The referral to the CJEU in the Chancellor, Masters and Scholars of the University of Cambridge v HMRC litigation has now been published. This referral was made following the Court of Appeal’s assessment that it required greater clarity on certain points in the case on VAT and investment management fees. This appeal to the Court of Appeal was made by HMRC following successes for the University of Cambridge in both the First Tier and Upper Tribunal decisions.

The questions referred to the CJEU were as follows:

1. Is any distinction to be made between exempt and non-taxable transactions for the purpose of deciding whether VAT incurred for the purposes of such transactions is deductible?
2. Where management fees are incurred only in relation to a non-taxable investment activity, is it nonetheless possible to make the necessary link between those costs and the economic activities which are subsidised with the investment income which is produced as a result of the investments, so as to permit VAT deduction by reference to the nature and extent of downstream economic activity which carries an entitlement to deduct VAT? To what extent is it relevant to consider the purpose to which the income generated will be put?
3. Is any distinction to be drawn between VAT that is incurred for the purposes of providing capitalisation for a business and VAT that produces its own income stream, distinct from any income stream derived from downstream economic activity?

*UPDATE* Unfortunately, in July 2019, the CJEU ruled against the University of Cambridge. This case has potentially serious ramifications for charities – read a detailed commentary of the decision here.