C-200/04 iSt

JUDGMENT OF THE COURT (Second Chamber)

13 October 2005

In Case C-200/04,

Reference for a preliminary ruling under Article 234 EC from (Germany), made by decision of 18 March 2004, received at 2004, in the proceedings

Finanzamt Heidelberg

v

ISt internationale Sprach- und Studienreisen GmbH,

THE COURT (Second Chamber),

composed of C.W.A. Timmermans, President of the Chamber, de Lapuerta, P. Kūris and G. Arestis (Rapporteur), Judges,

* Language of the case: German.

*

the Bundesfinanzhof the Court on 5 May

R. Schintgen, R. Silva Advocate General: M. Poiares Maduro, Registrar: M. Ferreira, Principal Administrator,

having regard to the written procedure and further to the hearing on 28 April 2005,

after considering the observations submitted on behalf of:

— iSt internationale Sprach- und Studienreisen GmbH, by H.-J. Philipp and R. Binder, Wirtschaftsprüfer Steuerberater, assisted by G. Wegscheider, Rechtsanwalt,

— the German Government, by A. Tiemann and C. Schulze-Bahr, acting as Agents,

— the Greek Government, by S. Spyropoulos, D. Kalogiros and M. Tassopoulou, acting as Agents,

— the Cypriot Government, by E. Simeonidou, acting as Agent,

— the Commission of the European Communities, by D. Triantafyllou and K. Gross, acting as Agents, after hearing the Opinion of the Advocate General at the sitting on 16 June 2005,

gives the following

Judgment

Legal context and the dispute

1The reference for a preliminary ruling concerns the interpretation of Article 26 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').

2That reference was made in proceedings between the Finanzamt Heidelberg ('the Finanzamt') and iSt internationale Sprach- und Studienreisen GmbH ('iSt'), concerning the payment of value added tax ('VAT') after the inspection, by the relevant authorities, of iSt's turnover for the years 1995 to 1997.

Law

Community law

3Article 13 which appears in Title X of the Sixth Directive, on exemptions, entitled 'Exemptions within the territory of the country', provides as follows:

'A. Exemptions for certain activities in the public interest

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

(i) children's or young people's education, school or university education, vocational training or retraining, including the supply of services and of goods closely related thereto, provided by bodies governed by public law having such as their aim or by other organisations defined by the Member State concerned as having similar objects;

4Article 26 of the Sixth Directive, entitled 'Special scheme for travel agents', which appears in Title XIV of that directive, entitled 'Special schemes', provides as follows:

'1. Member States shall apply value added tax to the operations of travel agents in accordance with the provisions of this Article, where the travel agents deal with customers in their own name and use the supplies and services of other taxable persons in the provision of travel facilities. This Article shall not apply to travel agents who are acting only as intermediaries and accounting for tax in accordance with Article 11A(3)(c). In this Article travel agents include tour operators.

3. If transactions entrusted by the travel agent to other taxable persons are performed by such persons outside the Community, the travel agent's service shall be treated as an exempted intermediary activity under Article 15(14). Where these transactions are performed both inside and outside the Community, only that part of the travel agent s service relating to transactions outside the Community may be exempted.'

5According to Article 1 of Council Directive 90/314/EEC of 13 June 1990 on package travel, package holidays and package tours (OJ 1990 L 158, p. 59), the purpose of that directive is 'to approximate the laws, regulations and administrative provisions of the Member States relating to packages sold or offered for sale in the territory of the Community'.

6Article 2 of that directive defines 'package' as 'the pre-arranged combination of not fewer than two of the following when sold or offered for sale at an inclusive price and when the service covers a period of more than twenty-four hours or includes overnight accommodation:

(a) transport;

(b) accommodation;

(c) other tourist services not ancillary to transport or accommodation and accounting for a significant proportion of the package.'

National law

7The relevant provisions of national law applicable to the dispute in the main proceedings are Paragraphs 4(23) and (25) of the Law on Turnover Tax (Umsatzsteuergesetz) of 1993 (BGBl. 1993 I, p. 565, 'the UStG 1993').

8Paragraph 4(23) of that law provides that the provision of board and lodging and other benefits in kind by persons and organisations where those services are mainly provided to young persons for education, basic training or further training purposes or for the purposes of infant child care, where the services are provided to the young persons or to persons who are involved in their education, basic training, further training or care are exempt.

9Paragraph 25 of the UStG 1993 on the taxation of travel services provides:

'(1) The following provisions shall apply to travel services provided by an undertaking that are not provided for the purposes of the customer's business, where the undertaking deals with customers in its own name and makes use of travel-related inputs. The service provided by the undertaking is deemed to fall within the category of other services. If the undertaking provides several services of this nature to a customer in the context of one journey, those services will be deemed to be the provision of a single service falling within the other services category. The place at which the other service is provided shall be determined in accordance with Paragraph 3a(1). Travel-related inputs are supplies and other services provided by third parties which are for the direct benefit of the traveller.

(2) Other services are exempt where the travel-related inputs relating to them are provided abroad. ...

(3) The taxable value of other services shall be the difference between the amount paid by the customer for the service and the amount paid by the undertaking for travel-related inputs. ...

(4) By way of exception to Paragraph 15(1), the undertaking may not deduct the amount of input tax charged on invoices for travel-related inputs. The remaining provisions of Paragraph 15 shall apply in full. ...'

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

10ISt is a limited-liability company established under German law. It offers to its customers programmes called, inter alia, 'High School' and 'College'.

11The 'High School' programme is aimed at schoolchildren aged between 15 and 18 who wish to attend a high school or similar institution abroad, in particular in English-speaking countries. Candidates for those programmes submit an application to iSt which, following an interview, decides whether or not to admit them. ISt undertakes to find those who are admitted a place at the selected high school.

12The order for reference states that where the 'High School' programme takes place in the United States, the student is provided with accommodation for the duration of the visit with a host family which is chosen in cooperation with one of iSt's local partner organisations. A representative of the partner organisation is available to the student for discussion at the school and in the home of the host family. The same organisation offers the student the opportunity to tour the host country by coach or plane in the company of other exchange students.

13The package offered by iSt in those circumstances includes the return flight to the United States from Frankfurt-am-Main with a guide, flight connections within Germany, return flight connections within the United States to and from the destination, board and lodging with the host family, classes at the selected high school, support from the partner organisation and its local representatives during the visit, preparatory meetings, preparatory materials and travel cancellation insurance.

14As for the 'College' programme, which is for students and school-leavers, it is the responsibility of the partner organisation to pay the tuition fees to the selected college out of funds received from iSt for its services and to ensure that the participants are enrolled in that college for a period of from one to three terms. The participants book their flights themselves and do not receive board and lodging in host families, but in the selected college.

15Having at first classified the services provided by iSt as 'travel services' within the meaning of Paragraph 25 of the UStG 1993, the Finanzamt subsequently took the view that in fact they were educational or training services which should be exempt under Paragraph 4(23) of that law. As a consequence of classifying the services in question as exempt services, for which no deduction of the VAT charged was possible, the Finanzamt reduced the VAT excesses declared by that company for the years 1995 to 1997.

16ISt brought an action against that decision before the appropriate Finanzgericht, seeking an increase in the amount of tax on inputs for the three years in question. By its decision, the Finanzgericht upheld iSt's application, finding that the services supplied are travel services within the meaning of Paragraph 25 of the UStG 1993 and that Paragraph 4(23) of that law did not apply.

17The Finanzamt appealed on a point of law to the Bundesfinanzhof, which decided to stay the proceedings and refer the following question to the Court for a preliminary ruling:

'Does the special scheme for travel agents set out in Article 26 of Directive 77/388/ EEC also apply to transactions entered into by an undertaking which organises "High School" and "College" Programmes involving periods of three to 10 months spent in a foreign country, which are offered to participants by the undertaking in its own name and which are provided using services performed by other taxable persons?'

The question referred for a preliminary ruling

18By its question, the referring court asks essentially whether the conditions for the application of Article 26(1) of the Sixth Directive are met in the case of a trader which, in consideration of the payment of a fixed sum, offers its customers programmes entitled 'High School' and 'College' which include, inter alia, a period of between three and 10 months' language study abroad.

19To answer that question, it is necessary to ask whether a company such as iSt acts in its own name and whether it qualifies as a trader covered by the special scheme for travel agents and uses for its operations supplies and services provided by other taxable persons.

20First, according to the case-law, it is for the national court before which a dispute concerning the application of Article 26 of the Sixth Directive is brought to inquire, having regard to all the details of the case, and in particular the nature of the contractual obligations of the trader concerned towards its customers, whether or not that condition is met (see, to that effect, Case C-163/91 Van Ginkel [1992] ECR I-5723, paragraph 21). Furthermore, as the order for reference makes clear, it is not in dispute that the applicant in the main proceedings does not act as agent for the operations to which that decision primarily applies.

21Second, as regards the status of a trader covered by Article 26 of the Sixth Directive, it should be noted that, according to the case-law, the services provided by travel agents and tour operators most frequently consist of multiple services, in particular transport and accommodation, supplied either within or outside the territory of the Member State in which the undertaking has established its business or has a fixed establishment. The application of the normal rules on place of taxation, taxable amount and deduction of input tax would, by reason of the multiplicity of services and the places in which they are provided, entail practical difficulties for those undertakings of such a nature as to obstruct their operations. In order to adapt the applicable rules to the specific nature of such operations, the Community legislature set up a special VAT scheme in Article 26(2), (3) and (4) of the Sixth Directive (see Van Ginkel, paragraphs 13 to 15; Joined Cases C-308/96 and C-94/97 Madgett and Baldwin [1998] ECR I-6229, paragraph 18, and Case C-149/01 First Choice Holidays [2003] ECR I-6289, paragraphs 23 and 24).

22The Court has held in that regard that the underlying reasons for the special scheme for travel agents and tour operators are equally valid where the trader is not a travel agent or tour operator within the normal meaning of those terms, but effects identical transactions in the context of another activity, such as that of hotelier. To interpret Article 26 of the Sixth Directive as applying solely to traders who are travel agents or tour operators within the normal meaning of those terms would mean that identical services would come under different provisions depending on the formal classification of the trader (Madgett and Baldwin, paragraphs 20 and 21).

23In the case in the main proceedings, it is not in dispute that iSt is not a travel agent or tour operator within the normal meaning of those terms. It is however necessary to decide whether it provides services identical to those of a travel agent or tour operator.

24It must be found that, in the course of its activities in relation to the 'High School' and 'College' programmes, iSt provides services which are identical or at least comparable to those of a travel agent or tour operator, in that it offers services involving the travel by plane of its customers and/or their stay in the host State and, in order to provide services generally associated with that type of activity, it uses the services of other taxable persons within the meaning of Article 26 of the Sixth Directive, namely a local partner organisation and airlines.

25In those circumstances, it is necessary to determine whether, in respect of the transactions carried out by iSt and for which it uses supplies and services of other taxable persons, it should be subject to VAT pursuant to Article 26.

26It is not ruled out in that respect that traders supplying services usually associated with travel might be required to use travel supplies acquired from third parties which, compared with the other supplies of those traders, represent a small proportion of the total package. Those bought-in services do not therefore constitute for customers an aim in itself, but a means of better enjoying the principal service supplied by the trader (see, to that effect, Madgett and Baldwin, paragraph 24).

27It should be noted that in such circumstances the services bought in from third parties remain purely ancillary in relation to the in-house services, and the trader should not be taxed under Article 26 of the Sixth Directive (Madgett and Baldwin, paragraph 25).

28However, it should be noted in that regard that where a trader such as iSt habitually offers its customers travel services, in addition to services associated with the language training and education of its customers, which cannot be carried out without a substantial effect on the package price charged, such as travel to the host State and and/or the stay in that State, such services are not to be equated with purely ancillary services. As is clear from the order for reference, the services in question do not represent a marginal share in relation to the corresponding services associated with the language training and education which iSt offers its customers.

29In those circumstances, Article 26 of the Sixth Directive must be interpreted as meaning that it applies to a trader such as iSt which habitually offers to its customers, in addition to services associated with the language training and education of those customers, services bought in from other taxable persons such as travel to the host State and/or the stay in that State.

30However, that application is disputed by some Member States which have submitted observations to the Court, on the ground that the transactions carried out by iSt do not in any way fall within the services covered by that article.

31First, the application of Article 26 of the Sixth Directive is disputed by the German Government on the ground that, according to the Court's case-law, travel consisting of student exchanges of six months' or one year's duration, the purpose of which is attendance by students at an educational establishment in a host country in order to familiarise themselves with the people and culture of that country, and during which the students are accommodated free of charge with a local family as a family member is not travel within the meaning of Directive 90/314 (Case C-237/97 AFS Intercultural Programs Finland [1999] ECR I-825, paragraph 34). On that point, the Cypriot Government adds that, in the light of the nature of the service provided by iSt as a whole, the principal service offered is the opportunity to follow a course of language training and that that service cannot be considered to be one of the usual services provided by a travel agent within the meaning of Article 26 of the Sixth Directive.

32By their arguments, the German and Cypriot Governments essentially submit that the language visit offered by iSt under its 'High School' and 'College' programmes does not fall within the definition of 'travel' for the purposes of Article 26 of the Sixth Directive.

33In that regard, in addition to the fact that the Court's assessment in AFS Intercultural Programs Finland did not concern the application of the Sixth Directive, it should be noted that the points made in that judgment have no bearing on the application of Article 26 of that directive.

34It is true that that article does not include a definition of the concept of travel. However, in applying that article there is no need to set out in advance the factors constituting travel. That provision applies provided that the trader in question is a trader for the purposes of the special scheme for travel agents, acts in its own name and uses in its operations supplies and services provided by other taxable persons. More particularly, in respect of operations for which the trader should be taxed under Article 26 of the Sixth Directive, the only relevant criterion for the application of that article is whether or not the travel service is ancillary.

35Furthermore, if the observations submitted in that respect, in particular by the German Government, were followed, Article 26 of the Sixth Directive would apply on the basis of the objective of the travel offered and the duration of the stay in the host State. Such an interpretation would have the effect of adding an additional condition to any application of that article.

36There is no reason to suggest that the Community legislature intended to restrict the scope of Article 26 of the Sixth Directive on the basis of two combined or distinct factors, namely the objective of the travel and the duration of the stay in the host State. Any other finding in that respect would be likely to seriously restrict the scope of that article and would be incompatible with the special scheme it introduces.

37Furthermore, it is clear that imposing such an additional condition for the implementation of Article 26 of the Sixth Directive might amount to drawing a distinction between traders on the basis of the purpose of the stay which they offer in the host State and would unquestionably distort competition between the traders concerned and compromise the uniform application of that directive.

38Second, the German Government considers that Article 26 of the Sixth Directive cannot apply to the dispute in the main proceedings in so far as the services offered by iSt concerning the language training and education of its customers essentially fall within the services exempted under Paragraph 4(23) of the UStG 1993. The German Government submits that, if the service offered falls ratione materiae within the cases exempted under that directive and, in particular, Article 13A(1)(i) thereof, the special tax scheme laid down in Article 26 does not apply.

39There is nothing to suggest that the application of Article 26 is dependent on such a condition. It should be noted that in respect of operations involving bought-in supplies and services for which traders should be taxed under that article, the only relevant criterion is whether or not the travel service is ancillary.

40Furthermore, it should be noted that the scheme laid down by Article 26 of the Sixth Directive, which seeks to adapt the relevant rules on VAT to travel agents and traders supplying identical or comparable services, is a special tax scheme and not a special exemption scheme applicable to certain activities carried out by those traders.

41In those circumstances, the argument put forward in the present case by the German Government is irrelevant and, therefore, cannot justify a failure to apply Article 26 of the Sixth Directive in the case in the main proceedings.

42That finding does not imply, however, that no inference can be drawn from the scheme of exemptions laid down by Title X of the Sixth Directive where the question arises as to whether or not Article 26 applies.

43It should be noted in that regard that Article 26(3) provides that if transactions entrusted by the travel agent to other taxable persons are performed by such persons outside the Community, the travel agent's service shall be treated as an exempted intermediary activity under Article 15(14) of the Sixth Directive. It follows that the Community legislature did not rule out the possibility of applying those provisions of the VAT exemption scheme provided for by that directive in the course of transactions performed under Article 26 of that directive.

44However, it cannot be argued on the basis of Article 26(3) that the special scheme for travel agents laid down by the Sixth Directive is not applicable in the present case on the ground that transactions performed by iSt are exempt by reason of their purpose or nature. According to Article 26(3) the relevant criterion according to which a transaction may be exempt from VAT under that provision does not take account, as the German Government submits, of the purpose or nature of the transaction as performed, but of the place of performance of the service supplied.

45In any event, even if the transactions carried out by iSt concerning the language training and education of its customers fall within the transactions exempt under Article 13A(1)(i) of the Sixth Directive, that article cannot apply in so far as it is clear from the order for reference that iSt is a commercial company and not a body governed by public law or other similar organisation to which that article refers. The application of the provisions of that article to a company such as iSt implies a broad interpretation of the system of exemption laid down by that directive.

46It should be noted that, according to settled case-law, the terms used to specify the exemptions provided for by Article 13 of the Sixth Directive are to be interpreted strictly (see, inter alia, Case C-472/03 Arthur Andersen [2005] ECR I-1719, paragraph 24 and the case-law cited).

47It follows that the argument put forward in the present case by the German Government must, in any event, be rejected.

48It follows from all of the foregoing considerations that the reply to the question referred for a preliminary ruling should be that Article 26 of the Sixth Directive should be interpreted as meaning that it applies to a trader who offers services such as the 'High School' and 'College' programmes involving the organisation of language and study trips abroad and which, in consideration of the payment of an all-inclusive sum, provides in its own name to its customers a stay abroad of three to 10 months and buys in services from other taxable persons for that purpose. Costs

49Since 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:

Article 26 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, should be interpreted as meaning that it applies to a trader who offers services such as the 'High School' and 'College' programmes involving the organisation of language and study trips abroad and which, in consideration of the payment of an all-inclusive sum, provides in its own name to its customers a stay abroad of three to 10 months and buys in services from other taxable persons for that purpose.

[Signatures]

OPINION OF ADVOCATE GENERAL

POIARES MADURO 1 delivered on 16 June 2005

Introduction

1In this reference for a preliminary ruling the Bundesfinanzhof (Federal Finance Court (Germany)), seeks a decision from the Court of Justice as to whether the special scheme for travel agents laid down in Article 26 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 2 added tax: uniform basis of assessment ('the Sixth Directive') applies to transactions entered into by undertakings which organise study programmes abroad, particularly language study programmes.

I — Facts of the case in the main proceedings, the relevant provisions of Community law and national law and the question referred to the Court of Justice

2ISt internationale Sprach- und Studienreisen GmbH ('the applicant' or 'iSt') is a private limited company which organises

1 — Original language: Portuguese.

2 — OJ 1977 L 145, p. 1.

international language study and learning trips, offering, inter alia, 'High School' and 'College' programmes.

3The High School Programmes are aimed at students aged between 15 and 18 who wish to attend a high school or similar institution abroad — principally in anglo phone countries — for periods of three, five or 10 months. Candidates for these programmes submit an application form to the applicant, which decides, after an interview, whether or not to accept the application.

4The applicant undertakes to secure places for the participants in the selected high school, where they are allocated a mentor (a guidance teacher) who gives them advice and support. For the duration of the visit the students are provided with accommodation with host families. The selection of suitable host families is carried out in cooperation with a local partner organisation of the applicant. A representative of that partner organisation is available to the student both for discussion at the school and at the home of the host family. The local partner organisation also offers the students the opportunity to tour places of interest by bus or plane during their stay in the host country.

5The total price of a High School Programme in the United States of America, for example, included return flights from Frank-furt-am-Main to the USA, with a guide, connecting flights within Germany, connecting flights within the USA to and from the destination, board and lodging with the host family, high school tuition, support from the partner organisation and its local representatives during the visit, preparatory meetings, supporting material and travel insurance. The total price did not, however, include pocket money or sickness, liability and accident insurance, the cost of an entry visa for the USA or of participation in a preparatory seminar.

6The 'College' Programmes are aimed at school-leavers. The local partner organisation allocates the participants to colleges and ensures that they are enrolled in the respective colleges for a period of one to three terms. The partner organisation also pays the college fees out of the sums it receives from the applicant for its services. College Programme participants are provided with board and lodging at the college itself. The arrangements relating to return flights are also different from those which apply under the High School Programme. The participants book the flights themselves.

7The Finanzamt Heidelberg (Heidelberg Tax Office) (the 'Finanzamt'), initially classified the transactions entered into by the applicant as travel services within the meaning of Paragraph 25 of the Umsatzsteuergesetz (Law on Turnover Tax) 1993 ('UStG') laying down the system of taxation applicable to the provision of travel services. Subsequently, however, following an inspection, the Finanzamt concluded that those services were not travel services but rather 'other services' which were exempt by virtue of Paragraph 4(23) of the UStG.

8Under the terms of that provision the following are exempt: '[t]he provision of board and lodging and other benefits in kind by persons and organisations where those services are mainly provided to young persons for education, basic training or further training purposes or for the purposes of infant child care, where the services are provided to the young persons or to persons who are involved in their education, basic training, further training or care ...'.

9For its part, Paragraph 25 of the UStG on the taxation of travel services provides as follows:

'(1) The following provisions shall apply to travel services provided by an undertaking that are not provided for the purposes of the customers business, where the undertaking deals with customers in its own name and makes use of travel-related inputs. The service provided by the undertaking is deemed to fall within the category of "other services". If the undertaking provides several services of this nature to a customer in the context of one journey, those services will be deemed to be the provision of a single service falling within the "other services" category. The place at which the other service is provided shall be determined in accordance with Paragraph 3a(l). Travel-related inputs are supplies and other services provided by third parties which are for the direct benefit of the traveller.

(2) Other services are exempt where the travel-related inputs relating to them are provided abroad. ...

(3) The taxable value of other services shall be the difference between the amount paid by the customer for the service and the amount paid by the undertaking for travel-related inputs. ...

(4) By way of exception to Paragraph 15(1), the undertaking may not deduct the amount of input tax charged on invoices for travel-related inputs. The remaining provisions of Paragraph 15 shall apply in full. ..."

10Paragraph 25 of the UStG is intended to transpose Article 26 of the Sixth Directive, which sets out the 'special scheme for travel agents' in the following terms:

'(1) Member States shall apply value added tax to the operations of travel agents in accordance with the provisions of this article, where the travel agents deal with customers in their own name and use the supplies and services of other taxable persons in the provision of travel facilities. This article shall not apply to travel agents who are acting only as intermediaries and accounting for tax in accordance with Article 11A(3)(c). In this article travel agents include tour operators.

(2) All transactions performed by the travel agent in respect of a journey shall be treated as a single service supplied by the travel agent to the traveller. It shall be taxable in the Member State in which the travel agent has established his business or has a fixed establishment from which the travel agent has provided the services. The taxable amount and the price exclusive of tax, within the meaning of Article 22(3)(b), in respect of the service shall be the travel agent's margin, that is to say, the difference between the total amount to be paid by the traveller, exclusive of value added tax, and the actual cost to the travel agent of supplies and services provided by other taxable persons where these transactions are for the direct benefit of the traveller.

(3) If transactions entrusted by the travel agent to other taxable persons are performed by such persons outside the Community, the travel agent's service shall be treated as an exempted intermediary activity under Article 15(14). Where these transactions are performed both inside and outside the Community, only that part of the travel agent's service relating to transactions outside the Community may be exempted.

(4) Tax charged to the travel agent by other taxable persons on the transactions described in paragraph 2 which are for the direct benefit of the traveller, shall not be eligible for deduction or refund in any Member State.'

11Article 13A(1) of the Sixth Directive states that:

'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:

(i) children's or young people's education, school or university education, vocational training or retraining, including the supply of services and of goods closely related thereto, provided by bodies governed by public law having such as their aim or by other organisations defined by the Member State concerned as having similar objects;

12Following the Finanzamts refusal to accept taxation of the applicant's margin under Paragraph 25 of the UStG and its decision instead to classify the applicant's business activity as exempt within the meaning of Paragraph 4(23) of the UStG, which does not allow any deduction of input tax, the Finanzamt reduced the excess tax charged for the years 1995 to 1997.

13The applicant brought an action contesting that decision before the Finanzgericht, which granted the application. The Finanzamt brought an appeal against the decision of the Finanzgericht before the Bundesfinanzhof, which has decided to stay the appeal proceedings and to refer the following question to the Court of Justice of the European Communities:

'Does the special scheme for travel agents set out in Article 26 of Directive 77/388/EEC also apply to transactions entered into by an undertaking which organises "High School Programmes" and "College Programmes" involving periods of three to 10 months spent in a foreign country, which are offered to participants by the undertaking in its own name and which are provided using services performed by other taxable persons?'

II — Analysis

14Article 26 of the Sixth Directive lays down the special VAT scheme for travel agents and tour operators on which the Court of Justice has already had an opportunity to give judgment, in particular in order to define the scope of application of that scheme and to determine which traders are covered by the scheme. 3

15That special tax scheme was included in the Sixth Directive because the services offered by travel agents and tour operators generally consist of multiple services (for example transport and accommodation), supplied either within or outside the Member State in which the undertaking has established its business or has a fixed establishment. Therefore the application of the normal rules on place of taxation, taxable amount and deduction of input tax would, by reason of the multiplicity of services and the places in which they are provided, entail practical difficulties for those undertakings of such a nature as to obstruct their operations. 4

3 — See, in particular, the judgments in Case C-163/91 Van Ginkel [1992] ECR I-5723 and the judgment in Joined Cases C-308/96 and C-94/97 Madgett and Baldwin [1998] ECR I-6229. 4 — See Van Ginkel, paragraphs 13 and 14; Madgett and Baldwin, paragraph 18 and Case C-149/01 First Choice Holidays [2003) ECR I-6289, paragraphs 23 and 24.

16Article 26 is therefore intended to adapt the applicable VAT rules to the specific nature of the activity of travel agents. 5 To that end it establishes a special taxation scheme which allows appropriate taxation of travel services whilst not in any way constituting an exemption scheme.

17This case will therefore seem surprising from the first to those who are unfamiliar with the common system of value added tax and, in particular to those who are unaware of the subtleties of the scheme for tax deduction. Counter-intuitively, it is in fact the German Government, as represented by the Finanzamt, which takes the view that the activity of the iSt should fall within the scope of the VAT exemption scheme. The taxable person, on the other hand, challenges that interpretation and maintains that its business activities are liable to VAT by virtue of Article 26.

18In the terms of the preceding analysis, I find the view taken by the German Government indefensible, having regard in the first place to the interpretation put upon Article 26 by the Court of Justice, in particular in Van Ginkel and Madgett and Baldwin.

5 — See Van Ginkel paragraphs 15 and 23; Madgett and Baldwin, paragraph 18 and First Choice Holidays, paragraph 23.

19It is certain that Article 26, because it establishes a special taxation scheme different from the normal scheme laid down in the Sixth Directive, must be applied only to the extent necessary to attain the objectives which it pursues. 6

20Now, in Van Ginkel, in an interpretation based on the ratio referred to above of Article 26, 7 the Court held that the fact that an undertaking did not arrange transport for the traveller, but provided accommodation only, did not exclude the services provided by that undertaking from the ambit of Article 26. 8 The interpretation of Article 26 within those bounds follows, according to the Court, from the objectives pursued by that provision. 9

21Following that same line of interpretation, the Court expressly stated in Madgett and Baldwin that the special scheme for travel agents could not be limited only to traders with the formal title of 'travel agent' or 'tour operator'. The Court held that the scheme at issue was applicable to an hotelier

6 — See First Choice Holidays, paragraph 22, and Madgett and Baldwin, paragraph 34.

7 — See points 15 and 16 above.

8 — See Van Ginkel, paragraph 27.

9 — As the Court of Justice has held in Paragraph 23 of Van Ginkel: '... The exclusion from the field of application of Article 26 of the Sixth Directive of services provided by a travel agent on the ground that they cover only the accommodation and not the transport of the traveller would lead to a complicated tax system in which the VAT rules applicable would depend upon the constituents of the services offered to each traveller. Such a tax system would fail to comply with the aims of the directive'.

who, in return for a package price, habitually offered his customers, in addition to accommodation, return transport between certain distant pick-up points and the hotel and a coach excursion during their stay at the 10 hotel.

22According to that case-law, any taxable person who sells travel services in his own name, using for that purpose supplies and services provided by other taxable persons, must be covered by Article 26 of the Sixth Directive. In contrast, when a trader acts merely as an intermediary, that special scheme under Article 26 does not apply and the services provided must be taxed in accordance with the normal rules for VAT applicable to the taxation of services pro 1 vided by intermediaries. 1

10 — See the judgment in Madgett and Baldwin, paragraph 20: '... the underlying reasons for the special scheme for travel agents and tour operators are equally valid where the trader is not a travel agent or tour operator within the normal meaning of those terms, but effects identical transactions in the context of another activity, such as that of hotelier.' 11 — See also, in this connection, the statement of reasons in the Commissions proposal for a Council Directive amending Directive 77/388/EEC of the Council as regards the special scheme for travel agents (COM/2002/0064 final, OJ 2002 C 126 E, p. 390). The same idea is clearly reaffirmed in the Commission's new proposal for a directive presented on 8 February 2002. The Commission proposes that the present Article 26, which states that: '... travel agents include tour operators', should be extended to read: '... tour operators and any other taxable person who supplies travel services in the same way shall be considered as travel agents'.

23It is certainly important to know what the criterion would be which would make it possible to determine whether a trader, providing in his or her own name travel-related services together with other services which do not to start with constitute travel services, such as educational services, must be regarded as subject to the rules laid down in Article 26 of the Sixth Directive.

24To this end, the decisive criterion adopted in Madgett and Baldwin, which expressly follows the line taken by Advocate General Léger in his Opinion in that case, consists of the distinction between the trader's ancillary services and his principal services, or services equivalent to the 12 latter.

25In fact, the Court of Justice points out that there are traders who provide travel-related services, using for that purpose services brought in from third parties, those services being, however, of a purely ancillary nature. In that respect, Advocate General Léger expressly stated in his Opinion, a point 13 specifically taken up in the judgment, that: '...a service is ancillary if, first, it contributes to the proper performance of the principal

12 — See the Opinion of Advocate General Léger in Madgett and Baldwin, points 34 to 38.

13 — See the judgment in Madgett and Baldwin, paragraph 24. service and, second, it takes up a marginal proportion of the package price compared to the principal service. It does not constitute an object for customers or a service sought for its own sake, but a means of better 14 enjoying the principal service'. That would be exactly: 'the case, for example, with transport which a hotel might arrange locally to take its customers to nearby destina 15 tions'.

26By contrast, travel-related services also provided on a regular basis by traders in their own name, using for that purpose services brought in from third parties, which take up a significant proportion of the total cost to the traveller, would not be regarded as ancillary services, nor would the customers 16 regard them as purely ancillary.

27Following that criterion the Court of Justice held in Madgett and Baldwin, that: '[w]here, however, a hotelier habitually offers his customers, in addition to accommodation, services which go beyond the tasks traditionally entrusted to hoteliers, and which cannot be carried out without a

14 — See the Opinion of Advocate General Léger in Madgett and Baldwin, point 36.

15 — Ibidem, point 37.

16 — Ibidem, point 38.

substantial effect on the package price charged, such as travel to the hotel from distant pick-up points, such services are not to be equated with purely ancillary ser 17 vices'. Consequently, Article 26 of the Sixth Directive is applicable to a hotelier 'who, in return for a package price, habitually offers his customers, in addition to accommodation, return transport between certain distant pick-up points and the hotel and a coach excursion during their stay, those transport services being bought in from third 18 parties'.

28In the light of that determining criterion adopted in Madgett and Baldwin, the iSt must be classified as a travel agent within the meaning of Article 26 of the Sixth Directive. In fact, even assuming that the iSt in effect provides educational services to its customers, the provision of travel will inevitably have a 'substantial effect on the package price charged' to the customer according to the criterion applied in Madgett and Baldwin. That being the case, it is clear that the travel proper, including transport and the stay organised in the host country, could not in the customer's view be regarded as an ancillary service, with only a marginal significance in relation to the educational service which iSt also provides for its customers.

17 — See the judgment in Madgett and Baldwin, paragraph 26. Italics added.

18 — Ibidem, paragraph 27.

29It is important to mention, moreover, that the national court's uncertainty as to the applicability of Article 26 in the case at issue stems, essentially, from the Court of Justice's case-law concerning student exchange programmes within the context of Council Directive 90/314/EEC of 13 June 1990 on package travel, package holidays and package 1 tours. 9 The question posed is, therefore, whether the definition, in the terms earlier set out, of the activities covered by the scheme laid down in Article 26 of the Sixth Directive must be altered to some extent in the light of the Court of Justice's recent decisions in this other parallel domain, especially AFS Intercultural Programs Fin . 20 land

30In that judgment, the Court ruled that travel consisting of student exchanges of about six months' or a year's duration, the purpose of which was attendance by the student at an educational establishment in the host country in order to familiarise himself with its people and its culture, and during which he stays with a host family, as if he were a member thereof, free of charge, does not constitute package travel within the 21 meaning of Directive 90/314/EEC.

19 — OJ 1990 L 158. p. 59.

20 — See the judgment in Case C-237/97 AFS Intercultural Programs Finland [1999] ECR I-825.

21 — Ibidem, paragraph 33 and the operative part.

31Clearly, that case-law is of no assistance in answering the central question in the case at issue, which is, as I have already pointed out, simply whether, within the framework of its activity, the iSt's provision of travel services is of a purely ancillary nature in relation to the other services which it provides.

32In addition, as a subsidiary matter, Article 26 pursues aims very different from those on which Council Directive 90/314/ EEC is based, in particular that of preventing the common VAT scheme from obstructing the business activities of travel agents.

33It is not, therefore, appropriate to give a restrictive interpretation of Article 26, so that it applies only to traders who provide 'travel' in their own name within the mean 22 ing of Council Directive 90/314/EEC. I would point out in this respect that such an interpretation of Article 26 would be incompatible with Van Ginkel in which the Court of Justice held that Article 26 is applicable even if the trader did not provide a travel service proper — that is a service including transport of the customers — but provided 23 accommodation only.

22 — I do not think, in any case, that it is possible to draw the conclusion from the AFS Finland judgment that ¡St should not be classified as a travel organiser or retailer within the meaning of Council Directive 90/314/EEC. As the applicant quite rightly points out in its written observations, the iSt is not a non-profit-making organisation, unlike the association at issue in the AFS Finland judgment.

23 — See point 24 above.

34Similarly, it would seem to me to be irrelevant in deciding whether the applicant is to be classified as a travel agent within the meaning of Article 26, to take account of the purpose and duration of the trips organised by the trader and offered in his or her own name, using for that purpose services provided by third parties. The fact that the purpose of the stay abroad, as in the present case, is study, in particular of the English language, must not affect the classification of the iSt as a travel agent within the meaning of Article 26. This runs counter to the suggestion of the German Government, which considers that iSt exercises a sui generis activity which ought not to fall within the scope of Article 26 by virtue of the educational purpose and length of the trips offered to its customers.

35It seems to me highly inadvisable to distinguish traders who organise travel and are subject to the rules under Article 26 from others to whom those rules do not apply, according to the purpose and duration of the travel. Apart from travel purely for leisure, there exists an enormous variety of travel varying according to its objectives. We need think here, in addition to travel to study languages and local culture, only of sports trips, of journeys made for thermal or anti-stress therapy, of cookery and wine-tasting courses or of concert tours of longer or shorter duration undertaken by groups of musicians. Taking the duration and purpose of the travel and stay organised abroad as decisive factors would introduce a huge element of doubt in the determination of the scope of the definition of travel agent within the meaning of Article 26 of the Sixth Directive.

36The adoption of such a criterion would not only be completely foreign to the wording of Article 26 (which makes no reference to the duration and purpose of travel), but would also be incompatible with the objectives pursued by the special scheme set out therein. Finally, it is not easy to reconcile consideration of the purpose and duration of travel with the idea of simplification which underlies the adoption of the rules set out in Article 26. Quite the reverse: if we look at the simplification objectives arising from the multiplicity of places entailed in the business activities of travel agents, which justify the adoption of the scheme for taxation of the margin laid down in Article 26, they are preserved in the case at issue precisely by regarding the iSt as subject to the scheme set out in that 24 Article.

24 — According to the decision making the referral, iSt organises travel which it offers to its clients in its own name, including transport to the destination, as well as reception in the educational establishments and within the host families. iSt does not act as an intermediary for the airlines or for the partner organisation in the host country; moreover the relevant services are provided or performed in a number of places, which, in the light of the ratio behind Article 26, fully justifies application of that Article.

37Delimitation of the scope of the definition of travel agent within the meaning of Article 26 according to the purpose of the travel services provided would, in any case, be incompatible with an analysis conducted in accordance with objective criteria, which is clearly essentia] in the context of a tax scheme of a clearly objective nature, as is the 25 case for VAT.

38It is only by means of an autonomous and non-restrictive interpretation of the concept of travel agent, based on an objective criterion such as that expressly used by the Court in Madgett and Baldwin, which does not rely on any consideration of the purpose or duration of travel, that distortion of competition between traders my be avoided and uniform application of the Sixth Direc 26 tive be guaranteed.

39Finally, I would point out that Article 26 lays down appropriate taxation for travel

25 — One of the guiding principles of the VAT system is the avoidance of factors which might give rise to distortion of competition at national or Community level. Advocate General Léger makes the point in point 32 of his Opinion in Madgett and Baldwin and it is repeated in paragraph 22 of the judgment that: '... such distortion could be avoided by interpreting Article 26 as covering comparable activities in accordance with objective criteria, and not based on the predetermined classification of a trader within a certain professional category, even though a significant part of his business activity entails providing services which fall within '

another category. Emphasis added.

26 — See in this connection the judgment in Madgett and Baldwin, paragraph 22 and the Opinion of Advocate General Léger in that case, point 32.

services. It entails special rules in relation to the normal rules of taxation, but not a VAT exemption scheme.

40Taking that into consideration, the interpretation proposed by the German Government, to the effect that the activity of the iSt falls within services which are exempt by virtue of Article 13A(1)(i) of the Sixth Directive, is incompatible with the Court of Justice's consistent case-law on the interpretation of the provisions of the Sixth Directive which lay down those exemptions.

41ISt is, in fact, a commercial company and does not in any way appear to be a 'body governed by public law' or to be governed by a constitution similar to the terms of Article 13A(1)(i) of the Sixth Directive. The application of this exemption scheme would entail an interpretation of the scheme which was immediately incompatible with the case-law of the Court of Justice, according to which: 'the terms used to describe the exemptions envisaged by Article 13 of the Sixth Directive are to be interpreted strictly since these constitute exceptions to the general principle that turnover tax is to be levied on all services supplied for consideration by a 27 taxable person'.

27 — See the judgment in Case 348/87 Stichting Uitvoering Financiële Acties v Staatssecretaris van Financiën [1989] ECR 1737, paragraph 13, the judgment in Case C-2/95 Sparekassernes Datacenter (SDC) v Skatteministeriet [1997] ECR I-3017, paragraph 20 and, more recently, the judgment in Case C-472/03 Staatssecretaris van Financiën v Arthur Andersen [2005] ECR I-1719, paragraph 24.

III — Conclusion

42In the light of the considerations set out above, I propose that the Court of Justice should reply as follows to the question referred by the Bundesfinanzhof:

'Article 26 of the Sixth Council Directive 77/388/EEC of 17 May 1977 must be interpreted as applying also to transactions entered into by an undertaking organising "High School" and "College" programmes involving periods of three to 10 months spent in a foreign country, which are offered to participants by the undertaking in its own name and which are provided using services performed by other taxable persons.'