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4. Article 13(A) concerns exemptions for 1 — Original language: English. 'certain activities in the public interest'. In 2 — Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to that category, Article 13(A)(1) lists a num- turnover taxes — Common system of value added tax: uniform basis of assessment, OJ 1977 L 145, p. 1 ('the Sixth ber of transactions which must be Directive'). exempted by Member States, including

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'(m) certain services closely linked to sport 4. hire of safes. or physical education supplied by non- profit-making organisations to persons tak- ing part in sport or physical education'.

5. Article 13(B) lists other mandatory Member States may apply further exclu- exemptions, one of which is: sions to the scope of this exemption'.

'(b) the leasing or letting of immovable property excluding:

8. VAT in Sweden is governed by the VAT Law (Mervärdesskattelagen), under which all supplies of goods or services are taxable unless otherwise provided. Exemptions relating to immovable property are con- tained in Articles 2 and 3 of Chapter 3 of 10. With effect from 1 January 1997, how- that Law. Article 2 exempts transactions ever, the disputed provision was repealed. including the assignment and grant of In its stead, a new Article 11a was intro- leases, tenancy rights, housing cooperative duced, exempting inter alia services allow- rights, leasehold rights, servitudes and ing individuals access to sports events or other rights in immovable property. Prior the opportunity to engage in sports or to 1 January 1997, it contained a second physical education, but only where those paragraph ('the disputed provision') which services are provided by the State, a local provided: authority or a non-profit-making associa- tion.

'The exemption from value added tax shall also cover the supply of premises or other facilities or part thereof for the purpose of the practice of sport or physical education, Proceedings as well as in connection therewith the making available of sports accessories or other equipment for the practice of sport or physical education.'

11. Stockholm Lindöpark Aktiebolag ('Lindöpark') is a company established in Vallentuna, Sweden, whose principal activ- ity is the running of a commercial golf 9. It appears from documents produced to course. Its customers in that regard are the Court that in 1994, in preparation for exclusively business undertakings which Sweden's accession to the Community, the wish to offer their staff and clients rounds Swedish parliament made a number of of golf on the course. Those customers, it amendments to the VAT Law. An expert appears from what was said at the hearing, report commissioned by the government pay a 'membership fee' which entitles them suggested that the disputed provision was to book rounds on the course for persons not in conformity with Community law, they select.

13. In 1996, Lindöpark brought proceed- ings against the Swedish State before Solna Tingsrätt (Solna District Court), seeking damages of SEK 541 632. That sum, it appears from the observations submitted to the Court, was made up of SEK 500 000 16. Having regard to the arguments of the (an amount agreed between the parties) parties, that court has sought a preliminary representing input tax which Lindöpark ruling on the following questions: had been unable to deduct in 1995 and SEK 41 632 by way of interest to compensate for the lack of availability of the principal sum. No reference appears to have been made to the amount of output tax which would have been payable if the exemption had not been applied. ' 1 . Do t h e p r o v i s i o n s of A r t i - cle 13(A)(l)(m) and 13(B)(b) of the 3 — In discussions of the relationship between two transactions of which one is a cost component of the other, the former is commonly referred to as an 'input' and the latter as an Output', the VAT on each being referred to respectively as 4 — Case C-479/93 Francovich v Italian Republic [1995] ECR 'input tax' and Output tax'. I-3843.

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Sixth VAT Directive preclude national 17. Lindöpark, the Swedish State as party legislation providing for a general to the main proceedings and the Commis- exemption from VAT for the supply sion have all submitted written and oral of sports facilities, as laid down in the observations to the Court. The United second paragraph of Article 2 of Chap- Kingdom Government submitted oral ter 3 of the Swedish VAT Law, in the observations at the hearing. version in force before 1 January 1997?

(a) In general

22. It may first of all be noted that — as is accepted by all those who have submitted observations in this case — the exemption 19. The Swedish State argues that the in Article 13(A)(1)(m) is confined to non- provision was justified on the basis of profit-making bodies. 6 Article 13(B)(b) of the Sixth Directive, since the services exempted constituted 'leasing or letting of immovable property', that is to say the making available of property for use by a third party for a limited period in exchange for considera- tion; nothing in Article 13(B)(b) confines the exemption to leasing or letting for 23. Secondly, the exemption in Arti- defined purposes or periods. At the hearing, cle 13(B)(b) cannot apply to anything other the Swedish State stressed that the fact that than the leasing or letting of immovable Article 13(A)(1)(m) exempts 'certain' property, a concept which, in turn, cannot sport-related services provided by non- extend to all transactions granting access to profit-making organisations does not mean immovable property, whether for the pur- that no such services can be exempted on pose of practising sport or physical educa- other permitted grounds when provided by tion or for any other purpose, regardless of commercial undertakings. the characteristics of such access, but must in my view be limited by certain of the characteristics inherent in a contract of leasing or letting. Although these will of necessity vary in detail as between national

5 — See, for example, Case 348/87 Stichting Uitvoering Finan- ciële Acties v Staatssecretaris van Financiën [1989] ECR 1737, paragraph 13 of the judgment, Case C-149/97 Institute of the Motor Industry v Commissioners of 20. Lindöpark submits that the provisions Customs and Excise [1998] ECR 7053, paragraph 17, and of Article 13(A)(1)(m) and (B)(b) implicitly most recently, Case C-216/97 Gregg v Commissioners of Customs and Excise [1999] ECR I-4947, paragraph 12. preclude any national rule containing 6 — See, if confirmation were needed, Case C-124/96 Commis- exemptions broader than those in the sion v Spain [1998] ECR I-2501, paragraph 17 of the judgment and point 5 of Advocate General La Pergola's directive. Opinion.

25. Since VAT is a general tax on con- sumption which must apply to all transac- tions in respect of which no authorised exemption is possible, the national court's first question may thus be answered in general terms similar to those in which it is posed, to the effect that a national provi- sion laying down a general exemption from VAT for all transactions making premises and other facilities available for the prac- tice of sport or physical education is 24. There is no need at the present stage to contrary to the provisions of the Sixth define the concept of leasing or letting any Directive. further. The disputed provision was a general one exempting all supplies of premises or other facilities for sports or physical education purposes. 9 Although contained in a part of the VAT Law dealing with exemptions relating to immovable property, its wording was thus such as to cover not only services exempted under Article 13(B)(b) because they constituted (b) With specific regard to Lindöpark's leasing or letting of immovable property activities

7 — Case C-358/97 Commission v Ireland (2000] ECR I-6301, ECR I-6304, especially at paragraphs 61 to 68 of the Opinion and Case C-359/97 Commission v united Kingdom [2000] ECR I-6355, ECR I-6358, especially at paragraphs 74 to 82. 26. However, for the purposes of the main 8 — Paragraph 56 of the judgment in Case C-358/97, paragraph proceedings it is not enough to establish 68 of the judgment in Case C-359/97. 9 — Together with supplies of accessories or equipment in merely that the exemption laid down in the connection therewith, although the national court's question disputed provision went beyond what was refers only to the exemption for premises and other facilities, not for accessories and equipment. permitted by the Sixth Directive and was to

27. The Swedish State submits that the 28. The concept of 'leasing and letting of system of exemptions is wide-ranging and immovable property' is not defined in the that categorisations are not always self- directive. Nor, as pointed out by the evident. The relevant provision has never Swedish State, has the Court yet been been interpreted by the Court in a situation called upon to provide any comprehensive such as the present, although in 1997 a definition. To the extent that the Court had German court asked, in a reference which considered the matter before the present was later withdrawn, 10 whether the hiring- request for a preliminary ruling was made, out of tennis courts constitutes 'leasing or it was concerned mainly with the scope of letting of immovable property', showing the exclusions for hotel and similar accom- that the question is not clear. Both Ger- modation 12 or for premises and sites for many and the United Kingdom treat the parking vehicles 13 and with the status of a making available of sports facilities as such transaction surrendering a lease. 14 Since leasing or letting, at least in certain circum- then, however — and indeed since the stances. 11 Lindöpark and the Commission, however, consider that the provisions of Article 13(A)(1)(m) and (B)(b) are perfectly 12 — Case C-346/95 Blasi v Finanzamt München I [1998] ECR I-481, in particular at paragraph 23 of the judgment. 13 —Case 173/88 Skatteministeriet v Henriksen [1989] ECR 2763, in particular paragraphs 10 to 17 of the judgment. 14 — Case C-63/92 Lubbock Fine v Commissioners of Customs 10 — Case C-79/97 Happy Sports Michl v Finanzamt Landshut, and Excise [1993] ECR I-6665. Two further cases removed from the register on 1 December 1997. currently before the Court, Case C-409/98 Commissioners 11 — Although this assertion appears to be based on the of Customs and Excise v Mirror Group and Case C-108/99 observations submitted to tne Court in Happy Sports Commissioners of Customs and Excise v Cantor Fitzgerald Michl, it seems from what was said at the hearing to be International, concern variants of the situation dealt with correct as regards the United Kingdom. in Lubbock Fine.

31. First, there is the general question whether the transaction should be regarded as the occupation of the immovable prop- 29. In any event, that concept, like all the erty or as the supply of services for which exemptions from VAT laid down in the the property is an incidental, albeit essen- Sixth Directive, must be given a Commu- tial, prerequisite. nity definition and cannot be allowed to vary from one Member State to another. 16 And, as the Commission has stressed, the Court has consistently held that the exemp- tions under Article 13 of the Sixth Direc- tive must be interpreted strictly. 17 Conse- quently, the type of broad definition of leasing and letting argued for by the 32. An example of that distinction might be Swedish State, and by the United Kingdom provided by comparing the provision of Government at the hearing, cannot be accommodation in a hotel — which could accepted. be considered to fall within the Community definition of 'leasing and letting' for these purposes on the ground that otherwise there would have been no need to exclude it from the exemption 18 — with the pro- vision of a meal in the hotel restaurant. Whereas the occupation of a hotel bedroom 30. Although it is for the national court to for one or more nights (or even for a ascertain the precise nature of the transac- shorter period) may well be classified as a tions in question, I consider for at least two let in various legal systems, this is unlikely ever to be the case for the consumption of a meal in the public dining room in the same 15 — Judgments of 12 September 2000, cited above in note 7, at hotel. In the case of the occupation of a paragraphs 56 and 57 of the judgment in Case C-358/97, paragraphs 68 and 69 of the judgment in Case C-359/97. 16 — See Stichting Uitvoering Financiële Acties, cited in note 5, paragraph 11 of the judgment, Case C-453/93 Bulthuis- 18 — Although such reasoning may be not entirely conclusive. Griffioen v Inspecteur der Omzetbelasting [1995] ECR The fact that Anicie 13(B)(b)(1) excludes the provision of I-2341, paragraph 18, and Case C-2/95 SDC v Skattemi- hotel or similar accommodation from the exemption does nisteriet [1997] ECR I-3017, paragraph 2 1 ; see also not necessarily imply that the provision or all such paragraph 21 of the Opinion of Advocate General Darmon accommodation would necessarily have fallen within the in Lubbock Fine, cited in note 14. exemption; it may be that the Community legislator merely 17 — See note 5 above; see also Bulthuis-Griffioen, cited above sought to ensure that such accommodation w a s always in note 16, paragraph 19 of the judgment, and SDC, ibid., treated in the same way, regardless of whether it fell within paragraph 20. the definition of 'leasing and letting' or not.

34. It is clear that some transactions mak- ing sports facilities available may constitute leasing or letting of immovable property, while others do not. If a sports field belonging to a private owner is placed at the exclusive disposal of a club or other sporting entity for a lengthy period in exchange for payment, that clearly falls within the definition. Where, however, an individual pays an entrance fee to gain transient access, amongst other individuals, to a public swimming pool, it would be stretching the concept beyond any reason- able limit to regard such a transaction as 36. Only the national court can make the leasing or letting. findings of fact necessary to categorise Lindöpark's activities but in doing so it should bear in mind that, in order to be classified as a lease or let of immovable property, a contract must not lack any of the essential characteristics of a lease or let and, in the words of Advocate General Alber in his Opinion — alluded to at the

35. A similar contrast may be drawn with specific regard to a golf course. If a person 19 — 'Golf is a good walk spoiled' (Mark Twain).

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hearing in this case by the United Kingdom to occupy the property as one's own and to Government — in the 'road toll' cases, 20 exclude or admit others, a right which is, 'the characteristics of a lease should pre- moreover, linked to a defined piece or area dominate in the contract'. of property. In the light of all those considerations, Lindöpark's activities, as described to the Court, do not appear to me to be of the nature of a lease or let of its golf course or any part thereof.

22 — Annex H was appended to the Sixth Directive by Article 1(5) of Council Directive 92/77/EEC of 19 Octo- ber 1992 supplementing the common system of value 38. I would add, as salient and typical added tax and amending Directive 77/388/EEC, OJ 1992 characteristics of a lease or let, that it L 316, p. 4. 23 — The word 'anläggningen' used in the Swedish version of necessarily involves the grant of some right item 13 is identical to that used (for facilities) in the disputed provision and by the national court in its first question. This type of transaction also seems comparable to 'admissions to shows, theatres, circuses, fairs, amuse- ment parks, concerts, museums, zoos, cinemas, exhibitions 20 — Cited in note 7; see paragraph 76 of the Opinion. and similar cultural events and facilities' in item 7 in the 21 — See paragraph 28 above. list in Annex H.

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referred to before this Court. In its absence, combination with those of Articles 2, 6 and I consider that provision of the 'use of 17, of the Sixth Directive confer on indivi- sporting facilities' on a commercial basis duals rights on which they can rely as falls conclusively within the category of against Member States before a national taxable transactions in the scheme of the court. I consider however that, since what Sixth Directive. Lindöpark seeks to establish is essentially its right to deduct input tax, the issue is rather whether Article 17, in combination with the other provisions, confers such rights.

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On the ground that it was prevented from in the event of an unjustified exemption in deducting VAT on its input transactions national law. because its output transactions were wrongly classified as exempt, it seeks from the Swedish State an amount of damages based on the loss it claims to have suffered in that regard. In its observations, the Swedish State has stressed that Lindöpark chose to seek redress in this manner rather Criteria for State liability than by submitting the question of its tax debt and concomitant entitlement to deduct to a competent tax court. 50. It is settled law that a Member State may incur liability for loss caused to individuals as a result of breaches of Community law for which it can be held responsible. Such breaches include in par- ticular cases where a directive has been 48. It should be pointed out in that con- incorrectly transposed. 29 The right to nection that where a taxable person has reparation cannot be excluded on the wrongly been prevented from deducting ground that the provision infringed may VAT, the remedy may often be a retroactive be relied upon directly before the national adjustment of the tax situation. Not only courts. 30 does this follow from the direct effect of the relevant provisions but Article 20(1 )(a) of the Sixth Directive provides for adjustment of the initial deduction, in particular where it was higher or lower than that to which 51. Community law confers a right to the taxable person was entitled, and the reparation where three conditions are met: Court has confirmed that Member States the rule of law infringed must be intended must make provision in their internal legal to confer rights on individuals; the breach systems for the correction of errors. 28 must be sufficiently serious; and there must be a direct causal link between the breach

of the obligation resting on the State and — Rights conferred on individuals the loss sustained by the injured party. 31 In Dillenkofer, 32 with particular regard to situations involving a failure to transpose a directive, the Court additionally formu- lated the first condition in a slightly differ- ent way — the result prescribed by the directive must entail the grant of rights to 53. The Swedish State concedes that Arti- individuals and the content of those rights cle 13 of the Sixth Directive confers a right must be identifiable on the basis of the to exemption and Article 17 a right to provisions of the directive — whilst stres- deduction, on both of which individuals sing that the two formulations were in may rely before a national court. However, substance the same. the right to deduct is dependent on the obligation to pay VAT, which cannot be considered to be a right conferred on individuals. Specifically, individuals cannot claim a right to deduct input tax when they have paid no output tax.

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persons making supplies in other circum- law is sufficiently serious where, in the stances. exercise of its legislative powers, the Mem- ber State manifestly and gravely disregar- ded the limits on its discretion in that regard. The factors which the competent court may take into consideration include the clarity and precision of the rule brea- 56. Here, I agree essentially with Lindo- ched, the measure of discretion left by that park. Although the case-law refers in rule to the national authorities, whether the general to 'rights' conferred on individuals, infringement and the damage caused were it is of course essential that the rule of law intentional or involuntary, whether any infringed should be intended to confer the error of law was excusable or inexcusable, particular right in respect of which the and whether the position taken by a claim for damages is made. In the main Community institution may have contrib- proceedings in the present case, Lindöpark uted to the omission or, as the case may be, is claiming damages in respect of a failure to the adoption or retention of national to allow it to deduct input tax. The right to measures or practices contrary to Commu- deduct input tax is one conferred by nity law. 39 In the context of breaches Article 17(2) of the Sixth Directive, which involving the inadequate implementation has been recognised — as accepted by the of a directive, the Court has concentrated Swedish State — as conferring rights on more particularly on the first two factors, individuals on which they may rely before a although the others may remain relevant. national court. 37 Its content is clearly identifiable from the terms of Article 17(2), read in conjunction with the other relevant provisions. A national provision exempting transactions for which there is no basis for exemption under the Sixth Directive denies individuals that right and thus infringes a rule intended to confer rights on indivi- duals.

committed the infringement, the Member when referring to a 'sufficiently serious State in question was not called upon to (clear) breach' in its question. make any legislative choices and had only considerably reduced, or even no, discre- tion, the mere infringement of Community law may be sufficient to establish the existence of a sufficiently serious breach. 40 60. Thus, in any event — echoing the Court's basic definition of a manifest and grave disregard by the relevant entity of the limits on its discretion — a clear-cut breach — an act or omission about which there can be no doubt that it goes frankly beyond what is permitted by Community law — will normally be a breach serious enough for the Member State responsible to 59. Another instance is the situation where incur liability. the breach is particularly obvious. In French, the Court has always used — originally with regard to liability incurred by the Community — the term 'violation suffisamment caractérisée'. This is now normally translated into English as 'suffi- ciently serious breach'. However, the 61. These are, as I have said, properly underlying meaning of 'caractérisé', which matters for the national court to decide, but gives rise to its inherent implication of this Court may give guidance when it is in a seriousness, includes the notion that the position to do so. 42 That, I consider, is the breach (or other conduct) has been clearly case here. I shall accordingly consider in established in accordance with its legal turn the factors regarded by the Court as definition, in other words, that it is a significant. definite, clear-cut breach. This may help to explain why the term was previously translated 41 as 'sufficiently flagrant viola- tion' and may throw additional light on the choice of factors which the Court has indicated should be taken into considera- tion when deciding whether a breach is 'sufficiently serious'. Svea Hovrätt may (a) Clarity and precision have had similar considerations in mind

and unconditional in order to have direct transactions are distinguished from normal effect and the factor of clarity and precision instances of the provision of sports facilities to be taken into account when considering by having all the essential characteristics of whether the breach of a provision is a lease or let and unless those character- sufficiently serious to give rise to liability istics predominate in the contract. on the part of the State. In the former case, the possible need for clarification by inter- pretation is no bar to direct application by the courts. In the latter case, the focus is on the breach itself and whether the act or omission involved was of a kind whose inconsistency with the Community law p r o v i s i o n in q u e s t i o n c a n n o t be doubted — if so, unless there is doubt as 65. On those same grounds and subject to to the application of that provision in the the same proviso, I consider that there is no particular circumstances in issue, the room for any doubt that Lindöpark's breach will be clear-cut and thus normally activities, as they have been described to 'sufficiently serious'. the Court, are taxable and that any appli- cation to them of the general exemption, itself indisputably in excess of what is authorised by the Sixth Directive, is a clear breach of Community law, sufficient in itself to give rise to State liability. In particular, item 13 in Annex H to the Directive is a clear indication that the provision of sports facilities is in principle 63. In this case, the question is whether the a taxable transaction. The position would application to Lindöpark's activities of the change only if the facts found by the exemption in the disputed provision fell national court showed that Lindöpark's clearly outside the terms of Article 13(B)(b) activities did not in fact fall within that of the Sixth Directive. (There can be no category but were distinguished and char- d o u b t t h a t it fell o u t s i d e Arti- acterised by the features of a lease or let. cle 13(A)(1)(m).)

67. The Swedish State points in particular to the Member States' discretionary power, under the last sentence of Article 13(B)(b), 69. It is thus clear that the provisions cited to apply further exclusions to the scope of afforded the Member States no latitude to the exemption for leasing and letting. introduce or maintain legislation exempt- Lindöpark submits that the Sixth Directive ing from VAT services such as those pro- allows Member States a certain discretion vided by Lindöpark. only in specific cases, and that Arti- cle 13(A)(1)(m) is not one of them. Sweden was not given any latitude in the Treaty of Accession, nor is there any ground for allowing new Member States any wider margin of discretion than others. The Commission considers that the provisions of Article 13(A)(1)(m) and (B)(b) preclude an exemption in the circumstances of this (c) Intentional or unintentional nature of case and do not allow any margin of the breach; excusable or inexcusable nature discretion in that regard. of the error in law; contribution of a position taken by a Community institution

70. Having reached the view that applica- 68. I agree with Lindöpark and the Com- tion of the exemption to Lindöpark's mission. There was no margin of discretion available — or none of such a kind as to allow Member States to extend the exemp- 44 — See Case C-124/96 Commission v Spain, cited above in note 6, in particular note 5 to Advocate General tions in the way done by the disputed La Pergola's Opinion.

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activities constituted a clear breach of the approach was wrong when implementing Sixth Directive in a context which allowed the Sixth Directive on acceding to the Member States no legislative discretion, I European Union; nor did the Commission shall deal only briefly with the remaining initiate any infringement proceedings con- factors which the Court has identified as cerning the pre-1997 version of the law. relevant. I consider, however, that they too Thus, in accordance with British Telecom- tend to confirm the existence of a 'suffi- munications, 45 the State should not be held ciently serious breach' in the circumstances liable. of this case.

72. Finally, the Swedish State submits that, 45 — Cited in note 28; cf. paragraphs 42 to 45 of the judgment. in the absence of a Court ruling on the 46 — See paragraphs 43 and 44 of the judgment. matter, it had no reliable indication that its 47 — Cited in note 29; see paragraphs 59 to 64 of the judgment.

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absence of a clarifying judgment only in the — Direct causal link context of breaches which were not already clear from the previous state of the law.

76. The existence of a direct causal link 74. Since, in my view, there is no room for between the breach of the obligation rest- any doubt in the present case as regards the ing on the State and the loss sustained by import of the relevant Community provi- the injured party is the final condition sions but only (conceivably) as regards the which must be met for a right to reparation factual nature of Lindöpark's business, I do to arise. Again, this is primarily a matter not regard that case-law as in any way for the national court, although this Court relevant here. may provide guidance, or even make a specific ruling where it has sufficient infor- mation at its disposal.

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79. It appears that what is being sought in supplies on which they can deduct the the main proceedings is an agreed principal whole of the VAT. sum of SEK 500 000, equivalent (presum- ably in round figures) to the amount of VAT which Lindöpark was unable to deduct during the relevant period (appar- ently 1995), together with interest thereon, which is still in dispute.

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Conclusion

82. I am therefore of the opinion that the national court's questions should be answered in the following way:

(1) A national provision laying down a general exemption from VAT for all transactions making premises and other facilities available for the practice of sport or physical education is contrary to the provisions of the Sixth Council Directive 77/388/EEC of 17 May 1977.

The commercial provision of premises or other facilities for the purpose of practising sport or physical education may not in principle be exempted from VAT. In order to qualify for exemption under Article 13(B)(b) of the Sixth Directive, a transaction must be distinguished from normal instances of the provision of sports facilities by having the essential characteristics of a lease or let, which include the grant of a right to occupy a defined piece or area of immovable property as one's own and to exclude or admit others, and an agreement between the parties taking account of the duration of that occupation, in particular as a criterion for determining the price; such characteristics must, moreover, predominate in the contract.