C-174/11 Zimmermann

JUDGMENT OF THE COURT (Second Chamber)

15 November 2012 ( *1 )

‛Sixth VAT Directive — Exemptions — Article 13A(1)(g) and (2) — Services closely linked to welfare and social security work supplied by bodies governed by public law or organisations recognised as charitable — Recognition — Conditions not applicable to organisations other than bodies governed by public law — Discretion of the Member States — Limits — Principle of fiscal neutrality’

In Case C‑174/11,

REFERENCE for a preliminary ruling under Article 267 TFEU from the Bundesfinanzhof (Germany), made by decision of 2 March 2011, received at the Court on 13 April 2011, in the proceedings

Finanzamt Steglitz

v

Ines Zimmermann,

THE COURT (Second Chamber),

composed of A. Rosas, acting as President of the Second Chamber, M. Ilešič, U. Lõhmus (Rapporteur), A. Arabadjiev and C.G. Fernlund, Judges,

Advocate General: J. Mazák,

Registrar: A. Impellizzeri, Administrator,

having regard to the written procedure and further to the hearing on 23 May 2012,

after considering the observations submitted on behalf of:

Ms Zimmermann, by U. Behr, Rechtsanwalt,

the German Government, by T. Henze and K. Petersen, acting as Agents,

the European Commission, by W. Mölls and C. Soulay, acting as Agents,

after hearing the Opinion of the Advocate General at the sitting on 19 July 2012,

gives the following

Judgment

Legal context and the dispute

1This reference for a preliminary ruling concerns the interpretation of Article 13A(1)(g) and (2)(a) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1; ‘the Sixth Directive’).

2The reference has been made in proceedings between Ms Zimmermann and the Finanzamt Steglitz (Tax Office, Steglitz; ‘the Finanzamt’) concerning the value added tax (‘VAT’) due for the years 1993 and 1994.

Legal context

European Union (‘EU’) Law

3Article 13A(1) of the Sixth Directive provides:

‘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:

…

hospital and medical care and closely related activities undertaken by bodies governed by public law or, under social conditions comparable to those applicable to bodies governed by public law, by hospitals, centres for medical treatment or diagnosis and other duly recognised establishments of a similar nature;

…

the supply of services and of goods closely linked to welfare and social security work, including those supplied by old people’s homes, by bodies governed by public law or by other organisations recognised as charitable by the Member State concerned;

…’

4Article 13A(2) of the Sixth Directive provides:

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 [VAT],

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 [VAT].

The supply of services or goods shall not be granted exemption as provided for in (1)(b), (g), (h), (i), (l), (m) and (n) above if:

it is not essential to the transactions exempted,

its basic purpose is to obtain additional income for the organisation by carrying out transactions which are in direct competition with those of commercial enterprises liable for [VAT].’

German law

5Paragraph 4 of the 1993 Law on turnover tax (Umsatzsteuergesetz 1993; ‘UStG’) in the version applicable in the material years, that is to say, in 1993 and 1994, provided:

‘The following transactions … are exempt:

…

16. transactions closely linked with the operation of … organisations providing out-patient care for those who are sick or in need of care where:

those bodies are run by legal persons governed by public law or

…

in the case of … organisations providing out-patient care for those who are sick or in need of care, the medical and pharmaceutical costs have been borne in at least two thirds of cases wholly or mainly by the statutory social security or social welfare authorities in the preceding calendar year;

…

18. the services of officially recognised voluntary welfare associations, and corporations, associations of persons and funds serving purposes of voluntary welfare which are affiliated as members of a welfare association, where

that operator serves, solely and directly, public-interest, charitable or ecclesiastical purposes,

the services directly benefit the group of persons who are beneficiaries under the statute, act of foundation or other constitution, and

the consideration paid for the services in question is lower than the average rates demanded by commercial undertakings for similar services….’

6The threshold of two thirds provided for in Paragraph 4(16)(e) of the UStG (‘the two thirds threshold’) was lowered to 40% as of 1 January 1995.

7The concept of ‘welfare’ referred to in Paragraph 4(18) of the UStG is defined in Paragraph 66(2) of the Tax Code (Abgabenordnung, BGBl. 1976 I, p. 613, and BGBl. 1977 I, p. 269) as follows:

‘Welfare consists in the planned protection of persons in need or in danger in the public interest rather than for profit. This protection may extend to well-being in health, morals, education or economic standing and may aim to prevent or put right a given situation.’

8Paragraph 23 of the 1993 Regulation implementing the UstG (Umsatzsteuer‑Durchführungsverordnung 1993; ‘UStDV’) lists 11 associations which are classified as officially recognised welfare associations for the purposes of Paragraph 4(18) of the UStG.

The dispute in the main proceedings and the questions referred for a preliminary ruling

9Ms Zimmermann is a registered nurse and in 1992 worked at a welfare centre as a staff nurse. In addition, from the beginning of 1993 she cared for individual patients on a freelance basis and on 1 June 1993 registered an out-patient care service. Following her application of 27 August 1993, she was authorised by the health insurance schemes on 1 October 1993 for home nursing services. In her tax returns for 1993 and 1994, Ms Zimmerman declared her transactions as exempt from VAT pursuant to Paragraph 4(16)(e) of the UStG.

10In 1999, the Finanzamt found that Ms Zimmermann, together with her staff, had treated a total of 76 people in 1993, 52 of whom (68%) were private patients. The Finanzamt thereupon refused to treat the services provided by Ms Zimmermann in 1993 as exempt from VAT pursuant to Paragraph 4(16)(e) of the UStG.

11The Finanzamt noted that, under Paragraph 4(16)(e) of the UStG, costs must have been borne, in at least two thirds of cases, wholly or mainly by the statutory social security or social welfare authorities. Exemption under Paragraph 4(16)(e) of the UStG of the services supplied by Ms Zimmermann in 1994 was also refused by the Finanzamt on the ground that that provision related to circumstances in the preceding calendar year. Nonetheless, according to the Finanzamt, the exemption provided for under Paragraph 4(14) of the UStG applied to the extent that Ms Zimmermann had provided care services of a therapeutic nature. By decision of 27 April 1999, the Finanzamt estimated the proportion of those services at one third.

12Following an unsuccessful complaint, Ms Zimmermann brought an action contesting those decisions before the Finanzgericht (Finance Court). In the course of those proceedings, she submitted a letter sent to her on 19 October 2005 by the Berlin Senate Administration for Health, Social Affairs and Consumer Protection, attesting that, at least since 1988, Ms Zimmerman had provided the same services and carried out the same activities as the care centres (welfare centres) from the League of Voluntary Welfare Associations (Liga der Verbände der freien Wohlfahrtspflege) in Berlin and that Ms Zimmermann and her business had been recognised for the purposes of social security law as a charitable organisation.

13The Finanzgericht upheld the action for the most part. It stated that the transactions carried out by Ms Zimmermann in 1993 were exempt, up until 1 October 1993, under the first sentence of Paragraph 4(14) of the UStG to the extent that they were apportionable to care of a therapeutic nature. The Finanzgericht estimated that this accounted for 75% of those transactions.

14According to the Finanzgericht, Ms Zimmermann can claim exemption under Paragraph 4(16)(e) of the UStG for the period from 1 October 1993 to 31 December 1994. It stated that, from the beginning of that period onwards, at least two thirds of Ms Zimmermann’s transactions related to persons whose medical and pharmaceutical costs were borne wholly or mainly by the statutory social security or social welfare authorities. Again according to the Finanzgericht, Paragraph 4(16)(e) of the UStG is to be interpreted in conformity with the Sixth Directive to the effect that only the period subsequent to September 1993 was relevant.

15By its appeal on a point of law, the Finanzamt claims that the decision of the Finanzgericht should be set aside and the action dismissed in so far it was upheld at first instance, for the period from 1 October 1993 to 31 December 1994, on the basis of Paragraph 4(16)(e) of the UStG. Ms Zimmermann contends that the appeal should be dismissed.

16The Bundesfinanzhof (Federal Finance Court) finds, in contrast to the Finanzgericht, that the conditions laid down in Paragraph 4(16)(e) of the UStG are not satisfied. Nonetheless, doubts remain as to whether Article 13A(1)(g) or Article 13A2(a) of the Sixth Directive can serve as a legal basis for the two thirds threshold. Furthermore, in L.u.P. (Case C-106/05 [2006] ECR I-5123), the Court did not expressly approve the condition, laid down in Paragraph 4(16)(c) of the UStG, that a threshold of 40% must have been reached during the preceding year. Additionally, according to the Bundesfinanzhof, the implications for VAT law of the principle of neutrality are uncertain in the present case.

17According to the Bundesfinanzhof, for the purposes of applying the exemption provided for in Paragraph 4(18) of the UStG, applicable only to the 11 bodies listed in Paragraph 23 of the UStDV, which supply services which are similar, if not identical, to those supplied by Ms Zimmermann, it is largely immaterial that the medical and pharmaceutical costs were borne in part by the statutory social security or social welfare authorities. Nor, in that connection, must account be taken of the situation during the preceding calendar year.

18In those circumstances, the Bundesfinanzhof decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling:

Does Article 13(A)(1)(g) and/or (2)(a) of the [Sixth Directive] permit the national legislature to make the exemption of out-patient care services for those who are sick or in need of care dependent on the fact that, in the case of such organisations, “the medical and pharmaceutical costs have been borne in at least two thirds of cases wholly or mainly by the statutory social security or social welfare authorities in the preceding calendar year” (Paragraph 4(16)(e) of the [UStG])?

In the light of the principle of the neutrality of [VAT], is it relevant to the answer to that question that the national legislature treats the same services as exempt under different conditions where they are carried out by officially recognised voluntary welfare associations, and corporations, associations of persons and funds serving purposes of voluntary welfare which are affiliated as members of a welfare association (Paragraph 4(18) of the [UStG])?’

Consideration of the questions referred

19By its questions, which may conveniently be examined together, the national court asks in substance whether, under Article 13A(1)(g) and/or Article 13A(2)(a) of the Sixth Directive construed in the light of the principle of fiscal neutrality, the exemption from VAT of out-patient services supplied by commercial service providers may be made subject to a condition such as that at issue in the main proceedings, by virtue of which the costs relating to those treatments must, during the preceding calendar year, have been borne wholly or partly by the statutory social security or social welfare authorities in at least two thirds of cases (‘the condition at issue in the main proceedings’), in particular where that condition does not apply to all providers of the type of service mentioned.

20It emerges from the order for reference that, according to the explanatory memorandum for the UStG, the purpose of both Paragraph 4(16)(e) and Paragraph 4(18) is to transpose Article 13A(1)(g) of the Sixth Directive.

21The exemption provided for in Article 13A(1)(g) of the Sixth Directive applies to goods and services which are ‘closely linked to welfare and social security work’ and supplied ‘by bodies governed by public law or by other organisations recognised as charitable by the Member State concerned’.

22As is clear from settled case‑law, the terms used to specify the exemptions in Article 13 of the Sixth Directive are to be interpreted strictly. Nevertheless, the interpretation of those terms must be consistent with the objectives underlying the exemptions and must comply with the requirements of the principle of fiscal neutrality inherent in the common system of VAT. Accordingly, the requirement of strict interpretation does not mean that the terms used to specify the exemptions referred to in Article 13 must be construed in such a way as to deprive the exemptions of their intended effects (see inter alia, to that effect, Case C-445/05 Haderer [2007] ECR I-4841, paragraph 18 and the case‑law cited; Case C-461/08 Don Bosco Onroerend Goed [2009] ECR I-11079, paragraph 25 and the case‑law cited; and Case C-262/08 CopyGene ECR [2010] ECR I-5053, paragraph 26).

23The Court has already accepted, in a case relating to an earlier version of Paragraph 4(16) of the UStG, that the provision of general care and domestic help by an out-patient care service to persons in a state of physical or economic dependence amounts to the supply of services closely linked to welfare and social security work for the purposes of Article 13(A)(1)(g) of the Sixth Directive (see Case C-141/00 Kügler [2002] ECR I-6833, paragraphs 8, 17, 44 and 61).

24In the present case, it has not been disputed that the out-patient services provided by Ms Zimmermann can be regarded as ‘closely linked to welfare and social security work’ in accordance with Article 13A(1)(g) of the Sixth Directive. It is for the national court to assess this issue, having regard to the case‑law set out in paragraphs 22 and 23 above.

25It is apparent from the documents before the Court and, in particular, from the observations of the German Government that the condition at issue in the main proceedings relates to the recognition of the ‘charitable’ nature of the ‘other organisations’, apart from the bodies governed by public law, referred to in Article 13A(1)(g) of the Sixth Directive.

26Article 13A(1)(g) of the Sixth Directive does not specify the conditions and procedures for recognising such organisations (see Case C-498/03 Kingscrest Associates and Montecello [2005] ECR I-4427, paragraph 49). In consequence, it is in principle for the national law of each Member State to lay down the rules in accordance with which that recognition may be granted to such organisations. Member States have a discretion in that respect (see inter alia, to that effect, Kügler, paragraph 54; Kingscrest Associates and Montecello, paragraphs 49 and 51; and Case C-415/04 Stichting Kinderopvang Enschede [2006] ECR I-1385, paragraph 23).

27In that context, under Article 13A(2)(a) of the Sixth Directive, Member States may make the grant of the exemption provided for in Article 13A(1)(g) to bodies other than those governed by public law subject to one or more of the conditions listed therein. Those optional conditions may be imposed freely and additionally by Member States for the grant of that exemption (see, to that effect, Kingscrest Associates and Montecello, paragraphs 38 and 50; L.u.P., paragraph 43; and Case C-434/05 Horizon College [2007] ECR I-4793, paragraph 45).

28It follows that, in the main proceedings, the point at issue is essentially whether, in laying down the framework for the recognition referred to in Article 13A(1)(g) of the Sixth Directive, the Federal Republic of Germany has observed the limits of its discretion (see also, by analogy, Kügler, paragraph 55).

29In that respect, the German Government argues that the Federal Republic of Germany was within its rights in providing that the recognition of organisations other than bodies governed by public law, for the purposes of the exemption provided for in Article 13A(1)(g) of the Sixth Directive, was to be exhaustively governed by national tax legislation, with no latitude being left to the administrative authorities in that regard.

30Admittedly, the adoption of national rules concerning the conditions and procedures for recognition of the ‘charitable’ nature of organisations other than bodies governed by public law is allowed under Article 13A of the Sixth Directive (see, to that effect, Kingscrest Associates and Montecello, paragraph 50).

31It is clear, however, from the case‑law of the Court that, in order to determine the organisations which should be recognised as ‘charitable’ for the purposes of Article 13A(1)(g) of the Sixth Directive, it is for the national authorities, in accordance with EU law and subject to review by the national courts, to take into account, in particular, the existence of specific provisions, be they national or regional, legislative or administrative, or tax or social security provisions; the public interest nature of the activities of the taxable person concerned; the fact that other taxable persons carrying on the same activities already enjoy similar recognition; and the fact that the costs of the supplies in question may be largely met by health insurance schemes or other social security bodies (see, to that effect, Kügler, paragraphs 57 and 58; Kingscrest Associates and Montecello, paragraph 53; and, by analogy, Case C-45/01 Dornier [2003] ECR I-12911, paragraphs 72 and 73; L.u.P., paragraph 53; and CopyGene, paragraphs 65 and 71).

32Furthermore, the exemption provided for in Article 13(A)(1)(g) of the Sixth Directive may be relied upon by a taxable person before a national court in order to oppose national rules incompatible with that provision. In such cases, it is for the national court to establish, in the light of all relevant factors, whether the taxable person is an organisation recognised as ‘charitable’ for the purposes of that provision (see Kügler, paragraph 61).

33Accordingly, where a taxable person challenges the recognition, or the absence of recognition, of an organisation as ‘charitable’ for the purposes of Article 13A(1)(g) of the Sixth Directive, it is for the national courts to examine whether the competent authorities have observed the limits of the discretion granted by that provision whilst applying the principles of EU law, including, in particular, the principle of equal treatment, which, in the field of VAT, takes the form of the principle of fiscal neutrality (see inter alia, to that effect, Kügler, paragraph 56; Kingscrest Associates and Montecello, paragraphs 52 and 54; and L.u.P., paragraph 48).

34In the present case, the referring court is uncertain as to the lawfulness under the Sixth Directive of two aspects of the condition at issue in the main proceedings: (i) the two thirds threshold and (ii) the fact that the assessment as to whether that condition is satisfied must obligatorily – according to the interpretation adopted by that court – be based on the situation as it stood during the preceding calendar year (‘the obligation to take account only of the preceding calendar year’).

35As regards, first, the two thirds threshold, it should be noted that, in accordance with the case‑law set out in paragraph 31 above, the fact that the costs of the services concerned may have been borne largely by statutory health insurance funds or by other social security bodies is an element which may be taken into account in determining the organisations which must be granted recognition for the purposes of Article 13A(1)(g) of the Sixth Directive.

36In those circumstances, in relation to the exemption provided for under Article 13A(1)(b) of the Sixth Directive, the Court has held in substance that, by merely requiring, for the purposes of recognition as laboratories governed by private law for the application of that provision, that at least 40% of the medical tests carried out by the laboratories concerned must be intended for persons insured with a social security authority, the Member State in question did not go beyond the limits of its discretion under that provision (see L.u.P., paragraphs 53 and 54).

37The assessment of a requirement setting a two thirds threshold, such as that at issue in the main proceedings, for the purposes of applying Article 13A(1)(g) of the Sixth Directive, calls for a similar approach. The fact of requiring such a threshold is a similar mechanism for meeting the need to recognise that certain organisations are ‘charitable’ in order to apply that provision. Similarly, by requiring – also in connection with the condition at issue in the main proceedings – that the costs relating to the out-patient services concerned must have been borne wholly or partly by the statutory social security or social welfare authorities, a Member State does not, in principle, go beyond the limits of its discretion under Article 13A(1)(g) of the Sixth Directive.

38As regards, secondly, the obligation to take account only of the preceding calendar year, the referring court wonders whether that obligation could be based on the introductory words of Article 13A(1) of the Sixth Directive, according to which account is to be taken, in particular, of the ‘straightforward’ application of the exemptions allowed under that provision.

39In that regard, whilst it is true that, according to the introductory words of Article 13A(1) of the Sixth Directive, Member States must lay down the conditions for exemptions in such a way as to ensure the correct and straightforward application of those exemptions and to prevent any possible evasion, avoidance or abuse, those conditions cannot affect the substantive definition of the exemptions (see, inter alia, Case 8/81 Becker [1982] ECR 53, paragraph 32; Kingscrest Associates and Montecello, paragraph 24, and Case C-401/05 VDP Dental Laboratory [2006] ECR I-12121, paragraph 26).

40In consequence, it would be for the referring court, to the extent necessary, to assess whether, in situations where activities should, from their commencement, have been recognised as ‘charitable’ for the purposes of Article 13A(1)(g) of the Sixth Directive, in accordance with the case‑law set out in paragraph 31 above, the obligation to take account only of the preceding calendar year has as a consequence that, as regards the first calendar year – or even the first two calendar years – of those activities, recognition that the service provider concerned is ‘charitable’ for the purposes of that provision is automatically and inevitably ruled out.

41In so far as the obligation to take account only of the preceding calendar year were to have such an effect, it could not be justified on the basis of the introductory words of Article 13A(1) of the Sixth Directive.

42The referring court goes on to consider the implications for the case before it of the principle of fiscal neutrality, given that in the context of Paragraph 4(18) of the UStG, applicable only to the 11 organisations listed in Paragraph 23 of the UStDV, the exemption for services such as those supplied by Ms Zimmermann is not subject to the condition at issue in the main proceedings.

43It is apparent from the case‑law set out in paragraphs 22 and 33 above that, for applying the exemption provided for in Article 13A(1)(g) of the Sixth Directive, compliance with the principle of fiscal neutrality requires, in principle, that all the organisations other than those governed by public law be placed on an equal footing for the purposes of their recognition for the supply of similar services (see also, by analogy with Article 13A(1)(b) of the Sixth Directive, L.u.P., paragraph 50, and CopyGene, paragraph 71).

44The German Government argues that, in the specific context of Article 13A(1)(g) of the Sixth Directive, the point is to ensure equal treatment in the recognition of certain organisations as ‘charitable’, with a view to assimilating them to bodies governed by public law. On that view, according to the German Government, the principle of fiscal neutrality should be understood not as meaning that services which are in substance the same should be taxed in the same way, but rather that taxable persons of the same kind should have to satisfy the same conditions in order to benefit from the exemption.

45The German Government maintains that the condition at issue in the main proceedings – including, in particular, the two thirds threshold – is supposed to guarantee that the service provider concerned is truly a ‘charitable’ organisation and serves to ensure that it is placed on an equal footing with public-law bodies. However, according to that government, since Paragraph 4(18) of the UStG – in contrast with Paragraph 4(16) – covers only non-profit making legal persons whose ‘charitable’ nature has been formally established, the German legislation is not treating identical taxable persons differently; rather, it merely lays down, for recognition as ‘charitable’ organisations, different conditions for different taxable persons whose material and legal circumstances are different.

46In relation to those points, it should be borne in mind that, in the field of VAT, the concept of neutrality is used in different senses.

47On the one hand, recalling that the deduction mechanism provided for under the Sixth Directive is intended to relieve the trader entirely of the burden of the VAT payable or paid in the course of all his economic activities, the Court has held that the common system of VAT seeks to ensure neutrality of taxation of all economic activities, provided that those activities are themselves subject in principle to VAT (see inter alia, to that effect, Case C-174/08 NCC Construction Danmark [2009] ECR I-10567, paragraph 27, and Case C-277/09 RBS Deutschland Holdings [2010] ECR I-13805, paragraph 38).

48On the other hand, according to settled case‑law, the principle of fiscal neutrality means that supplies of goods or services which are similar, and which are accordingly in competition with each other, may not be treated differently for VAT purposes (see, inter alia, Joined Cases C-453/02 and C-462/02 Linneweber and Akritidis [2005] ECR I-1131, paragraph 24, and Joined Cases C-259/10 and C-260/10 Rank Group [2011] ECR I-10947, paragraph 32 and the case‑law cited).

49It is in that latter sense that the concept of neutrality is relevant in the present case. As is clear from the case‑law set out in paragraph 22 above, in the interpretation of the exemptions provided for under Article 13 of the Sixth Directive, the principle of fiscal neutrality must be applied alongside the principle that those exemptions must be interpreted strictly (see also, to that effect, Case C‑44/11 Deutsche Bank [2012] ECR, paragraph 45).

50From that viewpoint, it should be borne in mind that the principle of fiscal neutrality – a particular expression of the principle of equal treatment at the level of secondary EU law and in the specific area of taxation (see, to that effect, NCC Construction Danmark, paragraph 44) – is not a rule of primary law against which it is possible to test the validity of an exemption provided for under Article 13 of the Sixth Directive. Nor does that principle make it possible for the scope of such an exemption to be extended in the absence of an unequivocal provision to that effect (see, to that effect, VDP Dental Laboratory, paragraphs 35 to 37, and Deutsche Bank, paragraph 45).

51Indeed, the activities in the public interest which must be exempted from VAT, the activities which may be exempted by the Member States and those which may not, as well as the conditions to which activities eligible for exemption may be made subject by the Member States, are defined by the content of Article 13A of the Sixth Directive (see Case C-144/00 Hoffmann [2003] ECR I-2921, paragraph 38, and Case C-253/07 Canterbury Hockey Club and Canterbury Ladies Hockey Club [2008] ECR I-7821, paragraph 38).

52Accordingly, the principle of fiscal neutrality does not preclude, for example, the situation under Article 13A(1)(g) of the Sixth Directive, whereby, for the purposes of the exemption, it is unnecessary for bodies governed by public law to be recognised as ‘charitable’, but such recognition is required in the case of organisations other than bodies governed by public law.

53As is apparent from paragraphs 42 and 52 above, in the context of the exemption provided for under Article 13(1)(g) of the Sixth Directive, it is not in relation to bodies governed by public law that the principle of fiscal neutrality requires equal treatment in terms of recognition as ‘charitable’, but in relation to all other organisations, each as compared with the others.

54As the German Government confirmed at the hearing before the Court, the organisations covered by Paragraph 4(18) of the UStG, which are exhaustively listed in Paragraph 23 of the UStDV, are governed not by public law but by private law – as are the taxable persons to whom the condition at issue in the main proceedings applies.

55It is true that, as the German Government argues in substance, the principle of fiscal neutrality cannot, as such, preclude refusal of the exemption under Article 13A(1)(g) of the Sixth Directive to organisations which – like the applicant in the main proceedings – systematically aim to make a profit, in accordance with the option available under the first indent of Article 13A(2)(a) of that directive.

56However, there is nothing in the information placed before the Court to suggest that, through the condition at issue in the main proceedings, the Federal Republic of Germany has availed itself of that option. On the contrary, it appears that, for the purposes of the exemption provided for under Article 13A(1)(g) of the Sixth Directive, that condition contemplates precisely the recognition of profit-making commercial bodies as ‘charitable’.

57Moreover, applying the rules of interpretation set out in paragraph 22 above (see, inter alia, Case C-473/08 Eulitz [2010] ECR I-907, paragraph 42 and the case‑law cited), the Court has held, in relation to the concept of ‘organisations recognised as charitable by the Member State concerned’ as referred to in Article 13A(1)(g) of the Sixth Directive, that that concept is in principle sufficiently broad to encompass natural persons and private profit-making entities (see Case C-216/97 Gregg [1999] ECR I-4947, paragraph 17; Hoffmann, paragraph 24; Kingscrest Associates and Montecello, paragraphs 35 and 47; and Case C-492/08 Commission v France [2010] ECR I-5471, paragraphs 36 and 37).

58Accordingly, national legislation may not, in implementing the exemption provided for under Article 13A(1)(g) of the Sixth Directive, lay down materially different conditions for profit-making entities, on the one hand, and non-profit making legal persons falling under Paragraph 4(18) of the UStG, on the other.

59It follows that Article 13A(1)(g) of the Sixth Directive, interpreted in the light of the principle of fiscal neutrality, precludes a threshold such as the two thirds threshold in so far as, in relation to supplies of goods or services which are essentially the same, that threshold is applied – for recognition as ‘charitable’ for the purposes of that provision – to some taxable persons governed by private law, but not to others.

60In order to provide the referring court with a complete answer, it should be noted that it is for that court to take into account, in the light of all the specific factors of the dispute before it, the requirements under Article 13A(2)(b) of the Sixth Directive.

61Accordingly, whatever interpretation is given to the phrase ‘closely linked’ in Article 13A(1)(g) of the Sixth Directive, it should be borne in mind that the first indent of Article 13A(2)(b) of that directive makes exemption conditional, in any event, on the supply of goods or services concerned being essential to the transactions exempted (see Stichting Kinderopvang Enschede, paragraph 25). It is for the referring court to determine whether, for the purposes of that indent, all the services supplied by Ms Zimmermann are essential to the transactions exempted (see, by analogy, Horizon College, paragraphs 38 to 41).

62Furthermore, under the second indent of Article 13A(2)(b) of the Sixth Directive, the supply of goods or services is excluded from the exemption under Article 13A(1)(g) if its basic purpose is to obtain additional income for the organisation through transactions which are in direct competition with those of commercial enterprises liable for VAT.

63In the light of all the foregoing considerations, the answer to the questions referred is that, under Article 13A(1)(g) of the Sixth Directive, interpreted in the light of the principle of fiscal neutrality, the VAT exemption for out-patient services supplied by commercial service-providers may not be made subject to a condition such as that at issue in the main proceedings, by virtue of which the costs relating to those services must, during the preceding calendar year, have been borne wholly or partly by the statutory social security or social welfare authorities in at least two thirds of cases, where that condition is not capable of ensuring equal treatment in relation to the recognition, for the purposes of that provision, of the ‘charitable’ nature of organisations other than bodies governed by public law.

Costs

64Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.

Operative part

On those grounds, the Court (Second Chamber) hereby rules:

Under Article 13A(1)(g) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment, interpreted in the light of the principle of fiscal neutrality, the VAT exemption for out-patient services supplied by commercial service-providers may not be made subject to a condition such as that at issue in the main proceedings, by virtue of which the costs relating to those services must, during the preceding calendar year, have been borne wholly or partly by the statutory social security or social welfare authorities in at least two thirds of cases, where that condition is not capable of ensuring equal treatment in relation to the recognition, for the purposes of that provision, of the ‘charitable’ nature of organisations other than bodies governed by public law.

Signatures

[Signatures]

( *1 ) Language of the case: German.

OPINION OF ADVOCATE GENERAL

MAZÁK

delivered on 19 July 2012 ¹

‛Sixth Council Directive 77/388/EEC — VAT — Exemptions — Article 13(A)(1)(g) — Services linked to welfare and social security work that are supplied by bodies governed by public law or by other organisations recognised as charitable — National legislation under which the exemption of out-patient care services is subject to certain conditions which are not, however, applicable when the services in question are supplied by certain associations approved by the State, or by the members of those associations’

1Value added tax (VAT) was originally meant and introduced as a simple tax on the supply of goods and services. However, it is arguable that the VAT system and some of its rules have turned out to be rather complicated. Indeed, one judge of the Court of Appeal (England and Wales) has observed in that regard that ‘beyond the everyday world … lies the world of [VAT], a kind of fiscal theme park in which factual and legal realities are suspended or inverted’. ²

2Be that as it may, in the present case the Bundesfinanzhof (Federal Finance Court, Germany) seeks guidance on the interpretation of Article 13(A)(1)(g) and/or (2)(a) of the Sixth Directive. ³ The reference has been made in proceedings between Ms Ines Zimmermann and the Finanzamt Steglitz (Tax Office, Steglitz) (‘the Finanzamt’) concerning the VAT due for the years 1993 and 1994.

3The Court is asked to clarify whether a Member State may – in the context of an application of Article 13(A)(1)(g) of the Sixth Directive – make the exemption of out-patient care services for those who are sick or in need of care dependent on the fact that, in the case of such organisations, ‘the costs of the care have been borne in at least two thirds of cases wholly or mainly by the statutory social security or social welfare authorities in the previous calendar year’. ⁴

4In particular, as I will show, serious doubts arise as to whether such a condition is consistent with the principle of fiscal neutrality, in so far as it does not apply to all providers of out-patient care services equally.

I – Legal framework

A – European Union law

5Article 13(A)(1)(g) of the Sixth Directive provides that Member States are to 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:

‘the supply of services and of goods closely linked to welfare and social security work, including those supplied by old people’s homes, by bodies governed by public law or by other organisations recognised as charitable by the Member State concerned’.

6According to Article 13(A)(2)(a) of the Sixth Directive, ‘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 [VAT],

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 [VAT]’.

B – National law

7Under Paragraph 4(16)(e) of the Umsatzsteuergesetz 1993 (Law on turnover tax 1993, ‘UStG’) in the version applicable in the material years (that is, 1993 and 1994), the following transactions covered by Paragraph 1(1)(1) to 1(1)(3) of the UStG were exempt: ‘transactions closely linked with the operation of … organisations providing out-patient care for those who are sick or in need of care where:

in the case of organisations for the temporary admission of those in need of care and organisations providing out-patient care for those who are sick or in need of care, the costs of the care have been borne in at least two thirds of cases wholly or mainly by the statutory social security or social welfare authorities in the previous calendar year’.

8Under the first sentence of Paragraph 4(18) of the UStG, the following transactions are exempt: ‘the services of officially recognised voluntary welfare associations, and corporations, associations of persons and funds serving purposes of voluntary welfare which are affiliated as members of a welfare association, where

that operator serves, solely and directly, public-interest, charitable or ecclesiastical purposes,

the services directly benefit the group of persons who are beneficiaries under the statute, act of foundation or other constitution, and

the consideration paid for the services in question is lower than the average rates demanded by commercial undertakings for similar services.’

9The threshold of two thirds, provided for in Paragraph 4(16)(e) of the UStG (‘the two thirds threshold’), was lowered to 40% as of 1 January 1995.

10Paragraph 23 of the Umsatzsteuer-Durchführungsverordnung 1993 (VAT Implementing Regulation 1993; ‘UStDV’) lists eleven associations which are classified as officially recognised welfare associations for the purposes of Paragraph 4(18) of the UStG.

II – Facts and the questions referred

11Ms Zimmermann, who is the applicant and respondent in the appeal on a point of law in the main proceedings, runs an out-patient care service in Berlin. She is a registered nurse and in 1992 worked at a welfare centre as a staff nurse. In addition, from the beginning of 1993 she treated individual patients on a freelance basis and on 1 June 1993 registered an out-patient care service. Following her application of 27 August 1993, she was admitted to the health insurance schemes on 1 October 1993 for home nursing services, ⁵ home-care services ⁶ and domestic help. ⁷ In the VAT returns for the material years, she treated her transactions as exempt pursuant to Paragraph 4(16)(e) of the UStG.

12In 1999, the Finanzamt, the defendant and appellant in the appeal on a point of law in the main proceedings, found that Ms Zimmermann (together with her staff) had treated a total of 76 people in 1993, 52 of whom (= 68%) were private patients. Thereupon, the Finanzamt refused exemption for the services provided by Ms Zimmermann in 1993 pursuant to Paragraph 4(16)(e) of the UStG, on the ground that under that provision in at least two thirds of the cases the costs should have been borne wholly or mainly by the statutory social security or social welfare authorities.

13The Finanzamt refused exemption for the services provided by Ms Zimmermann in 1994 under Paragraph 4(16)(e) of the UStG because that provision related to circumstances in the previous year. However, the VAT exemption under Paragraph 4(14) of the UStG applied in so far as Ms Zimmermann had provided care of a therapeutic nature; the Finanzamt estimated the proportion of those services at one third. ⁸

14Following an unsuccessful complaint, Ms Zimmermann brought an action against the Finanzamt. In the course of the direct action proceedings, she submitted a letter, dated 19 October 2005, sent to her by the Berlin Senate Administration for Health, Social Affairs and Consumer Protection. It states: ‘... I can confirm to you that you provided the same services and carried out the same activities in the field of home nursing as the care centres (welfare centres) from the League of Voluntary Welfare Associations in Berlin. The description of duties and the substance of the activities carried out by the private service providers were identical to those of the voluntary welfare centres. According to my information, they were identical at least since 1988. I would point out that from 1 January 1992 VAT exemption has been made dependent on certain requirements in Paragraph 4(16)(e) of the UStG. I cannot, and do not wish to, assess whether those requirements are satisfied. Irrespective of that provision, however, I believe that you and your undertaking have been recognised for the purposes of social security law as a charitable organisation.’

15The Finanzgericht (Finance Court) granted the application for the most part. As grounds, it stated that Ms Zimmermann’s transactions performed in the material year 1993, up to 1 October, were exempt under the first sentence of Paragraph 4(14) of the UStG in so far as they were apportionable to care of a therapeutic nature; the Finanzgericht estimated the proportion of those services at 75% on the basis of calculations submitted by Ms Zimmermann in the direct action proceedings.

16According to the Finanzgericht, Ms Zimmermann could claim exemption under Paragraph 4(16)(e) of the UStG for the period from 1 October 1993 to 31 December 1994. From that period, at least two thirds of those transactions were apportionable to persons, the costs of whose care were borne wholly or mainly by the statutory social security or social welfare authorities. Paragraph 4(16)(e) of the UStG was to be interpreted in conformity with the Sixth Directive to the effect that only the period from October 1993 was relevant.

17With its appeal on a point of law, the Finanzamt alleges an infringement of Paragraph 4(16)(e) of the UStG. It claims that the Bundesfinanzhof should annul the previous decision and dismiss the application, in so far as the Finanzgericht granted the application for the period from 1 October 1993 to 31 December 1994 on the basis of Paragraph 4(16)(e) of the UStG. Ms Zimmermann claims that the Bundesfinanzhof should dismiss the appeal on a point of law.

18Against that background, the referring court decided to stay the proceedings and to refer the following questions to the Court:

Does Article 13(A)(1)(g) and/or (2)(a) of the [Sixth Directive] permit the national legislature to make the exemption of out-patient care services for those who are sick or in need of care dependent on the fact that, in the case of such organisations, “the costs of the care have been borne in at least two thirds of cases wholly or mainly by the statutory social security or social welfare authorities in the previous calendar year” (Paragraph 4(16)(e) of the [UStG])?

Is it relevant to the answer to this question, having regard to the principle of the neutrality of VAT, that the national legislature treats the same services as exempt under different conditions where they are carried out by officially recognised voluntary welfare associations, and corporations, associations of persons and funds serving purposes of voluntary welfare which are affiliated as members of a welfare association (Paragraph 4(18) of the [UStG])?’

III – Appraisal

A – Principal arguments of the parties

19Ms Zimmermann explains that public organisations (charitable associations) and for-profit organisations compete on the market for out-patient care services. She submits that a provision such as the one at issue in the main proceedings is of such a kind as to ensure the control of prices approved by the public authorities of the Member States where the following conditions are met: (i) the costs borne by the statutory social security or social welfare authorities correspond to the agreed tariffs; and (ii) the costs borne by the social security authorities are generally lower than the amounts charged to private patients or to private insurance companies.

20Ms Zimmermann submits essentially that, in order to assess whether there is an unlawful distortion of competition, the national courts should establish whether the services provided, which are, from the patient’s or the final consumer’s perspective, identical or similar, are subject to different tax treatment. In this respect, the person, the legal form or the qualification of the operator providing the care for the purposes of turnover tax should play no role.

21The German Government submits that the way in which the legislation organises the official recognition of organisations as charitable takes sufficient account of the following aspects, which follow from the case‑law: ⁹ (i) the possible existence of specific legal provisions; (ii) the public interest character of the activities of the taxable person; (iii) whether other taxable persons carrying out the same activities already have similar recognition; (iv) whether a large proportion of the costs of the services in question is eventually borne by sickness insurance funds or by other organisations of social security; (v) the principle of neutrality in the sense of competitive neutrality.

22According to the German Government, the limits of the margin of discretion as regards the principle of fiscal neutrality have been respected. In particular, in the context of Article 13(A)(1)(g) of the Sixth Directive, it is an application of the principle of equal treatment in the framework of the recognition of organisations as charitable in order to assimilate them to public organisations. On this view, the principle of neutrality may not be considered in the usual sense that the contents of services which are identical must be taxed in an identical way. Rather, it must be considered in the sense that identical taxable persons need to be subject to the same conditions in order to benefit from the exemption. Moreover, according to the German Government, a provision relating to the recognition of an organisation by a Member State which results in distortions of competition at the expense of private companies is permissible.

23Therefore, the German Government considers that, once it is accepted that Paragraph 4(18) of the UStG – unlike point 16 of that paragraph – applies only to non-profit legal persons whose charitable character was officially recognised, the German provisions do not treat identical taxable persons in a different manner, but merely lay down different conditions for the recognition as an organisation having a charitable character of different taxable persons who are subject to different material and legal framework conditions.

B – Analysis

1. The first question

24First of all, as regards the legal situation under national law, the referring court states in no uncertain terms that, in the present case, the requirements set out in Paragraph 4(16)(e) of the UStG are not satisfied.

25However, the referring court harbours doubts as to whether that outcome is correct under the Sixth Directive.

26Therefore, by its first question, it decided to ask the Court whether Article 13(A)(1)(g) of the Sixth Directive precludes the exemption of out-patient care services, provided by private organisations, from being subject to a condition such as the one in the main proceedings. ¹⁰

27I shall start by recounting the relevant case‑law, which is already quite extensive and in the light of which it will be necessary to consider the questions referred.

28As the Court recently recalled in Future Health Technologies, ¹¹‘the exemptions under [Article 13(A) of the Sixth Directive ¹²] are not aimed at exempting from VAT every activity performed in the public interest, but only those which are listed and described in great detail in it’.

29It also follows from the case‑law relating to the Sixth Directive that the terms used to specify the exemptions in Article 13 are to be interpreted strictly, since they constitute exceptions to the general principle that VAT is to be levied on all goods and services supplied for consideration by a taxable person. Nevertheless, the interpretation of those terms must be consistent with the objectives pursued by those exemptions and comply with the requirements of the principle of fiscal neutrality. Thus, the requirement of strict interpretation does not mean that the terms used to specify the exemptions referred to in Article 13 of the Sixth Directive should be construed in such a way as to deprive the exemptions of their intended effect. ¹³

30It should be noted that the rules for interpreting the exemptions in Article 13 of the Sixth Directive set out in point 29 above apply to the specific conditions laid down for those exemptions to apply and in particular to those concerning the status or identity of the economic agent performing the services covered by the exemption. ¹⁴

31Accordingly, the Court has already held that Article 13(A)(1)(g) of the Sixth Directive on the exemption from VAT of supplies linked to welfare and social security work is to be interpreted as meaning that the expression ‘organisations recognised as charitable by the Member State concerned’ ¹⁵ does not exclude private, profit-making entities such as, for instance, natural persons running a ‘business’. ¹⁶

32Article 13(A)(l)(g) of the Sixth Directive does not specify the conditions and procedures for recognising organisations other than those governed by public law as charitable. It is thus in principle for the national law of each Member State to lay down the rules according to which such recognition may be granted to such organisations. ¹⁷

33Moreover, the adoption of national rules in this area is provided for in Article 13(A)(2)(a) of the Sixth Directive, under which ‘the Member States may make the granting to bodies other than those governed by public law of each exemption provided for in (1) ... (g), ... subject in each individual case to one ... of the conditions’ referred to later therein. ¹⁸

34The case‑law also makes clear that although the introductory sentence of Article 13(A)(1) of the Sixth Directive states that Member States are to lay down the conditions for exemptions in order to ensure the correct and straightforward application of the exemptions and to prevent any possible evasion, avoidance or abuse, those conditions cannot affect the definition of the subject-matter of the exemptions envisaged. ¹⁹

35It follows from the case‑law ²⁰ that Article 13(A)(1)(g) of the Sixth Directive grants the Member States a discretion to recognise as charitable certain organisations not governed by public law.

36However, the fact remains that, where a taxable person challenges the recognition of an organisation as charitable, it is for the national courts to examine whether the competent authorities have observed the limits of the discretion granted by Article 13(A)(1)(g) of the Sixth Directive in accordance with general principles of EU law, in particular the principle of equal treatment. ²¹

37In that connection, the principle of fiscal neutrality precludes, in particular, treating similar supplies of services, which are thus in competition with each other, differently for VAT purposes. ²² Indeed, that principle constitutes the logical basis of VAT. In that regard, it follows from the order for reference, and it is not disputed, that the services which Ms Zimmermann provided, at least those provided since 1 October 1993, were essentially the same as those which are automatically exempted under Paragraph 4(18) of the UStG.

38Finally, it is also apparent from the case‑law that, in order to determine whether establishments governed by private law may be recognised for the purpose of applying the exemption provided for in Article 13(A)(1)(g) of the Sixth Directive, the national authorities may, in accordance with EU law and subject to review by the national courts, take into consideration, inter alia and in addition to the public interest of the activities of the taxable person in question and the fact that other taxable persons carrying on the same activities already have similar recognition, the fact that the costs incurred for the treatment in question may be largely met by health insurance schemes or other social security bodies. ²³

39In that regard, Paragraph 4(16)(e) of the UStG was introduced by the German legislature in order to ‘improve the welfare structures for the care of the sick and those that require care’. ²⁴ The threshold of two thirds laid down in that paragraph seeks to ensure that the tax advantage contributes significantly to alleviating the burden on social security organisations. ²⁵

40Therefore, it is clear that Paragraph 4(16)(e) may be read in conjunction with the requirement in Article 13(A)(1)(g) of the Sixth Directive, according to which the provider of the services which are enumerated therein must be an ‘[organisation] recognised as charitable by the Member State concerned’.

41In addition to the case‑law cited in point 38 above, the Court held in L.u.P. ²⁶ that Article 13(A)(1)(b) of the Sixth Directive precludes national legislation which makes the exemption of medical tests carried out by a laboratory governed by private law outside a centre for treatment subject to the condition that they be carried out under medical supervision. It also held, however, that Article 13(A)(1)(b) permits such legislation to make the exemption of those tests subject to the condition that at least 40% of those services must be intended for persons insured by a social security authority.

42It follows that criteria of that type – which are based on a particular definition of the group of beneficiaries of the services – must, according to that case‑law, be assessed in the light of Article 13(A)(1) of the Sixth Directive.

43To my mind the crux of the present case lies essentially in establishing whether – by subjecting the exemption under Article 13(A)(1)(g) of the Sixth Directive to conditions such as those in Paragraph 4(16) of the UStG – the Federal Republic went beyond the margin of discretion afforded to it under the Sixth Directive. ²⁷

44The referring court points out that one of the questions of interpretation of EU law raised before it is the fact that it is uncertain whether the two thirds threshold contained in Paragraph 4(16)(e) of the UStG may be based on Article 13(A)(1)(g) or on Article 13(A)(2)(a) of the Sixth Directive.

45The criterion at issue in the present case is slightly different from the one at issue in L.u.P. ²⁸ The criterion in the present case is not based only on the composition of the group of beneficiaries of the services, but also requires that, for a certain minimum proportion of the beneficiaries for whom social security or welfare contributes to the coverage of medical and pharmaceutical costs, the organisation in question bears these costs in their entirety or ‘a large part thereof’.

46The German provision at issue could, at least in theory, be interpreted as also containing a criterion relating to prices, which would have to be assessed separately under the third indent of Article 13(A)(2)(a) of the Sixth Directive. However, contrary to the claims of Ms Zimmermann and the German Government, I consider that it is not useful for the purposes of resolving the case in the main proceedings to rely on that article. The Commission is correct that, in view of the fact that the referring court did not deem it necessary to provide a more in-depth assessment in this regard, a separate analysis of Article 13(A)(2)(a) would appear artificial and, in any case, unnecessary for the purposes of resolving the case at hand. Moreover, the case in the main proceedings does not in any event revolve around issues of the establishment of prices.

a) Whether the limits of the Member State’s margin of discretion were respected – the two thirds threshold

47As I noted in point 41 above, in L.u.P. ²⁹ the Court already accepted that Article 13(A)(1)(b) of the Sixth Directive permits national legislation to make the exemption of the medical tests in question subject to the condition that at least 40% of those services must be intended for persons insured by a social security authority. The Court considered that that choice fell within the margin of discretion enjoyed by the Member States at the stage of determining to what extent they will recognise an organisation as charitable. ³⁰

48To my mind the Court has, in fact, already recognised that provisions which lay down a certain share threshold (such as the two thirds) are, in principle, lawful in this context. I agree with the Commission that, to the extent that it is relevant in the present case and irrespective of that fact that it applies to a different social system (welfare), the two thirds criterion does not differ from the criterion assessed by the Court in L.u.P. save for one point only: that is, the required proportion of beneficiaries of services for whom the social systems bear the entirety or a large part of costs.

49Therefore, I consider that setting the threshold at two thirds remains within the limits of what the Member States may require in order to recognise certain entities as charitable. ³¹

50In my view, by setting the threshold at two thirds, the German legislature has chosen a percentage which ensures a sufficient level of integration of the service provider in the social security system. That, in turn, allows the provider’s charitable character to be safeguarded and his services to be regarded as having (sufficiently) close links to the social welfare and security.

51It may be added that, in the case‑law, where the Court refers to the bearing of costs by the sickness insurance funds as a criterion for determining whether an organisation will be officially recognised it also always refers to whether the costs are ‘largely’ met by health insurance schemes. ³² Therefore, it would appear that, in the context of its margin of discretion, the German legislature opted for a threshold which is simple but appropriate.

b) Whether the limits of the Member State’s margin of discretion were respected – the previous calendar year

52At the outset, I agree with the Commission that the reference to the previous calendar year creates a number of difficulties. The choice of the previous calendar year naturally implies a certain amount of inaccuracy in so far as it is not the year in which the transactions concerned were carried out.

53However, suffice it to say that the fact that the two thirds threshold refers to the ‘previous calendar year’ does not exceed the Member States’ discretion.

54On the one hand, it is arguable that the above conclusion is supported by the fact that in L.u.P. ³³ the Court referred to the same criterion and nowhere in the judgment did it dispute the reference to the ‘previous calendar year’ in the provision laying down the 40% limit ³⁴ at issue in that case. On the other hand, it is also true that in L.u.P. ³⁵ the Court did not expressly comment on the requirement laid down in Paragraph 4(16)(c) of the UStG that the 40% limit must be satisfied in the ‘previous calendar year’.

55Be that as it may, I agree with the German Government and the Commission that the fact that Paragraph 4(16)(e) of the UStG makes a reference to the previous calendar year – aside from the obvious practical reasons – has the advantage that it complies with the principle of legal certainty.

56Indeed, it would otherwise prove difficult if taxable persons constantly referred to the current year. If that were the case, the taxable person would not and could not know when providing the service whether or not he will carry out an exempted transaction, unless he knew the share of the costs to be borne in the course of the current year.

57The approach which I advocate here is also supported by the referring court, which considers in the order for reference that the focus on the circumstances in the previous calendar year in Paragraph 4(16)(e) ³⁶ serves to ensure legal certainty and may be based in EU law on the introductory sentence to Article 13(A)(1) of the Sixth Directive, according to which regard must be had, inter alia, to the ’straightforward application of such exemptions’.

58It follows from all of the foregoing considerations that Article 13(A)(1)(g) of the Sixth Directive permits, in principle, the national legislature to make the exemption of out-patient care services for those who are sick or in need of care dependent on the fact that, in the case of such organisations, the costs of the care have been borne in at least two thirds of cases wholly or mainly by the statutory social security or social welfare authorities in the previous calendar year.

59The fact remains, however, that that criterion may only be applied in so far as it complies with the principle of fiscal neutrality, which is specifically addressed by the referring court in the second question. ³⁷

2. The second question

60By its second question the referring court wishes to know whether it is relevant to the answer to the first question, having regard to the principle of fiscal neutrality, that the national legislature treats the same services as exempt under different conditions where they are carried out by officially recognised voluntary welfare associations, and corporations, associations of persons and funds serving purposes of voluntary welfare which are affiliated as members of a welfare association. ³⁸

61At the outset, it is clear that the principle of fiscal neutrality is inherent in the common system of VAT ³⁹ and constitutes nothing less than a fundamental principle thereof. ⁴⁰

62In that regard, it must be recalled that the principle of fiscal neutrality was intended to reflect, in matters relating to VAT, the general principle of equal treatment. ⁴¹

63To my mind, it should be pointed out in this respect that the principle of equal treatment is a general principle of EU law – and is now also enshrined in Article 20 of the Charter of Fundamental Rights – and that the principle of fiscal neutrality simply constitutes a manifestation of that principle.

64Indeed, the Court has already had the opportunity to rule that if a provision of national law transposing an exemption under the Sixth Directive contains a condition which is contrary to the principle of fiscal neutrality, it is necessary to not apply that condition. ⁴²

65Case-law also makes clear that when the Member States exercise their power under Article 13(A)(1)(g) to lay down the conditions to which the exemptions are subject and, therefore, to determine whether or not transactions are subject to VAT, they must respect the principle of fiscal neutrality. ⁴³

66In Kügler the Court stressed that the principle of fiscal neutrality precludes, inter alia, economic operators carrying on the same activities from being treated differently as far as the levying of VAT is concerned. It follows that that principle would be disregarded if the possibility of relying on the exemption which is envisaged for the provision of medical care referred to in Article 13(A)(1)(c) were dependent on the legal form in which the taxable person carries on his activity. ⁴⁴

67Moreover, case‑law states that the principle of fiscal neutrality precludes in particular treating similar goods and supplies of services, which are thus in competition with each other, differently for VAT purposes, so that those goods or supplies must be subjected to a uniform rate. ⁴⁵

68It may be inferred from what the Court stated in L.u.P. ⁴⁶ that compliance with the principle of fiscal neutrality requires, first, that all of the categories of establishments governed by private law referred to in Article 13(A)(1)(g) of the Sixth Directive be subject to the same conditions for the purpose of their recognition for the provision of similar services.

69In fine it will obviously be for the national court ⁴⁷ to ascertain whether the national legislation complies with that requirement or whether, on the contrary, it restricts the application of the conditions in question to certain types of establishments whilst excluding others.

70However, it is already clear from the order for reference that the referring court is inclined to take the view that in the present case that principle has not been complied with.

71As I will show in the following paragraphs, I can only agree with the referring court that, having regard to the requirement of the neutrality of VAT – here in the form of neutrality as regards competition – in the present case Ms Zimmermann should, in principle, not be refused exemption under Article 13(A)(1)(g) of the Sixth Directive on the ground that from 1 January 1992 the national legislature required, in Paragraph 4(16)(e) of the UStG in the version applicable in the material years, that the costs of the care have been borne in at least two thirds of cases wholly or mainly by the statutory social security or social welfare authorities in the previous calendar year.

72The order for reference makes clear that, according to the explanatory memorandum, both Paragraph 4(16)(e) and Paragraph 4(18) of the UStG seek to transpose the provisions of Article 13(A)(1)(g) of the Sixth Directive.

73However, Paragraph 4(16)(e) of the UStG lays down conditions governing the exemption for care services which competitors providing similar services are not required to satisfy for exemption under Paragraph 4(18).

74Indeed, in the case of care services provided by the League of Voluntary Welfare Associations, it is irrelevant, for the purposes of exemption under Paragraph 4(18) of the UStG, whether the costs of the care were borne in a certain proportion of cases by the statutory social security or social welfare authorities; nor are the circumstances in the previous calendar year relevant.

75In other words, the organisations covered by Paragraph 4(18) of the UStG – contrary to those falling under Paragraph 4(16) – are exempted from VAT irrespective of the composition of the group of beneficiaries of their services.

76Therefore, we are faced with a situation where – taking account of the competition existing between similar providers – the recognition of certain organisations under Article 13(A)(1)(g) of the Sixth Directive (those under Paragraph 4(16) of the UStG) is not subject to the same conditions as those for services which are similar (those under Paragraph 4(18)).

77It may be pointed out, in that respect, that on 15 March 2007 ⁴⁸ the Fifth Chamber of the Bundesfinanzhof rightly came to the conclusion in L.u.P., after it received the Court’s answer to its preliminary question, that the national rules in Paragraph 4(14) of the UStG and Paragraph 4(16)(b) and (c) of the UStG were not compatible with the EU-law principle of fiscal neutrality, because under that provision not all of the categories of establishments governed by private law within the meaning of Article 13(A)(1)(b) of the Sixth Directive were subject to the same conditions for the purpose of their recognition for the provision of similar services.

78I consider that there is nothing in the documents before the Court to imply that the above distinction may nevertheless be considered compatible with the principle of fiscal neutrality and the German Government’s arguments are not convincing in this respect.

79The German Government essentially argues that it should be allowed to apply different rules to different taxable persons. Indeed, in an administrative decision of 13 May 2003, entitled ‘Brief information on turnover tax No 10’, ⁴⁹ the Oberfinanzdirektion Düsseldorf (Principal Revenue Office, Düsseldorf) took the view that, as regards exemption, different conditions apply to out-patient care services. It stated that an exemption under Paragraph 4(18) of the UStG could be granted even if the requirements laid down in Paragraph 4(16)(e) of the UStG were not satisfied.

80However, to my mind, that argument goes against the principle of fiscal neutrality and against the Court’s judgment in L.u.P. ⁵⁰ It follows from that principle and from that case‑law that, as a general rule, Member States may not apply different rules to different taxable persons.

81The German Government argued that institutions of public law may be treated differently from entities of private law. However, it is important to point out – a point which was necessary to clarify at the hearing and which was then confirmed by the German Government – that the officially recognised voluntary welfare associations, ⁵¹ referred to in Paragraph 4(18) of the UStG, are governed by private law and not public law and therefore they are not subject to a separate exemption under Paragraph 4(16)(a), which concerns bodies governed by public law.

82It should be pointed out that the objective pursued by Article 13(A)(1)(b) and (c) of the Sixth Directive is to reduce healthcare costs. ⁵² Indeed, so far as concerns the objectives pursued by the exemptions under Article 13(A)(1)(g) of the Sixth Directive, it is clear from that provision that those exemptions, by treating certain supplies of services in the general interest in the social sector more favourably for the purposes of VAT, are intended to reduce the cost of those services and to make them more accessible to the individuals who may benefit from them. ⁵³

83I consider (as does the Commission) that while, admittedly, the above objective to reduce the cost of such services justifies, in principle, the use of a criterion such as the two thirds laid down by Paragraph 4(16)(e) of the UStG, the fact remains that that objective does not explain why persons in Ms Zimmermann’s situation are subject to it, whereas entities mentioned in Paragraph 4(18) of the UStG are not.

84The German Government argues that the condition in Paragraph 4(16) of the UStG seeks to ensure that the provider is indeed a charitable organisation and serves to put it on the same footing as public organisations. It contends that the purpose of the rules in question is to use the tax exemption to bring persons within the sickness insurance scheme.

85While I consider that to be understandable, the fact remains that both groups of taxable persons (under Paragraphs 4(16)(e) and 4(18)) should be subject to the same rules.

86Indeed, as the Court held in Rank Group, ‘the principle of fiscal neutrality must be interpreted as meaning that a difference in treatment for the purposes of VAT of two supplies of services which are identical or similar from the point of view of the consumer and meet the same needs of the consumer is sufficient to establish an infringement of that principle. Such an infringement thus does not require in addition that the actual existence of competition between the services in question or distortion of competition because of such difference in treatment be established.’ ⁵⁴

87Finally, the referring court is correct to point out that the Sixth Directive does not contain any provision permitting the Member States to make exemption of the same services dependent on whether the provider is a certain association or a member of such an association.

88As a concluding remark, I would say that if Germany chooses to introduce rules for the recognition of organisations as charitable – even though the case‑law makes clear that the Sixth Directive does not require that such a recognition be granted in accordance with a formal procedure or that it be provided for expressly in national tax provisions ⁵⁵ – it may do so. However, those rules must comply with the principle of fiscal neutrality.

89It follows from all the foregoing considerations that the principle of fiscal neutrality precludes the application of the condition at issue in the main proceedings ⁵⁶ if, under the applicable national provisions, the same services are treated as exempt under different conditions where they are carried out by officially recognised voluntary welfare associations, and corporations, associations of persons and funds serving purposes of voluntary welfare which are affiliated as members of a welfare association.

IV – Conclusion

90For the reasons given above I am of the view that the questions referred by the Bundesfinanzhof (Germany) should be answered as follows:

1Article 13(A)(1)(g) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment permits, in principle, the national legislature to make the exemption of out-patient care services for those who are sick or in need of care dependent on the fact that, in the case of such organisations, the costs of the care have been borne in at least two thirds of cases wholly or mainly by the statutory social security or social welfare authorities in the previous calendar year.

The fact remains, however, that that criterion may only be applied in so far as it complies with the principle of fiscal neutrality.

2The principle of fiscal neutrality precludes the application of that criterion if, under the applicable national provisions, identical or similar services are treated as exempt under different conditions such as is the case in the main proceedings.

¹ Original language: English.

² Royal & Sun Alliance Insurance Group plc v Customs and Excise Commissioners [2001] STC 1476 (CA) at [54] per Sedley LJ. In my view, it should be added, however, that often the complexities surrounding its application and interpretation are not due to VAT itself, but result from attempts to play around with it.

³ 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).

⁴ Hereafter ‘the condition at issue in the main proceedings’.

⁵ Paragraph 37 of the Fifth Book of the Sozialgesetzbuch (German Social Security Code, ‘SGB V’), in the version applicable at the material time (of 20 December 1988, part I, p. 2477).

⁶ Paragraphs 53 to 56 of the SGB V.

⁷ Paragraph 38 of the SGB V.

⁸ VAT assessment notices for 1993 and 1994 of 27 April 1999.

⁹ The German Government refers to: Case C-498/03 Kingscrest Associates and Montecello [2005] ECR I-4427, paragraphs 53 and 41 et seq., and Case C-141/00 Kügler [2002] ECR I-6833, paragraph 57 et seq. It also refers to Case C-45/01 Dornier [2003] ECR I-12911, paragraph 72 et seq.

¹⁰ According to which the costs of the care must have been borne in at least two thirds of cases wholly or mainly by the statutory social security or social welfare authorities in the previous calendar year.

¹¹ Case C-86/09 [2010] ECR I-5215, paragraph 29. See by analogy, in particular, Case 107/84 Commission v Germany [1985] ECR 2655, paragraph 17; Case C-307/01 D’Ambrumenil and Dispute Resolution Services [2003] ECR I-13989, paragraph 54; and Case C-473/08 Eulitz [2010] ECR I-907, paragraph 26 and the case‑law cited.

¹² Now Article 132 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1).

¹³ See Future Health Technologies, cited in footnote 11, paragraph 30. See by analogy, in particular, Case C-445/05 Haderer [2007] ECR I-4841, paragraph 18 and the case‑law cited; Case C-461/08 Don Bosco Onroerend Goed [2009] ECR I-11079, paragraph 25 and the case‑law cited; as well as Eulitz, cited in footnote 11, paragraph 27 and the case‑law cited. See also Case C-262/08 CopyGene A/S [2010] ECR I-5053, paragraphs 25 and 26.

¹⁴ See Eulitz, cited in footnote 11, paragraph 42. See, to that effect, Case C-216/97 Gregg [1999] ECR I-4947, paragraphs 16 to 20; Kingscrest Associates and Montecello, cited in footnote 9, paragraph 23; and Haderer, cited in footnote 13, paragraph 19.

¹⁵ Note that, in the English version, the corresponding provision in Directive 2006/112 – Article 132(1)(g) – no longer uses the word ‘charitable’ and, instead, refers to ‘… bodies recognised by the Member State concerned as being devoted to social wellbeing’ (emphasis added).

¹⁶ See Kingscrest Associates and Montecello, cited in footnote 9, paragraph 35 et seq., and Gregg, cited in footnote 14, paragraph 17 et seq.

¹⁷ See Dornier, cited in footnote 9, paragraphs 64 and 81; Kingscrest Associates and Montecello, cited in footnote 9, paragraph 49; Case C-106/05 L.u.P. [2006] ECR I-5123, paragraph 42; and CopyGene A/S, cited in footnote 13, paragraph 63.

¹⁸ See Dornier, cited in footnote 9, paragraph 65, and Kingscrest Associates and Montecello, cited in footnote 9, paragraph 50.

¹⁹ See, inter alia, Kingscrest Associates and Montecello, cited in footnote 9, paragraphs 22 to 24 and the case‑law cited, and Case C-401/05 VDP Dental Laboratory [2006] ECR I-12121, paragraph 26.

²⁰ See Kügler, cited in footnote 9, paragraph 54, and Kingscrest Associates and Montecello, cited in footnote 9, paragraph 51.

²¹ See, to that effect, Kügler, cited in footnote 9, paragraph 56; Dornier, cited in footnote 9, paragraph 69; Kingscrest Associates and Montecello, cited in footnote 9, paragraph 52; and L.u.P., cited in footnote 17, paragraph 48.

²² See, inter alia, Kügler, cited in footnote 9, paragraph 30; Case C-481/98 Commission v France [2001] ECR I-3369, paragraph 22; Case C-109/02 Commission v Germany [2003] ECR I-12691, paragraph 20; Kingscrest Associates and Montecello, cited in footnote 9, paragraphs 41 and 54; Case C-309/06 Marks & Spencer [2008] ECR I-2283, paragraph 47; and Case C-41/09 Commission v Netherlands [2011] ECR I-831, paragraph 66.

²³ See Kügler, cited in footnote 9, paragraphs 57 and 58; Dornier, cited in footnote 9, paragraphs 72 and 73; Kingscrest Associates and Montecello, cited in footnote 9, paragraph 53 (concerning Article 13(A)(1)(g) of the Sixth Directive); and L.u.P., cited in footnote 17, paragraph 53 (concerning Article 13(A)(1)(b) of the Sixth Directive).

²⁴ In the original, ‘[um] die bestehenden Versorgungsstrukturen bei der Pflege kranker und pflegebedürftiger Personen zu verbessern’. See Bundestags-Drucksache 12/1506, p. 178 in conjunction with p. 65.

²⁵ Reference is made here to the judgment of the Bundesfinanzhof of 24 January 2008, V R 54/06, Bundessteuerblatt 2008, part II, p. 643, under II. l.c., referring to the ruling of the Bundesverfassungsgericht of 31 May 2007, 1 BvR 1316/04, Neue Juristische Wochenschrift 2007, p. 3628.

²⁶ Cited in footnote 17, paragraph 55.

²⁷ Cf., for instance, Case C-124/96 Commission v Spain [1998] ECR I-2501, where the Court held essentially that the third indent of Article 13(A)(2)(a) of the Sixth Directive 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. Moreover, Article 13(A)(2)(a) excludes a restriction of the exemption 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.

²⁸ Cited in footnote 17.

²⁹ Ibid.

³⁰ See Kügler, cited in footnote 9, paragraph 54, and Kingscrest Associates and Montecello, cited in footnote 9, paragraph 51.

³¹ It may be recalled here that, in the meantime, that threshold of two thirds has been reduced to 40%.

³² See Kügler, cited in footnote 9, paragraph 57 et seq.; Dornier, cited in footnote 9, paragraph 72 et seq.; and Kingscrest Associates and Montecello, cited in footnote 9, paragraphs 53 and 41 et seq.

³³ Cited in footnote 17.

³⁴ Laid down in Paragraph 4(16)(c) of the UStG 1980/1991/1993.

³⁵ In particular, in paragraph 41 et seq.

³⁶ And, in fact, in Paragraph 4(16)(b) to (d) of the UStG.

³⁷ See L.u.P., cited in footnote 17, paragraph 50.

³⁸ Paragraph 4(18) of the UStG.

³⁹ See, inter alia, Case C-283/95 Fischer [1998] ECR I-3369, paragraph 27, and Gregg, cited in footnote 14, paragraph 19.

⁴⁰ See Case C-29/08 SKF [2009] ECR I-10413, paragraph 67 and the case‑law cited.

⁴¹ See, inter alia, Case C-174/08 NCC Construction Danmark [2009] ECR I-10567, paragraph 41; CopyGene A/S, cited in footnote 13, paragraph 64; and Joined Cases C-259/10 and C-260/10 Rank Group [2011] ECR I-10947, paragraph 61. See also Case C-240/05 Eurodental [2006] ECR I-11479, paragraph 55.

⁴² Cf. Joined Cases C-453/02 and C-462/02 Linneweber and Akritidis [2005] ECR I-1131, paragraph 37.

⁴³ See, by analogy, Fischer, cited in footnote 39, paragraph 27, and Linneweber and Akritidis, cited in footnote 42, paragraph 24.

⁴⁴ Cited in footnote 9, paragraph 30. See, to that effect, Gregg, cited in footnote 14, paragraph 20.

⁴⁵ See Case C-267/99 Adam [2001] ECR I-7467, paragraph 36, and Case C‑109/02 Commission v Germany, cited in footnote 22, paragraph 20.

⁴⁶ Cited in footnote 17, paragraph 50.

⁴⁷ Cf. Kügler, cited in footnote 9, paragraph 57; Dornier, cited in footnote 9, paragraph 74; and CopyGene A/S, cited in footnote 13, paragraph 65.

⁴⁸ V R 55/03 (BFHE 217, 48, BStBl II 2008, 31). However, contrast that with the judgment of the Bundesfinanzhof in Case Czukas of 24 January 2008, V R 54/06.

⁴⁹ Kurzinformation Umsatzsteuer Nr. 10 (Umsatzsteuer-Rundschau 2005, 516).

⁵⁰ Cited in footnote 17.

⁵¹ And corporations, associations of persons and funds serving purposes of voluntary welfare which are affiliated as members of a welfare association.

⁵² See, inter alia, L.u.P., cited in footnote 17, paragraph 31.

⁵³ Kingscrest Associates and Montecello, cited in footnote 9, paragraph 30. See also Dornier, cited in footnote 9, paragraph 43 (concerning Article 13(A)(1)(b) and (c) of the Sixth Directive); D’Ambrumenil and Dispute Resolution Services, cited in footnote 11, paragraph 58 (Article 13(A)(1)(b)); and L.u.P., cited in footnote 17, paragraph 25 (Article 13(A)(1)(b) and (c)).

⁵⁴ Cited in footnote 41, paragraph 36.

⁵⁵ See Dornier, cited in footnote 9, paragraph 67.

⁵⁶ That is, where a Member State – in the context of an application of the exemption in Article 13(A)(1)(g) of the Sixth Directive – makes the exemption of out-patient care services for those who are sick or in need of care dependent on the fact that, in the case of such organisations, the costs of the care have been borne in at least two thirds of cases wholly or mainly by the statutory social security or social welfare authorities in the previous calendar year.