C-202/90 Ayuntamiento de Sevilla

Judgment of the Court (Fifth Chamber) of 25 July 1991. - Ayuntamiento de Sevilla v Recaudadores de Tributos de las Zonas primera y segunda. - Reference for a preliminary ruling: Tribunal Superior de Justicia de Andalucía - Spain. - Taxable persons for the purposes of VAT - Bodies governed by public law. - Case C-202/90. European Court reports 1991 Page I-04247 Swedish special edition Page I-00385 Finnish special edition Page I-00401

Summary Parties Grounds Decision on costs Operative part

++++

1. Tax provisions - Harmonization of laws - Turnover taxes - Common system of value added tax - Economic activities carried out independently within the meaning of Article 4 of the Sixth Directive - Activities such as those of tax collectors entrusted with the collection of local taxes in Spain

(Council Directive 77/388/EEC, Art. 4(1) and (4) )

2. Tax provisions - Harmonization of laws - Turnover taxes - Common system of value added tax - Taxable persons - Bodies governed by public law - Activities engaged in as public authorities not taxable - Condition - Activity must be engaged in directly

(Council Directive 77/388/EEC, Art 4(5) )

1. Article 4(1) and (4) of the Sixth Directive (77/388/EEC) on the harmonization of the laws of the Member States relating to turnover taxes must be interpreted as meaning that an activity such as that carried out in Spain by zonal tax collectors, appointed by the local authority whose taxes they collect, must be regarded as being carried out independently because, besides the fact that such collectors are not paid a salary and are not bound to the commune by a contract of employment, the legal relationship on the basis of which they engage in their activity is not such as to constitute one of employer and employee vis-à-vis the local authority which uses their services.

2. Article 4(5) of the Sixth Directive (77/388/EEC) on the harmonization of the laws of the Member States relating to turnover taxes, which provides that bodies governed by public law are not to be considered taxable persons in respect of the activities or transactions in which they engage as public authorities, must be interpreted as meaning that it is not applicable when the activity of a public authority is not engaged in directly but is entrusted to an independent third party.

In Case C-202/90,

REFERENCE to the Court under Article 177 of the EEC Treaty by the Tribunal Superior de Justicia de Andalucía (High Court of Justice, Andalusia) for a preliminary ruling in the proceedings pending before that court between

Ayuntamiento de Sevilla

and

Recaudadores de las Zonas Primera y Segunda

on the interpretation of Article 4(1), (4) and (5) of the Sixth Council Directive (77/388/EEC) of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes - Common system of value added tax: uniform basis of assessment (Official Journal 1977 L 145, p. 1),

THE COURT (Fifth Chamber),

composed of: J.C. Moitinho de Almeida, President of the Chamber, G.C. Rodríguez Iglesias, Sir Gordon Slynn, F. Grévisse and M. Zuleeg, Judges,

Advocate General: G. Tesauro,

Registrar: D. Louterman, Principal Administrator,

after considering the observations submitted on behalf of:

- the Ayuntamiento de Sevilla, by E. Barrero González, of its Legal Service, acting as Agent;

- the Spanish Government, by Carlos Bastarreche Saguees, Director General de Coordinacíon Jurídica e Institucional Comunitaria, and Antonio Hierro Hernández-Mora, Abogado del Estado, acting as Agents;

- the Commission of the European Communities, by D. Calleja y Crespo, a member of its Legal Service, acting as Agent,

having regard to the Report for the Hearing,

after hearing the oral observations of the Ayuntamiento de Sevilla, the Spanish Government, represented by Rosario Silva de Lapuerta, Abogado del Estado, acting as Agent, and the Commission at the hearing on 2 May 1991,

after hearing the Opinion of the Advocate General at the sitting on 4 June 1991,

gives the following

Judgment

Grounds

1By an order of 11 June 1990, which was received at the Court on 2 July 1990, the Tribunal Superior de Justicia de Andalucía (High Court of Justice, Andalusia) referred to the Court of Justice under Article 177 of the EEC Treaty two questions on the interpretation of Article 4(1), (4) and (5) of the Sixth Council Directive (77/388/EEC) of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes - Common system of value added tax: uniform basis of assessment (Official Journal L 145, p. 1, hereinafter referred to as "the Sixth Directive").

2Those questions were raised in proceedings between the Ayuntamiento de Sevilla (Commune of Seville) and the Recaudadores de las Zonas Primera y Segunda (tax collectors of the first and second zones).

3It appears from the documents before the Court that under Spanish legislation the tax collectors for a zone are appointed by the local authority whose taxes they collect and must provide the security fixed by that local authority. In the performance of their functions they are directed by the local authority. They are entitled to remuneration in the form of a collection premium, which is a percentage of the sums recovered without constraint, and a proportion of the supplements added on in the event of enforced recovery. Finally, they set up their own offices and recruit their auxiliary staff themselves.

4When calculating the collection premium, the tax collectors of the first and second zones added on value added tax (VAT). The Commune of Seville lodged a complaint with the Tribunal Económico Administrativo Provincial de Sevilla, which rejected the complaint by a decision of 31 October 1988.

5An appeal against that decision was lodged with the Tribunal Superior de Justicia de Andalucía, which decided to stay the proceedings and refer the following questions to the Court for a preliminary ruling:

"(1) Must Article 4(1) and (4) of Directive 77/388/EEC be interpreted as meaning that the activity carried out by collectors constitutes, having regard to all its characteristics, professional services carried out independently, remunerated on that basis and consequently subject to the tax?

(2) If that activity is to be regarded as carried out on an independent basis, must it be considered non-taxable because it comprises activities or transactions in which those concerned engage as public authorities, in accordance with Article 4(5) of that directive?"

6Reference is made to the Report for the Hearing for a fuller account of the facts of the case, the procedure and the written observations submitted to the Court, which are mentioned or discussed hereinafter only in so far as is necessary for the reasoning of the Court.

Question 1

7Article 4(1) of the Sixth Directive provides as follows:

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

8The national court wishes to know what factors must be taken into account in order to decide whether an activity such as that of tax collectors is to be regarded as carried out independently within the meaning of that provision.

9In that regard, the first subparagraph of Article 4(4) states that:

"The use of the word 'independently' in paragraph 1 shall exclude employed and other persons from the tax in so far as they are bound to an employer by a contract of employment or by any other legal ties creating the relationship of employer and employee as regards working conditions, remuneration and the employer' s liability."

10The documents before the Court show that tax collectors do not receive a salary and are not bound to the Commune by a contract of employment. It must therefore be considered whether their legal relationship with the Commune nevertheless creates the relationship of employer and employee referred to in Article 4(4) of the directive.

11With regard, firstly, to working conditions, there is no relationship of employer and employee since the tax collectors themselves procure and organize independently, within the limits laid down by the law, the staff and the equipment and materials necessary for them to carry out their activities.

12That being so, the fact that in the performance of their functions tax collectors are tied to the local authority, which can give them instructions, and the fact that they are subject to disciplinary control by that authority are not decisive for the purpose of defining their legal relationship with the Commune for the purposes of Article 4(4) of the directive (see, with regard to disciplinary control, the judgment of the Court in Case 235/85 Commission v Netherlands [1987] ECR 1471, paragraph 14).

13With regard, secondly, to remuneration, there is no relationship of employer and employee since tax collectors bear the economic risk entailed in their activity in so far as their profit depends not only on the amount of taxes collected but also on the expenses incurred on staff and equipment in connection with their activity.

14With regard, finally, to employer' s liability, the fact that the Commune can be held liable for the conduct of tax collectors when they act as representatives of the public authority is not sufficient to establish the existence of a relationship of employer and employee.

15The decisive criterion for this purpose is the liability arising from the contractual relationships entered into by tax collectors in the course of their activity and their liability for any damage caused to third parties when they are not acting as representatives of the public authority.

16The reply to the first question must therefore be that Article 4(1) and (4) of the Sixth Directive must be interpreted as meaning that an activity such as that of tax collectors must be regarded as being carried out independently.

Question 2

17The second question concerns the interpretation of Article 4(5) of the Sixth Directive, the first subparagraph of which provides as follows:

"States, regional and local government authorities and other bodies governed by public law shall not be considered taxable persons in respect of the activities or transactions in which they engage as public authorities, even where they collect dues, fees, contributions or payments in connection with these activities or transactions."

18As the Court has held on numerous occasions, it is clear from that provision, when examined in the light of the aims of the directive, that two conditions must be fulfilled in order for the exemption to apply: the activities must be carried out by a body governed by public law and they must be carried out by that body acting as a public authority (judgments in Case 107/84 Commission v Germany [1985] ECR 2655, paragraph 11; Case 235/85 Commission v Netherlands, cited above, paragraph 21; Joined Cases 231/87 and 129/88 Comune de Carpaneto Piacentino and Others [1989] ECR 3233, paragraph 12).

19With regard to the first of those two conditions, the Court has already held in its judgment in Commission v Netherlands (at paragraph 21) that an activity carried on by a private individual is not excluded from the scope of VAT merely because it consists in the performance of acts falling within the prerogatives of the public authority.

20It follows that, if a commune entrusts the activity of collecting taxes to an independent third party, the exclusion from VAT provided for by the abovementioned provision is not applicable.

21The reply to the second question must therefore be that Article 4(5) of the Sixth Directive must be interpreted as meaning that that provision is not applicable if the activity of a public authority is not engaged in directly but is entrusted to an independent third party.

Costs

Costs

22The costs incurred by the Spanish Government and by the Commission of the European Communities, which have submitted observations to the Court, are not recoverable. As these proceedings are in the nature of a step in the proceedings pending before the national court, the decision on costs is a matter for that court.

Operative part

On those grounds,

THE COURT (Fifth Chamber),

in answer to the questions submitted to it by the Tribunal Superior de Justicia de Andalucía, by order of 11 June 1990, hereby rules:

1. Article 4(1) and (4) of the Sixth Directive must be interpreted as meaning that an activity such as that of a tax collector must be regarded as being carried out independently.

2. Article 4(5) of the Sixth Directive must be interpreted as meaning that it is not applicable if the activity of a public authority is not exercised directly but is entrusted to an independent third party.

OPINION OF MR ADVOCATE GENERAL TESAURO delivered on 4 June 1991 * Mr President, Members of the Court,

1The questions referred to the Court for a preliminary ruling by the Tribunal Superior de Justicia de Andalucía concern the interpretation of Article 4(1), (4) and (5) of the Sixth Council Directive (77/388/EEC) of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment (which I shall hereinafter refer to as 'the Sixth Directive')· The national court asks, in particular, whether under the provisions of the Sixth Directive the activities of a tax collector must be regarded as dependent or independent, and if independent, whether they must in any event be exempted from value added tax since they are activities engaged in as a 'public authority'.

I shall summarize the basic facts of the case below and refer to the Report for the Hearing for the details.

2A recent reform of the Spanish tax 2 system, in essence, gave responsibility for the collection of taxes — both State taxes and those of autonomous bodies — to the

* Original language: Iulian.

State finance authorities. As a consequence, the tax-collection activities entrusted to third parties were abolished. However, local authorities, including communes, may assume responsibility for the collection of certain taxes and appoint collectors and enforcement agents for that purpose.

The rules applicable to tax collectors are contained in the abovementioned provisions on the tax system, and in the Statute on the Organization of Tax Collection and Tax Collectors, provisions which give quite a clear picture of the nature of the activities in question. On the one hand, tax collectors are appointed by local authorities following competitions held for that purpose; they carry out their activities under the control of the treasuries of the local authorities which appointed them and they enjoy some rights and prerogatives peculiar to civil servants. On the other hand, however, tax collectors are required to provide a security of an amount fixed by the local authority on behalf of which they carry out their tax-collection activities; they appoint independently the auxiliary staff for their respective zones and, more generally, they organize their own undertakings and receive by way of remuneration a collection premium consisting of a proportion of the sums collected and a part of the supplements applied in the event of late payment.

3When the tax collectors of the first and second zones of the Commune of Seville calculated the amount of the collection premium, they added on VAT. The Commune contested the passing on of VAT before the Tribunal Económico-Adminis trativo Provincial, Seville, which, having regard to the administrative instructions laid down by the Directorate-General of Taxes, dismissed the action on the ground that tax collectors were to be regarded as independent professionals since they engaged in their activities regularly and independently, and for valuable consideration; they were therefore taxable persons for the purposes of VAT.

The Commune of Seville appealed against that decision to the Tribunal Superior de Justicia, Andalucía, which decided to refer the case to this Court for a preliminary ruling.

4With its first question, the national court seeks an interpretation of Article 4(1) and (4) of the Sixth Directive on VAT in order to determine whether the activities of tax collectors are carried out independently and are therefore chargeable to tax.

Let me remind the Court first of all that Article 4(1) defines a taxable person as anyone who 'independently' carries out any economic activity, whatever the purpose or results of that activity. I would add that the concept of an economic activity covers all activities of producers, traders and persons supplying services. Article 4(4) goes on to give a negative definition of the term 'independently' in that it excludes from the tax 'employed and other persons . .. in so far as they are bound to an employer by a contract of employment or by any other legal ties creating the relationship of employer and employee as regards working conditions, remuneration and the employer's liability'.

5In my view, tax collectors are certainly not employed persons or bound to the tax authorities by a contract of employment in the narrow sense. Therefore, in order to establish whether an activity of the kind described above can be considered to be exempt from VAT, it is necessary to determine whether the relationship between the tax collector and the tax authorities takes the form of a legal tie creating the relationship of employer and employee as regards working conditions, remuneration and liability.

It is for the national court to make such a finding, on the basis of the interpretation given by the Court of Justice of the provisions applicable in the present case, and consequently on the basis of the criteria to be applied in order to determine whether or not a given activity is carried out independently.

6With regard to working conditions, the first thing to be determined is whether the worker in question forms a part of the employer's organization — in the present case the communal administration — or whether he is free to organize his activity independently, and to what extent. The freedom to organize one's own work independently (to choose colleagues, the structures necessary for the performance of one's tasks and one's working hours), in conjunction with the fact of not forming part of the organization of an undertaking or an administrative authority, are characteristic features of an activity which is carried out independently.

On the other hand, while it is part of the relationship between employer and employee for an employer to be able to give a worker instructions and to have a certain control and disciplinary power over him, those circumstances are not incompatible with an activity which is carried out independently. In fact, a requirement to take instructions from another person can be clearly seen in relationships whose object is an activity which is indisputably independent, such as contracts for work; and as this Court has already had occasion to hold in connection with the professions of notaries and bailiffs, the fact of being subject 'to disciplinary control under the supervision of the public authorities (a situation to be found in other regulated professions) . .. is not a sufficient ground for regarding notaries and bailiffs as persons who are bound by legal ties to an employer within the meaning of Article 4(4)'.

With regard to the method of remuneration, the fact that pay (albeit fixed by law ) is according to the individual services and is therefore uncertain is clear evidence of the existence of an independent employment relationship. It is obvious that in a relationship of employer and employee, the economic risk can fall only on the employer. In the present case the tax collector bears the entire economic risk in so far as any taxes he fails to collect translates into a loss of earnings, which would not be the case if he were bound to the commune by a contract of employment since in that case he would still be paid whether or not he collected the taxes.

I now come, finally, to the issue of liability. In the present case a distinction must be made between liability arising as a result of the tax collector's own conduct and liability arising from the taxation, that is to say relating to the appropriateness of the tax. It is clear that the tax collector can be held liable only for the former and that, therefore, it must be determined, on the basis of the applicable national legislation, whether the worker in question is liable vis-à-vis third parties for his own acts and conduct.

From the foregoing considerations, it is clear that the term 'independently' in Article 4(4) of the Sixth Directive on VAT must be interpreted as meaning that an independent worker is one who does not form part of the organization of an undertaking, who has sufficient freedom to organize the human and material resources necessary for the activity in question to be carried out and who bears the economic risk of that activity.

7By its second question, the national court asks whether the activities carried out by a tax collector are to be regarded as exempt from VAT pursuant to the first activity carried on by a private individual is subparagraph of Article 4(5) of the Sixth not exempted from VAT merely because it Directive since they are activities engaged in consists in carrying out acts falling within 'as a public authority'. Under that provision, the prerogatives of the public authority'. bodies governed by public law are excluded That pronouncement is surely applicable to from tax in respect of the activities in which the present case. Moreover, the delegation they engage as public authorities. of tax collection to a third party, who provides such a service, for valuable consideration and on an independent basis, First of all, as the Court itself has pointed for the tax authority, produces a supply of out on a number of occasions, the Sixth services which, as such, is chargeable to tax Directive is characterized by its general pursuant to Article 4(1) of the Sixth scope and by the fact that all exemptions Directive on VAT.

must be expressly provided for and precisely defined. In particular, it is clear from the provision in question that two conditions In short, even when, as in the present case, must be fulfilled in order for the exemption it is not disputed that a given activity is, into apply: the activities must be carried out principle, part of the prerogatives of the by a body governed by public law and they public authority, the activity cannot be must be carried out by that body acting as a exempted under the first subparagraph of public authority. Article 4(5) of the Sixth Directive when it is not carried out directly by a body governed by public law, but is entrusted to a supplier However, as the Court held in Case 235/85, of services who is a third party vis-à-vis the cited above, the foregoing means that 'an body itself.

Conclusion

8In the light of the foregoing considerations, I therefore propose that the Court should give the following reply to the questions referred by the Tribunal Superior de Justicia de Andalucía:

(1) T he term 'independently' used in Article 4(4) of the Sixth Directive is to be interpreted as meaning that an independent activity is an activity carried out by a taxable person who is not organically part of an undertaking or an administrative authority, who has sufficient organizational freedom with regard to the human and material resources used in carrying out the activity in question and who bears the economic risk entailed in that activity.

(2) The first subparagraph of Article 4(5) of the Sixth Directive must be interpreted as meaning that an economic activity which consists in carrying out acts falling within the prerogatives of the public authority are not excluded from the scope of VAT when they are not exercised directly by a body governed by public law but are entrusted to a supplier of services who constitutes a third party vis-à-vis the body itself.

Notes

(1) OJ L 145, p. 1.

(2) Royal Decree No 1327 of 13 June 1986 (BOE of 2 July

(198) 6).

(3) Royal Decree No 1451 of 27 November 1987 (BOE of 28 November 1987).

(4) Article 193 of the amended law on the rules governing local authorities, Royal Decree No 781 of 18 April 1986 (BOE of 22 and 23 April 1986).

(5) Decree No 3286 of 19 December 1969 (BO del M° Hac. of 30 December 1969).

(6) Judgment in Case 235/85 Commission v Netherlands [1987] ECR 1471, paragraph 14. — See in this regard the judgment in Case 235/85, op cit., paragraph 14.

(8) Sec the judgments in Case 107/84 Commission v Germany [1985] ECR 2655, paragraph 11 ; Case 235/85, cited above, paragraph 21; and Joined Cases 231/87 and 129/88 Comune de Carpando Piacentino and Others [1989] ECR

(323) 3, paragraph 12. 9 — Judgment in Case 235/85, cited above, paragraph 21.