HM Revenue & Customs' appeal against Longborough Festival Opera's VAT exemption has failed.
The Court of Appeal dismissed HMRC's case, which means the charity will not have to add VAT to its ticket prices and the threat of a backdated £150,000 VAT bill has currently been lifted.
The HMRC appeal centred on the opera's constitution, which it claimed violated an EU directive stating that cultural bodies claiming VAT exemptions should not distribute profits.
The opera's constitution does not preclude the distribution of profits to its trustees, but a previous court ruling had said it was implicit in the charity's memorandum and articles that its purpose was to provide cultural services, not make a profit.
Martin Graham, chairman of Longborough Festival Opera, said: "The court wouldn't even listen. HMRC was after bigger fish than us - now it's back to square one."