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(1)VATA 1994 is amended as follows.
(2)In section 41 (application to the Crown)—
(a)omit subsection (2), and
(b)in subsection (3)(b) for “a direction under subsection (2) above,” substitute “ section 41A, ”.
(3)After that section insert—
(1)This section applies where goods or services are supplied by a body mentioned in Article 13(1) of the VAT Directive (status of public bodies as taxable persons) in the course of activities or transactions in which it is engaged as a public authority.
(2)If the supply is in respect of an activity listed in Annex I to the VAT Directive (activities in respect of which public bodies are to be taxable persons), it is to be treated for the purposes of this Act as a supply in the course or furtherance of a business unless it is on such a small scale as to be negligible.
(3)If the supply is not in respect of such an activity, it is to be treated for the purposes of this Act as a supply in the course or furtherance of a business if (and only if) not charging VAT on the supply would lead to a significant distortion of competition.
(4)In this section “the VAT Directive” means Council Directive 2006/112/EC on the common system of value added tax.”