C-174/00

OPINION OF MR JACOBS — CASE C-174/00

OPINION OF ADVOCATE GENERAL JACOBS delivered on 13 December 2001 1

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such exemptions and of preventing any 8. The condition set out in the first indent, possible evasion, avoidance or abuse'. which is of particular relevance here, is that the bodies in question 'shall not system- atically aim to make a profit, but any profits nevertheless arising shall not be distributed, but shall be assigned to the continuance or improvement of the services supplied'. 5. Those activities include, under (m), 'cer- tain services closely linked to sport or physical education supplied by non-profit- making organisations to persons taking part in sport or physical education'. It is that exemption which is relevant in par- ticular to the dispute in the present case. It may be noted that in most of the language versions the concept of a non-profit-mak- 9. Again, it is not necessary to list the other ing organisation refers explicitly to one conditions, but it may be noted that the which does not aim to make a profit. condition set out in the fourth indent is that 'exemption of the services concerned shall not be likely to create distortions of com- petition such as to place at a disadvantage commercial enterprises liable to value added tax'.

6. There are in all 16 such exemptions, though it is unnecessary to list them all; suffice it to add that Article 13(A)(l)(n) exempts 'certain cultural services and goods closely linked thereto supplied by bodies governed by public law or by other cultural bodies recognised by the Member State concerned'. The Netherlands legislation

7. Article 13(A)(2) provides for a number of limitations, some optional and some 10. According to the order for reference, mandatory, to be imposed on certain Article 13(A)(l)(m) of the Sixth Directive is exemptions, including those under transposed into Netherlands law by certain Article 13(A)(1)(m) (and (n)). provisions of the Wet op de Omzetbelasting Article 13(A)(2)(a) lists four optional con- 1968 (1968 Law on Turnover Tax), read in ditions which Member States may impose conjunction with the Uitvoeringsbesluit in each individual case on the granting of Omzetbelasting 1968 (1968 Decree on the such exemptions to bodies other than those Implementation of Turnover Tax) and governed by public law. Annex B thereto.

(f) supplies of goods and services of a social and cultural nature to be defined by administrative regulation, provided that the operator does not aim to make a profit and there is no serious dis- 14. Thus, Article ll(l)(f) of the 1968 Law tortion of competition in relation to appears to transpose the 'cultural' exemp- operators who aim to make a profit.' tion in Article 13(A)(l)(n) of the Sixth Directive, subject to the 'non-profit-mak- ing' and 'anti-distortion' conditions set out in the first and fourth indents of Article 13(A)(2)(a); the implementing decree extends that exemption to bodies providing sports facilities, which might otherwise have fallen under the 'sports' 12. 'Supplies of goods and services of a exemption in Article 13(A)(l)(m) of the social or cultural nature' are defined by the directive. The combined provisions of first paragraph of Article 7 of the imple- Article ll(l)(e) and (2) of the 1968 Law, menting decree, in conjunction with Annex however, appear to transpose that 'sports' B thereto. Item 21 in section (b) of that exemption, subject again to the 'non-profit- annex is for supplies made by bodies making' condition, but with the proviso providing sports facilities, provided that that operating surpluses will be regarded as they do not aim to make a profit, the profits unless they are ploughed back into exemption applying solely in respect of the sports services supplied and subject to such supplies. the further limitation that only services

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16. During each of the years 1990 to 1995, Kennemer made an operating surplus which was paid into its reserve funds. One of those funds in particular was '1. (a) Where it is necessary to establish earmarked for expenditure other than whether or not a body aims to recurring annual expenditure. make a profit as referred to in Article 13(A)(l)(m) of the Sixth Directive, must account be taken solely of earnings from the services referred to in that provision or must earnings from other services 17. In the belief that its services to non- provided by it also be taken into members were exempt from VAT, Ken- consideration?

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(b) If, in determining whether or not aim is to make a profit as described the aim is to make a profit, account in the first question even where no must be taken solely of the services direct link exists between the vari- supplied by the body as referred to ous services provided by the associ- in Article 13(A)(l)(m) of the Sixth ation for its members and the Directive and not total earnings, subscription fee paid by them? must only the costs incurred directly for the services be taken into consideration or also a pro- portion of the body's other costs?

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Commission made oral submissions at the qualification 'non-profit-making' to hearing. Organisation' and the legislature would no doubt have chosen different wording had it had any different intent.

Analysis

23. Moreover, as the United Kingdom Government has noted, the provision con- tains three distinct and cumulative con- The first question ditions, relating to the nature of the organisation (non-profit-making), the nature of the services (closely linked to sport) and the identity of the recipients 20. The first question is essentially (persons taking part in sport). If the w h e t h e r , for t h e p u r p o s e s of exemption were to apply only to non- Article 13(A)(l)(m), non-profit-making profit-making services, commercial sports status is to be determined by reference to undertakings could seek exemption for all the activities of the organisation or only certain services they supply, a situation to those which might benefit from the which could not be reconciled with the exemption. plain terms of the provision and which would inevitably — given the opportun- ities for shrewd cross-subsidising which would arise — lead to a distortion of competition.

26. That, of course, leaves open the ques- tion of precisely what is meant by 'non- profit-making'. Although the United King- dom has suggested an answer in the context 29. I should point out, however, that the of the first question, I prefer to consider answer to this question may be of limited that issue when examining the third ques- relevance to the resolution of the dispute tion. before the national court unless it is held — contrary to my view — that the ' n o n - p r o f i t - m a k i n g ' c r i t e r i o n in Article 13(A)(1)(m) of the Sixth Directive falls to be assessed separately for each of the organisation's activities.

The second question

27. This question is essentially whether 30. Be that as it may, my view is that a annual membership fees paid to a golf club direct link normally exists between the constitute 'consideration' within the mean- ing of Article 2 of the Sixth Directive for the services provided by the club to its 3 — Case 102/86 [1988] ECR 1443.

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34. The Netherlands Government's approach, on the other hand, would appear to make it possible for practically any service provider to escape VAT by judicious 32. The fact that the link is more immedi- use of all-inclusive charges — with poten- ate where daily green fees are concerned tially far-reaching results for the VAT does not make it any less direct in the case system. of annual membership fees. The club exists to provide certain facilities and it does so in exchange for either daily green fees (paid by non-members) or a combination of annual membership and admission fees (paid by members). The benefits provided may differ in the two cases, but they are directly linked to the payments in both. The fact that in one case payment may be made for actual use and in the other for entitle- ment to use does not change that. 35. In my view, therefore, the answer to the Hoge Raad's second question is that annual membership fees paid to a golf club con- stitute 'consideration' within the meaning of Article 2 of the Sixth Directive for the services provided by the club to its 33. The above view assumes that the members. The remainder of that question annual membership fee is indeed paid at need not be answered.

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The third question found in Article 13(A)(2)(a) and (b). The former contains four optional conditions which may be imposed by Member States on the granting of an exemption for an activity within the group and the latter lays 36. This appears to be the central question down a compulsory limitation on such in the case: if an organisation is to be exemptions (and Article 13(A)(l)(o) pro- classed as non-profit-making for the pur- vides a further related exemption, subject poses of Article 13(A)(l)(m) of the Sixth again to certain conditions). Directive, to what extent may it none the less make a surplus and what is the relevance in that regard of the first indent of Article 13(A)(2)(a) (see paragraphs 5 and 8 above)? It is most helpful to begin by examining the relationship between the two provisions.

42. On the one hand, if the provisions of the article are to be interpreted coherently, there must be no contradiction or incon- — The concept of a non-profit-making sistency between them. At least at first sight organisation in Article 13(A)(1)(m) it may therefore be thought that the con- cept of a non-profit-making organisation in Article 13(A)(1)(m) should be one on which it is possible to impose the con- ditions of not systematically aiming to make a profit and not distributing any profits nevertheless arising but assigning 44. The Commission points out that the them to the continuance or improvement of concept of a non-profit-making entity the services supplied, contained in the first already exists in the laws of several indent of Article 13(A)(2)(a); at least cumu- Member States. For the purposes of the latively, those conditions should in prin- Sixth Directive, however, an autonomous ciple entail some restriction of that concept. and uniform Community definition is required, 5which will not necessarily cor- respond to those concepts in every detail.

46. Second, in accordance with most of the language versions, the focus must be on the aims of the organisation concerned rather than on its results — the mere fact that an entity does not make a profit over any given period is not enough to confer non- profit-making status. Moreover, from the fact that 'non-profit-making' is used to qualify Organisation', it would seem that the aims in question are those which are 48. On the other hand, as the Finnish and inherent in the organisation rather than United Kingdom Governments have also those which it may be pursuing at a submitted, it would not be reasonable to particular point in time. define an organisation as profit-making simply because it sought to achieve a surplus of regular income over regular expenditure in order to budget for irregular but foreseeable expenditure. A golf club might need, for example, to re-roof its clubhouse after a number of years or to extend its course. To deny it non-profit- making status simply because it accumu- 47. When assessing those aims, therefore, it lated a surplus for that purpose would be to is necessary but not sufficient to look at the discourage it from managing its affairs organisation's express objects as set out in economically, with prudence and foresight, its statutes. It is also necessary however to and to ignore the fact that no material examine whether the aim of making and benefit will accrue to any person as a result distributing profit can be deduced from the of the surplus. Organisations would more- way in which it operates in practice. And in over be liable to acquire and lose their right that context it is not enough to look simply to exemption depending on where they for an overt distribution of profits in the stood in their budgeting programme, form of, say, a direct return on the invest- although their fundamental nature and ment represented by contributions to the aims would remain unchanged. That can- organisation's assets. Such distribution not in my view have been the intention of might also, at least in some circumstances, the legislature when it enacted the category take the form of unusually high remuner- of 'non-profit-making organisations'.

52. This provision sets out three con- ditions: (i) there may be no systematic aim of making a profit; (ii) any profits 50. The relevant part of the Hoge Raad's nevertheless arising may not be distributed; question may none the less be answered to (iii) such profits must be used for the the effect that a non-profit-making organi- continuance or improvement of the services s a t i o n w i t h i n t h e m e a n i n g of supplied. It seems to me clear from the Article 13(A)(l)(m) of the Sixth Directive language used that those conditions are is one which does not have as its object the cumulative and not alternative. enrichment of natural or legal persons and which is not in fact run in such a way as to achieve or seek to achieve such enrichment; however, the fact that a body systemati- cally aims to make a surplus which it uses for the services it supplies in the form of a facility to practise a sport does not preclude 53. They must moreover be construed in its classification as such a non-profit-mak- such a way as to be coherent both among ing organisation. themselves and with the terms of the exemptions to which they may be applied. Therefore, taken together, they should be capable of allowing some non-profit-mak- ing organisations within the meaning of Article 13(A)(1)(m) to benefit from the exemption whilst excluding others; put another way, it should be possible for some 51. In answering that specific question, it is but not all of those organisations to fulfil not appropriate, as I have indicated above, the conditions.6 to have regard to the terms of the first indent of Article 13(A)(2)(a). However, it appears that the Netherlands legislature has 6 — See paragraphs 37 to 43 above. The same applies, mutatis mutandis, with regard to the bodies referred to in the other sought also to apply the conditions set out subparagraphs or Article 13(A)(1) to which the conditions may be applied; whilst there may be some degree of overlap in that indent to the exemption under between the definition of the body in question and the Article 13(A)(1)(m). In so far as it has done conditions which may be imposed, the application of the combined conditions may be expected in some way to limit so, those conditions must be examined in the scope of that definition.

57. What remains to be determined is whether the first of the three conditions in the indent — that there may be no system- atic aim to make a profit — limits or merely replicates the concept of non-profit- making aim set out in Article 13(A)(l)(m) 55. It must consequently bear the same and, if it limits that concept, in what way it construction in the third condition — use does so. for the furtherance of the services sup- plied — which will often, but not necess- arily, be fulfilled: a non-profit-making organisation may make a surplus which it uses otherwise than for the continuance or improvement of its services whilst none the 58. The fact that the two provisions are less ensuring that third parties are not worded differently in all the language enriched. versions might well suggest that their meaning was intended to be different. That view would be supported by the fact that the alternative would offer less scope for the Member States to use the indent to impose any further condition on non- profit-making bodies; they would be empowered merely to insist that such 56. I should point out here that I do not bodies use any surplus for the furtherance agree with the suggestion in the Hoge of the services they supply. Raad's question that the second and third conditions might be read as referring to any profits nevertheless 'systematically' arising. The word 'systematically' in this context implies the existence of a system and thus, where human activities are concerned, of 59. On the other hand, the reasoning I have an organised plan or design. It is not set out in paragraph 48 above applies as much in the context of the first indent of Article 13(A)(2)(a) as in the context of 7 — This appears to be specifically supported by the use of the Article 13(A)(l)(m). It would seem arbit- word 'overskud' in Danish. rary in the extreme to allow an organi-

61. That interpretation does not deprive the condition of any substance. The overlap with the 'non-profit-making' criterion in Article 13(A)(1)(m) 8does not necessarily apply in the case of the bodies referred to in 62. It appears from the order for reference the other subparagraphs concerned, such as that the case arises out of a dispute as to hospitals or similar recognised establish- whether Kennemer is liable to VAT on the ments, or charitable, educational or cul- services it provides to non-members, and that the question has been approached essentially on the basis of the profit-making 8 — And Article 13(A)(1)(1), which exempts certain supplies or non-profit-making status of the club. It made by non-profit-making organisations with aims of a politicai, trade-union, religious, patriotic, philosophical, is on that basis that the Hoge Raad has philanthropic or civic nature. referred three questions, it is on that basis

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that I have examined them and it is on that adjective "certain"'. However, in his basis that this Court should provide an Opinion in Commission v Spain, 9 Advo- answer. cate General La Pergola considered that the term 'certain' was an 'unfortunate formu- lation' but was merely intended to limit the exemption to services provided by non- profit-making organisations. Since, more- over, the point has not been raised or discussed before the Court in the present case, it would in my view be inappropriate to express a definitive view here.

63. However, as I have remarked in para- graphs 13 and 14 above, Article 11(1)(e) of the 1968 Netherlands Law on Turnover Tax, in what appears to be the principal transposition of Article 13(A)(1)(m) of the Sixth Directive, seems to limit the exemp- tion to services supplied to their members by organisations whose aim is the pursuit or promotion of sport. If that limitation were consistent with the Sixth Directive, it might be unnecessary, in the specific cir- cumstances of the case in the main proceed- ings, to look any further.

(2) Annual membership fees paid to a golf club constitute 'consideration', within the meaning of Article 2 of the Sixth Directive, for the services provided by the club to its members.

(3) A non-profit-making organisation within the meaning of Article 13(A)(1)(m) of the Sixth Directive is one which does not have as its object the enrichment of natural or legal persons and which is not in fact run in such a way as to achieve or seek to achieve such enrichment; however, the fact that a body systematically aims to make a surplus which it uses for the services it supplies in the form of a facility to practise a sport does not preclude its classification as such a non-profit-making organisation. The first part of the optional condition in the first indent of Article 13(A)(2)(a) of the Sixth Directive, to the effect that the bodies in question may not 'systematically aim to make a profit', falls to be construed in the same way.

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