C-287/00

OPINION OF MR JACOBS — CASE C-287/00

O P I N I O N OF ADVOCATE GENERAL JACOBS delivered on 13 December 2001 1

1. In this action brought under Article 226 3. Article 4 provides in so far as is relevant: EC the Commission seeks a declaration that, by exempting from value added tax research activities conducted by State uni- versities, Germany has failed to fulfil its obligations under Article 2 of the Sixth VAT Directive. 2

' 1 . "Taxable person" shall mean any per- son who independently carries out in any place any economic activity specified in paragraph 2, whatever the purpose or results of that activity.

The Sixth Directive

2. The economic activities referred to in paragraph 1 shall comprise all activities of producers, traders and persons supplying services including mining and agricultural activities and activities of the professions. The exploitation of tangible or intangible property for the purpose of obtaining 2. Article 2(1) of the Sixth Directive pro- income therefrom on a continuing basis vides that 'the supply of goods or services shall also be considered an economic activ- effected for consideration within the terri- ity. tory of the country by a taxable person acting as such' is to be subject to value added tax.

4. Article 13A(1)(i) of the Sixth Directive provides:

The national legislation

'Exemptions within the territory of the 5. Paragraph 4(1)(21a) of the German law country on value added tax (the Umsatzsteuerge-

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setz, 'UStG') 3exempts from VAT turnover 9. On 26 August 1999 the Commission of public-sector higher education establish- sent Germany a reasoned opinion pursuant ments attributable to research activities. to Article 226 repeating its position and inviting Germany to take the necessary measures to bring the infringement to an end within two months.

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activities conducted by State universities, 14. Second, Germany considers that the Germany has failed to fulfil its obligations Commission has unacceptably broadened under Article 2 of the Sixth VAT Directive. the scope of the proceedings contrary to the The application sets out the grounds for the principle of continuity between the pre- Commission's view that the exemption is litigation procedure and the action, which contrary to Article 2(1) of the Sixth Direc- expresses the right to be heard: 6 whereas tive. It also explains why the Commission the reasoned opinion simply alleges does not consider that the exemption is infringement of Article 2 of the Sixth justified by virtue of Article 13A(1)(i) or Directive, the application also invokes 13A(2) of the Directive. Article 13A ofthat directive. The Commis- sion's argument concerning Article 13A is an essential aspect of its case. Article 2 simply defines the basis of assessment, laying down the various types of turnover which are in principle to be subject to VAT. It does not however follow directly from Article 2 that the activities there described are automatically taxable: that follows rather from the specific exemption criteria Admissibility laid down in Article 13 et seq. Whether an activity is subject to VAT can accordingly be determined only by an assessment of those criteria.

12. Germany submits that the Commis- sion's action is inadmissible for two rea- sons.

15. There is abundant case-law on the procedure which must be observed before 13. First, Germany considers that the Com- the Commission can bring proceedings mission did not observe the pre-litigation under Article 226 EC. The purpose of that procedure prescribed by Article 226 EC: its procedure is to give the Member State reasoned opinion — comprising a mere concerned an opportunity, on the one seven sentences — did not fully set out hand, to comply with its obligations under the subject-matter of the procedure as Community law and, on the other, to avail required by the Court's case-law 5 but itself of its right to defend itself against the simply repeated the content of the letter complaints made by the Commission. 7 of formal notice.

18. The Court has ruled that the purpose of the requirement in Article 226 EC that the Commission deliver a reasoned opinion is 'to give the Member State an opportunity to justify its position and, as the case may be, to enable the Commission to persuade the Member State to comply of its own accord with the requirements of the Treaty. If this attempt to reach a settlement is unsuccessful, the function of the reasoned opinion is to define the subject-matter of 17. In the present case the Commission's the dispute.' 9 letter of formal notice of 6 November 1998 comprises three substantive paragraphs. The Commission notes first that German legislation exempts certain services from VAT and then specifies that pursuant to paragraph 4(21a) of the UStG research activities of State universities are exempt 19. The reasoned opinion sets out the from VAT. Second, it states that (i) a public Commission's case in four paragraphs. It body such as a State university is unques- notes, first, that German legislation tionably subject to VAT in so far as it is not exempts certain services from VAT and acting as a public authority but carrying then specifies that pursuant to paragraph out activities for consideration and (ii) 4(21a) of the UStG research activities of research activities carried out by a taxable public higher education establishments are person are taxable rather than tax exempt exempt from VAT. Second, it notes that transactions under the Sixth Directive. Article 2(1) of the Sixth Directive subjects Third, it notes that Article 2(1) of the Sixth to VAT 'the supply of goods or services for Directive subjects to VAT 'the supply of consideration within the territory of the goods or services for consideration within country by a taxable person acting as such'. the territory of the country by a taxable Third, it states that (i) a public body such as person acting as such'; since research a State university is unquestionably subject activities are not — in particular not by to VAT in so far as it is not acting as a virtue of Article 13 of the Sixth Direc- public authority but carrying out activities tive — exempt from VAT, the Commis- for consideration, (ii) research activities sion concludes that, by exempting from carried out by a taxable person are taxable

20. Had Germany responded to the letter of formal notice, the Commission would have been entitled to reply to defences or arguments raised in its response. 10 In the absence of any response from Germany, the reasoned opinion simply repeated in sub- stantially identical terms the content of the letter of formal notice. It was only in its 22. That provision states that the supply of response to the reasoned opinion that goods or services for consideration by a Germany sought to justify its position by taxable person acting as such shall be invoking Article 13A as a defence. subject to VAT. Article 13A contains a list of mandatory and optional exemptions. It is clear from the scheme of the legislation that the basic imposition of VAT is effected by Article 2. 12 The Commission's case is that research activities carried out by State universities are supplies of services within the meaning of Article 2(1) and should accordingly be subject to VAT; since how- 21. The Court has ruled that in an infringe- ever German legislation exempts such ment action against a Member State the activities, the Commission concludes that Commission may plead Community legis- lation for the first time in the application 11 — Commission v Denmark, cited in note 8, paragraph 16 of the judgment. 12 — Case C-149/97 Instituie of the Motor Industry [1998] ECR 10 — Case 74/82 Commission v Ireland (1984] ECR 317, I-7053, paragraph 18 of the judgment. See paragraph 29 paragraph 20 of the judgment. below for further discussion of the effect of Article2.

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from Article 2. That argument finds no Services related to research are closely support in the case-law of the Court. The related to higher education. Research and Court has ruled that Article 2 is infringed teaching activities in universities cannot be by national legislation exempting certain separated. transactions from VAT 13 or by Member States which have omitted to charge VAT on certain transactions 14 and has explicitly stated that the 'fundamental principle which underlies the VAT system, and which follows from Article 2 of the First and Sixth Directives, is that VAT applies to each transaction by way of production or distribution ...' 15 and that 'a supply of services is effected "for consideration" within the meaning of Article 2(1) of the 31. Article 13A(1)(i) requires Member Sixth Directive, and hence is taxable ...'. . 16 States to exempt from VAT 'university education ..., including the supply of ser- vices and of goods closely related thereto, provided by bodies governed by public law ...'.

Article 13A(1)(i) of the Sixth Directive

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the public interest, but only for those which considered that 'all activities which are are listed and described in great detail. 18 directly and intimately related to the provi- Since research activities of State universities sion of "hospital and medical care" should, are n o t s e p a r a t e l y m e n t i o n e d in regardless of their form, be regarded as Article 13A(1)(i), they will be exempt from covered by the exemption'. 20 VAT pursuant to that provision only if they are 'closely related' to university education.

34. The Court accordingly gave weight to the purpose of the activities alleged to be closely related to the exempt activities. In particular, it must be ascertained whether the service at issue constitutes for the customer an aim in itself or a means of better enjoying the principal service sup- plied. 21

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which states that research and teaching are it is particularly difficult to distinguish independent [frei], 22and the Higher edu- remunerated services — which will necess- cation framework law, 23which states that arily be the subject of contracts — from research in universities contributes to the general educational activities including acquisition of scientific knowledge and the research undertaken without consideration development of teaching and study. 24Ger- by way of further study. many concludes that, if research and teach- ing were to be distinguished for the pur- poses of VAT, it would be inefficient and bureaucratic to separate exempt and tax- able activities.

38. The Commission moreover states that to its knowledge all Member States other than Germany and Ireland 25 distinguish in the case of higher education establishments between educational activities exempted from VAT pursuant to Article 13A(1)(i) of the Sixth Directive and research activ- ities subject to VAT. I cannot therefore accept that separating exempt and taxable activities would be as problematic as Ger- many alleges. In any event it is settled law that practical difficulties of implementation cannot justify failure to implement.

37. I accept that in university life research and teaching are closely connected. It must however be borne in mind that, if the Commission succeeds in its application, that will not mean that all research activ- ities must be distinguished for all purposes from all teaching activities. VAT must be imposed on the supply of services effected 39. I would add that the definition of for consideration. Accordingly, where a research activities in national law is irrel- university carries out research for remun- evant: it is clear that the subjection to, or eration, those research services are subject exemption from, VAT of a specific trans- to VAT. Conversely, where research is action cannot depend on its classification in carried out for no consideration, the ques- national law. 26 tion of VAT will not arise. I cannot see that

(1) declare that the Federal Republic of Germany, by exempting from value added tax research activities conducted by public-sector higher education establishments, has failed to fulfil its obligations under Article 2 of the Sixth VAT Directive;

(2) order the Federal Republic of Germany to pay the costs.

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