On July 13, 2017, the ECJ issued its decision in the case C-633/15 (London Borough of Ealing).
Context: Reference for a preliminary ruling — Taxation — Value added tax (VAT) — Directive 2006/112/EC — Exemptions of supplies of services closely linked to sport — Article 133 — Exclusion of the exemption in the event of a risk of distortion of competition to the disadvantage of commercial enterprises subject to VAT — Services supplied by non-profit making organisations governed by public law
Article in the EU VAT Directive
Articles 132(1)(m), 133 of the EU VAT Directive 2006/112/EC
Article 132 (Exemption)
1. Member States shall exempt the following transactions:
(m) the supply of certain services closely linked to sport or physical education by nonprofit-making organisations to persons taking part in sport or physical education;
Article 133 (Exemption)
Member States may make the granting to bodies other than those governed by public law of each exemption provided for in points (b), (g), (h), (i), (l), (m) and (n) of Article 132(1) subject in each individual case to one or more of the following conditions:
(a) the bodies in question must not systematically aim to make a profit, and any surpluses nevertheless arising must not be distributed, but must be assigned to the continuance or improvement of the services supplied;
(b) those bodies must be managed and administered on an essentially voluntary basis by persons who have no direct or indirect interest, either themselves or through intermediaries, in the results of the activities concerned;
(c) those bodies must charge prices which are approved by the public authorities or which do not exceed such approved prices or, in respect of those services not subject to approval, prices lower than those charged for similar services by commercial enterprises subject to VAT;
(d) the exemptions must not be likely to cause distortion of competition to the disadvantage of commercial enterprises subject to VAT.
Member States which, pursuant to Annex E of Directive 77/388/EEC, on 1 January 1989 applied VAT to the transactions referred to in Article 132(1)(m) and (n) may also apply the conditions provided for in point (d) of the first paragraph of this Article when the said supply of goods or services by bodies governed by public law is granted exemption.
Facts
The London Borough of Ealing is a local authority which operates a number of sports facilities, such as gymnasia and swimming pools. In the period between 1 June 2009 and 31 August 2012 it accounted for VAT levied on the amounts charged for admission to those facilities.
In 2013 the London Borough of Ealing made an application to the tax authority for repayment of that VAT, claiming that those charges ought to have been exempt from VAT under Article 132(1)(m) of Directive 2006/112. That application was rejected on the ground that the national legislation excludes the exemption for the provision of sporting services covered by that provision, where those services are supplied by bodies governed by public law, such as a local authority, pursuant to the conditions laid down in point (d) of the first paragraph and the second paragraph of Article 133 of that directive.
The London Borough of Ealing brought an action against that decision before the First-tier Tribunal (Tax Chamber). Before that court, it maintained that the United Kingdom could not rely on the second paragraph of Article 133 of Directive 2006/112, on the ground that that Member State had not applied VAT, on 1 January 1989, to all supplies of sporting services, in that, in particular, rights to participate in a sporting competition were exempted from VAT. Further, according to the London Borough of Ealing, the second paragraph of Article 133, with respect to supplies of services closely linked to sport or physical education, does not permit non-profit making organisations governed by public law to be excluded from the benefit of the VAT exemption, unless non-profit making organisations other than those governed by public law are also excluded from that benefit. Last, the second paragraph of Article 133 of that directive does not permit Member States to deprive, across the aboard, all local authorities of the benefit of that exemption, since it is necessary to determine ‘in each individual case’ whether that exemption is likely to cause distortions of competition. The tax authority did not accept those arguments.
According to the information provided in the order for reference, the London Borough of Ealing has to be considered to be a non-profit making organisation, whose supplies are closely linked to sport or physical education and are made to persons taking part in sport or physical education, within the meaning of Article 132(1)(m) of Directive 2006/112.
Questions
Is the United Kingdom entitled, pursuant to the final paragraph of article 133 PVD1 , to impose the condition contained in paragraph (d) of that article on bodies governed by public law, (i) in circumstances where the relevant transactions were treated by the United Kingdom as taxable on 1st January 1989, but other Sporting Services were subject to exemption on that date and (ii) in circumstances where the relevant transactions had not first been granted exemption under national law before the United Kingdom sought to impose the condition contained in Article 133(d)?
If the answer to (1) above is in the affirmative, is the United Kingdom entitled to impose the condition contained in paragraph (d) of article 133 PVD on non-profit making bodies governed by public law without also applying that condition to non-profit making bodies which are not governed by public law?
If the answer to (2) above is in the affirmative, is the United Kingdom permitted to exclude all public non-profit making bodies from the benefit of the exemption contained in article 132(1)(m) without having considered in each individual case whether the granting of exemption would be likely to cause distortion of competition to the disadvantage of commercial enterprises subject to VAT?
AG Opinion
(1) Point (d) of the first paragraph and the second paragraph of Article 133 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that it allows Member States to impose the condition relating to competition on non-profit-making bodies governed by public law even if sporting services other than those that were subject to VAT on 1 January 1989 were granted exemption on that date and even if the sporting services in question were not granted exemption under national law before the Member State applied the condition laid down in point (d) of the first paragraph of Article 133 of Directive 2006/112.
(2) Point (d) of the first paragraph and the second paragraph of Article 133 of Directive 2006/112 must be interpreted as meaning that a Member State which, pursuant to Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment, on 1 January 1989 applied VAT to sporting services can make the grant of the exemption from VAT to non-profit-making bodies governed by public law subject to the condition relating to competition laid down in point (d) of the first paragraph of Article 133 of that directive only when it also applies that condition to the services supplied by other non-profit-making bodies.
(3) The second paragraph of Article 133 of Directive 2006/112 must be interpreted as meaning that it does not allow a Member State which, pursuant to Directive 77/388, on 1 January 1989 applied VAT to sporting services to exclude, generally, all non-profit-making bodies governed by public law from the benefit of the exemption of supplies of sporting services without having considered in each individual case whether the granting of that exemption would be likely to cause distortion of competition to the disadvantage of commercial enterprises subject to VAT.
Decision
1. The second paragraph of Article 133 of Council Directive 2006/112 of 28 November 2006 on the common system of value added tax must be interpreted as not precluding the legislation of a Member State from providing that compliance with the condition laid down in point (d) of the first paragraph of Article 133 of that directive is a prerequisite for the grant of a VAT exemption to bodies governed by public law that supply services closely linked to sport or physical education, within the meaning of Article 132(1)(m) of that directive, even though, on the one hand, on 1 January 1989 that Member State did not apply VAT to all those supplies of services and, on the other, the supplies of services at issue were not exempted from VAT before the requirement of compliance with that condition was imposed.
2. The second paragraph of Article 133 of Directive 2006/112 must be interpreted as precluding national legislation, such as that at issue in the main proceedings, where that legislation provides that compliance with the condition laid down in point (d) of the first paragraph of Article 133 of that directive is a prerequisite for the grant of a VAT exemption to non-profit making organisations governed by public law making supplies of services closely linked to sport or physical education, within the meaning of Article 132(1)(m) of that directive, but fails also to apply that condition to non-profit making organisations other than those governed by public law that make such supplies of services.
Summary
The London Borough of Ealing manages a number of sports facilities, including gymnasiums and swimming pools. From 1 June 2009 to 31 August 2012, she paid VAT that she had collected on the entrance fees to those facilities. According to the ECJ, the granting of the exemption to bodies governed by public law for the provision of services closely related to the practice of sport or physical education may be made subject to the condition that this does not lead to a distortion of competition to the detriment of taxable commercial enterprises. . This condition should therefore be applied to non-profit entities not governed by public law providing such services.
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