education made by a Grenadian-based Taxpayer at locations in the United Kingdom are outside the scope of UK VAT because, pursuant to Article 54(1) of the Principal VAT Directive (PVD) and the ECJ’s judgment in Geelen (C-568/17), the place of supply of such services is where they are organised and administered, i.e. Grenada.
Background
The Taxpayer is a Grenada-based university which offers a four-year medical degree called the Doctorate of Medicine (the MD course), which is composed of two years of a Basic Science Programme and two years of a Clinical Training Programme. Students who take the course may complete parts of their course in the United Kingdom by spending the first year of the course on a Global Scholars Programme (GSP) at the University of Northumbria in Newcastle (UNN), and/or by undertaking the clinical training element of the course at teaching hospitals run by various NHS Trusts (Clinical Training).
Article 132(1)(i) PVD provides for the exemption of “the provision of children's or young people's education, school or university education, vocational training or retraining, including the supply of services and of goods closely related thereto, by bodies governed by public law having such as their aim or by other organisations recognised by the Member State concerned as having similar objects”.
This is transposed into UK law by Item 1(a), Group 6, Schedule 9 Value Added Tax Act 1994 (VATA), which exempts “The provision by an eligible body of … education”. In turn, an “eligible body” is defined by Note 1(b) to Group 6, insofar as it is relevant to the Taxpayer, as “a United Kingdom university, and any college, institution, school or hall of such a university”.
Historically, the Taxpayer did not consider that it was making supplies of education in the United Kingdom and that, even if it were, those supplies would be exempt from VAT. However, in a 2017 decision which was upheld upon review in 2018, HMRC determined that whenever the Taxpayer’s students took either of these UK-based courses, the Taxpayer was making supplies of education in the UK and that such supplies were taxable because the Taxpayer was not recognised as a “United Kingdom university”. HMRC therefore decided that SGU should be registered for VAT in the UK. Upon appeal to the FTT, the dispute between the parties focused on four main issues.
The Taxpayer submitted that when students enrol upon the GSP at UNN, and when UNN delivers a first-year basic sciences programme to those GSP students, and when UNN awards a DipHE qualification to the students who successfully complete that course, it is UNN – and not the Taxpayer – which is making that supply of education. At the same time, the Taxpayer submitted that when its students undertake Clinical Training at NHS Trust hospitals, it is those hospitals – and not the Taxpayer – making the supply of education.
It followed, in the Taxpayer’s submission, that the relevant contracts were the enrolment agreements between UNN and the GSP students on the one hand, and between the Teaching Hospitals and the clinical students on the other. The Taxpayer, therefore, was not the supplier of any educational courses in the UK.
On the contrary, HMRC submitted that the relevant contracts were those between the Taxpayer and its students, regardless of the UK course on which those students were enrolled. In HMRC’s submission, the underlying contracts between the Taxpayer and UNN/the Teaching Hospitals, and also those between UNN/the Teaching Hospitals and the students, were immaterial to the VAT analysis.
It was the Taxpayer’s submission that, if the FTT concluded that the supplies of education were being made by the Taxpayer, the place of such supplies was Grenada and not the United Kingdom. This was because the educational services in question were a single, complex supply of a four-year degree programme that (i) physically took place predominantly in Grenada, not the UK, and (ii) fell within the scope of the ECJ’s judgment in Geelen (C-568/17) and art 54(1) PVD.
In Geelen, the Court held that online “entertainment” services were supplied not from the place where the entertainment physically took place (the Philippines) but from the place where the Taxpayer had organised the online supplies (the Netherlands). By analogy, even though the educational services were physically received by students in the UK, the Taxpayer submitted that the place of supply for VAT purposes was Grenada, which is where the supplies were organised and administered. To this end, the Taxpayer submitted that it would be inappropriate and artificial to split the four-year, complex, single supply of education and ascribe to it multiple places of supply.
In response, HMRC relied upon the principle of territoriality as evidenced by the ECJ’s judgments in Trans Tirreno Express (C-283/84) and Aktiebolaget (C-111/05). Here, HMRC submitted that the four years of education supplied – ex hypothesi – by the Taxpayer should be split in accordance with the place where the education services were physically received, and taxed in proportion in those different jurisdictions.
If the Taxpayer failed to convince the FTT on the first two issues, and if it was held to be making supplies of education in the UK, it submitted that – for three reasons – those supplies should nonetheless be exempt from VAT. First, because the Taxpayer was entitled to rely upon the direct effect of the education exemption contained in art 132(1)(i) PVD. Second, because the Taxpayer was making its supplies through UNN and so should be regarded as a “college” of UNN, as per the Supreme Court’s judgment in SAE Education. Third, because the UK’s implementation of the education exemption was in breach of the principles of fiscal neutrality and equal treatment by exempting only “UK universities” and thereby unlawfully imposing a nationality condition upon universities.
HMRC responded by submitting that, by imposing a regulatory condition upon the exemption – that is, by requiring an educational institution to be recognised as a UK university – the UK had lawfully exercised the discretion afforded to it by the PVD. In the same vein, HMRC submitted there was an insufficiently close relationship between the Taxpayer and the UNN for the former to qualify as a college of the latter.
Finally, the Taxpayer submitted that, if it lost on the three preceding issues, the consideration for the “taxable” supplies should be that portion of the consideration which is directly attributable to the supplies being made in the UK. The consideration should therefore exclude the fees charged for administration in Grenada, which are invoiced separately to the students.
HMRC, however, submitted that the consideration should be regarded as all fees received by the Taxpayer in respect of the academic years during which the students were in the UK, including any fees relating to administrative operations taking place in Grenada.
Decision
The FTT addressed the four major issues in the following terms.
First, regarding the identity of the supplier, the FTT adopted the analytical approach of the Supreme Court in Airtours Holidays Transport Ltd [2016] UKSC 21 and the Court of Appeal in Adecco UK Ltd [2018] EWCA Civ 1794. Consequently, the FTT decided that even if there was an agreement between UNN and the students, this agreement did not amount to a contract for the provision of education in exchange for consideration. To that end, in the FTT’s example, if UNN had decided to stop supplying services to the students, the students would have no contractual rights to enforce. Rather, despite the fact that the “bricks and mortar” of education were provided through UNN and the Teaching Hospitals, it was decisive that the lecturers and clinicians were honorary members of the Taxpayer’s faculty and that the curriculum was determined by the Taxpayer. It followed for the FTT that the only contractual obligations of significance were those between the Taxpayer and its students: no matter where certain elements of the education were provided, the students were paying consideration to the Taxpayer alone for a four-year course.
Second, regarding the place of supply, the FTT rejected HMRC’s submissions and held that the principle of territoriality applies only to specific, derogated circumstances (for example, where goods such as oil pipelines were being installed across multiple jurisdictions). More properly, the Taxpayer’s supplies of education fell within the scope of art 54(1) PVD. Accordingly, the FTT concluded that the MD Course constituted a single, complex supply of four years of education that was organised in Grenada. In line with the ECJ’s judgment in Geelen, the FTT decided that the place of this complex supply was Grenada, stating at paras 142 and 144:
“Regardless of where the students decide to study, the course is organised and administered by SGU in Grenada … As in the case of Mr Geelen’s supplies, the place where [the Taxpayer’s] activities actually take place is where it makes all the necessary arrangements for the provision of the GSP and UK Clinical training to the students, i.e. Grenada. It follows that SGU’s supplies are outside the scope of UK VAT”.
Whilst it was no longer necessary for the FTT to decide upon the third and fourth issues, it did so in the event that its decision was appealed to the Upper Tribunal. On the issue of liability (if the Taxpayer was held to be making supplies in the UK), the FTT concluded that (i) the UK had acted within its discretion by imposing a regulatory condition upon universities making supplies of education in the UK, (ii) that imposing a nationality condition was not contrary to the general principles of EU law, and (iii) that the Taxpayer was not entitled to rely upon the direct effect of art 132(1)(i) PVD. The FTT also rejected the Taxpayer’s submission that the phrase “United Kingdom university” in Note 1(b) should be construed as “a university operating in the United Kingdom”.
Finally, the FTT concluded that – were it not for the place of supply of services being Grenada – the Taxpayer would have been liable to account for VAT on all the consideration paid by students for their time spent in the UK, and not just upon that portion of the consideration that was directly attributable to the educational services carried out in the UK.
Nonetheless, in a decision which is available on the BAILII website, the FTT allowed the Taxpayer’s appeal.
Implications
Whilst the FTT’s decision may be specific to the particular facts of this case, and whilst the FTT’s conclusion upon direct effect and the lawfulness of the UK’s education exemption are not binding upon any other tribunal, it may be significant for other universities that the place of supply for multi-year, international courses has been held to be the jurisdiction in which those courses are organised and administered. For example, the place of supply for a four-year languages course at a UK university will be the UK, even if the student spends a year practising a chosen language outside the UK.
This is a PwC case. If you would like to discuss this case further, please contact David Anderson or Jeff Hall.
Jeff Hall comments
Universities have, for the past twelve months, been wrestling with increasingly complicated arrangements to maintain their provision. With students and often academic staff spread across the world receiving and delivering their lessons remotely, place of supply and specifically ESS questions have been at the forefront of the tax functions thinking. The endorsement of the Geelen decision appears to provide an alternative analysis for these single, complex supplies that may avoid the need for multi-jurisdictional registrations.
The outcome is less helpful to those who are currently excluded from exemption as a result of the idiosyncrasies of the UK legislation. The decision is an obstacle for both UK and non-UK providers who are seeking to get on an equal footing with the established UK education sector.
