UT/2023/000009 - [2024] UKUT 00162 (TCC)

The legal principles for identifying single and multiple supplies are not in dispute. In particular, Ms Hall did not take issue with the general proposition that elements that would in themselves not be exempt, would, when incorporated within a single composite supply, nevertheless be exempt. We were not referred to any authority which stated, in terms, that a CPP composite supply analysis (and we consider the point would apply equally to a Levob single composite supply) could not be used to expand the scope of an exemption.

Accordingly, applying these first principles there would be nothing odd about a treatment whereby standard rated medicines or reduced rated contraceptive products are, when encompassed within a single supply, treated as exempt.

The sole authority relied on for departing from these core principles is EC v UK. We do not accept that EC v UK supports such a departure.

Fundamentally, EC v UK said nothing about the appropriate treatment in a case where there was a single composite supply. In Klinikum, where EC v UK was considered (with the benefit of the evolving jurisprudence on single supplies) the Advocate General specifically canvassed the possibility of a single supply analysis route to exemption, albeit she acknowledged its likely inapplicability on the facts.

The CJEU in Klinikum also did not say anything to gainsay the possibility that a single supply could encompass the provision of drugs. We agree with the FTT that it arguably endorsed such approach. At [36] of its judgment (see [23] above]) the CJEU explained, by reference to [48] and [49] of the Advocate General’s opinion, that the patient appeared to receive more than one supply: the first from the doctor and healthcare staff (who were acting independently), the second from the hospital pharmacy. At [48], which begins “In that regard…”, the Advocate General was not just addressing the physically and economically indissociable test but also the Levob single supply test which she had referred to in the preceding paragraph. At [49], which the CJEU referred to, the Advocate General again discussed the Levob test, but its application was inevitably precluded where supplies were made by separate persons. Accordingly, while it is true the CJEU did not itself specifically mention the single supply analysis, it implicitly recognised the possibility of an exemption being achieved through a single supply analysis. On the facts it was not necessary to consider that issue in any detail, because of its inapplicability on the facts.

Standing back, it would be very odd if the EC v UK proposition regarding provision of drugs and other goods, as discussed in Klinikum,was intended to be an inroad into the, by then, well-established single composite supply analysis, without any specific discussion. The Advocate General not only had the CPP/Levob principles in mind but also no doubt had in mind the predominant element test laid down in Město, having footnoted it as a recent application of Levob. That test is itself premised on a single supply having a single tax treatment (see [12] above). If EC v UK were considered to have established a proposition which prevented the drugs being exempt under c) under a single supply analysis, there would have been no point in the Advocate General mentioning the Levob and CCP routes to exemption. The CJEU might also to have been expected to voice some disapproval of such analysis rather than implicitly endorsing it as a possibility.

Regarding Spectrum’s textual arguments on the interpretation of EC v UK / Klinikum these too do not disclose any error of law on the part of the FTT:

Spectrum emphasised the generality of the principle that EC v UK established and that the principle was not restricted to the facts. We do not accept, however, that the FTT thought that either EC v UK or Klinikum was restricted to their facts. It fully acknowledged the principle that a supply of goods or medicines falling within the physically and economically indissociable exception explained in EC v UK would be within c) but it disagreed the converse held true i.e. that goods outside that exception could never fall within c). We specifically reject the suggestion that the FTT thought that EC v UK was restricted to its facts, and that those facts concerned only corrective spectacles.

Spectrum also pointed out that Klinikum and another authority, EC v France (Case C-76/99)(which saw EC v UK as applying generally) did not suggest that EC v UK would have to be re-evaluated in the light of CPP. That, however, misses the point; the FTT was not suggesting EC v UK was wrong because it omitted the (as yet to be uncovered) principles on single complex supplies. The FTT’s point, in essence, was that EC v UKcould not have set out to modify principles on single supply that had not been revealed yet.

It is also a false comparison to say that the FTT decision means that goods that would not have been within exemption b) as “closely related” to b) cannot then be within exemption c), because it is narrower. Exemption c) is indisputably narrower than b), but that is beside the point. In both cases, if on a proper analysis something 1) is a single supply and 2) the predominant element (per Gray and Farrar) is within one or other of exemption b) or exemption c), then the composite supply will be exempt under the relevant provision on a straightforward single supply analysis. Even in an exemption b) case, therefore, services or goods which are not closely related might nevertheless fall within an exempt composite single supply because the predominant element is within b).

Ms Hall submitted that the Advocate General (at [48] – see [21] above) had determined that patient choice made it “impossible” to conclude that drugs were part and parcel of medical care. We read that passage, however, as relating to the question whether there could be a single supply given the different identities of the persons making the supply of medical care (the doctor on the one hand and the pharmacy on the other (see [95] below)). She also submitted that the FTT failed to acknowledge that the CJEU introduced (at [36]) a concept of a series of activities or steps which although interrelated were “individually distinct”. She argued that the FTT was wrong to suggest at FTT [110] that the situation of there being more than one supply (as there was in Klinikum)was the only circumstance in which a series of interrelated activities or steps could be classified as individually distinct. We do not accept that the reference to “individually distinct” steps was intended to lay down any modification of, or to supplant, the CPP/Levob analysis. It appears in neither the Advocate General’s or the CJEU’s conclusions. The concept of interrelated but individually distinct activities was simply a convenient description to get across the point that while activities could be inter-related that did not preclude the activities being distinct.

Finally, on this aspect, Spectrum argued that the FTT failed to give any or sufficient regard to the Advocate General’s and the CJEU’s conclusion that weight should be attached to the fact that pharmaceutical products used for treatment for medical purposes were in principle subject to VAT, or they would not have been listed in Annex H to the Sixth Directive. This, however, begs the question whether there was a separate supply of such drugs. As there was not, the point is irrelevant.

For these reasons, on this aspect of Ground 2 we agree with HMRC. Neither EC v UK nor Klinikum suggest that it is impossible for elements of a single supply which would not be exempt if viewed as a separate supply to be exempt when they form part of a single complex supply.