C-348/87 Stichting Uitvoering Financiele Acties ν Staatssecretaris van Financien

Judgment of the Court (Fourth Chamber) of 15 June 1989. - Stichting Uitvoering Financiële Acties v Staatssecretaris van Financiën. - Reference for a preliminary ruling: Hoge Raad - Netherlands. - Sixth Directive on turnover tax - Exemption. - Case 348/87. European Court reports 1989 Page 01737

Summary Parties Grounds Decision on costs Operative part

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Tax provisions - Harmonization of legislation - Turnover taxes - Common system of value-added tax - Exemptions provided for by the Sixth Directive - Strict interpretation - Exemption of services supplied by independent groups of persons exercising an activity which is exempt or for which they are not taxable, for the purpose of rendering services to their members - Organization and performance by a foundation of services which are related to the activities of another foundation which qualifies for the exemption - Not permissible

( Sixth Council Directive ( 77/388/EEC ), Art . 13(A)(1)(f ) )

The exemptions provided for in Article 13 of the Sixth Directive ( 77/388/EEC ) on the harmonization of the laws of the Member States relating to turnover taxes constitute exceptions to the general principle that turnover tax is levied on all services supplied for consideration by a taxable person . Therefore, the terms used to specify the exemptions are to be interpreted strictly . Consequently, and having regard to the precise formulation of the conditions for exemption laid down in Article 13(A)(1)(f ) relating to services supplied by independent groups of persons exercising an activity which is exempt or for which they are not taxable, for the purpose of rendering services to their members, the transactions which are exempted pursuant to the aforesaid provision do not cover the activities of a foundation which consist exclusively in the organization and performance of services which are related to the activities of another foundation, against reimbursement of expenses actually incurred, where the other foundation acts as an umbrella organization for a number of bodies exercising an activity which is exempt or for which they are not taxable and, solely for those bodies, performs services as described in the aforesaid provision of the Sixth Directive .

In Case 348/87

REFERENCE to the Court under Article 177 of the EEC Treaty by the Hoge Raad ( Supreme Court ) of the Netherlands, for a preliminary ruling in the proceedings pending before that court between

Stichting Uitvoering Financiële Acties,

and

Staatssecretaris van Financiën,

on the interpretation of Article 13(A)(1)(f ) of the Sixth Council Directive 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 ( 77/388/EEC ) ( Official Journal 1977, L 145, p . 1 ),

THE COURT ( Fourth Chamber )

composed of : T . Koopmans, President of Chamber, C . N . Kakouris, and M . Díez de Velasco, Judges,

Advocate General : J . Mischo

Registrar : J . A . Pompe, Deputy Registrar

after considering the observations submitted on behalf of :

the appellant in the main proceedings, by J . W . Meijer, of the Hague Bar,

the Government of the Kingdom of the Netherlands, by H . J . Heinemann, acting as Agent,

the Commission of the European Communities, by D . Calleja and B . J . Drijber, acting as Agents,

having regard to the Report for the Hearing and further to the hearing on 20 April 1989,

after hearing the Opinion of the Advocate General delivered at the sitting on 20 April 1989,

gives the following

Judgment

Grounds

1By judgment of 4 November 1987, received at the Court on 16 November 1987, the Hoge Raad of the Netherlands referred to the Court for a preliminary ruling under Article 177 of the EEC Treaty a question on the interpretation of Article 13(A)(1)(f ) of the Sixth Council Directive 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 ( 77/388/EEC ) ( Official Journal 1977, L 145, p . 1 ), hereinafter referred to as "the Sixth Directive ".

2The question was raised in proceedings brought by a foundation, the Stichting Uitvoering Financiële Acties ( hereinafter referred to as "SUFA ") against the tax authorities concerning a tax assessment by which SUFA was charged turnover tax on the basis of the costs of the services supplied by it to another foundation, the Stichting Algemene Loterij Nederland ( hereinafter referred to as "ALN ").

3It is apparent from the documents before the Court that, under the agreement between the two foundations, SUFA is entrusted with the practical arrangements for the lotteries which ALN organizes on behalf of the social and cultural institutions affiliated to it . All the expenses incurred by SUFA for that purpose are reimbursed by ALN whose only activity is to distribute the proceeds of the lotteries, after the expenses have been deducted, between its affiliated institutions .

4SUFA brought an action before the Gerechtshof ( Regional Court of Appeal ) in The Hague, claiming that the services it provides on behalf of ALN must be exempt from turnover tax by virtue of the provisions of Article 13(A)(1)(f ) of the Sixth Directive under which "Member States shall exempt ... services supplied by independent groups of persons whose activities are exempt ... for the purpose of rendering their members the services directly necessary for the exercise of their activity, where these groups merely claim from their members exact reimbursement of their share of the joint expenses, provided that such exemption is not likely to produce distortion of competition ". It is common ground that ALN enjoys this exemption .

5However, the Gerechtshof considered, as did the national tax authorities, that SUFA is not an independent group of persons supplying services to its members but that it carries out its activities on behalf of a sole principal, namely ALN, which is not a member of SUFA .

6The dispute was brought before the Hoge Raad which decided to stay the proceedings and to refer the following question to the Court for a preliminary ruling :

"Do the transactions which must be exempted from turnover tax pursuant to Article 13(A)(1)(f ) of the Sixth Directive cover the activities of a foundation which consist exclusively in the organization and performance of work which is related to the activities of another foundation, against reimbursement of expenses actually incurred, where the other foundation acts as an umbrella organization for a number of bodies exercising an activity which is exempt or for which they are not taxable and, solely for those bodies, performs services as defined in the aforesaid provision of the Sixth Directive?"

7Reference is made to the Report for the Hearing for a fuller account of the facts of the main proceedings, the course of the procedure and the observations submitted to the Court, which are mentioned or discussed hereinafter only in so far as is necessary for the reasoning of the Court .

8The answer to the abovementioned question depends in particular on whether the exemption provided for by Article 13(A)(1)(f ) of the Sixth Directive applies to a foundation which supplies, on a subcontractual basis, to another foundation which enjoys the aforesaid exemption as an independent group of social and cultural institutions, the services directly necessary for the exercise of the exempted activity .

9SUFA proposes that that point be answered in the affirmative, emphasizing the particular characteristics of the division of tasks between the two foundations . On the other hand, the Netherlands Government and the Commission propose a negative reply, arguing that that division of tasks in the field of the organization of lotteries cannot lead to the exemption being extended to a body to which certain activities are subcontracted .

10The preliminary observation must be made that, as the Court pointed out in its judgment of 26 March 1987 in Case 235/85 Commission v Netherlands (( 1987 )) ECR 1485, the Sixth Directive confers a very wide scope on value-added tax comprising all economic activities of producers, traders and persons supplying services .

11With regard to the exemptions provided for by the Sixth Directive, it is evident from the eleventh recital in its preamble that the exemptions constitute independent concepts of Community law which, as the Court stated in its judgment in Case 235/85, cited above, should be placed in the general context of the common system of VAT introduced by the Sixth Directive .

12As for the scope of the exemptions thus provided for, it should be pointed out that in its judgment of 11 July 1985 in Case 107/84 Commission v Germany (( 1985 )) ECR 2655, the Court emphasized that although it is true that the exemptions are granted in favour of activities pursuing specific objectives, most of the provisions also define the bodies which are authorized to supply the exempted services and that those services are not defined by reference to purely material or functional criteria . In that judgment the Court also stated that Article 13 of the Sixth Directive does not provide exemption for every activity performed in the public interest, but only for those which are listed and described in great detail .

13It is clear from the foregoing that the terms used to specify the exemptions envisaged by Article 13 of the Sixth Directive are to be interpreted strictly since they constitute exceptions to the general principle that turnover tax is levied on all services supplied for consideration by a taxable person .

14Article 13(A)(1)(f ) of the Sixth Directive makes express reference only to independent groups of persons supplying services to their members . That is not the position where one foundation supplies services exclusively to another foundation, neither of the foundations being a member of the other . Since the conditions for exemption are precisely formulated, any interpretation which broadens the scope of Article 13(A)(1)(f ) of the Sixth Directive would be incompatible with the objective of that provision .

15Consequently, the reply to the question referred for a preliminary ruling should be that the transactions which must be exempted from turnover tax pursuant to Article 13(A)(1)(f ) of the Sixth Council Directive ( 77/388/EEC ) of 17 May 1977 do not cover the activities of a foundation which consist exclusively in the organization and performance of work which is related to the activities of another foundation, against reimbursement of expenses actually incurred, where the other foundation acts as an umbrella organization for a number of bodies exercising an activity which is exempt or for which they are not taxable and, solely for those bodies, performs services as described in the aforesaid provision of the Sixth Directive .

Costs

Costs

16The costs incurred by the Netherlands Government and by the Commission of the European Communities, which have submitted observations to the Court, are not recoverable . Since these proceedings are, in so far as the parties to the main proceedings are concerned, in the nature of a step in the action pending before the national court, the decision as to costs is a matter for that court .

Operative part

On those grounds,

THE COURT ( Fourth Chamber ),

in answer to the question referred to it by the Hoge Raad by a judgment of 4 November 1987 hereby rules :

The transactions which must be exempted from turnover tax pursuant to Article 13(A)(1)(f ) of the Sixth Council Directive ( 77/388/EEC ) of 17 May 1977 do not cover the activities of a foundation which consist exclusively in the organization and performance of work which is related to the activities of another foundation, against reimbursement of expenses actually incurred, where the other foundation acts as an umbrella organization for a number of bodies exercising an activity which is exempt or for which they are not taxable and, solely for those bodies, performs services as described in the aforesaid provision of the Sixth Directive .

STICHTING UITVOERING FINANCIELE ACTIES v STAATSSECRETARIS VAN FINANCIEN

OPINION OF MR ADVOCATE GENERAL MISCHO delivered on 20 April 1989 » Mr President, Members of the Court,

1The Stichting Uitvoering Financiële Acties (hereinafter referred to as 'SUFA') is a foundation which, against reimbursement of expenses actually incurred, organizes and holds lotteries on behalf of the Stichting Algemene Loterij Nederland (hereinafter referred to as 'ALN') which distributes the proceeds amongst a certain number of social and cultural institutions affiliated to it.

2Under the Netherlands legislation implementing the Sixth Directive on VAT, 1 in particular Article 13 thereof, SUFA had to pay VAT on the amount of the cost of the abovementioned services to ALN during the month of April 1983.

3SUFA submitted a complaint against that taxation to the Inspector of Taxes. It then brought an action before the Gerechtshof (Regional Court of Appeal), The Hague, before lodging an appeal to the Hoge Raad (Supreme Court) of the Netherlands.

4The Hoge Raad referred the following question to the Court of Justice for a preliminary ruling:

* Original language French 'Do the transactions which must be exempted from turnover tax pursuant to Article 13(A)(1)(f) of the Sixth Directive cover the activities of a foundation which consist exclusively in the organization and performance of work which is related to tne activities of another foundation, against reimbursement of expenses actually incurred, where the other foundation acts as an umbrella organization for a number of bodies exercising an activity which is exempt or for which they are not taxable and, solely for those bodies, performs services as defined in the aforesaid provision of the Sixth Directive?'

5Article 13(A)(1)(f) of the Sixth Directive provides:

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

(f) services supplied by independent groups of persons whose activities are exempt from or are not subject to value-added tax, for the purpose of rendering their members the services directly necessary for the exercise of their activity, where these groups merely claim from their members exact reimbursement of their share of the joint expenses, provided that such exemption is not likely to produce distortion of competition;

6The Commission is right to emphasize that the supplies of services referred to by that provision are exempt only if a whole series of conditions are met. It is evident from the order for reference and from the observations submitted to the Court that it is common ground that all those conditions are met by the services which ALN renders to its members. Moreover, the question referred by the Hoge Raad for a preliminary ruling expressly envisages that hypothesis.

7The documents before the Court also show that SUFA supplies services, against reimbursement of the costs actually incurred, to one 'person' (ALN) whose activities are not subject to VAT. The supplies of services in issue are directly necessary for the exercise of those activities.

8Having regard to the foregoing, the question put to the Court may be divided into two parts: whether such supplies of services carried out by one foundation on behalf of another foundation are carried out

1746 by an 'independent group of persons', in which case they must be exempt, and if not whether they must nevertheless be exempt on the ground that they are supplied exclusively to a person which does constitute such a group and enjoys an exemption for the services which it supplies to its members.

9In its judgment of 26 March 1987 in Case 235/85 v Commission Netherlands [1987] ECR 1471, the Court stated that:

'the Sixth Directive is characterized by its general scope and by the fact that all exemptions must be expressly provided for and precisely defined' (paragraph 19 of the decision).

10As proof of the very general scope attributed to VAT, the Court pointed out that Article 2 of the Sixth Directive, relating to taxable transactions, refers not only to the importation of goods but also to the supply of goods or services effected for consideration within the territory of a country, and that Article 4(1) defines a taxable person as any person who independently carries out any economic activity specified in paragraph 2, that is to say all activities of producers, traders and persons supplying services (paragraphs 6 and 7 of the decision).

11It follows that any exemptions, as exceptions to the general rule that VAT is levied on all economic activity, are to be interpreted strictly and must not exceed what is expressly and clearly provided for. STICHTING UITVOERING FINANCIËLE ACTIES v STAATSSECRETARIS VAN FINANCIEN

12Article 13(A)(1)(f) refers expressly only to independent groups of persons supplying services to their members. A foundation which supplies services exclusively to one other foundation is not such a case. ALN is not a member of SUFA and even if it were, SUFA would then have only a single member. A group of persons must necessarily have at least two members, whether they be natural or legal persons. SUFA cannot, therefore, enjoy an exemption for the services which it supplies on behalf of ALN.

13However, SUFA argues that it should in fact receive exemption because it continues, in fact, to organize the lotteries on behalf of the institutions affiliated to ALN and would therefore qualify for the exemption if ALN had not been set up, and also because the activities which SUFA currently performs would certainly be exempt if they were performed by ALN.

14Those arguments cannot be accepted. They are both based on simple hypotheses which do not correspond to the facts: ALN exists and since the time of its creation SUFA has no longer been working directly for the social and cultural institutions, but rather for ALN which alone reimburses the expenses SUFA incurs in holding lotteries.

15Moreover, as the Court stated in its judgment of 11 July 1985 in Case 107/84 Commission v Germany [1985] ECR 2655,

'Although it is true that the exemptions (provided for under Article 13(A)(1)) are granted in favour of activities pursuing specific objectives, most of the provisions also define the which are authorized bodies to supply the exempted services' (paragraph 13 of the decision).

The aforesaid activities are exempt, therefore, only if they are carried out by particular bodies which, in the case of indent (f), must be 'independent groups of persons'.

16SUFA may be regarded as constituting such a group of persons working directly on behalf of the members of ALN only if ALN is to be regarded simply as a screen between SUFA and the social and cultural institutions. That is a question of fact which falls within the jurisdiction of the national courts and it seems to have been resolved by the finding that the two bodies are independent of each other. Moreover, the two foundations do not carry out the same activities: SUFA organizes and holds the lotteries, whereas ALN obtains permission on behalf of the institutions which are affiliated to it and distributes the proceeds of the lotteries amongst those institutions.

17For all the above reasons and for the additional reasons given in their observations by the Netherlands Government and by the Commission of the European Communities, in which I concur, I conclude that the question referred by the Hoge Raad der Nederlanden must be answered in the negative and that the Court should rule that:

The transactions which must be exempted from turnover tax pursuant to Article 13(A)(1)(f) of the Sixth Directive do not cover the activities of a foundation which consist exclusively in the organization and performance of work which is related to the activities of another foundation, against reimbursement of expenses actually incurred, even where the other foundation acts as an umbrella organization for a number of bodies exercising an activity which is exempt or for which they are not taxable and, solely for those bodies, performs activities as defined in the aforesaid provision of the Sixth Directive.'

Notes

(1) Sixth Council Directive 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 (77/388/EEC) — OJ , L 145, p. 1