C-124/96 Commission v Spain

JUDGMENT OF THE COURT (Sixth Chamber)

7 May 1998 *

In Case C-124/96,

Commission of the European Communities, represented initially by Enrico Traversa and Francisco Enrique Gonzalez Diaz, of the Legal Service, and subsequently by Miguel Diaz-Llanos La Roche, Legal adviser, Enrico Traversa and Carlos Gómez de la Cruz, also of the Legal service, acting as Agents, with an address for service in Luxembourg at the office of Carlos Gómez de la Cruz, Wagner Centre, Kirchberg,

applicant,

v

Kingdom of Spain, represented by Luis Pérez de Ayala Becerril, Abogado del Estado, acting as Agent, with an address for service in Luxembourg at the Spanish Embassy, 4-6 Boulevard E. Servais,

defendant,

supported by

United Kingdom of Great Britain and Northern Ireland, represented by Lind-sey Nicoli, of the Treasury Solicitor's Department, acting as Agent, assisted by Sarah Moore, Barrister, with an address for service at the British Embassy, 14 Boulevard Roosevelt,

intervener,

* Language of the case: Spanish.

APPLICATION for a declaration that, by providing that VAT exemption for services closely linked to sport or physical education applied only to private establishments whose membership fees did not exceed a specified amount, the Kingdom of Spain infringed Article 13(A)(1)(m) of the 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 (OJ 1977 L 145, p. 1),

THE COURT (Sixth Chamber),

composed of: H. Ragnemalm, President of the Chamber, G. E Mancini, P. J. G. Kapteyn (Rapporteur), J. L. Murray and K. M. Ioannou, Judges,

Advocate General: A. La Pergola, Registrar: R. Grass,

having regard to the report of the Judge-Rapporteur,

after hearing the Opinion of the Advocate General at the sitting on 3 February 1998,

gives the following

Judgment

Legal context and the dispute

1By application lodged at the Court Registry on 17 April 1996, the Commission of the European Communities brought an action under Article 169 of the EC Treaty for a declaration that, by providing that exemption from value added tax ('VAT') for services closely linked to sport or physical education applied only to private establishments whose membership fees did not exceed a specified amount, the Kingdom of Spain had infringed Article 13(A)(1)(m) of the 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 (OJ 1977 L 145, p. 1; 'the Sixth Directive').

The Sixth Directive

2 Article 13(A) of the Sixth Directive provides that certain activities in the public interest are exempt from VAT. In particular, in Part A, headed 'Exemptions for certain activities in the public interest', Article 13 of the Sixth Directive provides:

'1. Without prejudice to other Community provisions, Member States shall exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of such exemptions and of preventing any possible evasion, avoidance or abuse:

(m) certain services closely linked to sport or physical education supplied by nonprofit-malting organisations to persons taking part in sport or physical education;

2(a) Member States may make the granting to bodies other than those governed by public law of each exemption provided for in (1)(b), (g), (h), (i), (1), (m) and (n) of this article subject in each individual case to one or more of the following conditions:

— they shall not systematically aim to make a profit, but any profits nevertheless arising shall not be distributed, but shall be assigned to the continuance or improvement of the services supplied,

— they shall 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,

— they shall charge prices 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 value added tax,

— exemption of the services concerned shall not be likely to create distortions of competition such as to place at a disadvantage commercial enterprises liable to value added tax.'

The national legislation

3The relevant Spanish legislation is Article 20 of Law No 37 of 28 December 1992 on Value Added Tax ('Law No 37/92'), as amended by Article 13 of Law No 42 of 30 December 1994 ('Law No 42/94'). The relevant provision is Article 20(1), point 13, which exempts:

'Services supplied to individuals taking part in sport or physical education, whoever the person or body in charge of supplying the service may be, provided that such services are directly linked to sport or physical education and are supplied by the following persons or bodies:

(d) private sports bodies or establishments of a social nature whose entry fees do not exceed the following amounts:

admission or entry fees: PTA 265 000

periodic fees: PTA 4 000 monthly.'

The pre-litigation procedure

4By letter of 22 December 1992, the Commission informed the Kingdom of Spain that it regarded the provisions of Article 8, point 13, of the Spanish Law on Value Added Tax (Law No 30/85 of 2 August 1985, amended by Law No 10/90 of 15 October 1990) as incompatible with Article 13(A)(1)(m) of the Sixth Directive.

5By letter of 28 May 1993, the Spanish authorities replied that the Spanish legislation applicable was Article 20(1), point 13, of Law No 37/92, and that the latter did not infringe the Sixth Directive.

6Taking account of that reaction and the arguments put forward by the Kingdom of Spain, the Commission addressed a reasoned opinion to the Kingdom of Spain on

10 October 1994, in which it maintained that the Spanish provisions were incompatible with the Sixth Directive.

7By letter of 10 April 1995, the Kingdom of Spain essentially reiterated the arguments already put forward in its reply to the letter of 22 December 1992.

8Subsequently, by Law No 42/94, the Kingdom of Spain partially amended Article 20(1), point 13, of Law No 37/92. The Commission took the view that that amendment removed only part of the failure to fulfil obligations and did nothing to alter the quantitative restrictions imposed on private sports bodies or establishments.

Grounds

Substance

9In support of its action, the Commission maintains that the restriction of VAT exemption by Article 20(1), point 13, of Law No 37/92 to private sports establishments charging membership fees not exceeding the amounts specified in that article is contrary to Article 13(A) of the Sixth Directive. It submits that the additional requirement imposed by the Spanish legislation is not authorised either by the introductory sentence of Article 13(A)(1), or by the wording of Article 13(A)(1)(m), or by the third indent of Article 13(A)(2)(a) of the Sixth Directive.

10The Spanish Government, supported by the United Kingdom Government, begins by arguing that the introductory sentence of Article 13(A)(1) of the Sixth Directive shows that Member States have a wide discretion in implementing the exemptions provided for.

11It should be observed in that regard that the conditions which may be laid down pursuant to Article 13(A)(1) of the Sixth Directive to do not in any way affect the definition of the subject-matter of the exemptions envisaged by that provision (Case 8/81 v [1982] ECR 53, paragraph 32). Becker Finanzamt Münster-Innenstadt

12Those conditions are intended to ensure the correct and straightforward application of the exemptions and refer to measures intended to prevent any possible evasion, avoidance or abuse {Becker, cited above, paragraphs 33 and 34).

13The argument based on the introductory sentence of Article 13(A)(1) must therefore be rejected.

14The Spanish Government then argues, concerning the exemption of supplies of services referred to in Article 13(A)(1)(m), that, unlike other exemptions envisaged by that provision, letter (m) provides for the exemption of 'certain' supplies of services. In its submission, that permits Member States to limit the scope of Article 13(A)(1)(m), not only by expressly excluding certain services provided by sports establishments from the exemption, but also by applying 'other criteria', such as the amount of the consideration for the services in question.

15On that point, it is clear from Article 13(A)(1)(m) of the Sixth Directive that the exemption in question concerns supplies of services closely linked to sport or physical education provided by non-profit-making bodies.

16It is undisputed that, under the Spanish legislation, the exemption envisaged under Article 13(A)(1)(m) of the Sixth Directive is granted only to private sports bodies or establishments of a social nature which charge membership fees not exceeding certain amounts.

17To apply the criterion of the amount of membership fees may lead to results contrary to Article 13(A)(1)(m). As the Advocate General has pointed out at paragraph 5 of his Opinion, to apply such a criterion may result, first, in a non-profitmaking body being excluded from the benefit of the exemption provided for by the provision and, secondly, in a profit-making body being able to benefit from it.

18Moreover, there is nothing in that provision to the effect that a Member State, when granting an exemption for a certain supply of services closely linked to sport or physical education provided by non-profit-making bodies, may make that exemption subject to any conditions other than those laid down in Article 13(A)(2).

19It follows that the limitation of the exemption for supplies of services closely-linked to sport or physical education to private sports bodies or establishments of a social nature whose membership fees do not exceed a certain amount is contrary to Article 13(A)(1)(m) of the Sixth Directive.

20Finally, the Spanish Government argues that the fixing of a ceiling on the amount of fees in respect of the exemption of the supply of services envisaged in Article 13(A)(1)(m) falls within the concept of prices approved by the public authorities within the meaning of the third indent of Article 13(A)(2)(a), and is therefore justified by virtue of that latter provision.

21On that point, it is sufficient to note that that provision does not imply that a Member State, by making the exemption envisaged in Article 13(A)(1)(m) subject to one or more conditions laid down in paragraph 2(a) of that provision, may alter the scope of the latter.

22Moreover, as the Commission has rightly pointed out, Article 13(A)(2)(a) of the Sixth Directive provides that Member States may make the grant of the exemptions envisaged subject to compliance with one or more of the conditions mentioned by that provision. The latter therefore excludes a restriction of the exemption of supplies of services closely linked to sport or physical education to private sports bodies or establishments of a social nature which charge membership fees not exceeding a certain amount without taking into account the nature and particular circumstances of each sporting activity.

23Accordingly, by providing that the exemption from VAT in respect of supplies closely linked to sport or physical education applies only to private establishments whose membership fees do not exceed a certain amount, the Kingdom of Spain has failed to fulfil its obligations under Article 13(A)(1)(m) of the Sixth Directive.

Costs

24Under Article 69(2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs. Since the Kingdom of Spain has been unsuccessful, it must be ordered to pay the costs. Under Article 69(4) of the Rules of Procedure, Member States and institutions which intervene in the proceedings are to bear their own costs.

Operative part

On those grounds,

THE COURT (Sixth Chamber),

hereby:

1. Declares that, by providing that the exemption from value added tax in respect of supplies closely linked to sport or physical education applies only to private establishments whose membership fees do not exceed a certain amount, the Kingdom of Spain has failed to fulfil its obligations under Article 13(A)(1)(m) of the 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.

2. Orders the Kingdom of Spain to pay the costs.

3. Orders the United Kingdom of Great Britain and Northern Ireland to bear its own costs.

Ragnemalm Mancini

Murray Ioannou

Delivered in open court in Luxembourg on 7 May 1998.

R. Grass Kapteyn

H. Ragnemalm Registrar President of the Sixth Chamber

OPINION OF ADVOCATE GENERAL LA PERGOLA delivered on 3 February 1998 *

1In this action, the Commission seeks a declaration that the Kingdom of Spain has failed to fulfil its obligations under the 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 ('the directive'). 1 More particularly, the Commission argues that the system of exemptions granted by Spanish legislation in respect of sporting activities at private organisations is contrary to Article 13(A)(1)(m) of the directive.

2Before entering into the merits of the Commission's arguments, it will be useful briefly to recall the Community and national legal context.

Article 13(A) of the directive provides that certain activities in the public interest arc exempt from VAT. Particularly relevant for present purposes is Article 13(A)(1)(m), which provides for an exemption in favour of 'certain services closely linked to sport or

* Original language: Italian.

physical education supplied by non-profitmaking organisations to persons taking part in sport or physical education'.

Article 13(A)(2)(a) goes on to provide that:

'Member States may make the granting to bodies other than those governed by public law of each exemption provided for in (1)(b), (g), (h), (i), (l), m) and (n)of this article subject in each individual case to one or more of the following conditions:

— they shall not systematically aim to make a profit, but any profits nevertheless arising shall not be distributed, but shall be assigned to the continuance or improvement of the services supplied,

— they shall 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,

— they shall charge prices 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 value added tax,

— exemption of the services concerned shall not be likely to create distortions of competition such as to place at a disadvantage commercial enterprises liable to value added tax.'

The current Spanish legislation on the matter is Article 20 of Law No 37 of 28 December 1992 on Value Added Tax ('Law No 37/92'), as amended by Article 13 of Law No 42 of 30 December 1994 ('Law No 42/94'). The relevant provision is Article 20(1), point 13, which is worded as follows:

'1. The following operations are exempt from the tax:

13. Services supplied to individuals taking part in sport or physical education, whoever the person or body in charge of supplying the service may be, provided that such services are directly linked to sport or physical education and are supplied by the following persons or bodies:

(a) public law establishments;

(b) sporting federations;

(c) the Spanish Olympic Committee;

(d) private sports bodies or establishments of a social nature whose entry fees do not exceed the following amounts:

— admission or entry fees: PTA 265 000

— periodic fees: PTA 4 000 monthly.' Essentially therefore, as regards the supply of services linked to sport or physical education, the Spanish legislature grants unconditional tax exemption to supplies by public law establishments, sporting federations and the Spanish Olympic Committee. In relation to supplies by private sports bodies or establishments of a social nature, however, grant of the exemption is subject to the requirement that such bodies charge entry fees or periodic fees below the amounts specified.

3Taking the view that that latter provision conflicted with Article 13(A)(l)(m) of the directive, the Commission initiated against the Kingdom of Spain the pre-litigation procedure laid down by Article 169 of the Treaty. The Kingdom of Spain replied by disputing the Commission's assessment and arguing that its legislation did not infringe the directive in any way.

The Commission therefore brought the present action, applying for a declaration that the Kingdom of Spain had failed to fulfil its obligations. More precisely, the Commission pleads that the Court should:

'1. declare that, by providing that VAT exemption for services closely linked to sport or physical education applies only to private establishments whose membership fees do not exceed a specified amount, the Kingdom of Spain has infringed Article 13(A)(l)(m) of the Sixth VAT Directive (77/388/EEC);

2. order the Kingdom of Spain to pay the costs'.

The Kingdom of Spain pleads that the application should be dismissed and the Commission ordered to pay the costs. The United Kingdom has intervened in support of the Kingdom of Spain.

4The Commission maintains that the disputed national legislation introduces a criterion for the grant of exemption to private bodies of a social nature that is not provided for in the directive and is therefore contrary to it. In that respect, the Commission refers to the case-law of the Court to the effect that Article 13(A)(1) lays down a clear, precise and unconditional obligation on Member States to exempt the activities listed in that provision. Viewed thus, that obligation cannot, the Commission argues, be hedged about by further conditions not envisaged by the directive. Nor, it submits, can the national provision in question be justified by assuming that the limitation on the amount of subscriptions, which constitutes an obstacle to the grant of exemption, falls within the scope of 'prices approved by the public authorities' within the meaning of the third indent of Article 13(A)(2)(a). In this case, the Spanish legislature has simply introduced a presumption conjuris et de jure cerning the non-profit-making character of the sports bodies; those levying entry fees below the limit laid down by the legislation in question are presumed to be bodies pursuing their activity without a profit motive, whereas the others are regarded as providing services for profit, and are thus excluded from the benefit of the exemption.

The Spanish Government argues, however, that application of the system of exemptions provided for in the directive necessarily requires national implementing measures, in adopting which the Member States enjoy a wide discretion. In this case, the disputed legislation arose from the lawful exercise of that discretion, which the Spanish legislature used precisely in order to attain the result required by the directive. Article 13(A)(1)(m) provides that tax exemption should be granted for sports-related services supplied by and the non-profit-making organisations, provision excluding bodies charging subscriptions higher than a given amount from the benefit of that exemption was intended precisely to verify whether or not the bodies in question had a profit motive. Moreover, the Government submits, Article 13(A)(2) allows Member States to make the exemption subject to compliance with certain conditions, including the condition that the body supplying the services charge 'prices approved by the public authorities'. In this case, the fixing of a ceiling on the level of subscriptions falls precisely within the concept of a price approved by the public authorities and is therefore justified for the purposes of the abovementioned provision. The Kingdom of Spain goes on to challenge the Commission's position concerning the requirement that the exemption be granted on a case-by-case basis rather than — as is the case with the disputed provision — in accordance with a general provision. Although it is true that Article 13(A)(2) provides that the exemption should be granted 'in each individual case', the Commission's position would lead to the need to grant the advantage in question by examining on each occasion the position of every single operator, which would be impossible in practice. Hence the need to lay down a general criterion.

5Let me say at once that, in my opinion, the Commission's criticisms should be upheld. The Commission has rightly concluded that Member States are obliged to grant the exemptions envisaged in Article 13(A)(1). As the Court has held on a previous occasion, these are mandatory exemptions and the Member States have no discretion as regards their grant. The discretion, where applicable, concerns the definition of the conditions for ensuring, in accordance with Article 13(A)(1), 'the correct and straightforward application of such exemptions' and 'preventing any possible evasion, avoidance or abuse'. In any event, that power must be exercised in such a way as to ensure the result sought by the provision, namely to guarantee the tax advantage envisaged to any taxpayer entitled thereto. The exemption at issue in this case concerns 'services closely linked to sport or physical education supplied by non-profitmaking organisations to persons taking part in sport or physical education' (Article 13(A)(1)(m)). The services in question must therefore benefit in any event from the exemption provided for. It is precisely in that respect that the Spanish legislation does not comply with the rule in question. The Spanish Government has argued that the national legislation at issue is intended precisely to ensure that services linked to sport supplied by non-profit-making organisations are exempted from the tax. However, it is plain to see that that legislation is manifestly incapable of achieving that result. It provides that the exemption is to be granted only to organisations which levy entry fees or periodic subscriptions (particularly monthly) which are below a certain amount, but without varying that amount by reference to the type of sporting activity, the installations necessary for carrying on that activity, the place where those installations are situated or, finally, the number of members of or subscribers to the organisation in question. In other words, the criterion used by the Spanish legislature takes no account whatever of the whole of the factors which influence the cost of the service and thus indirectly help assess whether or not the organisation supplying it acts with a profit motive. That is to say, the national legislation in question ignores the fact that sporting activity constitutes a complex and diverse reality; the practice of some sports requires costly technical infrastructures and particularly high maintenance burdens, whereas others require relatively simple installations. In the former case the amortisation of sporting infrastructures may require the fixing of high entry fees which are not necessary in the latter. Thus the Spanish legislation does not lay down a certain criterion for assessing whether or not the organisation in question operates with a profit motive. In certain cases, application of that legislation might even lead to results contrary to the provisions of Article 13(A)(1); a private organisation might, for example, charge entry fees above the limit laid down by the Spanish legislation and thus be excluded from the benefit of the exemption even though it does not carry on its activity with a view to profit, whereas other organisations charging fees below the limit may operate with a view to profit and nevertheless be allowed to benefit from the tax exemption. That is contrary to the purpose of Article 13(A)(1); the public interest justifying the grant of the advantage in question exists only where the services linked to sport are supplied by 'non-profit-making organisations'. The national legislature must therefore implement that provision in such a way as to ensure that the aim pursued by the directive is satisfied. For the reasons just stated, I do not consider that the Spanish legislation lays down an appropriate criterion for ensuring that that result is achieved.

6Nor, in my view, should one accept the Spanish Government's defence that the ceilings established by the disputed legislation should be regarded as 'prices approved by the public authorities', causing them to fall within the conditions to which Member States may make the grant of the exemption subject for the purposes of Article 13(A)(2)(a).

In that respect, I might be able to agree that the limit on entry fees or periodic subscriptions should be regarded as a 'price' in the sense that it is the consideration for the service supplied by the organisation providing sport-related services. However, even if the ceilings established were to be regarded as 'prices approved by the public authorities', it would be necessary in any event for those prices to vary in relation to the type of sporting activity. Only in that way can the 'price' be regarded as indicative of the fact that the organisation in question supplies services linked to sport in the context of a non-profit-making activity, as required by Article 13(A)(1), for the purposes of granting exemption from the tax.

In short, I consider that, whilst the exemption criterion laid down by the Spanish legislature might theoretically fall within the conditions set out in Article 13(A)(2)(a), that criterion appears to be totally insufficient to attain the objective pursued by the rule.

Nor do I share the objection of the Spanish Government that what the Commission advocates would be impossible in practice, since it would involve the need to establish different prices to suit the situation of each individual economic operator. In the first place, it seems to me that such an individual approach is required by the very wording of Article 13(A)(2)(a), which provides precisely that Member States 'may make the granting ... of each exemption ... subject in each individual case' to the condition that the organisation in question charges prices approved by the public authorities. Moreover, I do not think that the solution put forward by the Commission necessarily leads to the need to examine the prices charged by every sports centre; it would be sufficient for the national legislation to adopt a more realistic criterion and, instead of fixing a single amount whatever the type of sporting activity, to lay down a series of different prices, possibly according to the category of activity. Finally, as the Commission points out, the alleged impossibility of carrying out individual controls in the granting of the exemption is belied by the Spanish legislation itself; Article 6 of the regulation on VAT governs the 'recognition of the social nature of certain organisations or establishments' and provides that 'private organisations or establishments of a social nature must apply to the tax office for the area in which their place of business for tax purposes is situated (Delegación or Administración dc la Agencia Estatal de Administración Tributaria) for recognition of that status'. That proves that it is perfectly possible to carry out a control on a 'case by case' basis when verifying the conditions required in order to benefit from the exemption, as is, moreover, required by the wording of Article 13(A)(2).

Conclusion

7In the light of the above considerations, I propose that the Court should allow the Commission's action and order the Kingdom of Spain to pay the costs.

Notes

(1) OJ 1977 L 145. p. 1

(2) My translation

(3) Case 8/81 Becker v Finanzamt Miìnsler-lnnemtadt [1982] ECR 53.

(4) Sec the judgment in Becher, cited above, particularly paragraphs 32, 33 and 34, in which the Court held that 'it should first be observed ... that the "conditions" referred to do not in any way affect the definition of the subject-matter of the exemption conferred. The "conditions" referred to arc intended to ensure the correct and straightforward application of the exemptions. A Member State may not rely, as against a taxpayer who is able to show that his tax position actually falls within one of the categories of exemption laid down in the directive, upon its failure to adopt the very provisions which arc intended to facilitate the application of that exemption. Moreover, the "conditions" refer to measures intended to prevent any possible evasion, avoidance or abuse. A Member State which has failed to take the precautions necessary for that purpose may not plead its own omission in order to refuse to grant to a taxpayer an exemption which he may legitimately claim under the directive, particularly since in the absence of specific provisions on the matter there is nothing to prevent the State from having recourse to any relevant provisions of its general tax legislation which arc designed to combat evasion.'

(5) I need scarcely point out that the Spanish Government's argument to the effect that Member States arc free to determine the services which may benefit from an exemption since Article 13(A)(1)(m) provides only that 'certain services' arc exempted cannot be accepted. I do not believe that the Community legislature intended to confer such a wide discretion on Member States. The term in question ('cerMm') doubtless constitutes an unfortunate formulation of the provision, but it docs not have the scope attributed to it in the Spanish Government's defence; it simply means that not all services arc to be exempted but merely those which, as the provision states, arc 'supplied by non-profit-making organisations'. Moreover, since the latter constitutes the aim which justifies the grant of the exemption, the rule in question must in any event — in so far as it lays down the services to be exempted — be capable of pursuing that aim. As I shall explain below, that is not the case here.

(6) My translation.