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Christopher Booker's notebook

(Filed: 05/06/2005)

VAT law proves as sensible as an opera plot

Hundreds of charities will learn with shock of the recent ruling by a VAT tribunal that HM Customs and Excise are right to demand up to £100,000 from a country house opera company, which thought it was exempt from VAT because all its profits go to charitable causes. The case arose because, in their interpretation of EC law, the Vat-men decided that a "profit" and a "loss" are the same thing. The tribunal has now agreed.

The Longborough Festival Opera is the creation of Martin Graham, an enlightened property tycoon who also loves opera. Having built a Palladian opera house in his Cotswold garden, he runs a yearly summer season of high-class productions, along the lines of Garsington or Glyndebourne. Last year he lured out of retirement Sir Donald McIntyre, the legendary Wotan, for a complete Ring cycle, to be repeated in 2006. Once expenses are paid, all proceeds then go to good causes, from the Sue Ryder Foundation and the Historic Churches Trust to the local village school once attended by Mr Graham himself.

As a trustee of the charity, Mr Graham's mistake, in the eyes of the Vat-men, was to write a letter to his fellow-trustees confirming that, in the event of any losses, he would meet them out of his own pocket. HM Customs swooped on this to argue that this gave him a "financial interest" in the charity.

This meant not only that, under Article 13a of the EC's Sixth VAT Directive, the charity must charge VAT on its tickets, but that it must hand over all the VAT it had failed to charge its audiences in the years since it was set up.

Mr Graham's opera house is not the only charity HM Customs has sought to catch out in this way. The Bournemouth Symphony Orchestra lost its case because one trustee was its managing director. The Welsh Mountain Zoo, on the other hand, was allowed an exemption, even though one trustee, the widow of its founder, received a small pension as a former employee.

In no previous case, however, had HM Customs seemed to be on such flimsy ground as their claim that, just because Mr Graham had agreed to underwrite any losses, this was exactly the same as if he stood to benefit from the charity's profits. Under EC law, in the Treasury's immortal words, "losses and deficits" must be considered as identical with "profits and gains".

Furthermore, when Mr Graham appealed last November to a VAT tribunal, Valentina Sloane for HM Customs argued that, since the charity's constitution does not specifically exclude trustees from profiting financially from the charity, there was nothing to stop them diverting its proceeds to their own purposes.

In vain was it pointed out that this had never happened, that nothing could have been further from the trustees' intentions and that countless other charities have similar constitutions. The tribunal's chairman, Angus Nicol, has now "with some reluctance" upheld HM Customs' case. The opera house must therefore stump up for all the VAT it failed to collect, and all those worthy causes must be deprived of tens of thousands of pounds, which will go instead to the Vat-man. Mr Graham plans an appeal in the High Court, where he hopes to find a judge who lives in the real world.

'Non', 'Nee' and 'No' will still spell Yes

Amid all the vapourings from media and politicians that "the treaty is dead", we would be wise to heed the views of Messrs Schröder, Chirac, Barroso and Juncker, and the leaders of those 10 nations in whose name the EU constitution has already been ratified. Of course Tony Blair would love to avoid a referendum he knows he would lose. But he also knows that, even if he manages to win support from one or two other countries such as Denmark and Portugal, he cannot opt unilaterally out of a political obligation to which all 25 EU leaders have signed up: to complete the process of ratification.

Only the heads of government can decide at their European Council on June 16 what to do next. The likelihood is that they will do exactly as Schröder and Chirac and most others have already indicated they will do: namely proceed with ratification until all 25 nations have given their verdict. Mr Blair is well aware that to pre-empt that decision would be to incur massive odium from his "partners" just when he is about to take over the presidency. He will also have been reminded that, as Margaret Thatcher found to her horror at Milan in 1985, if a European Council takes a vote, a simple majority prevails.

So the pundits, from Lord Kerr and Jeremy Paxman to Michael Howard and Sir Menzies Campbell, who pronounce that there is no point in Britain having a referendum because the constitution is a mortally sick parrot are deluding themselves. To abandon the constitution when it has already been approved in the name of half the EU's population is not on the agenda. We shall still have our referendum, even if it lines us up with France and Holland in failing to ratify.

It is also true that, under the Vienna Convention, the treaty cannot come into force unless all 25 signatories ratify. But so long as the "No" countries are not more than five, the matter will simply be referred again to the European Council, under Declaration 30 attached to the treaty, to decide what happens next. If by chance more than five countries say "No", indeed we shall then be in uncharted waters. The treaty does not allow for such a ridiculous possibility. But we are not there yet.

Woman's place is in the lab

The MPs of the Commons European Scrutiny Committee, whose job it is, behind closed doors, to consider the avalanche of new laws proposed by Brussels, were recently told about the European Commission's planned regulation to set up a "European Institute of Gender Equality". In the Commission's view, it would "not be appropriate to allocate the functions proposed for the Institute to any other Community agency such as the European Foundation for the Improvement of Living and Working Conditions, or the European Monitoring Centre of Racism and Xenophobia" (shortly to become the European Human Rights Agency).

The MPs were also given a Commission paper on promoting the "participation of women in science". This sets targets for 2010, by which time women shall hold 25 per cent of all full professorships in science subjects, and account for a third of all engineering graduates and those employed in industrial research (requiring "the present number to double over the next five years"). The Commission (with support from the UK Government) insists on this because "women have a vital contribution to make to the achievement of the Lisbon objectives". These, it will be recalled, lay down that the EU should by 2010 become "the most competitive, dynamic, knowledge-based economy in the world".

Doesn't the Commission realise this is so self-evidently absurd that it has already been abandoned? President Prodi called it a "chimera". More recently President Barroso proposed that "Lisbon 1" should quietly be replaced by "Lisbon 2", making no such vainglorious claims. But if I were a lady scientist, I would be putting in for a chair tomorrow.

Vets count the cost

The Veterinary Medicines Directorate admitted to me two weeks ago that it had no idea of the cost of the EC directive it is shortly required to impose on Britain's 2,500 "small animal" veterinary practices. According to the vets themselves, the need to spend up to two and a half hours a day logging in data about every medicine they administer will take up a quarter of their working lives.

What I omitted in my earlier report was the estimate of the British Small Animals Veterinary Association that this will add £2,500 a week to the costs of each vet - which will of course have to be paid for by the owners of each cat, dog and hamster who requires their services.