C-174/00 Kennemer Golf

JUDGMENT OF THE COURT (Fifth Chamber)

21 March 2002 *

In Case C-174/00,

REFERENCE to the Court under Article 177 of the EC Treaty (now Article 234 EC) by Hoge Raad der Nederlanden (Netherlands) for a preliminary ruling in the proceedings pending before that court between

Kennemer Golf & Country Club

and

Staatssecretaris van Financiën,

on the interpretation of Article 13A(l)(m) of the Sixth Council Directive 77/388/EC 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),

* Language of the case: Dutch.

THE COURT (Fifth Chamber),

composed of: P. Jann (Rapporteur), President of the Chamber, S. von Bahr and C.W.A. Timmermans, Judges,

Advocate General: F.G. Jacobs, Registrar: L. Hewlett, Administrator,

after considering the written observations submitted on behalf of:

— the Netherlands Government, by M.A. Fierstra, acting as Agent,

— the Finnish Government, by E. Bygglin, acting as Agent,

— the United Kingdom Government, by G. Amodeo, acting as Agent, assisted by A. Robertson, barrister,

— the Commission of the European Communities, by H.M.H. Speyart and K. Gross, acting as Agents,

having regard to the Report for the Hearing,

I - 3 3 13 after hearing the oral observations of the United Kingdom Government, represented by R. Magrill, acting as Agent, assisted by A. Robertson, and the Commission, represented by H. van Vliet, acting as Agent, at the hearing on 26 September 2001,

after hearing the Opinion of the Advocate General at the sitting on 13 December 2001,

gives the following

Judgment

Legal context and the dispute

1By judgment of 3 May 2000, received at the Court on 9 May 2000, the Hoge Raad der Nederlanden (Supreme Court of the Netherlands) referred to the Court for a preliminary ruling under Article 234 EC, three questions on the interpretation of Article 13A(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 1997 L 145, p. 1, hereinafter 'the Sixth Directive').

2The questions have been raised in proceedings between Kennemer Golf & Country Club (hereinafter 'Kennemer Golf') and the Staatssecretaris van Financiën concerning the value added tax (hereinafter 'VAT') which Kennemer Golf was charged on certain transactions which it carried out in connection with the practice of the sport of golf.

KEXNEMER GOLF

Law applicable

The Community legislation

3Article 2 of the Sixth Directive provides:

'The following shall be subject to value added tax:

1. The supply of goods or services effected for consideration within the territory of the country by a taxable person acting as such;

2. The importation of goods.'

4Article 4(1) of the Sixth Directive provides:

"Taxable person" shall mean any person who independently carries out in any place any economic activity specified in paragraph 2, results of that activity.'

whatever the purpose or

5Article 13A(1) of the Sixth Directive is worded as follows:

'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 non-profit-making organisations to persons taking part in sport or physical education;

6Article 13A(2) is worded as follows:

'(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, The national legislation

7Article 11(1) of the Wep op de Omzetbelasting (Law on turnover tax) 1968 (Staatsblad 1968 No L 329) of 28 June 1968:

'Subject to conditions to be laid down by administrative regulation, the following shall be exempt from tax...:

(e) the services rendered to their members by bodies having as their object the practice or promotion of sport, with the exception...

(f) supplies of goods and services of a social and cultural nature to be defined by administrative regulation, provided that the trader does not aim to make a profit and there is no serious distortion of competition in relation to traders who aim to make a profit'.

8The administrative regulation mentioned in paragraph 1 of the Law referred to in the paragraph above is the Uitvoeringsbesluit Omzetbelasting 1968 (1968 Decree on the implementation of turnover tax, Staatsblad 1968, No 423) of 12 August 1968. In Article 7(1) and annex B it provides that the following are in particular to be treated as exempt supplies of goods and services:

'(b) supplies of goods and services [of a social and cultural character] made as such by the organisations listed hereinafter, provided that they do not aim to make a profit:

21. organisations whose activities consists in providing facilities for the practice of sports, solely in respect of such services'.

The main proceedings and the questions referred for a preliminary ruling

9Kennemer Golf is a Netherlands association having about 800 members. Its objects, according to its Articles of Association, are the pursuit and promotion of sport and games, in particular golf. It owns facilities for this purpose, including a golf course and clubhouse, in the municipality of Zandvoort (Netherlands).

10Members of Kennemer Golf must pay an annual subscription fee as well as an admission fee. They are required to participate in an interest-free debenture loan issued by Kennemer Golf.

11Besides the use of the facilities by members of Kennemer Golf, non-members may use the course and the associated facilities in return for payment of a day subscription fee. According to the case-file, Kennemer Golf earns relatively large sums in this way, amounting to approximately one third of the amounts paid by members as annual subscription fees.

12During the years prior to the 1994 tax year, Kennemer Golf made an operating surplus which was then appropriated as a provisional reserve fund for non-annual expenditure. This also happened in relation to the tax year in question, 1994.

13In the belief that its services to non-members were exempt from VAT, under Article 11(1)(f) of the Wet op de Omzetbelasting 1968 and Articles 7(1) and annex B(b), point 21, of the Uitvoeringsbesluit Omzetbelasting 1968, Kennemer Golf did not pay tax on those services for the 1994 tax year. The tax authorities, however, considered that Kennemer Golf was aiming to make a profit and imposed an additional assessment to VAT in relation to those services.

14When Kennemer Golf's objection to that decision was dismissed by the tax authorities, it appealed to the Gerechtshof (Regional Court of Apeal) Amsterdam (Netherlands). That court dismissed the appeal on the ground that if Kennemer Golf was systematically making profits the presumption had to be that it was seeking to achieve operating surpluses and was pursuing a profit-making aim.

15Kennemer Golf then appealed against that judgment of the Gerechtshof Amsterdam, to the Hoge Raad der Nederlanden. That court, taking the view that the decision in the case depended on the interpretation of the national VAT provisions in the light of the corresponding provisions of the Sixth Directive, decided to stay proceedings and refer the following questions to the Court for a preliminary ruling:

'1. (a) Where it is necessary to establish whether or not a body aims to make a profit as referred to in Article 13(A)(1)(m) of the Sixth Directive, must account be taken solely of earnings from the services referred to in that provision or must earnings from other services provided by it also be taken into consideration?

(b) If, in determining whether or not the aim is to make a profit, account must be taken solely of the services supplied by the body as referred to in Article 13(A)(1)(m) of the Sixth Directive and not total earnings, must only the costs incurred directly for the services be taken into consideration or also a proportion of the body's other costs?

2. (a) Is there a direct link, within the meaning of inter alia the judgment of the Court of Justice of the European Communities in Case 102/86 Apple and Pear Development Council [1988] ECR 1443, in the case of subscription fees charged by an association which, pursuant to the object laid down in its articles of association, provides its members with sports facilities in the context of an association and, if not, is the association to be regarded as a taxable person within the meaning of Article 4(1) of the Sixth Directive only in so far as it also provides benefits for which it receives direct consideration?

(b) Must the total amount of the annual subscription fees from the members whom the association provides with sports facilities be included in the earnings of a body in the form of an association which are to be taken into account in determining whether or not the aim is to make a profit as described in the first question even where no direct link exists between the various services provided by the association for its members and the subscription fee paid by them?

3. Does the fact that a body uses surpluses which it systematically aims to make for the purpose of its benefits in the form of a facility to play a type of sport as provided for in Article 13(A)(l)(m) of the Sixth Directive justify the conclusion that it does not aim to make a profit within the meaning of that provision, or is such a conclusion possible only where the intention is incidentally and not systematically to make operating surpluses which are used as described? In answering these questions must account also be taken of the first indent of Article 13(A)(2)[(a)] of the Sixth Directive and, if so, how is that provision to be interpreted? In particular, in the second part of the provision must "systematically" be read between "arising" and "shall", or "merely incidentally"?'

The first question

16By part (a) of its first question, the national court is asking essentially whether Article 13A(l)(m) of the Sixth Directive is to be interpreted as meaning that the categorisation of an organisation as 'non-profit-making' must be based exclusively on the services referred to in that provision or on all the organisation's activities.

17According to the Netherlands Government, only the specific services referred to in that provision of the Sixth Directive should be considered. Otherwise unreasonable results might occur and fraud or abuses could be encouraged. That approach, in its view, is consonant with the general scheme of the common system of VAT, which always looks at the specific transaction and not at the person of the supplier.

18On this point, it must be observed, as both the United Kingdom Government and the Commission point out, that it is clear from the wording of Article 13A(l)(m) of the Sixth Directive that the provision explicitly relates to certain 'services... supplied by non-profit-making organisations' and that none of the language versions of that provision contains wording which might suggest, owing to its ambiguity, that the expression 'non-profit-making' refers to services and not to organisations.

19Moreover, all the exemptions listed in Article 13A(l)(h) to (p) of the Sixth Directive cover organisations acting in the public interest in a social, cultural, religious or sports setting or in a similar setting. The purpose of the exemptions is KENXEMER GOLF

therefore to provide more favourable treatment, in the matter of VAT, for certain organisations whose activities are directed towards non-commercial purposes.

20The interpretation advocated by the Netherlands Government, whereby only services provided for the abovementioned purposes should be taken into consideration, would mean, as the Advocate General points out in paragraph 23 of his Opinion, that commercial undertakings, normally acting with a view to profit, could in principle seek exemption from VAT when, exceptionally, they provide services to which the qualifying adjective 'non-profit-making' could be attached. Such a result could not, however, be consonant with the wording and aim of the provision in question.

21If the categorisation of an organisation as 'non-profit-making' must be based on the nature of the organisation itself and not on the services which it provides in the form of those specified in Article 13A(1)(m), it follows that, in order to determine whether such an organisation meets the conditions for application of that provision, account must be taken of all its activities, including those which it provides by way of extension to the services covered by that provision.

22The answer to be given to part (a) of the first question must therefore be that Article 13A(1)(m) of the Sixth Directive is to be interpreted as meaning that the categorisation of an organisation as 'non-profit-making' must be based on all the organisation's activities.

23In view of that reply, it is not necessary to reply to part (b) of the first question. The third question

24By its third question, which it is appropriate to examine before the second question owing to its close link to the first question, the national court is asking, essentially, whether Article 13A(l)(m) of the Sixth Directive, read together with the first indent of paragraph (2)(a) of that provision, is to be interpreted as meaning that an organisation may be categorised as 'non-profit-making' even if it systematically seeks to achieve surpluses which it then uses for the purposes of the provision of its services.

25Whilst the Finnish and United Kingdom Governments, and also the Commission, submit that the most important consideration is whether the organisation in question aims to make a profit and not the fact that it actually makes a profit, even if it does so habitually, the Netherlands Government, on the other hand, contends that the VAT exemption should not be granted when profits are made systematically. In its submission, the exemption is applicable only where surpluses are achieved occasionally or merely incidentally.

26On that point, it must be observed first of all that it is clear from Article 13A(l)(m) of the Sixth Directive that an organisation is to be classed as being 'non-profit-making' for the purposes of that provision by having regard to the aim which the organisation pursues, that is to say that the organisation must not have the aim, unlike a 'commercial undertaking', of achieving profits for its members (see, as regards the exemption provided for in Article 13A(l)(n) of the Sixth Directive, the judgment given today in Case C-267/00 Commissioners of Customs Sc Excise v Zoological Society of London [2002] ECR 1-3353, paragraph 17). The fact that it is the aim of the organisation which is the test of eligibility for the VAT exemption is clearly borne out by most of the other language versions of Article 13A(l)(m), in which it is explicit that the organisation in question must not have a profit-making aim (see besides the French version, the German version — 'Gewinnstreben', the Dutch version — 'winst oogmerk', the Italian version — 'senza scopo lucrativo' and the Spanish version — 'sin fin lucrativo').

27It is for the competent national authorities to determine whether, having regard to the objects of the organisation in question as defined in its constitution, and in the light of the specific facts of the case, an organisation satisfies the requirements enabling it to be categorised as a 'non-profit-making' organisation.

28Where it is found that this is indeed the case, the fact that an organisation subsequently achieves profits, even if it seeks to make them or makes them systematically, will not affect the original categorisation of the organisation as long as those profits are not distributed to its members as profits. Clearly, Article 13A(l)(m) of the Sixth Directive does not prohibit the organisations covered by that provision from finishing their accounting year with a positive balance. Otherwise, as the United Kingdom points out, such organisations would be unable to create reserves to pay for the maintenance of, and future improvements to, their facilities.

29The referring court is also unsure whether this interpretation can be maintained in cases where the achievement of surpluses is systematically sought by an organisation. It refers in this regard to the first indent of Article 13A(2)(a) of the Sixth Directive which would seem to suggest that the VAT exemption is to be disallowed where an organisation systematically seeks to make profits.

30As far as that provision is concerned, it must be observed at the outset that it lays down an optional condition that the Member States are at liberty to impose as an additional condition for the grant of certain exemptions set out in Article 13A(1) of the Sixth Directive, amongst which figures the exemption covered by that same provision, under (m), which concerns the present case. The Netherlands legislature seems to require compliance with that optional condition before the benefit of that exemption can be granted.

31As far as the interpretation of that optional condition is concerned, the Netherlands Government maintains that the exemption must be refused where an organisation systematically seeks to achieve surpluses. The Finnish and United Kingdom Governments, as well as the Commission, on the other hand, submit that systematic pursuit of profits is not of decisive importance where it is clear from both the circumstances of the case and the kind of activity actually carried on by an organisation that it is acting in accordance with the objects set out in its constitution and that these do not include any profit-making aim.

32It must be observed, with regard to this point, that the first condition set out in the first indent of Article 13A(2)(a) of the Sixth Directive, namely that the organisation in question must not systematically aim to make a profit, clearly refers, in the French version of that provision, to 'profit', whilst the two other conditions set out there, namely that no profits should be distributed and that any profits be assigned to the continuance or improvement of the services that supplied, refer, in the French text, to 'bénéfices'.

33Although that distinction is not to be found in any of the other language versions of the Sixth Directive, it is borne out by the objective of the provisions contained in Article 13A thereof. As the Advocate General points out in paragraph 57 to 61 of his Opinion, it is not profits ('bénéfices'), in the sense of surpluses arising at the end of an accounting year, which preclude categorisation of an organisation as 'non-profit-making', but profit ('profit') in the sense of financial advantages for the organisation's members. Consequently, as the Commission also points out, the condition set out in the first indent of Article 13A(2)(a) essentially replicates the criterion of non-profit-making organisation as contained in Article 13A(1)(m).

34The Netherlands Government argues that such an interpretation does not take account of the fact that the first indent of Article 13A(2)(a) must, as an additional condition, necessarily have a content extending beyond that of the basic provision. In response to that argument, it suffices to observe that that condition does not refer only to Article 13A(1)(m) of the Sixth Directive but also to a large number of other compulsory exemptions which have a different content.

35Consequently, the answer to be given to the third question must be that Article 13A(1)(m) of the Sixth Directive is to be interpreted as meaning that an organisation may be categorised as 'non-profit-making' even if it systematically seeks to achieve surpluses which it then uses for the purposes of the provision of its services. The first part of the optional condition set out in the first indent of Article 13A(2)(a) of the Sixth Directive is to be interpreted in the same way.

The second question

36By part (a) of its second question, the national court is asking, essentially, whether Article 2(1) of the Sixth Directive is to be interpreted as meaning that annual subscription fees of the members of a sports association can constitute the consideration for the services provided by the association, even though the members who do not use or do not regularly use the association's facilities must still pay their annual subscription fee.

37The Hoge Raad refers in this context to the case-law of the Court, in particular paragraph 12 of the judgment in Apple and Pear Development Council, in which the Court held that the concept of supply of services effected for consideration within the meaning of Article 2(1) of the Sixth Directive presupposes the existence of a direct link between the service provided and the consideration received. The Hoge Raad is doubtful whether such a direct link exists in circumstances such as those of the present case.

38According to the Netherlands Government, in circumstances such as those in the present case, there is no direct link between the subscription fee paid by members of the association and the services which it provides. Article 2(1) of the Sixth Directive, as interpreted by the Court, requires that a specific service be paid for directly, which is not the case where certain members of a sports club do not avail themselves of the services which it offers and nevertheless pay their annual subscription fee.

39In that regard, according to the case-law of the Court, the basis of assessment for a provision of services is everything which makes up the consideration for the service provided and a provision of services is taxable only if there is a direct link between the service provided and the consideration received (Apple and Pear Development Council, paragraphs 11 and 12, and Case C-16/93 Tolsma [1994] ECR I-743, paragraph 13). A supply of services is therefore taxable only if there exists between the service provider and the recipient a legal relationship in which there is a reciprocal performance, the remuneration received by the provider of service constituting the value actually given in return for the service supplied to the recipient (Tolsma, paragraph 14).

40As the Commission argues, the fact that in the case before the national court the annual subscription fee is a fixed sum which cannot be related to each personal use of the golf course does not alter the fact that there is reciprocal performance between the members of a sports association such as that concerned in the main proceedings and the association itself. The services provided by the association are constituted by the making available to its members, on a permanent basis, of sports facilities and the associated advantages and not by particular services provided at the members' request. There is therefore a direct link between the annual subscription fees paid by members of a sports association such as that concerned in the main proceedings and the services which it provides.

41Moreover, as the United Kingdom Government rightly points out, the Netherlands Government's approach would make it possible for practically any service provider to escape VAT by recourse to all-inclusive charges and thus to set aside the taxation principles which constitute the basis of the common system of VAT established by the Sixth Directive.

42The answer to be given to part (a) of the second question must therefore be that Article 2(1) of the Sixth Directive is to be interpreted as meaning that the annual subscription fees of members of a sports association such as that concerned in the main proceedings can constitute the consideration for the services provided by the association, even though members who do not use or do not regularly use the association's facilities must still pay their annual subscription fees.

43In view of that reply, it is no longer necessary to answer the second part of part (a) of the second question or part (b) of that question.

Costs

Costs

44The costs incurred by the Netherlands, Finnish and United Kingdom Governments and by the Commission of the European Communities, which have submitted observations to the Court, are not recoverable. Since these proceedings are, for the parties to the main proceedings, a step in the action/proceedings pending before the national court, the decision on costs is a matter for that court.

Operative part

On those grounds,

THE COURT (Fifth Chamber),

in answer to the questions referred to it by the Hoge Raad der Nederlanden by judgment of 3 May 2000, hereby rules:

1. Article 13A(l)(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 is to be interpreted as meaning that the categorisation of an organisation as 'non-profit-making' must be based on all the organisation's activities.

2. Article 13A(l)(m) of Directive 77/388 is to be interpreted as meaning that an organisation may be categorised as 'non-profit-making' even if it systematically seeks to achieve surpluses which it then uses for the purposes of the provision of its services. The first part of the optional condition set out in the first indent of Article 13A(2)(a) of Directive 77/388 is to be interpreted in the same way.

3. Article 2(1) of Directive 77/388 is to be interpreted as meaning that the annual subscription fees of the members of a sports association such as that concerned in the main proceedings can constitute the consideration for the services provided by the association, even though members who do not use or do not regularly use the association's facilities must still pay their annual subscription fees.

Jann von Bahr Timmermans

Delivered in open court in Luxembourg on 21 March 2002.

R. Grass P. Jann

Registrar President of the Fifth Chamber

I - 3 3 31

OPINION OF ADVOCATE GENERAL JACOBS delivered on 13 December 2001 1

1Under the Sixth VAT Directive, certain services closely linked to sport and supplied by non-profit-making organisations to persons taking part in sport are to be exempted from VAT. Member States may subject that exemption to the condition that the organisation in question must not systematically aim to make a profit, but that any profits arising must not be distributed but assigned to the continuance or improvement of the services supplied.

2In the present reference for a preliminary ruling, the Hoge Raad der Nederlanden (Supreme Court of the Netherlands) seeks guidance on a number of points of interpretation in that regard. Essentially, it asks what aspects of an organisation's activity are to be taken into account when determining whether it is non-profit-making, whether for VAT purposes there is a link between annual membership fees charged by a golf club and the services provided to members and whether the aim of making a systematic surplus to be used for providing sporting services is consistent with non profit-making status.

The Sixth Directive

3Under Article 2 of the Sixth Directive, a supply of goods or services effected for consideration by a taxable person acting as such is subject to VAT. According to Article 4(1), a taxable person is one who carries out an economic activity, whatever the purpose or result of that activity. Under Article 4(2), economic activities comprise 'all activities of producers, traders and persons supplying services', together with the 'exploitation of tangible or intangible property for the purpose of obtaining income therefrom on a continuing basis'. However, certain transactions are or may be exempted from VAT under the terms of the directive.

4Article 13(A) is headed 'Exemptions for certain activities in the public interest', and paragraph (1) lists a number of activities which must be exempted by Member States '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'.

5Those activities include, under (m), 'certain services closely linked to sport or physical education supplied by non-profitmaking organisations to persons taking part in sport or physical education'. It is that exemption which is relevant in particular to the dispute in the present case. It may be noted that in most of the language versions the concept of a non-profit-mak ing organisation refers explicitly to one which does not aim to make a profit.

6There are in all 16 such exemptions, though it is unnecessary to list them all; suffice it to add that Article 13(A)(l)(n) exempts 'certain cultural services and goods closely linked thereto supplied by bodies governed by public law or by other cultural bodies recognised by the Member State concerned'.

7Article 13(A)(2) provides for a number of limitations, some optional and some mandatory, to be imposed on certain exemptions, including those under Article 13(A)(1)(m) (and (n)). Article 13(A)(2)(a) lists four optional conditions which Member States may impose in each individual case on the granting of such exemptions to bodies other than those governed by public law.

8The condition set out in the first indent, which is of particular relevance here, is that the bodies in question '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'.

9Again, it is not necessary to list the other conditions, but it may be noted that the condition set out in the fourth indent is that '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 Netherlands legislation

10According to the order for reference, Article 13(A)(l)(m) of the Sixth Directive is transposed into Netherlands law by certain provisions of the Wet op de Omzetbelasting 1968 (1968 Law on Turnover Tax), read in conjunction with the Uitvoeringsbesluit Omzetbelasting 1968 (1968 Decree on the Implementation of Turnover Tax) and Annex B thereto.

11Article 11(1) of the 1968 Law states:

'Subject to conditions to be laid down by administrative regulation, the following shall be exempt from tax:

(f) supplies of goods and services of a social and cultural nature to be defined by administrative regulation, provided that the operator does not aim to make a profit and there is no serious distortion of competition in relation to operators who aim to make a profit.'

12'Supplies of goods and services of a social or cultural nature' are defined by the first paragraph of Article 7 of the implementing decree, in conjunction with Annex B thereto. Item 21 in section (b) of that annex is for supplies made by bodies providing sports facilities, provided that they do not aim to make a profit, the exemption applying solely in respect of such supplies.

13Furthermore, in an apparently distinct exemption, Article ll(l)(e) of the 1968 Law provides that services supplied to their members by organisations whose aim is the pursuit or promotion of sport are to be exempt from turnover tax. Under Article 11(2), that exemption applies only where the aim is not to make a profit by means of the services concerned. Operating surpluses are also considered as profits in that regard unless they are not distributed but used for the purpose of the services concerned.

14Thus, Article ll(l)(f) of the 1968 Law appears to transpose the 'cultural' exemption in Article 13(A)(l)(n) of the Sixth Directive, subject to the 'non-profit-mak ing' and 'anti-distortion' conditions set out in the first and fourth indents of Article 13(A)(2)(a); the implementing decree extends that exemption to bodies providing sports facilities, which might otherwise have fallen under the 'sports' exemption in Article 13(A)(l)(m) of the directive. The combined provisions of Article ll(l)(e) and (2) of the 1968 Law, however, appear to transpose that 'sports' exemption, subject again to the 'non-profitmaking' condition, but with the proviso that operating surpluses will be regarded as profits unless they are ploughed back into the sports services supplied and subject to the further limitation that only services supplied to the members of the organisations concerned will be exempted.

The proceedings

15According to the order for reference, Kennemer Golf & Country Club ('Kennemer') is an association whose object is the pursuit and promotion of sport and games, in particular golf. It owns a golf complex and club house in Zandvoort, near Amsterdam. Members pay an annual membership fee as well as admission fees for use of the course, and must also participate in an interest-free debenture loan. Kennemer derives other income from related sources such as letting certain immovable property, sponsorship, interest on investments, the supply of balls and certain rental services and daily green fees paid by non-members who use the golfing facilities.

16During each of the years 1990 to 1995, Kennemer made an operating surplus which was paid into its reserve funds. One of those funds in particular was earmarked for expenditure other than recurring annual expenditure.

17In the belief that its services to non-members were exempt from VAT, Kennemer did not pay any tax on them. The tax authorities however considered that the exemptions under Netherlands law did not apply because Kennemer aimed to make a profit, and imposed an additional assessment for the 1994 tax year. Kennemer challenged that assessment, but it was upheld by the Gerechtshof te Amsterdam (Amsterdam Regional Court of Appeal). The Gerechtshof held that there were reasonable grounds for assuming that the appellant systematically sought to achieve operating surpluses. The fact that Kennemer used those surpluses for the golf facilities it provided did not justify the conclusion that it did not aim to make a profit; that would have been possible only if there had been an incidental and not a systematic intention to make operating surpluses to be used in that way.

18Kennemer then appealed to the Hoge Raad, which has stayed the proceedings and referred the following questions to the Court for a preliminary ruling:

'1. (a) Where it is necessary to establish whether or not a body aims to make a profit as referred to in Article 13(A)(l)(m) of the Sixth Directive, must account be taken solely of earnings from the services referred to in that provision or must earnings from other services provided by it also be taken into consideration?

(b) If, in determining whether or not the aim is to make a profit, account must be taken solely of the services supplied by the body as referred to in Article 13(A)(l)(m) of the Sixth Directive and not total earnings, must only the costs incurred directly for the services be taken into consideration or also a proportion of the body's other costs?

2. (a) Is there a direct link, within the meaning of inter alia the judgment of the Court of Justice of the European Communities in Case 102/86 Apple and Pear Development Council [1988] ECR 1443, in the case of subscription fees charged by an association which, pursuant to the object laid down in its articles of association, provides its members with sports facilities in the context of an association and, if not, is the association to be regarded as a taxable person within the meaning of Article 4(1) of the Sixth Directive only in so far as it also provides benefits for which it receives direct consideration?

(b) Must the total amount of the annual subscription fees from the members whom the association provides with sports facilities be included in the earnings of a body in the form of an association which are to be taken into account in determining whether or not the aim is to make a profit as described in the first question even where no direct link exists between the various services provided by the association for its members and the subscription fee paid by them?

3. Does the fact that a body uses surpluses which it systematically aims to make for the purpose of its benefits in the form of a facility to play a type of sport as provided for in Article 13(A)(l)(m) of the Sixth Directive justify the conclusion that it does not aim to make a profit within the meaning of that provision, or is such a conclusion possible only where the intention is incidentally and not systematically to make operating surpluses which are used as described? In answering these questions must account also be taken of the first indent of Article 13(A)(2) of the Sixth Directive and, if so, how is that provision to be interpreted? In particular, in the second part of the provision must "systematically" be read between "arising" and "shall", or "merely incidentally"?'

19Written observations have been submitted to the Court by the Finnish, Netherlands and United Kingdom Governments and by the Commission. The Finnish Government's observations however are confined to the third question, and only the United Kingdom Government and the Commission made oral submissions at the hearing.

Analysis

The first question

20The first question is essentially w h e t h e r, for the purposes of Article 13(A)(l)(m), non-profit-making status is to be determined by reference to all the activities of the organisation or only to those which might benefit from the exemption.

21The Netherlands Government — agreeing with the opinion of Advocate General Van den Berge delivered to the Hoge Raad in the present case, which appears to be in line with the approach taken hitherto by the Netherlands courts — submits that the question must be determined with regard solely to the services to be exempted, since it is with them that the provision is concerned.

22I disagree. As the Commission has pointed out, all the language versions of Article 13(A)(l)(m) clearly attach the qualification 'non-profit-making' to Organisation' and the legislature would no doubt have chosen different wording had it had any different intent.

23Moreover, as the United Kingdom Government has noted, the provision contains three distinct and cumulative conditions, relating to the nature of the organisation (non-profit-making), the nature of the services (closely linked to sport) and the identity of the recipients (persons taking part in sport). If the exemption were to apply only to non profit-making services, commercial sports undertakings could seek exemption for certain services they supply, a situation which could not be reconciled with the plain terms of the provision and which would inevitably — given the opportunities for shrewd cross-subsidising which would arise — lead to a distortion of competition.

24It is true that, as the Netherlands Government says, some services provided at a profit by non-profit-making organisations may be in competition with services provided by commercially-run organisations, and a discrepancy could arise if the same services were thus subject to tax in some cases and not in others. However, distortion of competition between commercial and non-profit-making organisations can be prevented under the fourth indent of Article 13(A)(2)(a) (cited above) or the second indent of Article 13(A)(2)(b) (which precludes the exemption for supplies whose basic purpose is to obtain income through transactions which are in direct competition with those of commercial enterprises liable for VAT).

25Thus, in my view, the answer to the first part of the Hoge Raad's first question must be that when determining whether an organisation is non-profit-making for the purposes of Article 13(A)(1)(m) of the Sixth Directive, account must be taken of its activities as a whole. The second part of that question need not be answered.

26That, of course, leaves open the question of precisely what is meant by 'non profit-making'. Although the United Kingdom has suggested an answer in the context of the first question, I prefer to consider that issue when examining the third question.

The second question

27This question is essentially whether annual membership fees paid to a golf club constitute 'consideration' within the meaning of Article 2 of the Sixth Directive for the services provided by the club to its members, or whether those fees, if they do not constitute consideration, are to be taken into account when deciding whether the club aims to make a profit.

28It is raised in the light of the Court's case-law as set out in, in particular, Apple and Fear Development Council, 3 in which the Court held that a supply of services for consideration (thus a taxable supply) presupposes the existence of a direct link between the service provided and the consideration received. There was no such link in the case of a statutory body promoting the interests of a whole industry and financed by a compulsory levy.

29I should point out, however, that the answer to this question may be of limited relevance to the resolution of the dispute before the national court unless it is held — contrary to my view — that the 'non-profit-making' criterion in Article 13(A)(1)(m) of the Sixth Directive falls to be assessed separately for each of the organisation's activities.

30Be that as it may, my view is that a direct link normally exists between the annual membership fee and the services provided to members.

31The Netherlands Government considers that there is no relationship between the fee and the use made of the facilities by the members — the obligation to pay the fee remains whether the member uses the club every day or not at all during the year — and thus no taxable service. That however does not appear to be the correct analysis. As both the United Kingdom and the Commission have pointed out, the service provided in exchange for the fee is not the use made, but the opportunity to make use, of the facilities.

32The fact that the link is more immediate where daily green fees are concerned does not make it any less direct in the case of annual membership fees. The club exists to provide certain facilities and it does so in exchange for either daily green fees (paid by non-members) or a combination of annual membership and admission fees (paid by members). The benefits provided may differ in the two cases, but they are directly linked to the payments in both. The fact that in one case payment may be made for actual use and in the other for entitlement to use does not change that.

33The above view assumes that the annual membership fee is indeed paid at least in part in consideration for the opportunity to use the sports facilities. It is possible to imagine that a golf club may have a category of membership which offers access only to its non-sporting facilities. In that case, the direct link would be to the making available of those facilities. However, as I have indicated, such a distinction may be of limited relevance in the present context if an organisation's non-profit-making status is to be assessed in the light of its activities as a whole.

34The Netherlands Government's approach, on the other hand, would appear to make it possible for practically any service provider to escape VAT by judicious use of all-inclusive charges — with potentially far-reaching results for the VAT system.

35In my view, therefore, the answer to the Hoge Raad's second question is that annual membership fees paid to a golf club constitute 'consideration' within the meaning of Article 2 of the Sixth Directive for the services provided by the club to its members. The remainder of that question need not be answered.

The third question

36This appears to be the central question in the case: if an organisation is to be classed as non-profit-making for the purposes of Article 13(A)(l)(m) of the Sixth Directive, to what extent may it none the less make a surplus and what is the relevance in that regard of the first indent of Article 13(A)(2)(a) (see paragraphs 5 and 8 above)? It is most helpful to begin by examining the relationship between the two provisions.

—· The r e l a t i o n s h ip b e t w e en Article 13(A)(l)(m) and the first indent of Article 13(A)(2)(a)

37I take the view that the two provisions must in principle be interpreted and applied separately, despite the undeniable degree of overlap between them in terms of substance.

38First, whilst Article 13(A) of the Sixth Directive may not be a model of legislative perfection, its structure is none the less unambiguous. Article 13(A)(1) lists 16 types of supplies which are to be exempted, in subparagraphs (a) to (q). Within that list, subparagraphs (b), (g), (h), (i), (1), (m) and (n) are all grouped together for the purpose of applying additional conditions, to be found in Article 13(A)(2)(a) and (b). The former contains four optional conditions which may be imposed by Member States on the granting of an exemption for an activity within the group and the latter lays down a compulsory limitation on such exemptions (and Article 13(A)(l)(o) provides a further related exemption, subject again to certain conditions).

39That structure militates against using the terms of an optional condition in Article 13(A)(2)(a) to define those of a c o m p u l s o ry e x e m p t i on in Article 13(A)(1)(b), (g), (h), (i), (1), (m) or (n). To do so would be to negate the optional nature of the condition.

40Second, I do not consider that when interpreting Article 13(A)(l)(m) regard should be had to the Commission's original proposal for a Sixth Directive, 4 in which the term 'non-profit-making organisation' was defined in terms foreshadowing those of the first indent of Article 13(A)(2)(a), precisely because that definition was not included in the directive as adopted.

41However, that is not to say that no light whatever can be shed by one provision on the interpretation of the other.

42On the one hand, if the provisions of the article are to be interpreted coherently, there must be no contradiction or inconsistency between them. At least at first sight it may therefore be thought that the concept of a non-profit-making organisation in Article 13(A)(1)(m) should be one on which it is possible to impose the conditions of not systematically aiming to make a profit and not distributing any profits nevertheless arising but assigning them to the continuance or improvement of the services supplied, contained in the first indent of Article 13(A)(2)(a); at least cumulatively, those conditions should in principle entail some restriction of that concept.

43On the other hand it cannot be assumed that each part of the first indent of Article 13(A)(2)(a) must impose a significant limitation on every type of body capable of qualifying for each of the different exemptions concerned. For the sake of convenience, it would appear, the Community legislature has set out a number of conditions as a group capable of being applied to a group of exemptions, rather than stipulating specific conditions individually and repeatedly for each exemption. Thus it may be expected that some indents or parts of indents will be of greater significance in the context of some exemptions than in that of others; it is therefore also possible that there is some overlap or replication between one of the conditions listed in Article 13(A)(2)(a) and an exemption to which it applies.

— The concept of a non-profit-making organisation in Article 13(A)(1)(m)

44The Commission points out that the concept of a non-profit-making entity already exists in the laws of several Member States. For the purposes of the Sixth Directive, however, an autonomous and uniform Community definition is required, 5 which will not necessarily correspond to those concepts in every detail.

45First, I agree with what appears to be the consensus of the Finnish and United Kingdom Governments and the Commission, that the idea of profit-making in this context relates to the enrichment of natural or legal persons — in particular those having a financial interest in the organisation in question — rather than to whether in any given period the organisation's income exceeds its expenditure. The concept of a non-profit-making organisation contrasts essentially with that of a commercial undertaking run for the profit of those who control and/or have a financial interest in it.

46Second, in accordance with most of the language versions, the focus must be on the aims of the organisation concerned rather than on its results — the mere fact that an entity does not make a profit over any given period is not enough to confer non profit-making status. Moreover, from the fact that 'non-profit-making' is used to qualify Organisation', it would seem that the aims in question are those which are inherent in the organisation rather than those which it may be pursuing at a particular point in time.

47When assessing those aims, therefore, it is necessary but not sufficient to look at the organisation's express objects as set out in its statutes. It is also necessary however to examine whether the aim of making and distributing profit can be deduced from the way in which it operates in practice. And in that context it is not enough to look simply for an overt distribution of profits in the form of, say, a direct return on the investment represented by contributions to the organisation's assets. Such distribution might also, at least in some circumstances, take the form of unusually high remuneration for employees, redeemable rights to increasingly valuable assets, the award of supply contracts to members, whether or not at prices higher than the market rate, or the organisation of sporting 'competitions' in which all the members won prizes. No doubt further methods of covert distribution can be devised.

48On the other hand, as the Finnish and United Kingdom Governments have also submitted, it would not be reasonable to define an organisation as profit-making simply because it sought to achieve a surplus of regular income over regular expenditure in order to budget for irregular but foreseeable expenditure. A golf club might need, for example, to re-roof its clubhouse after a number of years or to extend its course. To deny it non-profitmaking status simply because it accumulated a surplus for that purpose would be to discourage it from managing its affairs economically, with prudence and foresight, and to ignore the fact that no material benefit will accrue to any person as a result of the surplus. Organisations would moreover be liable to acquire and lose their right to exemption depending on where they stood in their budgeting programme, although their fundamental nature and aims would remain unchanged. That cannot in my view have been the intention of the legislature when it enacted the category of 'non-profit-making organisations'.

49Clearly, in each case the assessment must be a matter for the national court, which is in a position to investigate the circumstances of the organisation. In the present case, it does not seem possible for this Court to give more than general guidance, since it is not clear from the case-file exactly how the excess income paid by Kennemer into its reserve funds was actually used or intended to be used.

50The relevant part of the Hoge Raad's question may none the less be answered to the effect that a non-profit-making organisation within the meaning of Article 13(A)(l)(m) of the Sixth Directive is one which does not have as its object the enrichment of natural or legal persons and which is not in fact run in such a way as to achieve or seek to achieve such enrichment; however, the fact that a body systematically aims to make a surplus which it uses for the services it supplies in the form of a facility to practise a sport does not preclude its classification as such a non-profit-mak ing organisation.

51In answering that specific question, it is not appropriate, as I have indicated above, to have regard to the terms of the first indent of Article 13(A)(2)(a). However, it appears that the Netherlands legislature has sought also to apply the conditions set out in that indent to the exemption under Article 13(A)(1)(m). In so far as it has done so, those conditions must be examined in order to provide a more complete answer to the national court.

— The first indent of Article 13(A)(2)(a)

52This provision sets out three conditions: (i) there may be no systematic aim of making a profit; (ii) any profits nevertheless arising may not be distributed; (iii) such profits must be used for the continuance or improvement of the services supplied. It seems to me clear from the language used that those conditions are cumulative and not alternative.

53They must moreover be construed in such a way as to be coherent both among themselves and with the terms of the exemptions to which they may be applied. Therefore, taken together, they should be capable of allowing some non-profit-mak ing organisations within the meaning of Article 13(A)(1)(m) to benefit from the exemption whilst excluding others; put another way, it should be possible for some but not all of those organisations to fulfil the conditions.

54It is inherent in the concept of a non-profit-making organisation as I have defined it that the second condition in the first indent — prohibition of the distribution of profits — will be fulfilled. Moreover, the word 'profit' must be construed here as 'surplus of income over expenditure' rather than 'enrichment of natural or legal persons' (that is to say profit which by its very nature is distributed) or the condition would be circular and would have no meaning.

55It must consequently bear the same construction in the third condition — use for the furtherance of the services supplied — which will often, but not necessarily, be fulfilled: a non-profit-making organisation may make a surplus which it uses otherwise than for the continuance or improvement of its services whilst none the less ensuring that third parties are not enriched.

56I should point out here that I do not agree with the suggestion in the Hoge Raad's question that the second and third conditions might be read as referring to any profits nevertheless 'systematically' arising. The word 'systematically' in this context implies the existence of a system and thus, where human activities are concerned, of an organised plan or design. It is not possible in my view for profits to arise systematically in the absence of a systematic aim to make them. However, that does not mean that the words 'merely incidentally' must necessarily be read into the provision either. The reference is simply to a surplus, of whatever nature or origin, to be used in a specified manner.

57What remains to be determined is whether the first of the three conditions in the indent — that there may be no systematic aim to make a profit — limits or merely replicates the concept of non-profitmaking aim set out in Article 13(A)(l)(m) and, if it limits that concept, in what way it does so.

58The fact that the two provisions are worded differently in all the language versions might well suggest that their meaning was intended to be different. That view would be supported by the fact that the alternative would offer less scope for the Member States to use the indent to impose any further condition on non profit-making bodies; they would be empowered merely to insist that such bodies use any surplus for the furtherance of the services they supply.

59On the other hand, the reasoning I have set out in paragraph 48 above applies as much in the context of the first indent of Article 13(A)(2)(a) as in the context of Article 13(A)(l)(m). It would seem arbitrary in the extreme to allow an organisation to benefit from a VAT exemption while budgeting regularly for its regular expenditure but not if it accumulates a temporary surplus to budget for irregular but foreseeable expenditure.

60In line with that reasoning, I take the view that the first part of the optional condition in the first indent of Article 13(A)(2)(a) of the Sixth Directive, to the effect that the bodies in question may not 'systematically aim to make a profit', refers to the making of profit intended to be distributed and thus essentially replicates the 'non-profit-making' criterion in Article 13(A)(1)(m), whereas the second and third parts of that condition refer respectively to prohibited and compulsory uses of any surplus of income over expenditure.

61That interpretation does not deprive the condition of any substance. The overlap with the 'non-profit-making' criterion in Article 13(A)(1)(m) 8 does not necessarily apply in the case of the bodies referred to in the other subparagraphs concerned, such as hospitals or similar recognised establishments, or charitable, educational or cultural bodies recognised by the Member States. Medical or educational establishments in particular might well include among their aims the making and distribution of profit whilst still complying with all the other criteria in the relevant subparagraphs. Furthermore, a requirement that surpluses must be assigned to the continuance or improvement of the services supplied will significantly circumscribe the uses to which such monies may be put; for example, a golf club might be required to devote all its income to its own services rather than, say, to making donations to an external fund for promoting excellence in golf journalism.

Further remarks

62It appears from the order for reference that the case arises out of a dispute as to whether Kennemer is liable to VAT on the services it provides to non-members, and that the question has been approached essentially on the basis of the profit-making or non-profit-making status of the club. It is on that basis that the Hoge Raad has referred three questions, it is on that basis that I have examined them and it is on that basis that this Court should provide an answer.

63However, as I have remarked in paragraphs 13 and 14 above, Article 11(1)(e) of the 1968 Netherlands Law on Turnover Tax, in what appears to be the principal transposition of Article 13(A)(1)(m) of the Sixth Directive, seems to limit the exemption to services supplied to their members by organisations whose aim is the pursuit or promotion of sport. If that limitation were consistent with the Sixth Directive, it might be unnecessary, in the specific circumstances of the case in the main proceedings, to look any further.

64The limitation may be thought to be consistent with Article 13(A)(1)(m) which, it will be recalled, allows Member States to exempt 'certain' services closely linked to sport. On its wording, that would appear to allow the exemption to be limited to services provided by sports clubs to their members. In its First Report on the Sixth Directive the Commission stated: 'There is... no doubt that... the Council considered that the Member States should grant only limited exemptions..., for otherwise there would have been no reason to use the adjective "certain"'. However, in his Opinion in Commission v Spain, Advocate General La Pergola considered that the term 'certain' was an 'unfortunate formulation' but was merely intended to limit the exemption to services provided by non profit-making organisations. Since, moreover, the point has not been raised or discussed before the Court in the present case, it would in my view be inappropriate to express a definitive view here.

65Another point which falls outside the scope of the Hoge Raad's questions and on which no submissions have been made to the Court is whether it is consistent with the Sixth Directive for the Netherlands Turnover Tax Law to include supplies made by bodies providing sports facilities within the exemption for supplies 'of a social or cultural nature' (see paragraphs 11, 12 and 14 above) as well as within the specific 'sports' exemption. It might appear that two separate exemptions are being confused. However, the Court does not have sufficient information on the operation of the Netherlands legislation to express a definite view on that point.

Conclusion

Conclusion

66I am therefore of the opinion that the Court should answer the Hoge Raad's questions as follows:

(1) When determining whether an organisation is non-profit-making for the purposes of Article 13(A)(1)(m) of the Sixth VAT Directive, account must be taken of its activities as a whole.

(2) Annual membership fees paid to a golf club constitute 'consideration', within the meaning of Article 2 of the Sixth Directive, for the services provided by the club to its members.

(3) A non-profit-making organisation within the meaning of Article 13(A)(1)(m) of the Sixth Directive is one which does not have as its object the enrichment of natural or legal persons and which is not in fact run in such a way as to achieve or seek to achieve such enrichment; however, the fact that a body systematically aims to make a surplus which it uses for the services it supplies in the form of a facility to practise a sport does not preclude its classification as such a non-profit-making organisation. The first part of the optional condition in the first indent of Article 13(A)(2)(a) of the Sixth Directive, to the effect that the bodies in question may not 'systematically aim to make a profit', falls to be construed in the same way.

Notes

(1) Original language: English.

(2) 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 (hereinafter 'the Sixth Directive').

(3) Case 102/86 [1988] ECR 1443.

(4) OJ 1973 C 80, p. 1; see Article 14(A)(2)(a) of the proposal.

(5) Sec, for example, Case C-359/97 Commission v United Kingdom [2000] ECR I-6355, paragraph 63 of the judgment and the case-law cited there.

(6) See paragraphs 37 to 43 above. The same applies, mutatis mutandis, with regard to the bodies referred to in the other subparagraphs or Article 13(A)(1) to which the conditions may be applied; whilst there may be some degree of overlap between the definition of the body in question and the conditions which may be imposed, the application of the combined conditions may be expected in some way to limit the scope of that definition.

(7) This appears to be specifically supported by the use of the word 'overskud' in Danish.

(8) And Article 13(A)(1)(1), which exempts certain supplies made by non-profit-making organisations with aims of a politicai, trade-union, religious, patriotic, philosophical, philanthropic or civic nature.

(9) Case C-124/96 [1998] ECR I-2501, note 5 at p. I-2507.