The European Court of Justice (Third Chamber) ruled that the activities of an individual acting in a freelance capacity, consisting of providing assistance with schoolwork and also running ceramics and pottery courses in adult education centres, could be exempted from VAT under art. 13(A)(1)(j) of Council Directive 77/388 ('the sixth directive') only where such activities consisted of tuition given by a teacher on his own account and at his own risk and covering school or university education. It was for the national court to verify whether that was the situation in each case.

Facts

The taxpayer had worked for a number of years in a freelance capacity for the Land of Berlin. In 1990, he provided assistance with schoolwork at an adult education institute and ran ceramics and pottery courses at another adult education institute and at a parents' centre. During that year, the taxpayer's teaching activities, taken together, regularly amounted to over 30 hours per week. The contracts on the basis of which the taxpayer carried out those activities were concluded each semester with the Land of Berlin for a period of six months. The contracts contained clauses which stated that no 'employment relationship' — within the meaning of that term under German employment law — was thereby established.

The taxpayer's fees, paid by the Land of Berlin, were calculated on an hourly basis. Social security contributions, insurance and taxes were not included. He was not entitled to the continued payment of those fees if he was prevented from working, and he bore the risk of losing those fees if courses were cancelled, even if this was as a result of a lack of participants. Under those contracts, the taxpayer was given financial assistance in respect of his pension contributions and health insurance, and also a proportional leave allowance.

Since the Finanzamt did not receive VAT returns from the taxpayer for the period from 1989 to 1991, it fixed a lump sum amount of VAT for which he was liable in respect of 1990, on the ground that he did not satisfy the conditions for exemption under national law. The Finance Court dismissed as unfounded the action brought by the taxpayer to challenge that decision as to his liability, taking the view that the taxpayer's activities were not exempted under the national law.

In his appeal to the Bundesfinanzhof on a point of law, the taxpayer submitted inter alia that the teaching activities which he carried out in 1990 were exempt from VAT under art. 13(A)(1)(i) and (j) of the sixth directive. The Bundesfinanzhof took the view that those activities could not be exempted under art. 13(A)(1)(i) because a natural person could not be deemed to fall within 'other organisations defined by the Member State concerned as having similar objects'. On the other hand, as regards art. 13(A)(1)(j), the Bundesfinanzhof was unsure whether, in order for the exemption provided for under that provision to apply, the tuition services of a self-employed teacher were required to be supplied directly to the students as recipients of those services, meaning that the teacher was paid by those students, or whether it was sufficient for those services to be carried out in a school or university.

Therefore, considering that the determination of the dispute before it required an interpretation of the sixth directive, the Bundesfinanzhof stayed the proceedings and referred to the ECJ for a preliminary ruling.

Issue

Whether the teaching activities carried out by an individual in a freelance capacity in circumstances such as those of the present case could be exempted from VAT under art. 13(A)(1)(j) of the sixth directive; and whether, for the purpose of such exemption, there had to be a direct link between the teacher, as the provider of tuition, and the pupils or students, as its recipients, which, according to the national court, would mean that the teacher was paid directly by those pupils or students.

Decision

The ECJ (Third Chamber) (ruling accordingly) said that the exemptions provided for in art. 13 constituted independent concepts of Community law whose purpose was to avoid divergences in the application of the VAT system from one member state to another. The terms used to specify those exemptions were to be interpreted strictly, but that did not mean that they should be construed in such a way as to deprive the exemptions of their intended effect. The same was also true of the specific conditions laid down for those exemptions to apply, and in particular of those concerning the status or identity of the economic agent performing the services covered by the exemption. In this case, it was common ground that, in Germany, the taxpayer was not regarded as pursuing objects comparable to those of the bodies governed by public law referred to in art. 13(A)(1)(i). It was necessary, therefore, to consider whether activities such as the present were capable of falling within the scope of art. 13(A)(1)(j), according to which 'tuition given privately by teachers and covering school or university education' was exempt from VAT.

While it was unnecessary to produce a precise definition of the Community concept of 'school or university education' for the purposes of the VAT system for purposes of this case, it was sufficient to observe that that concept was not limited only to education which led to examinations for the purpose of obtaining qualifications or which provided training for the purpose of carrying out a professional or trade activity, but included other activities which were taught in schools or universities in order to develop pupils' or students' knowledge and skills, provided that those activities were not purely recreational. It was for the referring court, if necessary, to verify afresh in the light of those factors whether the particular activities covered ‘school or university education’ within the meaning of art. 13(A)(1)(j). Furthermore, in order for the exemption under art. 13(A)(1)(j) to apply, it was not sufficient for the tuition to cover school or university education; it had to be ‘given privately by teachers’. The services referred to in art. 13(A)(1)(j) might include private lessons, for example, in which case there was in principle a link between the actual content of the tuition and the teacher's qualifications. The requirement that the tuition be given privately did not necessarily mean that there had to be a direct contractual link between the recipients of that tuition and the teacher who provided it.

However, it was clear in this case that the taxpayer carried out the activities at issue on the basis of successive contracts with the Land of Berlin. It appeared that, save in the event of courses being cancelled because of a lack of pupils or students, the fees he received were calculated on an hourly basis, irrespective of the number of course participants. In addition, even though the contracts stated that no employment relationship' was thereby established, the taxpayer was given financial assistance towards his pension contributions and health insurance, and also a proportional leave allowance. Finally, the taxpayer carried out his activities at adult education centres administered by the Land of Berlin.

Therefore, the indication was that, far from giving tuition on his own account and at his own risk, the taxpayer in fact made himself available as a teacher to the Land of Berlin, which paid him as a provider of services to the education system administered by that Land.

The mere fact that the two categories of exemption in art. 13(A)(1)(i) and (j) of the sixth directive sought, inter alia, to promote ‘school or university education’ as an activity which was in the public interest could not support the proposition that, together, those two provisions created a system capable of exempting from VAT activities which did not satisfy the conditions of one or other of them, the terms of which were to be interpreted strictly and covered only the activities listed therein and described in detail.

European Court of Justice (Third Chamber).
Judgment delivered 14 June 2007.