On May 4, 2017, the ECJ issued its decision in the case C-699/15 (Brockenhurst College).
Context: Reference for a preliminary ruling — Taxation — Value added tax (VAT) — Directive 2006/112/EC — Exemptions — Supply of restaurant and entertainment services by an educational establishment to a limited public in return for consideration
Article in the EU VAT Directive
Articles 132(1)(i) of the EU VAT Directive 2006/112/EC.
1. Member States shall exempt the following transactions:
(i) the provision of children’s or young people’s education, school or university education, vocational training or retraining, including the supply of services and of goods closely related thereto, by bodies governed by public law having such as their aim or by other organisations recognised by the Member State concerned as having similar objects;
- The College is a higher education establishment which offers courses in catering and hospitality and in the performing arts.
- For the purpose of enabling the students enrolled in those courses to learn skills in a practical context, the College, through its students acting under the supervision of their tutors, runs a restaurant and stages performances aimed at persons not connected to the establishment. The restaurant and the performances are open to a limited public composed of people who take an interest in the events organised by the College and have registered in a database in order to receive newsletters informing them of such events. Those people are informed that the events are offered as part of the students’ education and at a reduced price which, in relation to the meals, covers approximately 80% of the cost. If the restaurant bookings do not meet a minimum of 30 servings, the meal is cancelled.
- It is apparent from the file submitted to the Court that obtaining additional income for the College through those supplies of services, which are in direct competition with commercial enterprises, is not the basic purpose of those transactions.
- The referring court states that the practical training was designed as part of the courses and that the students were aware of this at the time they registered for the respective qualifications.
- During the relevant period, the College paid VAT at the standard rate on the price charged for the meals and entertainment services supplied.
- However, the College considered that those supplies and services should have been exempt, under Article 132(1)(i) of Directive 2006/112, on the basis that they are ‘closely related’ to the provision of education. Its claim for reimbursement was rejected by the Commissioners; therefore the College brought an appeal before the First-tier Tribunal (Tax Chambers) (United Kingdom).
- By judgment of 5 November 2012, that court of first instance held that those supplies of services were exempt from VAT, as they are closely related to the provision of education. That decision was upheld on appeal by a judgment of the Upper Tribunal (Tax and Chancery Chamber) (United Kingdom) of 30 June 2014.
With regard to article 132(1)(i) of the VAT Directive, are supplies of restaurant services and entertainment services made by an educational establishment to paying members of the public (who are not recipients of the principal supply of education) “closely related” to the provision of education in circumstances where the making of those supplies is facilitated by the students (who are the recipients of the principal supply of education) in the course of their education and as an essential part of their education?
ln determining whether the supplies of restaurant services and entertainment services are within the exemption in article 132(1)(i) as services “closely related” to the provision of education:
- is it relevant that the students benefit from being involved in the making of the supplies in question rather than from the subject matter of those supplies;
- is it relevant that those supplies are not received or consumed either directly or indirectly by the students but are received and consumed by those members of the public who pay for them and who are not recipients of the principal supply of education;
- is it relevant that, from the paint of view of the typical recipients of the services in question (that is to say, the members of the public who pay for them), the supplies do not represent a means of better enjoying any other supply but are an end in themselves;
- is it relevant that, from the point of view of the students, the supplies in question are not an end in themselves but participating in the making of the supplies represents a means of better enjoying the principal supply of education services;
- to what extent should the principle of fiscal neutrality be taken into account?
(1) Closely related transactions within the meaning of Article 132(1) of the VAT Directive are independent supplies, the taxation of which also increases the cost of access to supplies that as such are exempt from tax. They do not include the supply of restaurant and entertainment services by an educational establishment to paying members of the public who are not recipients of the educational services that are exempt from tax.
(2) For the differentiation it is relevant (and militates against the existence of the exemption) that the persons benefiting from the exemption contribute to what is provided to other consumers. It is also relevant that the third parties pay for their own consumption, that is to say, not for the provision of education to the students. Finally, it is also relevant that the supplies to the third parties — both from the perspective of the third parties and the students — pursue an independent objective (providing for third parties) that is pursued alongside the educational objective that continues to be exempt from tax.
Article 132(1)(i) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, must be interpreted as meaning that activities carried out in circumstances such as those at issue in the main proceedings, consisting in students of a higher education establishment supplying, for consideration and as part of their education, restaurant and entertainment services to third parties, may be regarded as supplies ‘closely related’ to the principal supply of education and accordingly be exempt from value added tax (VAT), provided that those services are essential to the students’ education and that their basic purpose is not to obtain additional income for that establishment by carrying out transactions which are in direct competition with those of commercial enterprises liable for VAT, which it is for the national court to determine.
Article 132(1)(i) of the VAT Directive must be interpreted as meaning that activities whereby students of a higher education institution provide restaurant and theater services to third parties as part of their training and against payment may be classified as ‘ closely related’ to the main supply, education, and thus exempt from VAT, when these services are indispensable for their education and are not intended to provide this institution with additional income by providing services in direct competition with commercial enterprises subject to VAT.
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