C-432/15 Baštová

JUDGMENT OF THE COURT (Fourth Chamber)

10 November 2016 ( *1 )

‛Reference for a preliminary ruling — Taxation — Value added tax — Directive 2006/112/EC — Article 2(1)(c) — Concept of ‘supply of services for consideration’ — Supply of a horse by a taxable person to the organiser of horse races — Assessment of the consideration — Right to deduct expenses linked to the preparation of the taxable person’s horses for the races — General costs linked to the overall economic activity — Annex III, point 14 — Reduced rate of VAT applicable to the use of sporting facilities — Applicability to the operation of racing stables — Transaction consisting of a single supply or several independent supplies’

In Case C‑432/15,

REQUEST for a preliminary ruling under Article 267 TFEU from the Nejvyšší správní soud (Supreme Administrative Court, Czech Republic), made by decision of 23 July 2015, received at the Court on 7 August 2015, in the proceedings,

Odvolací finanční ředitelství,

v

Pavlína Baštová

THE COURT (Fourth Chamber),

composed of T. von Danwitz, President of the Chamber, E. Juhász, C. Vajda, K. Jürimäe (Rapporteur) and C. Lycourgos, Judges,

Advocate General: N. Wahl,

Registrar: A. Calot Escobar,

having regard to the written procedure,

after considering the observations submitted on behalf of:

the Czech Government, by M. Smolek, J. Vláčil and T. Müller, acting as Agents,

the European Commission, by Z. Malůšková and M. Owsiany-Hornung, acting as Agents,

after hearing the Opinion of the Advocate General at the sitting on 14 June 2016,

gives the following

Judgment

Legal context and the dispute

1This request for a preliminary ruling concerns the interpretation of Article 2(1)(c) and Article 98 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’) and of point 14 of Annex III thereto.

2The request has been made in proceedings between the Odvolací finanční ředitelství (Appellate Tax Directorate, Czech Republic) and Ms Pavlína Baštová regarding the imposition of value added tax (VAT) on her operation of racing stables.

Legal context

EU law

3The second subparagraph of Article 1(2) of the VAT Directive provides as follows:

‘On each transaction, VAT, calculated on the price of the goods or services at the rate applicable to such goods or services, shall be chargeable after deduction of the amount of VAT borne directly by the various cost components.’

4Article 2(1)(c) of the VAT Directive provides as follows:

‘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;

…’

5Under Article 9(1) of the VAT Directive:

‘“Taxable person” shall mean any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity.

Any activity of producers, traders or persons supplying services, including mining and agricultural activities and activities of the professions, shall be regarded as “economic activity”. The exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis shall in particular be regarded as an economic activity.’

6Article 73 of the VAT Directive states as follows:

‘In respect of the supply of goods or services, other than as referred to in Articles 74 to 77, the taxable amount shall include everything which constitutes consideration obtained or to be obtained by the supplier, in return for the supply, from the customer or a third party, including subsidies directly linked to the price of the supply.’

7Under Article 98(1) and (2) of the VAT Directive:

‘1. Member States may apply either one or two reduced rates.

2. The reduced rates shall apply only to supplies of goods or services in the categories set out in Annex III.

…’

8Article 167 of the VAT Directive states as follows:

‘A right of deduction shall arise at the time the deductible tax becomes chargeable.’

9Article 168 of the VAT Directive provides as follows:

‘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;’

…’

10Article 173(1) of the VAT Directive is worded as follows:

‘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.’

11The list of supplies of goods and services to which the reduced rates referred to in Article 98 of the VAT Directive may be applied is set out in Annex III to that directive. Point 14 of that annex refers to the ‘use of sporting facilities’.

Czech law

12Article 47(4) of Law No 235/2004 on value added tax (zákon č. 235/2004 Sb. o dani z přidané hodnoty) states as follows:

‘Services shall be subject to the standard rate of tax, unless this law provides otherwise. In the case of the services mentioned in Annex 2, a reduced rate of tax shall apply.’

13Annex No 2 to that law contains a list of services subject to the reduced rate of tax, including, inter alia, the ‘use of covered and uncovered sports facilities for sports activities’.

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

14Ms Baštová is a taxable person for VAT purposes by virtue of an economic activity consisting in the operation of horse racing stables with a capacity of 25 places, in which she breeds and trains her own horses and those of other owners which have been entrusted to her to be prepared for races. In addition to the racehorses, Ms Baštová had in her stables two horses which she used for agrotourism and training young horses, and breeding mares and foals, from which she hoped to derive future income from participation in races or from sales.

15In connection with that activity, Ms Baštová earns two types of income, which constitute the subject matter of the main proceedings in the present case. The first type consists of prizes obtained by her own horses for being placed in races and the trainer’s share of prizes won in races by the horses of other third parties. The second type of income results from the operation of racing stables and consists in payments made by horse owners for training their horses for races, and payments made for stabling and feeding the horses.

16In her tax declaration for the fourth quarter of 2010, Ms Baštová claimed the right to full deduction of the input VAT in respect of the following supplies and costs: entrance fees and declaration fees for races, fees for the assistance of auxiliaries during races, the procurement of consumables for horses, their feed and equipment for the riders, veterinary services and purchase of medicines for the horses, consumption of electricity in the stables, consumption of fuel oil for the vehicles, the purchase of a harvester for the production of hay and forage and of tractor equipment and consultancy services in connection with the running of the stables. Those input supplies concerned both Ms Baštová’s horses and those of other owners.

17In addition, in the same tax declaration Ms Baštová also declared output VAT at the reduced rate of 10% on the service of ‘operation of racing stables’ which she supplied to the other horse owners.

18In its tax assessment of 26 September 2011, the Finanční úřad v Ostrově (Tax Office, Ostrov) did not accept Ms Baštová’s claim for full deduction of the VAT on the ground that she had used part of the taxable input transactions for the purposes of participation of the horses in races, which, in the view of the Ostrov Tax Office, did not constitute a taxable transaction giving rise to a right to deduct VAT. In addition, those authorities did not approve the application of the reduced rate of VAT to the service of ‘operation of racing stables’.

19Seised on appeal by Ms Baštová, the Finanční ředitelství v Plzni (Tax Directorate, Plzeň, Czech Republic) varied the decision of the Ostrov Tax Office by a decision of 6 June 2012, finding that Ms Baštová had the right to deduct the VAT for the sale of her own horses, the supply of publicity services and agrotourism. That directorate also granted her the right to deduct the VAT charged on the percentages, received in her capacity as a trainer, of the prizes received as a reward for places for other owners’ horses in races. However, like the Ostrov Tax Office, the Plzeň Tax Directorate did not grant Ms Baštová the right to deduct the VAT paid in respect of the input transactions for her own horses which had participated in races.

20Inasmuch as, during the tax period concerned, only some of the activities carried out by Ms Baštová were eligible for a VAT deduction, the Plzeň Tax Directorate found that she was entitled to only a partial deduction. The Plzeň Tax Directorate also confirmed the tax assessment of the Ostrov Tax Office, finding that the service of ‘operation of racing stables’ should be subject to VAT at the standard rate.

21Ms Baštová brought an appeal against that decision before the Krajský soud v Plzni (Plzeň Regional Court, Czech Republic) which, by a judgment of 6 November 2013, found, inter alia, that, so far as the prizes received for a horse being placed in a race are concerned, the owner of a horse provides the race organiser with a service for consideration and that this therefore constitutes a taxable transaction. Therefore Ms Baštová’s right to deduct VAT should not have been reduced.

22The Appellate Tax Directorate lodged an appeal on a point of law before the referring court.

23The referring court considers, first, that in order to determine whether Ms Baštová was entitled to the full VAT deduction, it is essential to ascertain whether the provision of a horse by its owner to the organiser of a race is to be regarded as a service for consideration, within the meaning of Article 2(1)(c) of the VAT Directive. If not, the question arises of whether that circumstance in itself is a ground for reducing the deduction of VAT paid as input tax or whether the costs pertaining to the services concerned are part of the general costs of the taxable person’s economic activity. Should the Court reply that the fact of preparing horses for races and the horses’ participation in the races is a component of Ms Baštová’s overall economic activity, it is still necessary to decide how to treat the sum which the horse owner receives by way of a prize depending on whether the horse is placed in a race. The referring court seeks, in particular, to ascertain whether that sum must be included in the taxable amount for output VAT or whether it constitutes income which does not affect the taxable amount for output VAT at all.

24Secondly, the referring court raises the issue of whether VAT at the standard rate must be applied to the service of ‘operation of racing stables’ in its entirety, or whether that service falls within the concept of ‘use of sporting facilities’ to which a reduced rate of VAT may be applied under point 14 of Annex III to the VAT Directive. In that context, it must be ascertained whether the services relating to the operation of racing stables, inter alia training the horses, the use of sporting facilities, stabling, feeding and other care of the horses, must be regarded as a single transaction for VAT purposes sharing the same tax treatment. Taking the view that those services undoubtedly constitute a single whole, the referring court seeks on the other hand to determine the criteria on the basis of which it could ascertain whether the components of a supply are of equal status, or whether they are supplies in the relationship of a principal and an ancillary service.

25In those circumstances the Nejvyšší správní soud (Supreme Administrative Court, Czech Republic) decided to stay the proceedings and to refer to the Court the following questions for a preliminary ruling:

Is the supply of a horse by its owner (who is a taxable person) to the organiser of a race for the purpose of the horse’s running in a race a supply of services for consideration within the meaning of Article 2(1)(c) of [the VAT Directive] and thus a transaction subject to VAT?

If the answer is in the affirmative, must the prize money obtained in the race (which not every horse taking part in the race obtains, however), or the acquisition of the service consisting in the opportunity for the horse to run in the race which the organiser of the race provides to the owner of the horse, or some other consideration, be regarded as the consideration?

If the answer is in the negative, is that circumstance in itself a ground for reducing the deduction of input VAT on the taxable supplies acquired and used for the preparation of the breeder/trainer’s own horses for races, or must the running of a horse in a race be regarded as a component of the economic activity of a person who operates in the field of breeding and training his own and other owners’ racehorses, and the expense of breeding his own horses and running them in races be included in the overheads associated with that person’s economic activity? If the answer to that part of the question is in the affirmative, must prize money be included in the taxable amount and output VAT accounted for, or is this income which does not affect the taxable amount for VAT at all?

If for VAT purposes it is necessary to regard several part services as a single transaction, what are the criteria for determining their mutual relationship, that is, for determining whether they are supplies of equal status with each other or supplies in the relationship of a principal and an ancillary service? Does any hierarchy exist between those criteria as regards their ranking and weight?

Must Article 98 of [the VAT Directive] in conjunction with Annex III to that directive be interpreted as precluding the classification of a service under the reduced rate if it is composed of two part supplies which must be regarded for VAT purposes as a single supply and those supplies are of equal status with each other, and one of them may not in itself be classified in any of the categories set out in Annex III to [the VAT Directive]?

If the answer to Question 2b is in the affirmative, does the combination of the part service of the right to use sports facilities and the part service of a trainer of racehorses, in circumstances such as those of the present proceedings, preclude the classification of that service as a whole under the reduced rate of VAT mentioned in point 14 of Annex III to [the VAT Directive]?

If the application of the reduced rate of tax is not excluded on the basis of the answer to Question 2c, what influence on the classification under the relevant rate of VAT does the fact have that the taxable person provides, in addition to the service of the use of sports facilities and the service of a trainer, also stabling, feeding and other care of a horse? Must all those part supplies be regarded for VAT purposes as a single whole sharing the same tax treatment?’

Consideration of the questions referred

Question 1(a) and (b)

26By Question 1(a) and (b), the referring court asks, in essence, whether Article 2(1)(c) of the VAT Directive must be interpreted to the effect that the supply of a horse by its owner, who is a taxable person for VAT purposes, to the organiser of a horse race for the purpose of the horse’s participation in that race constitutes a supply of services for consideration within the meaning of that provision. In particular, that court raises the issue of whether the prize obtained by the horse on account of being placed in the race or the acquisition of the service consisting in the opportunity for the horse to participate in that race constitute consideration for such a supply of services.

27It must first be recalled that, pursuant to Article 2(1)(c) of the VAT Directive, which defines the scope of VAT, ‘the supply of services for consideration’ is subject to VAT.

28According to the Court’s settled case-law, the possibility of classifying a supply of services as a ‘transaction for consideration’ requires only that there be a direct link between that supply and the consideration actually received by the taxable person. Such a direct link is established if there is a legal relationship between the provider of the service and the recipient pursuant to which there is reciprocal performance, the payment received by the provider of the service constituting the value actually given in return for the service supplied to the recipient (see, inter alia, judgments of 3 March 1994, Tolsma, C‑16/93, EU:C:1994:80, paragraphs 13 and 14, and of 29 October 2015, Saudaçor, C‑174/14, EU:C:2015:733, paragraph 32).

29Next, it is apparent from the Court’s case-law that the uncertain nature of the provision of any payment is such as to break the direct link between the service provided to the recipient and any payment which may be received (see, by analogy, judgments of 3 March 1994, Tolsma, C‑16/93, EU:C:1994:80, paragraph 19, and of 27 September 2001, Cibo Participations, C‑16/00, EU:C:2001:495, paragraph 43).

30In view of the nature of the analysis to be carried out, and as the Court has already held, it is for the national court to classify the activities at issue in the main proceedings in the light of the criteria adopted by the Court (see judgment of 29 October 2015, Saudaçor, C‑174/14, EU:C:2015:733, paragraph 33 and the case-law cited).

31Lastly, as the Advocate General observed in point 32 of his Opinion, sporting activities and, in particular, participation in sports competitions may involve the provision of a number of separate, but closely related, services (see, to that effect, judgment of 11 April 2000, Deliège, C‑51/96 and C‑191/97, EU:C:2000:199, paragraph 56).

32It is apparent from the order for reference that, by allowing horse owners to have their horses participate in a horse race, the race organiser provides a service which gives rise to the payment, by the horse owners, of entrance fees and declaration fees.

33On the other hand, the issue has arisen of whether the ‘supply’ of a horse by its owner, who is a taxable person for VAT purposes, to the organiser of a horse race also constitutes a supply of services for consideration, the consideration for which could consist of any prize obtained by the horse in the race or by the service provided by the race organiser, consisting in allowing the horse to participate in the race, or by another form of payment.

34According to the information in the file before the Court, that ‘supply’ of a horse corresponds in fact to the participation of a horse in a horse race, for which the horse owner pays, as is apparent from paragraph 32 above, entrance and declaration fees.

35In this connection, it must first be noted that, in principle, the service provided by the horse race organiser, consisting in enabling the owner of a horse to have his horse participate in the horse race, cannot be regarded as effective consideration for the supply of a horse by the owner to the race organiser. That service is remunerated by the payment, by the horse owner, of entrance and declaration fees reflecting the value actually given in return for the horse’s participation in the race. Furthermore, although the horse owner could possibly derive a benefit from that participation as a result of the increase in the value of the horse in the event that it is placed or the publicity gained by the horse from its participation, that benefit is difficult to quantify and uncertain, since it essentially depends on the result of the race. That benefit cannot therefore be taken into consideration for the purposes of determining the value actually given in return for the supply of the horse in accordance with the case-law referred to in paragraph 28 above.

36Secondly, where the supply of a horse for the purposes of its participation in a race does not give rise to any payment awarded for participation or any other direct remuneration, and where only the owners of horses which are placed in the race receive a prize, the supply of a horse cannot be regarded as giving rise to effective consideration.

37In such a case, on one hand, it is not the supply of the horse by its owner to the race organiser which, as such, gives rise to the award of prize money, but the achievement of a certain result at the end of the race, namely the placing of the horse. Even if the race organiser were to have committed himself to awarding such a prize, of a fixed amount known in advance, the fact remains that the award of the prize is thus subject to a specific performance and to a degree of uncertainty. According to the case-law recalled in paragraph 28 above, that uncertainty precludes the existence of a direct link between the supply of a horse and obtaining a prize.

38The opposite approach, on the other hand, which consists in treating any prize awarded as the effective consideration for the supply of the horse by its owner to the race organiser would be tantamount to rendering the classification of that supply as a taxable transaction subject to the result achieved by the horse at the end of the race, contrary to the Court’s settled case-law according to which the term ‘supply of services’ is objective in nature and applies without regard to the purpose or results of the transactions concerned (see judgment of 20 June 2013, Newey, C‑653/11, EU:C:2013:409, paragraph 41 and the case-law cited).

39Thirdly, however, in a situation where the mere participation of the horse in a race nevertheless gives rise to direct consideration by virtue of a payment awarded by the race organiser for participation in the race, irrespective of whether or not the horse in question is placed in the race, the supply of that horse by its owner may be qualified as a ‘supply of services’ for consideration within the meaning of Article 2(1)(c) of the VAT Directive. In that situation, as the Advocate General observed in point 35 of his Opinion, the payment made by the race organiser to the horse owner constitutes direct consideration for the service rendered by the latter to the former in agreeing to let his horse participate in the event.

40Having regard to the foregoing considerations, the answer to Question 1(a) and (b) is that Article 2(1)(c) of the VAT Directive must be interpreted to the effect that the supply of a horse by its owner, who is a taxable person for VAT purposes, to the organiser of a horse race for the purpose of the horse’s participation in that race does not constitute a supply of services for consideration within the meaning of that provision where it does not give rise to a payment awarded for participation or any other direct remuneration and where only the owners of horses which are placed in the race receive a prize, even if that prize is determined in advance. On the other hand, such a supply of a horse for the purposes of its participation in the race constitutes a supply of services for consideration where it gives rise to the payment, by the organiser, of remuneration irrespective of whether or not the horse in question is placed in the race.

Question 1(c)

41By Question 1(c), the referring court asks, in essence, whether, if the supply of a horse by its owner, who is a taxable person for VAT purposes, to a horse race organiser does not constitute a supply of services for consideration within the meaning of Article 2(1)(c) of the VAT Directive, that directive must be interpreted to the effect that a taxable person, who breeds and trains his own race horses as well as those of other owners, nevertheless has a right to deduct input VAT on the transactions relating to the preparation for horse races of his own horses and the participation of his own horses in those races on the ground that the costs pertaining to those transactions are part of the general costs linked to that person’s economic activity. The referring court also asks whether such a right leads to the inclusion of any prize won by the taxable person by reason of the placing of one of his horses in a horse race in the taxable amount for VAT purposes.

42It must be recalled that the rules governing deduction introduced by the VAT Directive are meant to relieve the trader entirely of the burden of the VAT payable or paid in the course of all his economic activities. The common system of VAT consequently ensures complete neutrality of taxation of all economic activities, whatever their purpose or results, provided that they are themselves subject in principle to VAT (see, in particular, judgment of 14 February 1985, Rompelman, 268/83, EU:C:1985:74, paragraph 19, and of 8 February 2007, Investrand, C‑435/05, EU:C:2007:87, paragraph 22).

43In this connection, the existence of a direct and immediate link between a particular input transaction and one or more output transactions giving rise to the right to deduct is, in principle, necessary before the taxable person is entitled to deduct input VAT and in order to determine the extent of such entitlement (see judgments of 8 June 2000, Midland Bank, C‑98/98, EU:C:2000:300, paragraph 24, and of 21 February 2013, Becker, C‑104/12, EU:C:2013:99, paragraph 19). The right to deduct VAT charged on the acquisition of input goods or services presupposes that the expenditure incurred in acquiring them is part of the cost components of the taxable output transactions giving rise to the right to deduct (judgments of 8 June 2000, Midland Bank, C‑98/98, EU:C:2000:300, paragraph 30, and of 21 February 2013, Becker, C‑104/12, EU:C:2013:99, paragraph 19).

44It is, however, also accepted that a taxable person has a right to deduct even where there is no direct and immediate link between a particular input transaction and one or more output transactions giving rise to the right to deduct, where the costs of the services in question are part of his general costs and are, as such, components of the price of the goods or services which he supplies. Such costs do, in effect, have a direct and immediate link with the taxable person’s overall economic activity (see, to that effect, judgments of 8 June 2000, Midland Bank, C‑98/98, EU:C:2000:300, paragraph 31, and of 21 February 2013, Becker, C‑104/12, EU:C:2013:99, paragraph 20).

45Moreover, the fact that the existence of the direct and immediate link between a supply of services and the overall taxable economic activity must be determined in the light of the objective content of that supply of services does not preclude the exclusive reason for the transaction at issue from also being taken into account, since that reason must be considered as a criterion for determining the objective content. Where it is clear that a transaction has not been performed for the purposes of the taxable activities of a taxable person, that transaction cannot be regarded as having a direct and immediate link with those activities within the meaning of the Court’s case-law, even if that transaction would, in the light of its objective content, be subject to VAT (judgment of 21 February 2013, Becker, C‑104/12, EU:C:2013:99, paragraph 29).

46In the context of the assessment of the criterion of a direct and immediate link with the taxable person’s overall economic activity, which the tax authorities and national courts must carry out, they should consider all the circumstances surrounding the transactions at issue (see, to that effect, judgment of 8 June 2000, Midland Bank, C‑98/98, EU:C:2000:300, paragraph 25) and take account only of the transactions which are objectively linked to the taxable person’s taxable activity (judgment of 21 February 2013, Becker, C‑104/12, EU:C:2013:99, paragraph 22).

47It is apparent from the order for reference that Ms Baštová’s economic activity consists in the operation of racing stables, in which, inter alia, she breeds and trains her own horses and those of third parties. She submits that her horses are intended for sale and/or play a role in training or agrotourism and that they also participate in horse races.

48Admittedly, the breeding and training of horses belonging to a person operating racing stables and the participation of those horses in races may, as such, have a link with such an economic activity. However, in the light of the case-law cited in paragraph 44 above, that finding does not suffice as a ground for a right to deduct VAT, which requires there to be a direct and immediate link between the costs incurred on account of each of the transactions linked to the preparation of the horses and their participation in the races, on one hand, and that overall economic activity, on the other hand.

49In order to assess whether such a link exists, it is for the referring court to ascertain, in particular, whether the horses belonging to the person operating the racing stables are actually intended for sale or whether their participation in races is, from an objective point of view, a means of promoting the economic activity of operating those stables. If that is the case, the costs incurred in the preparation of the horses for the races, and the horses’ participation in those races, have a direct and immediate link with the overall economic activity consisting in the operation of such stables. First, it is common ground that the sale price of a race horse depends on the state of its preparation for races and its experience, or any reputation it may have obtained by participating in races. Secondly, the success of his horses in races may enable the operator of stables to build a reputation, or gain publicity or added visibility such as to influence the price of his services for training the horses of other owners, this being a matter for the referring court to determine.

50On the other hand, the fact that the transactions linked to the preparation of the horses belonging to the operator of the stables for races and their participation in those races would enable him to improve and develop the training methods, feed and care given to the horses, and thus the services provided to other owners, is irrelevant for the purposes of that assessment. Such a fact merely reflects an indirect link between those transactions and the economic activity at issue in the main proceedings, set out in paragraph 47 above.

51Furthermore, if the transactions linked to the preparation for races of the horses belonging to the operator of the stables and the participation of those horses in races are intended to promote the private interests of that operator, those transactions cannot be regarded as having a direct and immediate link with the overall economic activity consisting in the operation of such stables.

52It follows that, in accordance with Articles 167 and 168(a) of the VAT Directive, a person in a situation such as that of Ms Baštová has a right to full deduction of the VAT charged on the expenses incurred for the preparation of his horses for races and the horses’ participation in those races where those horses are actually intended for sale or where that participation is, from an objective point of view, a means of promoting the economic activity of the stables which he operates. On the other hand, there is no right to deduction of the VAT charged on expenses incurred for the preparation of the taxable person’s horses for races and their participation in races if those horses are not actually intended for sale, if that participation is not, from an objective point of view, a means of promoting the economic activity of the stables which he operates and if those expenses are not used for any other of the taxable person’s activities relating to his economic activity, this being a matter for the referring court to determine.

53It is not disputed that a taxable person who effects both transactions in respect of which VAT is deductible and transactions in respect of which it is not may, under the first subparagraph of Article 173(1) of the Sixth Directive, deduct only that proportion of the VAT which is attributable to the former transactions (see, to that effect, judgments of 22 February 2001, Abbey National, C‑408/98, EU:C:2001:110, paragraph 37, and of 26 May 2005, Kretztechnik, C‑465/03, EU:C:2005:320, paragraph 37).

54Lastly, it must be stated that the conclusions reached in the assessment referred to in paragraphs 44 to 52 above have no effect on the issue, which is a separate one, of the inclusion of any prize which may be awarded to a horse owner who is a taxable person for VAT purposes in the taxable amount, this being a matter which depends on the characterisation of that prize as ‘consideration for the supply of services’. It is apparent from Article 73 of the VAT Directive that, in respect of the supply of services such as those at issue in the main proceedings, the taxable amount includes everything which constitutes consideration obtained or to be obtained by the supplier, in return for the supply, from the customer or a third party, including subsidies directly linked to the price of the supply. It is apparent from the considerations in paragraphs 36 to 38 above that any prize won by a horse belonging to the taxable person cannot be characterised as effective consideration for the supply of the horse by its owner to a horse race organiser.

55In the light of all of the foregoing considerations, the answer to Question 1(c) is that:

The VAT Directive must be interpreted to the effect that a taxable person, who breeds and trains his own race horses and those of other owners, has the right to deduct input VAT on the transactions relating to the preparation for horse races of his own horses and the participation of his own horses in races, on the ground that the costs pertaining to those transactions are part of the general costs linked to his economic activity, provided that the costs incurred in each of those transactions have a direct and immediate link with that overall activity. That may be the case if the costs thus incurred pertain to race horses actually intended for sale or if the participation of those horses in races is, from an objective point of view, a means of promoting the economic activity, this being a matter for the referring court to determine.

In a situation where such a right to deduct exists, any prize won by the taxable person on account of the placing of one of his horses in a race is not to be included in the taxable amount for VAT purposes.

Question 2

56By Question 2, the referring court asks, in essence, whether Article 98 of the VAT Directive, read in conjunction with point 14 of Annex III to that directive, must be interpreted to the effect that the reduced rate of VAT may be applied to a single composite supply of services, composed of several components relating, inter alia, to the training of horses, the use of sporting facilities and the stabling, feeding and other care provided to the horses.

57In the first place, it is necessary to state the scope of Article 98 of the VAT Directive and of point 14 of Annex III thereto.

58In that regard, it follows from Article 98 of the VAT Directive that the application of either one or two reduced rates is an option accorded to the Member States as an exception to the principle that the standard rate applies. Furthermore, according to that provision, the reduced rates of VAT may be applied only to the supplies of goods and services specified in Annex III to that directive.

59As regards the interpretation of that annex, it must first be recalled that provisions which are in the nature of exceptions to a principle must be interpreted strictly (see, to that effect, judgments of 12 December 1995, Oude Luttikhuis and Others, EU:C:1995:434, paragraph 23, and of 17 June 2010, Commission v France, C‑492/08, EU:C:2010:348, paragraph 35).

60Secondly, the concepts used in Annex III to the VAT Directive must be interpreted in accordance with the normal sense of the terms at issue (judgment of 4 June 2015, Commission v Poland, C‑678/13, not published, EU:C:2015:358, paragraph 46).

61In the present case, it follows from the terms of point 14 of Annex III to the VAT Directive that that directive authorises the Member States to apply a reduced rate of VAT to ‘the use of sporting facilities’.

62It is apparent from the term the ‘use of’ that the application of a reduced rate is possible if the use is by a third party and not by the taxable person using the sporting facilities concerned for his own needs.

63The concept of the ‘use of sporting facilities’ is connected with services linked to the practice of sport or physical education, which must, so far as is possible, be considered as a whole (see, to that effect, judgments of 18 January 2001, Stockholm Lindöpark, C‑150/99, EU:C:2001:34, paragraph 26, and of 22 January 2015, Régie communale autonome du stade Luc Varenne, C‑55/14, EU:C:2015:29, paragraph 25).

64As the Advocate General observed in points 56 to 59 of his Opinion, the possibility of applying a reduced rate of VAT to the use of sporting facilities is essentially intended to promote the practice of sports activities and to render them more accessible to individuals.

65Consequently, the concept of the ‘use of sporting facilities’ must be understood as covering the right to use facilities for the practice of sport or physical education, and their use for those purposes.

66It follows that, while supplies of services linked to the use of facilities necessary for practising equestrian sports may fall within the scope of point 14 of Annex III to the VAT Directive, that cannot be the case for supplies linked to the use of facilities for the passive stay of horses in stables, their feeding or the care provided to them, or the rest areas or storage.

67It is for the referring court to assess whether the component of the supply of services at issue in the main proceedings which consists of the use of sporting facilities, as interpreted in the light of the contracts concluded between Ms Baštová and the horse owners, corresponds to that definition. Where there is no overlap between that component as interpreted in the light of those contracts and the ‘use of sporting facilities’ within the meaning of point 14 of Annex III to the VAT Directive, that supply cannot, on any view, be subject to the reduced rate of VAT under point 14.

68In the second place, should the referring court find after that assessment that the reduced rate of VAT is applicable to that component consisting in the use of sporting facilities, it must, in order to answer the question referred, be recalled that, for VAT purposes, every supply must normally be regarded as distinct and independent, as follows from the second subparagraph of Article 1(2) of the VAT Directive (see, to that effect, judgments of 27 October 2005 in Levob Verzekeringen and OV Bank, C‑41/04, EU:C:2005:649, paragraph 20, and of 27 September 2012, Field Fisher Waterhouse, C‑392/11, EU:C:2012:597, paragraph 14).

69Nevertheless, it is apparent from the Court’s case-law that, in certain circumstances, several formally distinct services, which could be supplied separately and thus give rise, in turn, to taxation or exemption, must be considered to be a single transaction when they are not independent (see judgment of 2 December 2010, Everything Everywhere, C‑276/09, EU:C:2010:730, paragraph 23 and the case-law cited).

70A transaction is a single supply where, in particular, two or more components or acts supplied by the taxable person are so closely linked that they form, objectively, a single, indivisible economic supply, which it would be artificial to split (judgments of 27 October 2005, Levob Verzekeringen and OV Bank, C‑41/04, EU:C:2005:649, paragraph 22, and of 29 March 2007, Aktiebolaget NN, C‑111/05, EU:C:2007:195, paragraph 23).

71Such is also the case where one or more components are to be regarded as constituting the principal service, while one or more components are to be regarded, by contrast, as one or more ancillary services which share the tax treatment of the principal service. In particular, a service is regarded as ancillary to a principal service if it does not constitute for customers an aim in itself, but a means of better enjoying the principal service supplied (judgments of 25 February 1999, CPP, C‑349/96, EU:C:1999:93, paragraph 30, and of 21 February 2008, Part Service, C‑425/06, EU:C:2008:108, paragraph 52).

72If it is not possible to determine, among the components of which the single composite supply consists, a main component and one or several ancillary components, the components of which that supply consists must be regarded as of equal status.

73In the context of the cooperation established by Article 267 TFEU, it is for the national court to determine whether that is the case, having regard, in the context of an overall assessment, to the qualitative importance, and not simply the quantitative importance, of the relevant components. The Court may nevertheless provide it with all the guidance as to the interpretation of EU law which may be of assistance (see, to that effect, judgments of 27 October 2005, Levob Verzekeringen et OV Bank, C‑41/04, EU:C:2005:649, paragraph 23, and of 17 January 2013, BGŻ Leasing, C‑224/11, EU:C:2013:15, paragraph 33).

74In the present case, the referring court has stated clearly that the supply of services at issue, as it appears from the contracts concluded between Ms Baštová and the horse owners and which consists of three components (training the horses, the use of sporting facilities and the stabling, feeding and other care of the horses), constitutes a single composite supply of services. That conclusion applies where the contracting parties are in fact seeking a combination of the three components to that supply, where the use of the sporting facilities is objectively necessary to train the race horses and where the supplies linked to the stabling, feeding and care of the horses are primarily intended to accompany and assist their training and the use of sports facilities.

75Thus, subject to determination by the referring court, the information contained in the order for reference appears essentially to indicate that the training services and use of the sporting facilities constitute two components of that composite supply which are, in the light of its purpose, of equal status, whereas the supplies linked to the stabling, feeding and care of the horses are of an ancillary nature in relation to those two components. In so far as only the use of the sporting facilities falls within the scope of the reduced rate provided for in Article 98 of the VAT Directive, read in conjunction with point 14 of Annex III thereto, that reduced rate cannot be applied to the single composite supply at issue in the main proceedings (see, by analogy, judgment of 19 July 2012, Deutsche Bank, C‑44/11, EU:C:2012:484, paragraphs 41 to 43).

76If, on the other hand, the referring court were to conclude, on the basis of the facts at issue in the main proceedings and having regard in particular to the contracts concluded between Ms Baštová and the horse owners, that the training of the horses constituted the main component of the single composite supply, the same conclusion would apply and it still would not be possible, pursuant to Article 98 of the VAT Directive, read in conjunction with point 14 of Annex III thereto, to apply the reduced rate of VAT to that supply.

77In the light of the foregoing considerations, the answer to Question 2 is that Article 98 of the VAT Directive, read in conjunction with point 14 of Annex III thereto, must be interpreted to the effect that the reduced rate of VAT may not be applied to a single composite supply of services, made up of several components relating, inter alia, to the training of horses, the use of sporting facilities and the stabling, feeding and other care provided to the horses where the use of the sporting facilities, within the meaning of point 14 of Annex III to that directive, and the training of the horses constitute two components of that composite supply having equal status or where the training of the horses constitutes the main component of that supply, this being a matter for the referring court to assess.

Costs

78Since 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 to the effect that the supply of a horse by its owner, who is a taxable person for value added tax purposes, to the organiser of a horse race for the purpose of the horse’s participation in that race does not constitute a supply of services for consideration within the meaning of that provision where it does not give rise to a payment awarded for participation or any other direct remuneration and where only the owners of horses which are placed in the race receive a prize, even if that prize is determined in advance. On the other hand, such a supply of a horse for the purposes of its participation in the race constitutes a supply of services for consideration where it gives rise to the payment, by the organiser, of remuneration irrespective of whether or not the horse in question is placed in the race.

Directive 2006/112 must be interpreted to the effect that a taxable person, who breeds and trains his own race horses and those of other owners, has the right to deduct input value added tax on the transactions relating to the preparation for horse races of his own horses and the participation of his own horses in races, on the ground that the costs pertaining to those transactions are part of the general costs linked to his economic activity, provided that the costs incurred in each of those transactions have a direct and immediate link with that overall activity. That may be the case if the costs thus incurred pertain to race horses actually intended for sale or if the participation of those horses in races is, from an objective point of view, a means of promoting the economic activity, this being a matter for the referring court to determine.

In a situation where such a right to deduct exists, any prize won by the taxable person on account of the placing of one of his horses in a race is not to be included in the taxable amount for value added tax purposes.

Article 98 of the Directive 2006/112, read in conjunction with point 14 of Annex III thereto, must be interpreted to the effect that the reduced rate of value added tax may not be applied to a single composite supply of services, made up of several components relating, inter alia, to the training of horses, the use of sporting facilities and the stabling, feeding and other care provided to the horses where the use of the sporting facilities, within the meaning of point 14 of Annex III to that directive, and the training of the horses constitute two components of that composite supply having equal status or where the training of the horses constitutes the main component of that supply, this being a matter for the referring court to assess.

Signatures

[Signatures]

( *1 ) Language of the case: Czech.

OPINION OF ADVOCATE GENERAL

WAHL

delivered on 14 June 2016 ¹

‛Taxation — VAT — Directive 2006/112/EC — Definition of ‘supply of services effected for consideration’ — Horse racing — Money prizes — Deduction of input VAT — Operation of racing stables — Use of sporting facilities’

1Provocatively, George Orwell wrote that serious sport is bound up with ‘disregard of all the rules’. ² By contrast, taxation of economic activities is one of the most regulated areas, not only within the Union. Therefore, at least when filing their tax returns and making the related payments to the State, professional sportsmen are required to comply with all the rules applicable to them.

2The present proceedings raise a number of issues on the applicability of the rules on value added tax (‘VAT’) to economic activities which consist of, or are related to, sports activities such as horseracing, or which involve the use of sporting facilities.

I – Legal framework

A – EU law

3Article 2 of the VAT Directive ³ provides:

‘1. 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 24 of the VAT Directive provides:

‘1. “Supply of services” shall mean any transaction which does not constitute a supply of goods.

…’

5Article 98 of the VAT Directive provides:

‘1. Member States may apply either one or two reduced rates.

2. The reduced rates shall apply only to supplies of goods or services in the categories set out in Annex III.

…’

6Annex III to the VAT Directive provides a list of supplies of goods and services to which the reduced rates referred to in Article 98 may be applied. Point 14 of that annex comprises the ‘use of sporting facilities’.

B – National law

7Paragraph 2(1) of the zákon č. 235/2004 Sb. o dani z přidané hodnoty (Law No 235/2004 on value added tax, ‘the Law on VAT’), in the version applicable to the tax period at issue, provides that transactions subject to tax include ‘the supply of services for consideration by a taxable person in the course of economic activity with the place of the transaction in the Czech Republic’.

8Paragraph 4(1)(a) of the Law on VAT provides that ‘consideration’ means ‘a sum of money or means of payment taking the place of money or the value of a non-monetary supply provided’.

9Paragraph 5(2) of the Law on VAT provides that economic activity means ‘the systematic activity of producers, traders and persons supplying services, including mining and agricultural activities and systematic activities carried on in accordance with special provisions of the law … Also regarded as economic activity is the exploitation of tangible or intangible property for the purpose of obtaining income, in so far as that property is exploited systematically …’

10Paragraph 14(1) of the Law on VAT states that the supply of services means ‘all activities which are not a supply of goods or a transfer of immovable property. The supply of services also means (a) the transfer of rights, (b) the provision of the right to exploit a thing or right or other asset exploitable as property, (c) the creation or extinguishment of a real servitude, (d) the acceptance of an obligation to refrain from certain conduct or tolerate certain conduct or a certain situation’.

11According to Paragraph 72(1) of the Law on VAT, a taxpayer has the right to deduct tax in so far as he uses the taxable supplies acquired for carrying out his economic activity.

12Paragraph 47(4) provides that in the case of services ‘the standard rate of tax applies unless this law provides otherwise. In the case of the services mentioned in Annex 2, the reduced rate of tax applies.’

13Annex 2 to the Law on VAT includes inter alia the service of ‘the use of covered and uncovered sports facilities for sports activities’.

II – Facts, procedure and the questions referred

14Ms Pavlína Baštová is registered as a taxable person for VAT. She is in the business, inter alia, of breeding and training racehorses. The stables used for this purpose were occupied partly by her own horses and partly by horses belonging to others entrusted to her to be prepared for races. In addition to racehorses, she also had two horses which she used for agrotourism and training of young horses, as well as breeding mares and foals.

15Part of Ms Baštová’s income came from prizes won by her horses and the trainer’s shares of prizes won by horses belonging to others. Another part came from payments for preparing horses belonging to others for the races.

16In the tax declaration for the fourth quarter of 2010, Ms Baštová claimed the right to full deduction of VAT on the taxable supplies acquired relating to (a) preparation of horses for races and participation in races, including expenditure on entrance fees, declaration fees and fees for assistance during races, (b) procurement of consumables for horses, their feed and equipment for riding, (c) veterinary services and medicines for the horses, (d) consumption of electricity in the stables, (e) consumption of fuel oil for transport, (f) procurement of rotor rakes for the production of hay and forage and of tractor equipment, (g) consultancy services in connection with the running of the stables. The supplies acquired concerned her horses and horses belonging to others.

17In the same tax declaration Ms Baštová also declared output VAT at the reduced rate of 10% on the service ‘operation of racing stables’ which she supplied to the other horse owners.

18The Finanční úřad v Ostrově (Tax Office, Ostrov) did not accept the claim for full deduction, nor did it agree with the reduced rate of VAT on the service ‘operation of racing stables’. Ms Baštová brought an appeal against that decision before the Finanční ředitelství v Plzni (Tax Directorate, Plzeň) which upheld the appeal in part. However it refused the claim for deduction of input VAT for the amount corresponding to the participation of Ms Baštová’s own horses in races since it considered that the running of her own horses in races did not constitute taxable transactions. In addition, the Finanční ředitelství v Plzni also did not accept the application of the reduced rate of VAT on the service ‘operation of racing stables’.

19Ms Baštová challenged the decision at issue by an action before the Krajský soud v Plzni (Regional Court, Plzeň), which agreed with her and annulled the decision, remitting the case to the Odvolací finanční ředitelství (Appellate Tax Directorate). The Odvolací finanční ředitelství brought an appeal against that judgment on a point of law before the Nejvyšší správní soud (Supreme Administrative Court).

20Entertaining doubts as to the interpretation of the provisions of the VAT Directive, the referring court decided to stay the proceedings and to refer the following questions to the Court for a preliminary ruling:

Is the supply of a horse by its owner (who is a taxable person) to the organiser of a race for the purpose of the horse’s running in a race a supply of services for consideration within the meaning of Article 2(1)(c) of [the VAT Directive] and thus a transaction subject to VAT?

If the answer is in the affirmative, must the prize money obtained in the race (which not every horse taking part in the race obtains, however), or the acquisition of the service consisting in the opportunity for the horse to run in the race which the organiser of the race provides to the owner of the horse, or some other consideration, be regarded as the consideration?

If the answer is in the negative, is that circumstance in itself a ground for reducing the deduction of input VAT on the taxable supplies acquired and used for the preparation of the breeder/trainer’s own horses for races, or must the running of a horse in a race be regarded as a component of the economic activity of a person who operates in the field of breeding and training his own and other owners’ racehorses, and the expense of breeding his own horses and running them in races be included in the overheads associated with that person’s economic activity? If the answer to that part of the question is in the affirmative, must prize money be included in the taxable amount and output VAT accounted for, or is this income which does not affect the taxable amount for VAT at all?

If for VAT purposes it is necessary to regard several part services as a single transaction, what are the criteria for determining their mutual relationship, that is, for determining whether they are supplies of equal status with each other or supplies in the relationship of a principal and an ancillary service? Does any hierarchy exist between those criteria as regards their ranking and weight?

Must Article 98 of [the VAT Directive] in conjunction with Annex III to that directive be interpreted as precluding the classification of a service under the reduced rate if it is composed of two part supplies which must be regarded for VAT purposes as a single supply and those supplies are of equal status with each other, and one of them may not in itself be classified in any of the categories set out in Annex III to [the VAT Directive]?

If the answer to Question 2b is in the affirmative, does the combination of the part service of the right to use sports facilities and the part service of a trainer of racehorses, in circumstances such as those of the present proceedings, preclude the classification of that service as a whole under the reduced rate of VAT mentioned in point 14 of Annex III to [the VAT Directive]?

If the application of the reduced rate of tax is not excluded on the basis of the answer to Question 2c, what influence on the classification under the relevant rate of VAT does the fact have that the taxable person provides, in addition to the service of the use of sports facilities and the service of a trainer, also stabling, feeding and other care of a horse? Must all those part supplies be regarded for VAT purposes as a single whole sharing the same tax treatment?’

21Written observations in the present proceedings have been submitted by the Czech Government and the Commission.

III – Analysis

A – First set of questions

22By its first set of questions, the referring court essentially asks the Court to clarify whether (i) the owner of racing stables may deduct the input VAT on transactions carried out in order to supply her own horses to a race organiser for the purposes of those horses running in a race, and (ii) the prize money obtained in a race should be subject to VAT.

23The Czech Government takes the view that the mere supply of a horse to a horse race organiser cannot be considered a supply of services for consideration, since consideration is lacking. In particular, this applies to the award of the money prizes at stake in the races, since those prizes are awarded to certain horses only. Therefore, the owner of the horse has no right to deduct input VAT for those purposes. By contrast, the Commission is of the view that both the entering of horses for a race, against payment of an entry fee and, where applicable, the award of a money prize for an outstanding performance by a horse in a race constitute taxable transactions, with the obvious consequences for the deductibility of input VAT.

24In order to provide a useful answer to the referring court, I shall start my analysis by addressing the issue specifically raised by question 1c.

25As follows from the order for reference, the referring court considers that the supply of race horses to race organisers by Ms Baštová is an integral part of her business. Regardless of the award of the money prizes at stake in the races, the very participation of her horses in those races (and even more so their possible success) is likely to enhance the fame and image of Ms Baštová. That has positive repercussions on the price she can charge for the sale of her horses and for the training of horses belonging to others.

26That is, to my mind, a crucial point. As the Court has consistently stated, it is clear from the provisions, scheme and purpose of the VAT Directive that any activity of an economic nature is, in principle, taxable. ⁴ The concept of ‘economic activity’ is defined broadly: according to Article 9(1) of the VAT Directive that concept includes, in particular, the ‘exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis’. That is consistent with recital 5 of the VAT Directive, according to which VAT is to be levied ‘in as general a manner as possible’.

27In the light of that case-law, the activity of a horse owner who, like Ms Baštová, operates racing stables and supplies her horses to race organisers with a genuine intent of obtaining economic benefits connected to her activities as horse trainer and breeder, as well as additional income from the prizes at stake, constitutes an economic activity under the VAT rules.

28It follows from the above that the owner of a racing stable, such as Ms Baštová, may lawfully deduct input VAT on the goods and services acquired for the preparation of her own horses for races.

29Clearly, my conclusion would be different were the supply of horses to race organisers not made in the context of a business activity. That may be the case, for example, where a horse owner participates to events only in pursuit of a personal hobby or merely as a means of claiming deduction of input VAT in relation to the upkeep of horses used only for private uses.

30In that regard, it may be useful to call to mind that, according to settled case-law, an activity is to be regarded as economic only if it is carried out for the purpose of obtaining income on a continuing basis ⁵ or, in other words, in return for remuneration. ⁶ However, income is not obtainable if an activity is carried out exclusively free of charge, ⁷ or without a real prospect of receiving some kind of remuneration in return. Therefore, an activity carried out, even by a taxable person, only as a hobby, for leisure, or without any prospect of receiving a direct or indirect economic benefit therefrom does not constitute part of that person’s economic activity. That has, in turn, obvious consequences on the deductibility (or non-deductibility) of the input VAT. The VAT Directive, in fact, also includes provisions regulating the situation of goods forming part of the assets of a business that are used privately by the taxable person. ⁸

31Having reached that conclusion, one additional issue must be addressed: whether the prize money obtained in a race should be subject to VAT. The answer to this question follows, in my view, from the answer proposed to the first part of question 1c.

32At the outset, I should point out that participation in competitions and other sporting events may often involve the provision of a number of separate, but closely related, services. ⁹ This means that, for the purposes of the VAT rules, there may be more than one transaction taking place between a participant (such as the owner of a horse entered for a race) and an event organiser. Importantly, depending on the specific circumstances, both the horse owner and the race organiser may be the supplier of one or more services to the other. In other words, both of them may be, at the same time, on the receiving side for some transactions and on the supplying side for others.

33Clearly, what constitutes a taxable transaction in any given case cannot be defined in abstract terms but depends on the specific characteristics of the agreement concluded between a horse owner and a race organiser in a given situation. ¹⁰ Broadly speaking, I can envisage at least three different sets of circumstances.

34To begin with, there may be situations in which a horse owner wishing to enter his horse for a race agrees to pay a fee to the race organiser. This is — according to the referring court — generally the case for the races in which Ms Baštová participates with her horses. To my mind, as in Town & County Factors, this transaction involves a ‘reciprocal performance’ within the meaning of the Court’s case-law. The fee paid by the horse owner constitutes consideration for the services that the race organiser supplies to her (organisation of the event, logistics and related services). ¹¹

35In addition, there may be situations where a horse owner — independently of the performance at the race — is paid by the race organiser for that participation. That may happen, for example, where a horse is particularly famous and its mere participation in a race is likely to increase the commercial value and prestige of the event. In that situation, the payment made by the race organiser to the horse owner constitutes consideration for the service rendered by the latter to the former in agreeing to let his horse participate in the event.

36Finally, as seems to happen in most races, the race organiser might award a number of prizes to the horses producing the best performance. To my mind that situation too gives rise to a taxable transaction for the purposes of VAT: the prize received by the horse owner constitutes consideration for the outstanding performance of the horse in the race, which has enriched the event by making it more interesting and valuable. The horse owner, by supplying his horses for the race, enables the organiser to arrange an event which the public may attend, which media undertakings may broadcast and which may be of interest to advertisers and sponsors. ¹² The race organiser would not be able to organise and market his event without a certain number of horses participating and, clearly, the greater the skills of the horses, ¹³ the greater the commercial value of the event. Therefore, it cannot be disputed that both the race organiser and the horse owner receive a direct and individual benefit from the transaction. ¹⁴ Accordingly, there is a direct link between the outstanding performance of a horse in a race (service supplied) and the payment of the prize (consideration received).

37The mere fact that a prize is not awarded to every horse participating in a race and that the award of a prize depends on the occurrence of an event that cannot be fully controlled by the parties does not mean that the underlying transaction does not involve any consideration. If a prize is eventually awarded, that prize constitutes, for the recipient, consideration actually received ¹⁵ for the purposes of Article 2(1)(c) of the VAT Directive. Accordingly, money prizes awarded in the context of horse races should, in principle, give rise to taxable transactions under VAT rules.

38The arguments put forward by the Czech Government against that position seem to me unconvincing. The fact that payment of consideration is subject to the fulfilment of a specific condition does not deprive the transaction of its onerousness.

39An example can probably clarify that point. If an individual requests the services of several estate agencies to assist him in the sale of his house, each of those agencies will perform some services to the benefit of that individual. They will all typically publish advertisements on different media, organise viewings with potential buyers and, more generally, give advice to the seller on how to maximise his chances of a sale. However, unless agreed otherwise, only the agency which finds a buyer usually receives, from the seller (and/or from the buyer), a pre-determined fee or commission, as a reward for its services, the others having worked for free. Yet it cannot be disputed that the amount of money paid to the successful agency constitutes consideration for the services rendered and, as a consequence, that the transaction is taxable under the VAT rules.

40The Court has, indeed, already stated that the economic activities of taxable persons, under the VAT rules, are those ‘carried on with the object of obtaining payment of consideration or which are likely to be rewarded by the payment of consideration’. ¹⁶ The Court has also confirmed that the fact that the amount of the consideration may vary does not call into question the existence of a direct link between a supply of services and the compensation to be provided. ¹⁷

41Returning to the topic of horse races, it should be pointed out that the payment of the prizes at stake is not voluntary, but constitutes a legal or contractual obligation for the race organiser. The number and the amount of the prizes at stake, and the conditions under which they are to be granted, are set in advance and known to the owners, who, by entering a horse for a race, agree to them. This point needs to be emphasised: only the identity of the winners is uncertain before the race. I should only add to that that the chance of winning a prize generally constitutes one of the key motivations for horse owners to enter their horses for races.

42Those are all elements which the Court, in Tolsma, considered relevant for assessing the existence of a direct link between the supply of a service and the compensation received in return. ¹⁸ Accordingly, the prize money obtained in a horse race should, to my mind, be subject to VAT.

43In the light of the proposed answer to question 1c, there is no need to answer questions 1a and 1b.

44For all those reasons, I am of the view that the Court should answer the first set of questions to the effect that: (i) insofar as the running of a horse in a race is a component of the economic activity of a person who operates in the field of breeding and training racehorses, the expenses related to that component give rise to deduction of input VAT; and (ii) the award of prizes to the horses producing the best performances gives rise to taxable transactions under the VAT Directive.

B – Second set of questions

45By its second set of questions, the referring court essentially seeks to know whether the operating of racing stables is, by virtue of point 14 of Annex III to the VAT Directive, as a whole subject to a reduced rate of VAT.

46The referring court explains that the service provided by Ms Baštová for the benefit of other horse owners — generally referred to in the main proceedings as ‘operation of racing stables’ — in reality consists of a combination of various services such as training of the horse, use of sports equipment, all-day accommodation in stables, feeding of and other care for the horse. In the light of the circumstances of the main action, the referring court is inclined to consider that the services supplied by Ms Baštová to the horse owners should be considered a single transaction and therefore be subject to a single VAT rate. However, that court is uncertain as to whether one or more of those services should be considered predominant and others should be regarded as ancillary. It thus asks the Court to indicate the criteria to be employed to that end. That is important insofar as some of the services supplied may involve the use of sporting facilities.

47The Czech Government and the Commission propose that the Court should answer the questions to the effect that the operating of racing stables is not, by virtue of point 14 of Annex III to the VAT Directive, as a whole subject to a reduced VAT rate.

48I agree.

49At the outset, I would call to mind that, in accordance with settled case-law, in certain circumstances, several formally distinct services, which could be supplied separately, must be considered to be a single transaction when they are not independent. There is a single supply where two or more elements or acts supplied by the taxable person to the customer are so closely linked that they form, objectively, a single, indivisible economic supply, which it would be artificial to split. Such is the case where one or more elements are to be regarded as constituting the principal service, whilst one or more elements are to be regarded, by contrast, as ancillary services which share the tax treatment of the principal service. ¹⁹

50On the basis of the information included in the order for reference, the position taken by the referring court as regards the indivisible nature of the services supplied by Ms Baštová seems reasonable to me. By purchasing her services, horse owners do not merely seek the training of their horses, or to be allowed to use the sporting facilities owned by Ms Baštová, but they also seek all-day accommodation and overall care for those animals. Despite the fact that each of those services could, in principle, be provided separately, it seems that the customers of Ms Baštová who conclude the contract referred to as ‘operating of racing stables’ seek precisely the combination of all those services. ²⁰ Put differently, it would appear that all the various services provided are so closely linked that they are regarded as parts of a single package by both the service supplier (Ms Baštová) and, more importantly, her customers (the owners). ²¹

51That said, the final determination as regards the fact that all those services constitute a single whole for determining the tax rate still falls to the referring court. Should that court confirm its preliminary view on this issue, it would then have to determine whether some of those services are to be regarded as predominant for the purposes of the VAT rules. Indeed, Ms Baštová argues that the services consisting in the use of sporting facilities are predominant and, as a consequence, the overall transaction must be subject to a reduced VAT rate.

52In that regard, it is important to point out that the Court has stated that a service is regarded as ancillary to a principal service in particular where it does not constitute for the customers an aim in itself, but a means of better enjoying the principal service supplied. ²² In distinguishing between main services and ancillary services the Court has also examined elements such as the importance of the various services for the customers, the time needed to supply them and the share of the total costs to be borne by the supplier for each service. ²³

53Against that background, the approach suggested by the referring court, consisting in examining, in particular, the relative value, and the time taken for the supply, of each service seems reasonable. Nor, however, would I disregard, in that context, the indications to be deduced from the costs to be sustained by Ms Baštová in her provision of each of those services (which is generally, but not necessarily, reflected in the value thereof) as well as the importance the customers attach to those services.

54At this juncture, however, before expanding my analysis on that point, I find it necessary to clarify the meaning and scope of point 14 of Annex III to the VAT Directive, according to which the ‘use of sporting facilities’ may be subject to a reduced rate of VAT.

55According to settled case-law, the application of either one or two reduced rates is an option accorded to the Member States as an exception to the principle that the standard rate applies. However, the reduced rates of VAT may be applied only to the supplies of goods and services specified in Annex III to the VAT Directive. ²⁴ It is also settled case-law that provisions which are in the nature of exceptions to a principle must be interpreted strictly. ²⁵ In addition, the Court has already held that the terms used in Annex III to the VAT Directive must be interpreted in accordance with the normal sense of the terms at issue. ²⁶

56That being so, I take the view that the concept of ‘use of sporting facilities’ covers activities which are strictly related to the practice of sports by individuals. The use of the facilities is thus instrumental to the practice of sports by individuals. Accordingly, point 14 of Annex III to the VAT Directive, like Article 132(1)(m) of the same directive, ²⁷ seeks in my view to promote the practice of sports ²⁸ by large sections of the population. ²⁹ In other words, the purpose of that provision is to encourage individuals to practise forms of physical activity which, through casual or organised participation, contribute to expressing or improving physical fitness and mental well-being, forming social relationships or obtaining results in competition. ³⁰

57An interpretation of the concept of ‘use of sporting facilities’ that would extend it to include also all the activities (inter alia, all-day accommodation of the horse in stables, feeding and other activities of care for the horse) and the facilities (which might include riding equipment, feed, cleaning products, the stables and stalls, the school, the grass area, the washing area, the rest areas and storage) referred to in the order for reference would excessively enlarge the scope of that exception. ³¹

58That interpretation would also be inconsistent with the normal sense, in everyday language, of the concept of ‘use of sporting facilities’. It seems to me that, generally, that concept ought to be understood as referring to the use of immovable facilities, ³² having a permanent (such as swimming pools, race tracks, sports halls and fitness centres) or temporary character (such as public squares, beaches or lands provisionally set up as sports grounds for a specific event), ³³ by individuals who are actually training or participating in a competition.

59Therefore, whereas the use of facilities such as, for example, the training track by individuals practising horse riding may fall within the exception provided for in point 14 of Annex III to the VAT Directive, the same cannot be said with regard to all the activities required for operating a racing stable, ³⁴ as described by the referring court. In particular, when a horse is simply fed, cleaned, or cared for by staff, or when it is merely resting in the stables or in the paddocks, there is no use of sporting facilities for the purposes of the VAT Directive. That is so not only because no sporting facilities are being used, but also because no individuals are exercising any form of sport.

60The national court must bear that in mind when it weighs the value, duration, cost and importance of the services consisting in the use of sporting facilities against the value, duration, cost and importance of the other services.

61On my understanding of the file, the activities consisting in the use of sporting facilities do not exceed, in terms of value, duration, costs or importance, the other services. Activities such as feeding and providing all-day accommodation and general care for horses do not seem to me to be services of relatively low value: they all seem crucial to ensure the well-being of the horses and their fitness in order to produce their best performance in sporting activities or activities of another nature. In any event, they certainly require important investments by the owner of the stables which, I assume, should be reflected in the price of each of those services — were Ms Baštová to break down the overall price according to the various services. Nor are those services, to my mind, of lesser importance in the eyes of the average horse owner: ³⁵ I can hardly imagine those owners not being particularly concerned with the health and well-being of their animals. Finally, I suspect that the vast majority of the time spent by a horse in Ms Baštová’s racing stables is in the indoor and outdoor resting areas, the stalls, the feeding areas, and so forth. These are all areas which, as explained above, cannot be regarded as ‘sporting facilities’ within the meaning of the VAT Directive.

62For all those reasons, I propose to answer the second set of questions to the effect that, subject to verification by the national court, the operating of racing stables cannot be as a whole subject to a reduced VAT rate by virtue of point 14 of Annex III to the VAT Directive.

IV – Conclusion

Conclusion

63In conclusion, I propose that the Court answer the questions referred for a preliminary ruling by the Nejvyšší správní soud (Supreme Administrative Court, Czech Republic) as follows:

insofar as the running of a horse in a race is a component of the economic activity of a person who operates in the field of breeding and training racehorses, the expenses related to that component give rise to deduction of input value added tax. The award of prizes to the horses producing the best performances gives rise to taxable transactions under Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax;

subject to verification by the national court, the operation of racing stables cannot as a whole be subject to a reduced rate of value added tax by virtue of point 14 of Annex III to Directive 2006/112.

¹ Original language: English.

² ‘The Sporting Spirit’, The London Tribune, December, 1945.

³ Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347 p. 1).

⁴ See, inter alia, judgment of 29 October 2015 in Saudaçor, C‑174/14, EU:C:2015:733, paragraph 31 and the case-law cited.

⁵ See judgment of 20 June 2013 in Finanzamt Freistadt Rohrbach Urfahr, C‑219/12, EU:C:2013:413, paragraph 18.

⁶ See judgments of 13 December 2007 in Götz, C‑408/06, EU:C:2007:789, paragraph 18, and 29 October 2009 in Commission v Finland, C‑246/08, EU:C:2009:671, paragraph 37.

⁷ Opinion of Advocate General Kokott in Gemeente Borsele and Staatssecretaris van Financiën, C‑520/14, EU:C:2015:855, point 48 and the case-law cited.

⁸ See, in particular, Article 26 of the VAT Directive. See also Article 184 and following of the same directive.

⁹ See, by analogy, judgment of 11 April 2000 in Deliège, C‑51/96 and C‑191/97, EU:C:2000:199, paragraph 56.

¹⁰ See, to that effect, judgment of 21 February 2013 in Becker, C‑104/12, EU:C:2013:99, paragraphs 21 and 22.

¹¹ Judgment of 17 September 2002 in Town & County Factors, C‑498/99, EU:C:2002:494, paragraph 20.

¹² See, to that effect, judgment of 11 April 2000 in Deliège, C‑51/96 and C‑191/97, EU:C:2000:199, paragraph 57.

¹³ A horse running fast is also likely to make other horses run faster. As Publius Ovidius Naso (Ovid) (43 BC–17 AD) wrote, ‘tum bene fortis equus reserato carcere currit /cum quos praetereat quosque sequatur habet’ (‘when the gate is open, a horse never runs so fast/as when he has other horses to catch up and outpace’) (Ars Amatoria, Book III, 595-596).

¹⁴ See, to that effect, judgment of 8 March 1988 in Apple and Pear Development Council, 102/86, EU:C:1988:120, paragraph 14.

¹⁵ See, to that effect, judgment of 17 September 2002 in Town & County Factors, C‑498/99, EU:C:2002:494, paragraph 27 and the case-law cited.

¹⁶ Judgment of 1 April 1982 in Hong-Kong Trade Development Council, 89/81, EU:C:1982:121, paragraph 11 (emphasis added).

¹⁷ Judgment of 29 October 2015 in Saudaçor, C‑174/14, EU:C:2015:733, paragraph 37.

¹⁸ Cf. judgment of 3 March 1994, C‑16/93, EU:C:1994:80, paragraphs 17 and 19.

¹⁹ See judgment of 17 January 2013 in BGŻ Leasing, C‑224/11, EU:C:2013:15, paragraph 30 and the case-law cited.

²⁰ Cf. judgment of 19 July 2012 in Deutsche Bank, C‑44/11, EU:C:2012:484, paragraphs 24 and 25.

²¹ See, to that effect, Opinion of Advocate General Sharpston in Deutsche Bank, C‑44/11, EU:C:2012:276, point 27.

²² See judgment of 17 January 2013 in BGŻ Leasing, C‑224/11, EU:C:2013:15, paragraph 41 and the case-law cited

²³ See, among others, judgments of 11 February 2010 in Graphic Procédé, C‑88/09, EU:C:2010:76, paragraph 32; 29 March 2007 in Aktiebolaget NN, C‑111/05, EU:C:2007:195, paragraph 36; and 27 October 2005 in Levob Verzekeringen and OV Bank, C‑41/04, EU:C:2005:649, paragraph 28.

²⁴ See, among many, judgment of 17 June 2010 in Commission v France, C‑492/08, EU:C:2010:348, paragraph 35 and the case-law cited.

²⁵ Ibid.

²⁶ See judgment of 4 June 2015 in Commission v Poland, C‑678/13, EU:C:2015:358, paragraph 46 and the case-law cited.

²⁷ That provision includes ‘the supply of certain services closely linked to sport or physical education by non-profit-making organisations to persons taking part in sport or physical education’ among the transactions which Member States must exempt.

²⁸ As regards the concept of ‘sports’ under the VAT rules, which is an autonomous concept of EU law, see judgment of 21 February 2013 in Město Žamberk, C‑18/12, EU:C:2013:95, paragraph 17.

²⁹ See, by analogy, judgment of 19 December 2013 in The Bridport and West Dorset Golf Club, C‑495/12, EU:C:2013:861, paragraph 20 and the case-law cited.

³⁰ Cf. Article 2(1)(a) of the European Sports Charter, adopted by the Committee of Ministers of the Council of Europe on 24 September 1992, as amended.

³¹ See, to that effect, by analogy, judgment of 8 March 2012 in Commission v France, C‑596/10, EU:C:2012:130, paragraph 54.

³² Whereas the term in the English language version of Directive 2006/112 might be ambivalent on this point, other language versions of that directive are quite clear: for example, in Danish (‘sportsfaciliteter’), German (‘Sportanlagen’), Spanish (‘instalaciones deportivas’), French (‘installations sportives’), Italian (‘impianti sportivi’), Dutch (‘sportaccomodaties’), Portuguese (‘instalações desportivas’), Romanian (‘instalațiilor sportive’), and Swedish (‘sportanläggningar’).

³³ Cf. Swinkels, J.J.P., ‘Sports under EU VAT’, International VAT Monitor, 2 July 2010, No 4, pp. 280 and 281.

³⁴ See, to that effect, by analogy, judgment of 8 March 2012 in Commission v France, C‑596/10, EU:C:2012:130, paragraph 55.

³⁵ That element must be assessed from the point of view of the typical consumer, who must be determined on the basis of objective factors. The fact that some individual customers may have a different point of view is irrelevant. See, to that effect, judgment of 21 February 2013 in Město Žamberk, C‑18/12, EU:C:2013:95, paragraphs 33 and 35.