Longborough Festival Opera had its VAT exemption reinstated by the High Court last week in what has been described as "a landmark case for the arts".
Mr Justice Lightman overturned a 2002 decision by Customs & Excise (now HM Revenue & Customs) to withdraw the VAT exemption from the opera, in Stow-on-the-Wold, Gloucestershire, because it had violated a European Union directive.
He ruled that the charity did satisfy the EU's cultural exemption conditions that organisations should not be designed to make a profit and that trustees should have no financial interest in their activities. So the opera will not have to add VAT to ticket prices, and the threat of a back-dated VAT bill of up to £150,000 has been lifted.
Customs removed the exemption when opera chairman Martin Graham wrote to fellow trustees offering to recompense them for any losses following a production of Wagner's Ring Cycle.
It argued that the commitment gave him "a financial interest" in the opera. The VAT tribunal that upheld the decision also ruled that the opera's constitution did not preclude the distribution of profits among trustees - another violation.
But Mr Justice Lightfoot determined that 'financial interest' only connoted potential enrichment and not potential impoverishment. He also ruled that it was "implicit" in the memorandum and articles of the opera that its purpose was to provide cultural services, not to make a profit.
"We are delighted with the decision," said a spokesman for the opera.
"If the existence of an actual or potential liability on the part of a director or trustee of a charitable trust had been found sufficient to render that trust ineligible for VAT exemption, this would have presented insuperable obstacles for numerous charitable trusts. A landmark case for the arts has been won."
Graham said: "If HMRC had won this case, it would have gone after some much bigger fish than us."