Flashback on ECJ Cases C-246/04 (Turn- und Sportunion Waldburg) – Exemption of leasing and letting of immovable property

On January 12, 2006, the ECJ issued its decision in the case C-246/04 (Turn- und Sportunion Waldburg).

Context: Sixth VAT Directive – Article 13(B)(b) and (C)(a) – Exemption of leasing and letting of immovable property – Right of option in favour of taxable persons – Non-profit-making sports clubs – Conditions.

Article in the EU VAT Directive

Article 13(B)(b) and 13(C)(a) of the Sixth VAT Directive (Articles 135(1)(l), 135 (2) and 137 of the EU VAT Directive 2006/112/EC).

Article 135
1. Member States shall exempt the following transactions:

(l) the leasing or letting of immovable property.

2. The following shall be excluded from the exemption provided for in point (l) of paragraph 1:
(a) the provision of accommodation, as defined in the laws of the Member States, in the hotel sector or in sectors with a similar function, including the provision of accommodation in holiday camps or on sites developed for use as camping sites;
(b) the letting of premises and sites for the parking of vehicles;
(c) the letting of permanently installed equipment and machinery;
(d) the hire of safes.
Member States may apply further exclusions to the scope of the exemption referred to in point (l) of paragraph 1.

Article 137
1. Member States may allow taxable persons a right of option for taxation in respect of the following transactions:
(a) the financial transactions referred to in points (b) to (g) of Article 135(1);
(b) the supply of a building or of parts thereof, and of the land on which the building stands, other than the supply referred to in point (a) of Article 12(1);
(c) the supply of land which has not been built on other than the supply of building land referred to in point (b) of Article 12(1);
(d) the leasing or letting of immovable property.
2. Member States shall lay down the detailed rules governing exercise of the option under paragraph 1.
Member States may restrict the scope of that right of option.

Facts

The claimant in the main proceedings is a sports club classed as a non-profit-making association. In 1997 it commenced construction of an annexe to its clubhouse, part of which was intended to be used for the practice of sport, whilst the other part, having a surface area equal to approximately a quarter of the total area of the annexe, was to be used as a refreshment bar and leased to a lessee. In the 1997 VAT declaration, the club deducted a total amount of ATS 39 285 in respect of the input VAT paid exclusively for that part of the annexe intended to be used for the bar. It opted to waive application of Paragraph 6(1)(27) of the UStG 1994 relating to small businesses.
By decision of 27 August 1999, the Finanzamt refused those deductions on the ground that a sports club exempt from tax under Paragraph 6(1)(14) of the UStG 1994 without having the right to make deductions could not, making use of the right of option, choose to waive exemption in respect of turnover resulting from the leasing and letting of immovable property. The individual exemption available to non-profit-making sports club under Paragraph 6(1)(14) of the UStG 1994 took precedence over the exemption of leasing and letting of immovable property under Paragraph 6(1)(16) of the UStG 1994.
The complaint brought against that decision was dismissed as unfounded on the ground that Paragraph 6(1)(14) of the UStG 1994, being a special law, prevails over point 16 of that paragraph. The tax authorities considered that the legal situation in question was not altered at all by the sports club’s waiver of the rules relating to small businesses.
The claimant brought an action against that decision before the Verwaltungsgerichtshof (Higher Administrative Court). In its decision making the reference, that court took the view that the tax exemption of services supplied to persons not taking part in sport or physical education, such as the leasing or letting of a refreshment bar, is not covered by Article 13(A)(1)(m) of the Sixth Directive and cannot therefore be based on that provision. It was in doubt, however, whether the exemption of leasing or letting carried out by non-profit-making sports clubs could be based on Article 13(B)(b) of that directive.
Having held that, according to the UStG 1994, sports clubs cannot opt for taxation of their leasing and letting transactions, the national court was also in doubt with regard to the interpretation of Article 13(C) of the Sixth Directive and to the possibility of excluding certain taxable persons from the possibility offered to other taxable persons to opt for taxation.

Questions

(1) May a Member State exercise its option under Article 13(C) of the Sixth … Directive … to give taxable persons the right, despite the tax exemption for the letting of immovable property provided for in Article 13(B)(b) of the directive, to opt for taxation only in a uniform manner or may the Member State distinguish by reference to types of transactions or groups of taxable persons?

(2) Does Article 13(B)(b) in conjunction with (C)(a) of the [Sixth] Directive permit Member States’ legislation, such as Paragraph 6(1)(14) of the UStG 1994 in conjunction with Paragraph 6(1)(16) of the UStG 1994, under which the possibility of opting for taxation of leasing and letting transactions is limited in such a way that non-profit-making sports clubs do not have that option?

AG Opinion

None

Decision

1. Member States, when giving their taxable persons the right to opt for taxation under Article 13(C) of Sixth Council 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, may make a distinction by reference to types of transactions or groups of taxable persons provided that they observe the general objectives and principles of the Sixth Directive, in particular the principle of fiscal neutrality and the requirement of correct, straightforward and uniform application of the exemptions provided for.

2. It is for the national court to determine whether national legislation which, by exempting generally the transactions of non-profit-making sports clubs, restricts their right to opt for taxation of leasing and letting transactions exceeds the discretion conferred on the Member States, having regard in particular to the principle of fiscal neutrality and the requirement of correct, straightforward and uniform application of the exemptions provided for.

Summary

When granting their taxable persons the right to opt for taxation when leasing immovable property, Member States may make a distinction according to the type of transactions or groups of taxable persons, provided that they respect the objectives and general principles of the Sixth Directive, in particular the principle of fiscal neutrality and the need for correct, simple and uniform application of the exemptions provided for.

It is for the national court to determine whether a national rule which generally exempts activities by non-profit sports associations, while limiting the right of those associations to opt for taxation of rental and leasing, exceeds the limits of the discretion of the Member States, taking into account rather the principle of fiscal neutrality and the need for correct, simple and uniform application of the exemptions provided for.

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