C-21/20 Balgarska natsionalna televizia

JUDGMENT OF THE COURT (Fourth Chamber)

16 September 2021 ( *1 )

(Reference for a preliminary ruling – Common system of value added tax (VAT) – Directive 2006/112/EC – Scope – Article 2(1)(c) – Supply of services for consideration – Exclusion of audiovisual media services offered to viewers, that are financed by a public subsidy and do not entail any payment on the part of viewers – Article 168 – Right of deduction – Taxable person carrying out both taxable transactions and transactions not falling within the scope of VAT)

In Case C‑21/20,

REQUEST for a preliminary ruling under Article 267 TFEU from the Administrativen sad Sofia-grad (Sofia Administrative Court, Bulgaria), made by decision of 31 December 2019, received at the Court on 17 January 2020, in the proceedings

Balgarska natsionalna televizia

v

Direktor na Direktsia ‘Obzhalvane i danachno-osiguritelna praktika’ – Sofia pri Tsentralno upravlenie na NAP,

THE COURT (Fourth Chamber),

composed of M. Vilaras, President of the Chamber, N. Piçarra, D. Šváby, S. Rodin and K. Jürimäe (Rapporteur), Judges,

Advocate General: M. Szpunar,

Registrar: M. Aleksejev, Head of Unit,

having regard to the written procedure,

after considering the observations submitted on behalf of:

Balgarska natsionalna televizia, by M. Raykov and I. Dimitrova, advokati,

the Spanish Government, by S. Jiménez García, acting as Agent,

the European Commission, initially by C. Georgieva and N. Gossement, and subsequently by C. Georgieva and L. Lozano Palacios, acting as Agents,

after hearing the Opinion of the Advocate General at the sitting on 25 March 2021,

gives the following

Judgment

Legal context and the dispute

1This request for a preliminary ruling concerns the interpretation of Article 2(1)(c), Article 132(1)(q) and Article 168 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1) (‘the VAT Directive’).

2The request has been made in proceedings between Balgarska natsionalna televizia (Bulgarian national television) (‘BNT’) and the Direktor na Direktsia ‘Obzhalvane i danachno-osiguritelna praktika’ – Sofia pri Tsentralno upravlenie na Natsionalnata agentsia za prihodite (Director of the Sofia ‘Appeals and Tax and Social Insurance Practice’ Directorate within the Central Administration of the National Revenue Agency (NAP), Bulgaria) (‘the Director’), concerning the scope of BNT’s right to deduct value added tax (VAT).

Legal context

European Union law

3Under Article 2(1)(c) of the VAT Directive:

‘The following transactions shall be subject to VAT:

…

the supply of services for consideration within the territory of a Member State by a taxable person acting as such.’

4Article 25(c) of that directive provides:

‘A supply of services may consist, inter alia, in one of the following transactions:

…

the performance of services in pursuance of an order made by or in the name of a public authority or in pursuance of the law.’

5Article 132(1)(q) of that directive is worded as follows:

‘Member States shall exempt the following transactions:

…

the activities, other than those of a commercial nature, carried out by public radio and television bodies.’

6Article 168 of that directive states:

‘In so far as the goods and services are used for the purposes of the taxed transactions of a taxable person, the taxable person shall be entitled, in the Member State in which he carries out these transactions, to deduct the following from the VAT which he is liable to pay:

the VAT due or paid in that Member State in respect of supplies to him of goods or services, carried out or to be carried out by another taxable person;

…’

7Articles 173 to 175 of the VAT Directive set out the rules governing the calculation of the proportional deduction.

8Article 173(1) of that directive provides:

‘In the case of goods or services used by a taxable person both for transactions in respect of which VAT is deductible pursuant to Articles 168, 169 and 170, and for transactions in respect of which VAT is not deductible, only such proportion of the VAT as is attributable to the former transactions shall be deductible.

The deductible proportion shall be determined, in accordance with Articles 174 and 175, for all the transactions carried out by the taxable person.’

Bulgarian law

9Article 2(1) of the Zakon za danak varhu dobavenata stoynost (Law on Value Added Tax) of 21 July 2006 (DV No 63 of 4 August 2006, p. 8), in the version applicable to the dispute in the main proceedings (‘the ZDDS’) states:

‘The following shall be subject to [VAT]:

1any taxable supply of goods or services made for consideration …’

10Article 3 of the ZDDS provides:

‘(1) Taxable person shall mean any person who carries out an independent economic activity, whatever the purposes and results of that activity.

…

(5) Non-taxable persons are the State, State authorities and local authorities for all activities and transactions which they carry out or provide in the exercise of State or local public authority, including cases in which they collect fees, contributions or duties for those activities or transactions. Excluded therefrom are:

1the following activities or transactions:

…

radio and television activity of a commercial nature …’

11Article 42(2) of the ZDDS provides:

‘Exempt transactions are:

…

2the activity of the Bulgarian national radio, [BNT] and the Bulgarian news agency, for which they receive payments from the State budget.’

12Under Article 69(1) of the ZDDS:

‘Where the goods and services are used for the purposes of taxable transactions carried out by a person registered for value added tax purposes, that person shall be entitled to deduct the following:

1the tax on the goods and services which were supplied or provided or are supplied or provided thereto by the supplier or service provider, this being a person likewise registered under this law …’

13Article 73(1) of the ZDDS states:

‘The registered person shall have the right to partial input tax deduction with regard to the goods or services which are used both for transactions in respect of which the person has a right to input tax deduction and for transactions or activities in respect of which the person has no such right.’

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

14BNT is a legal person, a national public provider of audiovisual media services. In accordance with the zakon za radioto i televisiyata (Law on Radio and Television) of 23 September 1998 (DV No 138 of 24 November 1998), in the version applicable to the dispute in the main proceedings (‘the ZRT’), BNT is responsible, in particular, for the provision of media services to all Bulgarian citizens.

15BNT does not receive any remuneration from its viewers.

16Its activity is financed, in accordance with the ZRT, by a subsidy from the State budget which is provided for the preparation, production and broadcasting of national and regional programmes. The amount of that subsidy is determined on the basis of a flat rate per programme hour fixed by the Council of Ministers. In addition, BNT receives subsidies with predetermined objectives, intended for the acquisition and in-depth renovation of fixed assets in accordance with a list which is approved annually by the Minister for Finance.

17The activity of BNT is also financed by self-generated income from advertising and sponsorship, income from additional activities linked to the broadcasting activity, donations and legacies, interests, and other income linked to the broadcasting activity.

18Until March 2015, BNT made a partial input tax deduction in respect of all of its purchases. Subsequently, it started to apply the ‘direct allocation’ method by examining, in isolation, for each purchase that it made, whether it was used or was capable of being used for an activity of a ‘commercial’ nature, such as entertainment programmes, films or sports programmes, or for an activity which is part of the ‘performance of the public service task’, such as the broadcasting of parliamentary sessions or the retransmission of religious ceremonies or election coverage. BNT also took the view that its activity of broadcasting television programmes did not constitute an ‘exempt transaction’ within the meaning of the ZDDS, but an activity which did not fall within the scope of VAT, and that it was only its activity of a ‘commercial’ nature that fell within the scope of that tax.

19In accordance with that method, BNT made a full input tax deduction in respect of the purchases relating to its activities of a ‘commercial’ nature. It made a partial input tax deduction in respect of the purchases which were used both for activities of a ‘commercial’ nature and for activities which were not of that nature.

20Following a tax audit covering the period from 1 September 2015 to 31 March 2016, the Bulgarian tax inspection authorities, by a tax adjustment notice of 14 December 2016, refused to recognise a right to a full deduction in respect of the purchases undertaken by BNT, and found that BNT owed for that period VAT amounting to 1 568 037.04 leva (BGN) (approximately EUR 801455), together with interest.

21According to those authorities, BNT’s advertising activity was taxable, whereas its programme broadcasting activity was an exempt transaction. BNT could not make a full input tax deduction since it was impossible to determine whether the purchases relating to its economic activity were intended for transactions subject to VAT or for transactions which, according to those authorities, were exempt from VAT. BNT could make a full input tax deduction in respect of those purchases only if the activities of broadcasting sports programmes, producing and broadcasting entertainment programmes and broadcasting foreign films were financed entirely by advertising revenue and not by subsidies from the State budget. That was not the position in the present case.

22By decision of 27 February 2017, the Director rejected the complaint lodged by BNT against the notification of tax liability of 14 December 2016.

23BNT then brought an action against that decision before the Administrativen sad Sofia-grad (Sofia Administrative Court, Bulgaria), the referring court.

24That court takes the view that, for the purposes of ruling on the dispute in the main proceedings, it is necessary to determine whether the activity of broadcasting programmes carried out by BNT as a public service provider to which specific tasks are assigned by the ZRT and which receives subsidies from the State budget constitutes a service supplied for consideration within the meaning of Article 2(1)(c) of the VAT Directive, but exempt from VAT under Article 132(1)(q) of that directive, or whether that activity does not constitute a taxable transaction falling within the scope of that directive. According to that court, the answer to that question will make it possible to establish whether such a broadcasting activity must be taken into account in order to determine the right to input tax deduction in respect of the taxable transactions of which the BNT is the recipient.

25The referring court adds that, although, in the judgment of 22 June 2016, Český rozhlas (C‑11/15, EU:C:2016:470), the Court examined the question whether the public broadcasting activity of the Czech national radio, for which the latter received fees paid by owners or possessors of a radio receiver, constitutes an activity supplied for consideration, the Court has not yet ruled on the activity of the public television provider financed by subsidies from the State budget.

26The referring court also states that, although, in its judgment of 27 March 2014, Le Rayon d’Or (C‑151/13, EU:C:2014:185), the Court ruled on the question whether a lump-sum payment paid by a national sickness insurance fund falls within the scope of VAT, no unequivocal answer can be inferred from that judgment for the purposes of the dispute in the main proceedings.

27In addition, if BNT’s activity were to be regarded as having a dual nature, namely that it included both exempt and taxable transactions, the referring court wishes to ascertain whether it is only the proportion of the input tax which may be regarded as being linked to the part of its activity of a ‘commercial’ nature that is deductible. Moreover, in such a situation, that court is uncertain what criteria should be used to determine the scope of the right to deduction.

28In those circumstances, the Administrativen sad Sofia-grad (Sofia Administrative Court) decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling:

Can the supply of audiovisual media services to viewers by the public television broadcaster be regarded as a service supplied for consideration within the meaning of Article 2(1)(c) of [the VAT Directive] if it is financed by the State in the form of subsidies, with the viewers paying no fees for the broadcasting, or does it not constitute a service supplied for consideration within the meaning of that provision and not fall within the scope of that Directive?

If the answer is that the audiovisual media services provided to viewers by the public television broadcaster fall within the scope of Article 2(1)(c) of [the VAT Directive], can it then be considered that exempt transactions for the purposes of Article 132(1)(q) of the Directive are involved, and is a national regulation which exempts this activity solely on the basis of the payment from the State budget received by the public television broadcaster, regardless of whether that activity is also of a commercial nature, permissible?

Is a practice which makes a full right of input tax deduction for purchases dependent not solely on the use of the purchases (for taxable or non-taxable activity), but also on the way in which those purchases are financed, namely on the one hand from self-generated income (advertising services inter alia), and on the other hand from State subsidisation, and which grants the right to full input tax deduction only for purchases financed from self-generated income and not for those financed through State subsidies, with the delimitation thereof being required, permissible pursuant to Article 168 of [the VAT Directive]?

If it is considered that the activity of the public television broadcaster consists of taxable and exempt transactions, having regard to its mixed financing, what is the scope of the right to input tax deduction in respect of those purchases and which criteria must be applied for the determination thereof[?]’

Consideration of the questions referred

The first question

29By its first question, the referring court asks, in essence, whether Article 2(1)(c) of the VAT Directive must be interpreted as meaning that the activity of a public national television provider, consisting in the supply of audiovisual media services to viewers, which is financed by the State in the form of subsidies and for which no fees for the broadcasting are payable by the viewers, constitutes a supply of services for consideration within the meaning of that provision.

30In that regard, it must be borne in mind that, in accordance with Article 2(1)(c) of the VAT Directive, which defines the scope of VAT, the supply of services for consideration within the territory of a Member State by a taxable person acting as such are to be subject to VAT.

31A supply of services is carried out ‘for consideration’, within the meaning of that provision, only if there is a legal relationship between the provider of the service and the recipient pursuant to which there is reciprocal performance, the remuneration received by the provider of the service constituting the actual consideration for an identifiable service supplied to the recipient. This is the case if there is a direct link between the service supplied and the consideration received (see, to that effect, judgments of 8 March 1988, Apple and Pear Development Council, C‑102/86, EU:C:1988:120, paragraphs 11, 12 and 16; of 22 June 2016, Český rozhlas, C‑11/15, EU:C:2016:470, paragraph 22; and of 22 November 2018, MEO – Serviços de Comunicações e Multimédia, C‑295/17, EU:C:2018:942, paragraph 39).

32As regards audiovisual media services supplied by a national public provider to viewers, which are financed by the State in the form of subsidies, and for which no fees are payable by the viewers, there is no legal relationship between that provider and those viewers, in the course of which there is an exchange of reciprocal performance, or direct link between those audiovisual media services and that subsidy (see, by analogy, judgment of 22 June 2016, Český rozhlas, C‑11/15, EU:C:2016:470, paragraph 23).

33First of all, it must be observed that, in the context of the provision of those services, that provider and those viewers are not linked by any contractual relationship or transaction in which a price was stipulated, or even by a voluntary legal commitment made by one party towards the other. Additionally, the access of those viewers to the audiovisual media services provided by that provider is free and the activity concerned generally benefits all potential viewers.

34Next, it should be noted that the subsidy and the subsidised activity are organised on the basis of the law. The grant of the subsidy, which is intended to finance, generally, the activities of the national public provider, consisting in preparing, producing and broadcasting national and regional programmes, and which is determined by reference to a flat rate per programme hour, is independent of the actual use, by the viewers, of the audiovisual media services provided, of the identity or of the actual number of viewers for each programme.

35In addition, as regards the referring court’s questions on the parallel that can be drawn between the situation at issue in the main proceedings and the situation in the case which gave rise to the judgment of 27 March 2014, Le Rayon d’Or (C‑151/13, EU:C:2014:185), it must be held that those situations are not comparable.

36The case which gave rise to that judgment concerned the taxable nature of a ‘healthcare lump sum’ paid by a national sickness insurance fund to residential care homes for the elderly for the supply of healthcare services to their residents, the calculation of which took account, in particular, of the number of residents hosted by each home and their dependency level. In that judgment, the Court held that a direct link existed between the supply of services provided by those establishments to their residents and the consideration received, namely the ‘healthcare lump sum’, so that such a lump sum payment constituted consideration for the supply of care services effected for consideration by one of those establishments to its residents and, as a result, fell within the scope of VAT. It stated, in that regard, that the fact that the direct beneficiary of the services in question is not the national sickness insurance fund which pays the lump sum but the person insured under it, is not such as to break the direct link between the supply of services made and the consideration received (judgment of 27 March 2014, Le Rayon d’Or, C‑151/13, EU:C:2014:185, paragraph 35).

37In the present case, there is no relationship between the State, which pays a subsidy from its budget in order to finance audiovisual media services, and the viewers, who benefit from those services, which would be analogous to that between a sickness fund and its insured. As has been noted in paragraph 33 of the present judgment, those services do not benefit persons who are likely to be clearly identified, but all potential viewers. In addition, the amount of the subsidy in question is determined by reference to a flat rate per programme hour, and without taking into account the identity or the number of users of the service provided.

38Lastly, no other conclusion can be drawn from Article 25(c) of the VAT Directive. Admittedly, pursuant to that provision, a supply of services may consist, inter alia, in the performance of services in pursuance of an order made by or in the name of a public authority or in pursuance of the law. However, as the Advocate General observed in points 35 and 36 of his Opinion, that provision, which merely states that a supply of services ‘may’ take such a form, cannot serve as a basis for subjecting to VAT supplies of services which are not carried out for consideration within the meaning of Article 2(1)(c) of that directive.

39In the light of all of the foregoing considerations, the answer to the first question referred is that Article 2(1)(c) of the VAT Directive must be interpreted as meaning that the activity of a public national television provider, consisting in the supply of audiovisual media services to viewers, which is financed by the State in the form of subsidies, and for which no fees for the broadcasting are payable by the viewers, does not constitute a service supplied for consideration within the meaning of that provision.

The second question

40The second question, which relates to the interpretation of Article 132(1)(q) of the VAT Directive, concerns the case where the activity referred to in the first question must be classified as a supply of services for consideration, within the meaning of Article 2(1)(c) of that directive, and seeks, in essence, to ascertain whether such a supply is exempt.

41First, it follows from the answer to the first question that such an activity does not come under the concept of a ‘supply of services for consideration’ within the meaning of Article 2(1)(c) of that directive, with the result that it does not constitute a taxable transaction within the meaning of that directive.

42Second, it should be recalled that Article 132(1)(q) of the VAT Directive, which provides an exemption for ‘activities of public radio and television bodies other than those of a commercial nature’, is applicable only on the condition that those activities should be ‘subject to VAT’ within the meaning of Article 2 of that directive (see, to that effect, judgment of 22 June 2016, Český rozhlas, C‑11/15, EU:C:2016:470, paragraph 32).

43In those circumstances, there is no need to answer the second question.

The third and fourth questions

44As a preliminary point, it should be observed that it is apparent from the information in the documents before the Court that the third and fourth questions, which relate to the right to input tax deduction, concern the case where the activity of a public national television provider, consisting in the supply of audiovisual media services to viewers, which is financed by the State in the form of subsidies, and for which no fees for the broadcasting are payable by the viewers, must be classified as a service supplied for consideration and, therefore, as a taxable transaction within the meaning of Article 2(1)(c) of the VAT Directive. The referring court thus seeks clarification regarding the scope of the right to input tax deduction paid by a taxable person carrying out both taxable and exempt transactions.

45It is apparent from the answer to the first question that that activity does not constitute a service supplied for consideration within the meaning of that provision.

46However, it should be observed that, according to settled case-law, in the procedure laid down by Article 267 TFEU providing for cooperation between national courts and the Court of Justice, it is for the latter to provide the national court with an answer which will be of use to it and enable it to determine the case before it. To that end, the Court may have to reformulate the questions referred to it (judgments of 5 March 2020, X (VAT exemption for telephone consultations), C‑48/19, EU:C:2020:169, paragraph 35, and of 25 November 2020, SABAM, C‑372/19, EU:C:2020:959, paragraph 20 and the case-law cited).

47In those circumstances, and in order to provide the referring court with a useful and complete answer, it is necessary to reformulate the third and fourth questions, which it is appropriate to examine together, as meaning that, by those questions, the referring court seeks, in essence, to ascertain whether Article 168 of the VAT Directive must be interpreted as meaning that the public national television provider is entitled to deduct, in whole or in part, input tax paid for purchases of goods and services used for the purposes of its activities which give rise to the right of deduction and its activities which do not fall within the scope of VAT.

48In that regard, it must be observed that, according to settled case-law of the Court, the right of taxable persons to deduct from the VAT which they are liable to pay the VAT due or paid on goods purchased and services received by them as inputs is a fundamental principle inherent in the common system of VAT established by EU legislation. As the Court has repeatedly held, the right of deduction is an integral part of the VAT scheme and in principle may not be limited (see, to that effect, judgments of 15 September 2016, Senatex, C‑518/14, EU:C:2016:691, paragraphs 26 and 37 and the case-law cited, and of 18 March 2021, A. (Exercise of the right of deduction), C‑895/19, EU:C:2021:216, paragraph 32).

49The rules governing deduction introduced by the VAT Directive are meant to relieve the trader entirely of the burden of the VAT due or paid in the course of all his or her economic activities. The common system of VAT consequently ensures complete neutrality of taxation of all economic activities, whatever the purpose or results of those activities, provided that they are themselves subject to VAT (judgments of 10 November 2016, Baštová, C‑432/15, EU:C:2016:855, paragraph 42 and the case-law cited, and of 18 March 2021, A. (Exercise of the right of deduction), C‑895/19, EU:C:2021:216, paragraph 33).

50In that regard, in the first place, under Article 168 of the VAT Directive, in order to have a right of deduction, it is necessary, first, that the person concerned be a ‘taxable person’, within the meaning of that directive, and, second, that the goods or services relied on to confer entitlement to that right be used by the taxable person for the purposes of his or her taxed output transactions, and that, as inputs, those goods or services be supplied by another taxable person (judgments of 5 July 2018, Marle Participations, C‑320/17, EU:C:2018:537, paragraph 26 and the case-law cited, and of 3 July 2019, The Chancellor, Masters and Scholars of the University of Cambridge, C‑316/18, EU:C:2019:559, paragraph 23).

51On the other hand, where goods or services acquired by a taxable person are used for purposes of transactions that are exempt or do not fall within the scope of VAT, no output tax can be collected or input tax deducted (see, to that effect, judgments of 14 September 2017, Iberdrola Inmobiliaria Real Estate Investments, C‑132/16, EU:C:2017:683, paragraph 30, and of 3 July 2019, The Chancellor, Masters and Scholars of the University of Cambridge, C‑316/18, EU:C:2019:559, paragraph 24).

52It follows from that case-law that it is the use of the goods and services acquired as inputs for the purposes of taxable transactions that justifies the input tax deduction. In other words, the way in which such purchases are financed, whether by means of revenue derived from economic activities or subsidies received from the State budget, is irrelevant for the purposes of determining the right of deduction.

53In the second place, in so far as a taxable person uses the goods and services purchased as inputs both for transactions giving rise to the right to deduct and for transactions which do not fall within the scope of VAT, it should also be added that it follows from Articles 173 to 175 of the VAT Directive that the calculation of a deductible proportion to determine the amount of deductible VAT is, in principle, reserved solely to goods and services used by a taxable person to carry out both economic transactions which give rise to a right to deduct and those which do not (see, to that effect, judgments of 14 December 2016, Mercedes Benz Italia, C‑378/15, EU:C:2016:950, paragraph 34, and of 25 July 2018, Gmina Ryjewo, C‑140/17, EU:C:2018:595, paragraph 57), such as exempt transactions (see, to that effect, judgment of 29 April 2004, EDM, C‑77/01, EU:C:2004:243, paragraph 73).

54However, to the extent that input VAT relating to expenditure incurred by a taxpayer is connected with activities which, in view of their non-economic nature, do not fall within the scope of the VAT Directive, it cannot give rise to a right to deduct (see, to that effect, judgment of 13 March 2008, Securenta, C‑437/06, EU:C:2008:166, paragraph 30). Such activities must be excluded from the calculation of the deductible proportion referred to in Articles 173 to 175 of the VAT Directive (see, to that effect, judgment of 29 April 2004, EDM, C‑77/01, EU:C:2004:243, paragraph 54 and the case-law cited).

55In that regard, it is apparent from the Court’s case-law that the determination of the methods and criteria for apportioning input VAT between economic and non-economic activities lies in the discretion of the Member States. When exercising that discretion, the Member States must have regard to the aims and broad logic of that directive and must, on that basis, provide for a method of calculation which objectively reflects the part of the input expenditure actually to be attributed, respectively, to those two types of activity (judgments of 6 September 2012, Portugal Telecom, C‑496/11, EU:C:2012:557, paragraph 42, and of 25 July 2018, Gmina Ryjewo, C‑140/17, EU:C:2018:595, paragraph 58), in order to ensure that deduction is made only for that part of the VAT proportional to the amount relating to transactions giving rise to the right to deduct (see, to that effect, judgments of 13 March 2008, Securenta, C‑437/06, EU:C:2008:166, paragraph 37, and of 12 November 2020, Sonaecom, C‑42/19, EU:C:2020:913, paragraph 47).

56When exercising that discretion, the Member States have the right to apply any appropriate formula, such as a transaction formula, without being required to restrict themselves to only one particular method (see, to that effect, judgment of 13 March 2008, Securenta, C‑437/06, EU:C:2008:166, paragraph 38).

57In the light of all the foregoing considerations, the answer to the third and fourth questions referred is that Article 168 of the VAT Directive must be interpreted as meaning that the national public television provider is entitled to deduct input VAT for purchases of goods and services used for the purposes of its activities which give rise to the right to deduct and that it is not entitled to deduct input VAT for purchases of goods and services used for the purposes of its activities which do not fall within the scope of VAT. It is for the Member States to determine the methods and criteria for apportioning input VAT between taxable transactions and transactions not falling within the scope of VAT, taking into account the aims and broad logic of that directive in compliance with the principle of proportionality.

Costs

58Since 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 (Fourth Chamber) hereby rules:

Article 2(1)(c) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that the activity of a public national television provider, consisting in the supply of audiovisual media services to viewers, which is financed by the State in the form of subsidies, and for which no fees for the broadcasting are payable by the viewers, does not constitute a service supplied for consideration within the meaning of that provision.

Article 168 of Directive 2006/112 must be interpreted as meaning that the national public television provider is entitled to deduct the input value added tax (VAT) for purchases of goods and services used for the purposes of its activities which give rise to the right to deduct and that it is not entitled to deduct input VAT for purchases of goods and services used for the purposes of its activities which do not fall within the scope of VAT. It is for the Member States to determine the methods and criteria for apportioning input VAT between taxable transactions and transactions not falling within the scope of VAT, taking into account the aims and broad logic of that directive in compliance with the principle of proportionality.

Signatures

[Signatures]

( *1 ) Language of the case: Bulgarian.

OPINION OF ADVOCATE GENERAL

SZPUNAR

delivered on 25 March 2021 ¹

(Reference for a preliminary ruling – Value added tax (VAT) – Directive 2006/112/EC – Article 2(1)(c) – Scope – Supply of services effected for consideration – Article 132(1)(q) – Exemption – Television broadcasting financed partly from the State budget and partly from commercial activities – Right to deduct tax due)

Introduction

1The Member States use two basic methods for financing public radio and television broadcasting: either by introducing a special levy, usually linked to the possession of a radio or television receiver, with the revenue being earmarked for public service broadcasting (licence fee), or directly from the State budget. ² Some Member States combine these two methods, supplementing the revenue from the levy, which is considered insufficient given the public service broadcaster’s socio-political tasks, with direct subsidies from the State budget.

2The present case concerns the question of how those methods for financing public service broadcasters should be classified from the point of view of value added tax (‘VAT’) and the effects of that classification on the position of those broadcasters as taxable persons.

3The Court has already had occasion to rule that public broadcasting activities funded by a compulsory statutory fee paid by owners or possessors of a radio receiver and carried out by a public service broadcaster created by law do not constitute a supply of services ‘effected for consideration’ within the meaning of VAT provisions and therefore fall outside their scope. ³ The question arises, however, as to whether the same treatment should apply to a broadcaster financed by subsidies from the general State budget.

4The Court will also have the opportunity to develop its case-law in this area by considering questions on the right of a public service broadcaster to deduct the tax due or paid in respect of goods and services it acquires for the purposes of its activities.

Legal framework

EU law

5Pursuant to Article 2(1)(c) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax ⁴:

‘The following transactions shall be subject to VAT:

…

the supply of services for consideration within the territory of a Member State by a taxable person acting as such;

…’

6Article 132(1)(q) of that directive states:

‘Member States shall exempt the following transactions:

…

the activities, other than those of a commercial nature, carried out by public radio and television bodies.

…’

7Pursuant to Article 168 of the directive:

‘In so far as the goods and services are used for the purposes of the taxed transactions of a taxable person, the taxable person shall be entitled, in the Member State in which he carries out these transactions, to deduct the following from the VAT which he is liable to pay:

the VAT due or paid in that Member State in respect of supplies to him of goods or services, carried out or to be carried out by another taxable person;

the VAT due in respect of transactions treated as supplies of goods or services pursuant to Article 18(a) and Article 27;

the VAT due in respect of intra-Community acquisitions of goods pursuant to Article 2(1)(b)(i);

the VAT due on transactions treated as intra-Community acquisitions in accordance with Articles 21 and 22;

the VAT due or paid in respect of the importation of goods into that Member State.’

8Finally, pursuant to the first subparagraph of Article 173(1) of Directive 2006/112:

‘In the case of goods or services used by a taxable person both for transactions in respect of which VAT is deductible pursuant to Articles 168, 169 and 170, and for transactions in respect of which VAT is not deductible, only such proportion of the VAT as is attributable to the former transactions shall be deductible.’

Bulgarian law

9Under Article 6(3) of the Zakon za radioto i televiziata (Law on Radio and Television, ‘the ZRT’), Balgarska natsionalna televizia (‘BNT’) is a legal person, a national public provider of audiovisual media services. Pursuant to Article 70(3) of that law, BNT is financed by subsidies from the State budget, income from advertising and similar sources, and also from other sources.

10Directive 2006/112 has been transposed into Bulgarian law by the Zakon za danak varhu dobavenata stoynost (Law on Value Added Tax). Under Article 42 of that law, BNT activities, inter alia, are exempt from VAT to the extent that they are financed from the State budget.

Facts, procedure and questions referred

11BNT is a Bulgarian public television broadcaster, that is to say, an entity whose activities could in principle be covered by the exemption laid down in Article 132(1)(q) of Directive 2006/112. BNT is financed partly by a subsidy from the State budget and partly by income from its own commercial activities. Those activities include both the broadcasting of paid-for content, in particular advertising, and activities other than broadcasting such as the sale of intellectual property rights or equipment rental.

12The dispute in the main proceedings concerns BNT’s right to deduct the tax paid or due in respect of goods and services BNT acquires for the purposes of its activities. The dispute stems from the different ways in which BNT and the Bulgarian tax authorities view BNT’s activities from a VAT perspective. In the view of BNT, a subsidy from the State budget cannot be regarded as payment for broadcasting and is therefore completely outside the scope of the VAT system. This leads BNT to conclude that it is entitled to deduct in full the tax due in respect of goods and services used for the purposes of its activities financed both from the subsidy and from commercial revenue. The tax authorities, on the other hand, take the view that BNT’s activities, in so far as they are financed from the State budget, are subject to the exemption provided for in Article 132(1)(q) of Directive 2006/112, and as a result BNT has the right to deduct tax solely on a pro rata basis, to the extent that BNT’s broadcasting activities are financed by revenue from commercial activities.

13That dispute resulted in the tax decision of 14 December 2016, in which the tax authority ordered the amount of tax deducted by BNT which was due for the period from 1 September 2015 to 31 March 2016 to be corrected. BNT appealed against that decision, which was dismissed by the tax authority (a party to the main proceedings) by decision of 27 February 2017. BNT lodged an appeal against the latter decision before the referring court.

14In those circumstances, the Administrativen sad Sofia-grad (Sofia City Administrative Court, Bulgaria) decided to stay the proceedings and refer the following questions to the Court of Justice for a preliminary ruling:

Can the supply of audiovisual media services to viewers by the public television broadcaster be regarded as a service supplied for consideration within the meaning of Article 2(1)(c) of the Directive [2006/112] if it is financed by the State in the form of subsidies, with the viewers paying no fees for the broadcasting, or does it not constitute a service supplied for consideration within the meaning of that provision and not fall within the scope of that directive?

If the answer is that the audiovisual media services provided to viewers by the public television broadcaster fall within the scope of Article 2(1)(c) of Directive 2006/112/ЕC, can it then be considered that exempt supplies for the purposes of Article 132(1)(q) of the Directive [2006/112] are involved, and is a national regulation which exempts this activity solely on the basis of the payment from the State budget received by the public television broadcaster, regardless of whether that activity is also of a commercial nature, permissible?

Is a practice which makes a right to deduct in full the tax due or paid on purchases dependent not solely on the use of the purchases (for taxable or non-taxable activity), but also on the way in which those purchases are financed, namely on the one hand from self-generated income (advertising services inter alia), and on the other hand from State subsidies, and which grants the right to deduct in full the tax due or paid only on purchases financed from self-generated income and not for those financed through State subsidies, with the delimitation thereof being required, permissible pursuant to Article 168 of Directive 2006/112/EC?

If it is considered that the activity of the public television broadcaster consists of taxable and exempt supplies, having regard to its mixed financing, what is the scope of the right to deduct the tax due or paid in respect of those purchases and which criteria must be applied for the determination thereof?’

15The request for a preliminary ruling was received by the Court on 17 January 2020. Written observations were submitted by BNT, the Spanish Government and the European Commission. BNT and the Commission replied in writing to the Court’s questions.

Analysis

16The referring court referred four questions for a preliminary ruling. I will consider them in the order in which they were put.

First question referred

17By its first question, the referring court seeks to determine whether Article 2(1)(c) of Directive 2006/112 must be interpreted as meaning that the activities of a public television broadcaster consisting in the supply of television media services, in so far as they are financed by a subsidy from the State budget, constitute a supply of services for consideration within the meaning of that provision.

Preliminary observations

18The referring court’s doubts on this point relate to the judgment given on 23 April 2018 by the Varhoven Administrativen Sad (Supreme Administrative Court, Bulgaria) in which that court ruled that BNT’s activities are covered by the common system of VAT. The Varhoven Administrativen Sad (Supreme Administrative Court) based its judgment, in particular, on Article 25(c) of Directive 2006/112, pursuant to which a supply of services within the meaning of that directive may consist, inter alia, in the performance of services in pursuance of an order made by or in the name of a public authority or in pursuance of the law. ⁵ According to that court, this is the case with BNT’s activities, which are carried out in pursuance of the law. The Varhoven Administrativen Sad (Supreme Administrative Court) referred to the Court’s judgment in Le Rayon d’Or. ⁶ At the same time, it found that in view of the differences in the way BNT is financed as compared to public broadcasters financed from a licence fee, the Court’s judgment in Český rozhlas did not apply to BNT. ⁷

19The position of the tax authorities in the main proceedings is in line with the abovementioned judgment of 23 April 2018.

20The question whether the conclusions of the Český rozhlas judgment ⁸ are applicable to a public broadcaster financed by a subsidy from the State budget is central to answering the first question referred in the present case. I shall therefore briefly summarise that judgment.

Český rozhlas judgment

21In the Český rozhlas judgment, ⁹ the Court first reiterated its previous case-law, according to which a supply of services is effected ‘for consideration’ within the meaning of Article 2(1) of Directive 77/388/EEC, ¹⁰ and hence is taxable, only if there is a legal relationship between the provider of the service and the recipient pursuant to which there is reciprocal performance, the remuneration received by the provider of the service constituting the value actually given in return for the service supplied to the recipient. ¹¹ Therefore, according to the Court’s case-law, the notion of the ‘supply of services effected for consideration’, within the meaning of the abovementioned Article 2(1) of Directive 77/388, requires the existence of a direct link between the service provided and the consideration received. ¹²

22Subsequently, the Court found that there exists no similar relationship between a public broadcaster financed by a licence fee and the persons liable to pay that fee, since, first, that obligation is linked not to the actual use of the services of the public service broadcaster, but solely to possession of a radio receiver, and, secondly, access to those services is in not subject to payment of the radio fee. Therefore, the fee does not constitute payment for the service provided by the public broadcaster. ¹³

23The Court also rejected the Czech Government’s argument based on the existence of such a legal relationship between a public broadcaster and the State which provides it with financing through the establishment of the obligation to pay the licence fee. ¹⁴

24Similarly, the Court noted that the judgment in Le Rayon d’Or ¹⁵ cannot be applied to a public service broadcaster financed from a licence fee. The Court pointed out that in the Le Rayon d’Or case, a direct link existed between the supply of services and the consideration received, even if that consideration was in the form of a lump sum, and that therefore such a lump sum payment constituted consideration for the supply of services effected for consideration and, as a result, fell within the scope of VAT. By contrast, in the case of a public service broadcaster financed from a licence fee, there is no such direct link. ¹⁶

25Accordingly, the Court held that public broadcasting activities, such as those at issue in the Český rozhlas case, funded by a compulsory statutory charge paid by owners or possessors of a radio receiver and carried out by a radio broadcasting company created by law, do not constitute a supply of services ‘effected for consideration’ within the meaning of Article 2(1) of Directive 77/388 and therefore fall outside the scope of that directive. ¹⁷

Application to the present case

26I am of the opinion that a similar ruling should be adopted with respect to a public broadcaster financed by a subsidy from the State budget. Such a broadcaster does not benefit from a special fee paid by those who possess television receivers, but instead receives a subsidy directly from the State budget to finance the tasks entrusted to it by law.

27This does not, however, fundamentally affect the analysis of the activities of such a broadcaster from the point of view of VAT. Indeed, that subsidy does not constitute compensation for the services provided by a public service broadcaster, but is instead a way of financing a certain type of public service. The granting of such a subsidy or the provision of different means of financing is a necessary and inherent condition for allocating those public services. In other words, we are not dealing here with two performances which are functionally independent: the service provided by the public broadcaster and the remuneration paid by the State. Rather, we are dealing here with an intervention by the State, which organises a public service in the form of radio or television broadcasting by entrusting it to a public service broadcaster and, at the same time, ensures the financing of this service by, for instance, providing a subsidy to the broadcaster. From that point of view, such a broadcaster is not fundamentally different from public institutions such as schools, the army or the police. ¹⁸

28Thus, just as between a public service broadcaster and the persons liable to pay the licence fee, there is no legal relationship between a public service broadcaster financed from a subsidy and the State under which there would be reciprocal performance within the meaning of the Court’s case-law on the scope of application of the common system of VAT. ¹⁹ In so far as there is a direct relationship between the service provided by a public service broadcaster and the subsidy it receives, it is not a relationship between two performances, but an inseparable and indispensable link between the performance of a particular public service and its financing.

29Therefore, the solution adopted by the Court in the Le Rayon d’Or case ²⁰ cannot be applied to a public service broadcaster financed by a subsidy from the State budget, since that case concerned services provided to specific recipients in return for which the service provider received remuneration which, although in the form of a lump sum and paid by a person other than the recipient of the services, constituted consideration.

30For these reasons, I share the view expressed by both BNT and the Spanish Government that a subsidy from the State budget intended to finance the activities of a public television broadcaster does not constitute remuneration and, in so far as they are financed by that subsidy, these activities do not constitute a supply of services for consideration within the meaning of Article 2(1)(c) of Directive 2006/112.

31Admittedly, there may be cases where the State purchases certain services from a public service broadcaster for consideration within the meaning of Article 2(1)(c) of Directive 2006/112. However, these would have to be specific cases where a public service broadcaster provides services that go beyond the ordinary tasks entrusted to it by law, and the remuneration for those services would have to be closely linked to their performance and reflect their scope and value, such that the remuneration in question could be considered to be the price of the services provided, since that is the price which is the taxable amount for VAT pursuant to Article 1(2) of Directive 2006/112. ²¹

32On the other hand, a general subsidy from the State budget intended to cover the operating costs of a public service broadcaster, which are defined in general terms, does not meet those criteria. I do not, therefore, agree with the Commission’s view expressed in its observations that the subsidy to BNT could be regarded as remuneration for the services provided by that broadcaster simply because it is calculated in proportion to broadcasting time. The manner in which the amount of the subsidy is calculated does not affect the essence of the subsidy, which is a means of financing the public tasks performed by the broadcaster rather than consideration for the services it provides. The classification of a taxable person’s activities for VAT purposes should be based on the essential characteristics of those activities, including the manner in which they are financed, if that financing has a bearing on that classification, rather than on the manner in which the amount of financing is calculated.

Article 25(c) of Directive 2006/112

33The above conclusions that the activities of a public service broadcaster are not covered by the common system of VAT are not undermined by Article 25(c) of Directive 2006/112.

34That provision is contained in Title IV of the directive, entitled ‘Taxable transactions’. Title IV contains the definitions of the taxable transactions listed in Article 2(1) of Directive 2006/112. Chapter 3 of that title concerns the supply of services. A general definition of supply of services is contained in Article 24(1) of the directive. The definition is open-ended as it stipulates that a supply of services is any transaction which does not constitute a supply of goods. Further provisions contained in Chapter 3 complete and clarify this definition and also introduce the possibility of certain derogations for Member States.

35Article 25 of Directive 2006/112 clarifies that a supply of services may consist, inter alia, in three types of activities with respect to which it is not intuitively obvious that they fall within the concept of supply of services. These include the assignment of intangible property (Article 25(a)), the obligation to refrain from an act, or to tolerate an act or situation (Article 25(b)), and finally the performance of services in pursuance of an order made by or in the name of a public authority or in pursuance of the law (Article 25(c)). The word ‘may’ used in that provision does not imply an optional power for the Member States to regard the activities in question as supplies of services or not, ²² but a statement that a supply of services may in certain situations take the form of one of those activities.

36Article 25 of the directive does not, therefore, extend the definition of the supply of services but merely clarifies, in case of doubt, that certain activities constitute the supply of services. Still, pursuant to Article 2(1)(c) of Directive 2006/112, a supply of services is subject to VAT only if it is made for consideration within the meaning of the latter provision. This condition applies to all transactions which are supplies of services, including those listed in Article 25. Thus, the assignment of intangible property, the obligation to refrain from an act, or to tolerate an act or situation and the performance of services in pursuance of an order made by or in the name of a public authority or in pursuance of the law are subject to VAT in so far as they are carried out for consideration within the meaning of Article 2(1)(c) of that directive.

37Therefore, Article 25(c) of Directive 2006/112 cannot serve as a basis for making services provided by a public service broadcaster subject to VAT if the manner in which those services are financed does not allow them to be treated as a supply of services for consideration.

38I therefore propose that the answer to the first question referred should be that Article 2(1)(c) of Directive 2006/112 must be interpreted as meaning that the activities of a public television broadcaster consisting in the supply of television media services, in so far as they are financed by subsidies from the State budget, do not constitute a supply of services for consideration within the meaning of that provision.

Second question referred

39By its second question, the referring court seeks to determine, in essence, whether the services provided by a public broadcaster can be regarded as services exempt from VAT under Article 132(1)(q) of Directive 2006/112 on the ground that they are financed by subsidies from the State budget and to the extent that they are financed in this manner.

40The referring court asks this question in the event that the answer to the first question is that the services of a public broadcaster financed by subsidies from the State budget are deemed to be subject to VAT. In my opinion, however, this question is also worth answering even if the answer to the first question is as I have proposed, since irrespective of whether the activities of a public service broadcaster are deemed to be outside the scope of VAT or exempt from VAT, the question remains to what extent the broadcaster in question is entitled to deduct the input tax paid or due. This is the subject of the third and fourth questions, and the analysis of the second question will make it possible to distinguish between the activities of a public service broadcaster carried out in the public interest ²³ and its commercial activities.

Commercial activities of public service broadcasters

41Article 132(1)(q) of Directive 2006/112 provides that ‘the activities, other than those of a commercial nature, carried out by public radio and television bodies’ are to be exempt from VAT. Moreover, in accordance with the case-law of the Court discussed above, ²⁴ as well as with my proposed answer to the first question, services provided by public broadcasters (public radio and television bodies) are not subject to VAT to the extent that they cannot be regarded as being supplied for consideration. However, the transactions carried out by those broadcasters in the course of their ‘commercial activities’ are subject to VAT (that is to say, they are taxable and not exempt from that tax). Therefore, the correct application of the common system of VAT to the transactions carried out by those broadcasters requires that the meaning of ‘commercial activities’ be determined.

42Neither Article 132(1)(q) of Directive 2006/112 nor any other provision of that directive defines the notion of ‘commercial activities’. In particular, that notion should not be confused with the notion of ‘economic activity’ as defined in Article 9(1) of the directive, since ‘economic activity’ also covers exempt transactions. The definition of the notion of ‘commercial activities’ should therefore be constructed on the basis of the classification presented in, and the purposes of, Article 132(1)(q) of Directive 2006/112.

43First of all, in my opinion, only transactions carried out for consideration within the meaning of Article 2 of Directive 2006/112 should be regarded as commercial activities. Since the commercial activities of public service broadcasters constitute an exception to the general rule that the activities of such broadcasters are exempt from VAT, they must consist in taxable transactions, that is to say, transactions carried out for consideration, as only such transactions can be covered by the exemption. As a result, services provided by public service broadcasters, which, due to the manner in which they are financed, cannot be regarded as provided for consideration, do not fall within the notion of ‘commercial activities’. In other words, the activities of a public service broadcaster financed by a subsidy from the State budget cannot be regarded as its commercial activities within the meaning of Article 132(1)(q) of Directive 2006/112.

44The core activity of radio and television broadcasters is broadcasting. ²⁵ In the case of public service broadcasters, that activity is often financed from two types of sources. The first is public financing, whether in the form of a licence fee, as in Český rozhlas, ²⁶ or in the form of a subsidy, as in the present case. The second source is the broadcasting of advertising and other ‘audiovisual commercial communications’ (sponsorship, teleshopping and product placement), to use the terminology of Directive 2010/13/EU, ²⁷ or their radio equivalents.

45To the extent that such broadcasts are made on a paid basis, which they generally are since that is their role, they constitute supplies of services for consideration within the meaning of Article 2(1)(c) of Directive 2006/112 and fall within the scope of commercial activities of public service broadcasters within the meaning of Article 132(1)(q) of that directive. Therefore, they are in principle taxable, with the taxable amount being the price that advertisers pay for the broadcasting of their content.

46It is clear, however, that the revenue from those broadcasts is used to cover not only their costs, which are in any case minimal in relation to the total operating costs of radio or television broadcasters. The purpose of advertising and similar paid-for communications is to finance the broadcasters’ core activity of broadcasting programmes, which covers, broadly speaking, all content with the exception of commercial communications, where the broadcaster does not charge viewers or listeners for the broadcasting of that content. Therefore, the question arises as to how the broadcasting of those programmes by public service broadcasters, to the extent that it is financed by revenue from commercial communications, should be treated from the point of view of VAT.

47In the case of commercial broadcasters financed entirely by revenue from paid-for commercial communications, all of their activities, that is to say, both the broadcasting of those paid-for communications and the broadcasting of other content, are of a uniform nature. Accordingly, for the purposes of VAT rules, the cost of the entirety of their broadcasting activities is deemed to be the cost of taxable transactions, which are services consisting in the broadcasting of paid-for commercial communications. ²⁸

48In the case of public service broadcasters, the situation is more complicated. First, they are usually financed partly from public funds (in the form of a licence fee or subsidy) and therefore, in accordance with the Court’s existing case-law ²⁹ and my proposed answer to the first question, their activities in that part are not taxable. Secondly, even to the extent that their activities are taxable, they are in principle exempt under Article 132(1)(q) of Directive 2006/112, except for commercial activities. The question, therefore, is whether the broadcasting of programmes other than paid-for commercial communications, to the extent that it is financed from the proceeds of those communications, should be classified as the commercial activities of public service broadcasters.

Rules on State aid

49In the system of EU law, the Communication from the Commission on the application of State aid rules to public service broadcasting ³⁰ (‘the Commission Communication’) regulates in detail the distinction between the activities of public service broadcasters in the public interest and their commercial activities. The Communication indicates that in the Commission’s view, commercial activities should be considered primarily to include the broadcasting of paid-for commercial communications, e-commerce activities and similar services ³¹ as well as services for which the broadcaster charges fees to its audience. By contrast, the free-of-charge broadcasting of other content constitutes, or in any event may constitute, public interest activities. ³²

50If these criteria were to be applied under Article 132(1)(q) of Directive 2006/112, it would mean that only the broadcasting of paid-for commercial communications would be a taxable activity, while all other broadcasting activities would either not be taxable or would be exempt as public interest activities.

51However, it should be borne in mind that the Commission Communication does not serve the same purposes as Directive 2006/112, and in particular Article 132(1)(q) thereof. The purpose of the Communication is, on the one hand, to give Member States freedom to define the public service remit ³³ and, on the other hand, to prevent anti-competitive behaviour such as overcompensation for the costs of that remit and cross-subsidisation of commercial activities. ³⁴ Financing the public service remit with proceeds from commercial activities is not, however, problematic. In terms of those purposes, it is reasonable to narrowly define the scope of activities considered commercial.

52By contrast, the purpose of Article 132(1)(q) of Directive 2006/112 is, on the one hand, to reduce the costs of activities in the public interest by exempting them from VAT and, on the other hand, to avoid distortions of competition which could result from exempting activities carried out in competition with private broadcasters. In order to achieve those objectives, it is not necessary to define the meaning of ‘commercial activities’ of public service broadcasters as narrowly as in the Commission Communication. Indeed, from the point of view of competition, it is sufficient that the activities of those broadcasters are taxed in respect of the services they provide for consideration, that is to say, broadcasting commercial communications. This ensures that those broadcasters operate on the market on an equal footing with private broadcasters. On the other hand, classifying the broadcasting of other content, in so far as it is financed by the proceeds of paid-for commercial communications, as non-taxable or exempt does nothing to achieve the objectives of Article 132(1)(q) of Directive 2006/112. On the contrary, it may increase the costs of those activities, since the sole effect of such a classification would be to deprive public service broadcasters of the right to deduct the input tax paid or due in respect of goods and services used for the purposes of those activities.

53I therefore consider that the criteria for distinguishing between the public interest activities of public service broadcasters and their commercial activities adopted in the Commission Communication should not be applied in the context of Article 132(1)(q) of Directive 2006/112.

Interpretation proposed by BNT

54As regards that distinction, an interesting view is presented in BNT’s observations. If I understand its position correctly, BNT considers commercial activities to cover the broadcasting of all programmes which in its opinion attract an audience, thus allowing BNT to sell advertising airtime. This mainly concerns sporting events, foreign films and entertainment programmes. On that basis, during the period covered by the main proceedings, BNT deducted in full the VAT paid and due on the costs of broadcasting such programmes. By contrast, the broadcasting of other types of programmes is, according to BNT, carried out as part of its public service remit and as such is not subject to VAT.

55However, in my view, that position is incorrect for two reasons.

56First, BNT’s division of programmes into those that generate advertising revenue and those that do not appears to me to be arbitrary and not necessarily consistent with reality. It is easy to identify categories of programmes which clearly fulfil the criteria of the public service remit and at the same time usually attract a large audience and provide an excellent ‘vehicle’ for advertising, such as news programmes. By contrast, certain categories of programmes that BNT classifies as commercial may perfectly well be classified as activities carried out in the public interest by public service broadcasters. That interest is, after all, linked to the ‘democratic, social and cultural needs … of society’, ³⁵ and those needs also cover areas such as film, sports and entertainment.

57Secondly, the method proposed by BNT for classifying its services does not take into account the factor on which the VAT system is based, namely, the link between the goods and services that a taxable person acquires for the purposes of his or her activity and the taxable supplies of goods or services that he or she makes in connection with that activity. In other words, in order for input goods and services acquired by a taxable person to be regarded as being used for the purposes of his or her activity, the cost of their acquisition should, in principle, be a component of the cost of the output transactions carried out by that taxable person. ³⁶

Proposed answer

58In the case of the costs of acquiring goods or services which are not directly used for the purposes of taxable transactions – as is the case with programmes broadcast free of charge which only have an indirect connection with the supply of services consisting in the broadcasting of paid-for commercial communications ³⁷ – that objective can be achieved in two ways. The first consists in strictly allocating certain revenue from taxable activities to the acquisition of specific goods or services used for the purpose of broadcasting free-of-charge programmes, for instance the acquisition of the rights to broadcast a film or a sporting event. However, as the tax authorities rightly point out in the main proceedings, this requires separate bookkeeping to enable such income and expenditure to be linked.

59The second way consists in calculating the proportion in which the activities of a public service broadcaster are financed by subsidies from the State budget (or by licence fees) and the proportion in which they are financed by revenue from taxable transactions. The latter amount, after deducting any revenue from transactions exempt under Article 132(1)(q) of Directive 2006/112, will reflect the share of a public service broadcaster’s commercial activities in its total activities. Subsequently, the costs incurred by the public service broadcaster may be allocated to those activities on a pro rata basis, without the need to strictly allocate costs between commercial activities and public service activities. ³⁸

60In my view, therefore, the notion of ‘commercial activities’ within the meaning of Article 132(1)(q) of Directive 2006/112 must be regarded as covering not only services provided for consideration in the strict sense, such as the broadcasting of commercial communications, but also services for which recipients do not pay, in particular the broadcasting of programmes which are accessible free of charge in so far as they are financed from the proceeds of the former category of services.

61I believe that this position is in line with the views of the Spanish Government and the Commission as expressed in their observations in the present case. ³⁹ This position is also supported, in my opinion, by the guidelines of the VAT Committee resulting from its 52nd meeting on 28 and 29 May 1997. ⁴⁰ At that meeting, the Member States were of the ‘almost unanimous’ opinion that the broadcasting of programmes financed from public funds (licence fees or subsidies) constitutes the only non-commercial activity of public service broadcasters. Logically, therefore, broadcasting, to the extent that it is financed by revenue from commercial activities, should be classified as a commercial activity.

62I therefore propose that the answer to the second question referred should be that Article 132(1)(q) of Directive 2006/112 must be interpreted as meaning that the notion of ‘commercial activities’ carried out by public radio and television bodies, within the meaning of that provision, covers transactions carried out for consideration which do not constitute activities in the public interest as well as services supplied without consideration in so far as they are financed by the revenue from those transactions carried out for consideration.

The third and fourth questions referred

63By its third and fourth questions, which I propose to examine together, the referring court seeks, in essence, to establish the scope of the right of a public service broadcaster to deduct the input tax paid or due in respect of goods and services which it purchases for the purposes of its activities, where those activities are financed both by subsidies from the State budget and by revenue from commercial activities.

64I have already analysed this issue in detail in my Opinion in the Český rozhlas case ⁴¹ in relation to a public service broadcaster financed from a licence fee. However, that issue went beyond the scope of the questions referred for a preliminary ruling in that case and was not resolved by the Court in its judgment. I believe that the conclusions contained in that Opinion may be applied to the present case. In the light of the present case, I would like to add the following remarks.

Tax deduction rules for mixed activities

65According to the settled case-law of the Court, transactions carried out by a taxable person which are not subject to VAT, for instance because they are not carried out for consideration within the meaning of Article 2(1) of Directive 2006/112, do not give rise to a right to deduct the tax due or paid in respect of goods and services acquired for the purposes of those transactions. The same principle applies to exempt transactions. ⁴²

66That rule is easy to apply to goods and services acquired by a taxable person solely for the purposes of his or her non-taxable transactions – in this case, the taxable person does not have the right to deduct the tax paid on those goods and services.

67The difficulty arises when the goods and services in question are used by the taxable person both for the purposes of his or her taxable transactions and his or her exempt and non-taxable transactions. In this situation, the taxable person has the right to deduct tax in proportion to the amount of goods and services acquired by him or her which are used for the purposes of his taxable transactions.

68However, while Articles 173 to 175 of Directive 2006/112 contain detailed rules for calculating that proportion in respect of exempt transactions, those provisions do not apply to transactions which are not subject to VAT. In this situation, it is up to the Member States to regulate the rules for its calculation in their national laws, while respecting the structure and objectives of the common system of VAT. These rules should make it possible to objectively reflect the proportion of costs attributed to both taxable and non-taxable transactions. ⁴³

Application to public service broadcasters

69As regards the present case, it follows from my proposed answer to the first question referred that a public service broadcaster does not carry out transactions subject to VAT in so far as its activities are financed by a subsidy from the State budget. Therefore, those activities do not give rise to the right to deduct the tax paid in respect of goods and services used for the purposes of those activities.

70On the other hand, as follows from my proposed answer to the second question referred, in so far as the activities of a public service broadcaster are financed by revenue from the broadcasting of paid-for commercial communications and from other taxable transactions, those activities constitute its commercial activities within the meaning of Article 132(1)(q) of Directive 2006/112. The latter activities are to be regarded in their entirety as activities carried out for consideration and therefore give rise to the right to deduct the tax paid or due in respect of goods and services used for the purposes of those activities.

71Accordingly, a public service broadcaster whose activities are financed, on the one hand, by subsidies from the State budget and possible exempt transactions, and, on the other hand, by revenue from taxable transactions, has the right to deduct the tax due or paid on goods and services used for the purposes of those activities to the extent that its activities are financed from the latter category of revenue.

72As I have already mentioned, Directive 2006/112 does not lay down rules for calculating the proportion of costs attributable to non-taxable activities, and this is therefore a matter for the Member States to determine in their national laws. I agree with the Commission’s view expressed in its answer to the Court’s question, according to which Member States may, but are not obliged to, apply by analogy the rules set out in Articles 173 to 175 of the directive for taxable and exempt transactions.

73In particular, the adoption of the definition of commercial activities of public service broadcasters I have proposed here will allow the basic method for calculating this proportion, as set out in Article 174(1) of Directive 2006/112, to be applied. Under that method, the right to deduct the input VAT due or paid will arise in proportion to the amount of turnover attributable to taxable transactions in relation to the taxable person’s total turnover. When applying the method to public service broadcasters financed both by subsidies from the State budget and by transactions carried out for consideration, the numerator should be the turnover generated on those transactions and the denominator should be total turnover plus the amount of subsidies. Subsequently, if the broadcaster carried out transactions for consideration which were exempt from VAT under Article 132(1)(q) of Directive 2006/112, the rules set out in Articles 173 to 175 of that directive would have to be applied to the proportion thus obtained in order to arrive at the final proportion in which the broadcaster would be entitled to deduct the input VAT paid or due.

74Obviously, Member States may adopt other rules for calculating that proportion, provided they meet the criteria indicated in point 68 of this Opinion.

75In the light of the foregoing, I propose that the answer to the third and fourth questions referred should be that Article 168 of Directive 2006/112 must be interpreted as meaning that a public service broadcaster whose activities are financed both by subsidies from the State budget and by revenue from taxable transactions has the right to deduct the VAT due or paid on goods and services used for the purposes of those activities to the extent that its activities are financed by revenue from taxable transactions.

Conclusions

76In view of all of the above considerations, I propose that the Court’s answer to the questions referred for a preliminary ruling by the Administrativen sad Sofia-grad (Sofia City Administrative Court, Bulgaria) should be as follows:

Article 2(1)(c) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that the activities of a public television broadcaster consisting in the supply of television media services, in so far as they are financed by subsidies from the State budget, do not constitute a supply of services for consideration within the meaning of that provision.

Article 132(1)(q) of Directive 2006/112 must be interpreted as meaning that the notion of ‘commercial activities’ carried out by public radio and television bodies, within the meaning of that provision, covers transactions carried out for consideration which do not constitute activities in the public interest as well as services supplied without consideration in so far as they are financed by the revenue from those transactions carried out for consideration.

Article 168 of Directive 2006/112 must be interpreted as meaning that a public service broadcaster whose activities are financed both by subsidies from the State budget and by revenue from taxable transactions has the right to deduct the VAT due or paid on goods and services used for the purposes of those activities to the extent that its activities are financed by revenue from taxable transactions.

¹ Original language: Polish.

² See Berg, C.E., and Lund, A.B., ‘Financing Public Service Broadcasting – A Comparative Perspective’, Journal of Media Business Studies, No 9/2012, p. 7, and Bron, C.M., ‘Le financement et le contrôle des offres des radiodiffuseurs de service public’, IRIS Plus 2010-4. Médias de service public: pas de contenu sans financement, Observatoire européen de l’audiovisuel, Strasbourg, 2010, p. 7.

³ Judgment of 22 June 2016, Český rozhlas (C‑11/15, EU:C:2016:470, operative part).

⁴ OJ 2006 L 347, p. 1.

⁵ This provision has not been expressly transposed into Bulgarian law; however, the Varhoven Administrativen Sad (Supreme Administrative Court) considered it to have direct effect. On this point, that court was, in my view, correct, as Article 25 of Directive 2006/112 is part of the definition of a service within the meaning of that Directive and as such does not require separate transposition into national law. However, Article 25 does not apply to BNT’s activity financed by the subsidy from the State budget, as discussed below (see points 33 to 37 of this Opinion).

⁶ Judgment of 27 March 2014, C‑151/13, EU:C:2014:185.

⁷ Judgment of 22 June 2016, C‑11/15, EU:C:2016:470.

⁸ Judgment of 22 June 2016, C‑11/15, EU:C:2016:470.

⁹ Judgment of 22 June 2016, C‑11/15, EU:C:2016:470.

¹⁰ Sixth Council Directive 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). Currently, with respect to the supply of services, Article 2(1)(c) of Directive 2006/112.

¹¹ Judgment of 22 June 2016, Český rozhlas (C‑11/15, EU:C:2016:470, paragraph 21).

¹² Judgment of 22 June 2016, Český rozhlas (C‑11/15, EU:C:2016:470, paragraph 22).

¹³ Judgment of 22 June 2016, Český rozhlas (C‑11/15, EU:C:2016:470, paragraphs 23 to 27).

¹⁴ Judgment of 22 June 2016, Český rozhlas (C‑11/15, EU:C:2016:470, paragraphs 29 to 30).

¹⁵ Judgment of 27 March 2014, C‑151/13, EU:C:2014:185.

¹⁶ Judgment of 22 June 2016, Český rozhlas (C‑11/15, EU:C:2016:470, paragraphs 34 to 35).

¹⁷ Judgment of 22 June 2016, Český rozhlas (C‑11/15, EU:C:2016:470, operative part).

¹⁸ Additional considerations relating to the relationship between a public broadcaster and the State are included in my Opinion in Český rozhlas (C‑11/15, EU:C:2016:181, points 30 to 35).

¹⁹ See judgment of 22 June 2016, Český rozhlas (C‑11/15, EU:C:2016:470, paragraph 21 and the case-law cited).

²⁰ Judgment of 27 March 2014, C‑151/13, EU:C:2014:185.

²¹ Although in that case those services could be exempt from VAT under Article 132(1)(q) of Directive 2006/112.

²² Since in such a case the EU legislature would use the phrase ‘Member States may treat’, as in Article 27 of Directive 2006/112, or similar wording.

²³ Article 132 of Directive 2006/112 is to be found in Chapter 2 of Title IX thereof, which is entitled ‘Exemptions for certain activities in the public interest’.

²⁴ Judgment of 22 June 2016, Český rozhlas (C‑11/15, EU:C:2016:470).

²⁵ In this Opinion, I focus on the core activity of public service broadcasters, which is also the subject of the questions referred, namely, broadcasting. Broadcasters may also engage in other transactions, such as the sale of intellectual property rights, equipment rental services, the organisation of cultural events, and so forth. Such transactions are generally carried out for consideration and, save in exceptional cases, are part of the commercial activities of public service broadcasters, that is to say, they are taxable. However, I shall omit those transactions from subsequent parts of my argument as they do not give rise to the same difficulties of interpretation as broadcasting does.

²⁶ Judgment of 22 June 2016, C‑11/15, EU:C:2016:470.

²⁷ See Article 1(1)(h) of Directive 2010/13/EU of the European Parliament and of the Council of 10 March 2010 on the coordination of certain provisions laid down by law, regulation or administrative action in Member States concerning the provision of audiovisual media services (Audiovisual Media Services Directive) (OJ 2010 L 95, p. 1).

²⁸ In this regard, see also my Opinion in Český rozhlas (C‑11/15, EU:C:2016:181, point 53).

²⁹ Judgment of 22 June 2016, Český rozhlas (C‑11/15, EU:C:2016:470).

³⁰ OJ 2009 C 257, p. 1.

³¹ See, in particular, paragraphs 48 to 49, and also paragraph 57, of the Commission Communication.

³² See, in particular, paragraph 65 of the Commission Communication.

³³ See, in particular, paragraph 47 of the Commission Communication.

³⁴ See, in particular, paragraphs 70 to 76 of the Commission Communication.

³⁵ Protocol (No 29) on the system of public broadcasting in the Member States, annexed to the EU and FEU Treaties.

³⁶ See, most recently, judgment of 12 November 2020, Sonaecom (C‑42/19, EU:C:2020:913, paragraphs 41 to 42).

³⁷ This connection is based on the fact that, on the one hand, those programmes attract an audience which provides the rationale for the broadcasting of commercial communications and, on the other hand, their broadcasting is financed by the revenue from those commercial communications.

³⁸ For the sake of clarification, I should add that, in principle, the Commission Communication does not permit the public financing of public service broadcasters to generate a profit for them (see paragraphs 72 to 74 of the Commission Communication). Accordingly, if the application of VAT rules is to be compatible with State aid rules, any excess of revenue over expenditure, outside the scope allowed by the Commission Communication, should be attributed to commercial activities.

³⁹ However, I must emphasise that I do not share the Commission’s view that, where a broadcaster’s activity is financed in whole or in part by revenue from broadcasting commercial communications, the broadcasting of programmes is ancillary to the broadcasting of those commercial communications, and the only recipients of that broadcaster’s services are advertisers. In my view, in this case the services provided to viewers or listeners (the broadcasting of programmes) are financed by the recipients of other services, namely, services consisting in the broadcasting of commercial communications. However, this does not change the classification of those services from the point of view of VAT.

⁴⁰ Document XXI/1500/96.

⁴¹ Opinion in Case C‑11/15, EU:C:2016:181, points 44 to 63.

⁴² See, most recently, judgment of 8 May 2019, Związek Gmin Zagłębia Miedziowego (C‑566/17, EU:C:2019:390, paragraphs 26 to 27).

⁴³ See, most recently, judgment of 8 May 2019, Związek Gmin Zagłębia Miedziowego (C‑566/17, EU:C:2019:390, paragraphs 28 to 29).