The European Court of Justice (ECJ) (Third Chamber) ruled that under art. 13A(1)(g) and (h) of Directive 77/388 (‘the sixth directive’), read together with art. 13A(2)(b), services as an intermediary between persons seeking, and persons offering, a childcare service, provided by a body governed by public law or an organisation recognised as charitable by the member state concerned, might benefit from exemption under those provisions only where: the childcare service itself met the conditions for exemption; the service was such that parents could not be assured of obtaining a service of the same value without the assistance of an intermediary service; and the basic purpose of the intermediary services was not to obtain additional income for the service provider by carrying out transactions which were in direct competition with those of commercial enterprises liable for VAT.

Facts

The taxpayer was a non-profit-making organisation which provided childcare, at a variety of locations, for children under school age and for children of school age outside school hours. It also maintained a list of host parents who, after screening by the taxpayer, looked after children in their own homes. Host parents might attend a training course paid for by the taxpayer. For parents opting to have their child looked after by a host parent, the taxpayer put them in touch with the host parents on its list who were most appropriate for the parents’ needs. The taxpayer then acted as intermediary in the conclusion of a written agreement between the parents and the host parents. If, after a period of time, one of the parties wished to discontinue the agreement or the terms of the agreement were breached, the parents of the child might again make use of the services of the taxpayer. The taxpayer did not accept any liability for damage arising from any breach of the agreement. Nor did it guarantee that the host parents would be able to mind the child during the hours requested.

For the services which it provided as intermediary, the taxpayer charged parents a specified sum per child for each hour during which the services of a host parent were used. Parents also paid the host parents an hourly rate per child. On the basis of that provision of services, the taxpayer paid VAT pursuant to a tax demand. The taxpayer, however, lodged an objection with the tax authorities, seeking reimbursement of the tax paid. The objection was dismissed but the taxpayer appealed to the regional appeal court which found in favour of the taxpayer and set aside the decision of the tax authorities. The authorities appealed to the Supreme Court of the Netherlands which stayed the proceedings and made a reference to the ECJ for a preliminary ruling on the compatibility of the national law with provisions of art. 13A of the sixth directive.

Issue

Whether services as an intermediary between the parents of a child and the host parents looking after that child, such as those provided by the taxpayer, were exempt from VAT as services closely linked to welfare and social security work, the protection of children or young persons and/or children's or young people's education within art. 13A(1)(g)–(i).

Decision

The ECJ (Third Chamber) (ruling accordingly) said that it was therefore first of all necessary to establish whether the childcare provided by the host parents, to which the taxpayer's services as intermediary were linked, could come within one of the activities referred to in art. 13A(1)(g)–(i). It was common ground that the childcare provided by host parents could be regarded as the provision of a service falling within the scope of welfare and social security work and the protection of children and young persons within the meaning of art. 13A(1)(g) and (h) and that the taxpayer was an organisation recognised by the member state concerned within the meaning of those provisions.

However, given that host parents were independent persons who could not be regarded as bodies governed by public law, the childcare services could be covered by the exemption under art. 13A(1)(g) or (h) only to the extent that they were provided by ‘organisations recognised as charitable by the member state concerned’. The national authorities had a discretion in this regard which they had to exercise in accordance with Community law and the expression ‘other organisations recognised as charitable by the member state concerned’ in art. 13A(1)(g) did not exclude from that exemption natural persons running a business. It was for the national court to determine whether the childcare services provided by host parents satisfied the conditions for exemption set out in those provisions, in particular the condition that the service provider must fulfil the criterion of ‘charitable’. Further, in order to be exempt from VAT under art. 13A(1)(g)–(i), the taxpayer's services as intermediary had to be closely linked to the childcare services. Whatever the interpretation given to the expression ‘closely linked’ under art. 13A(1)(g) and (h), art. 13A(2)(b) thereof in any event made exemption conditional on the supply of goods or services concerned being essential to the transactions exempted. It followed that, in this case, the taxpayer's services as intermediary might be exempted only where it was established that they were essential to the childcare service.

The mere fact of keeping a list of all people known to offer childcare and making that list available to parents could not be described as an essential service. Conversely, if the taxpayer's screening of host parents’ past records, and the fact of providing them with training, resulted in the selection only of host parents who were competent, trustworthy and such as to provide a higher quality of childcare than parents could otherwise have obtained without using the taxpayer's services, those services could then be regarded as essential to the provision of quality childcare.

It was for the national court to determine whether, in the light of the facts of the case before it, the childcare service used by parents on the basis of the taxpayer's services as intermediary between parents and host parents was of such a nature or quality that it would be impossible to obtain a service of the same value without the assistance of an intermediary service such as that offered by the taxpayer.

The Netherlands Government had also contended, in the alternative, that those services should be excluded from exemption under art. 13A(2)(b) because their basic purpose was to obtain additional income for the taxpayer by carrying out transactions which were in direct competition with those of commercial enterprises liable for VAT. However, since consideration of such an argument required in essence an appraisal of questions of fact which fell outside the jurisdiction of the ECJ in the context of a reference for a preliminary ruling, it was for the national court to assess the substance thereof, taking account of all the specific facts of the present case.

European Court of Justice (Third Chamber). Judgment delivered 9 February 2006.