The expression 'children's or young people's education, school or university education, vocational training or retraining' in art. 13(A)(1)(i) of Council Directive 77/388 (the sixth directive) did not cover the making available, for consideration, of a teacher to an educational establishment, within the meaning of that provision, in which that teacher temporarily carried out teaching duties under the responsibility of that establishment, even if the body which made the teacher available was itself a body governed by public law that had an educational aim, or another organisation defined by the member state concerned as having similar objects. However, the provision of a teacher's services in such circumstances might constitute a transaction exempt from VAT on the basis that it was a supply of services 'closely related' to education, within art. 13(A)(1)(i), if the teacher placement was a means of better enjoying the education deemed to be the principal service. That exemption was subject to certain specified conditions to be verified by the national court.

Facts

The taxpayer was an ‘educational establishment’. During the relevant period, it made some of its teachers available to other educational establishments (‘the host establishments’), each of which assumed responsibility for the teachers working there. A contract was concluded in respect of each placement between the taxpayer, the teacher concerned and the host establishment. Under the terms of the contracts, it was for the host establishment to define the duties of the teacher concerned, having regard to the duration of the placement and the role assigned to that teacher at the taxpayer college. In addition, the host establishment was required to pay statutory liability insurance for the period of the teacher's placement. The teacher's salary continued to be paid by the taxpayer. The host establishment was required to reimburse the taxpayer in respect of that salary, without any profit uplift. The taxpayer did not charge VAT.

The tax inspector issued the taxpayer with an additional VAT assessment relating to the years from 1995 to 1999. The Amsterdam Court of Appeal dismissed the taxpayer's appeal against that assessment as unfounded on the ground that the services provided were not covered by the exemption from VAT provided for under art. 13(A)(1)(i). The taxpayer appealed on a point of law to the Supreme Court of the Netherlands which took the view that the outcome of the dispute before it required an interpretation of the sixth directive and, in particular, of the meaning of 'education' referred to in art. 13(A)(1)(i). Therefore, it stayed the proceedings and referred to the ECJ for a preliminary ruling.

Issue

Whether under art. 13(A)(1)(i) of the sixth directive the words ‘children's or young people's education, school or university education, vocational training or retraining' covered the situation in which an educational establishment within the meaning of art. 13(A)(1)(i) made available, for consideration, a teacher to a host establishment in which that teacher temporarily carried out teaching duties under the responsibility of the host establishment.

Decision

The European Court of Justice (Third Chamber) (ruling accordingly) said that art. 13(A) related to the exemption from VAT of certain activities in the public interest. However, that exemption covered only those activities performed in the public interest which were listed in that provision and described in great detail. The educational activity referred to in art. 13(A)(1)(i) consisted of a combination of elements which included, along with those relating to the teacher/student relationship, those which made up the organisational framework of the establishment concerned.

In the present case, it was for the host establishment to define the duties of the teacher concerned, having regard to the duration of the placement and the role assigned to that teacher at the taxpayer college. In addition, the host establishment had to insure the teacher for the period of his or her placement. Accordingly, the making available of a teacher to the host establishment in such circumstances could not be regarded, of itself, as an activity capable of being covered by the term 'education', within the meaning of art. 13(A)(1)(i). The contract concluded between the taxpayer, the host establishment and the teacher aimed, at most, simply to facilitate the provision of education by the host establishment.

There was no definition in art. 13(A)(1)(i) of the supply of services 'closely related' to education. The supply of goods or services could be regarded as 'closely related' to education, and thus subject to the same tax treatment under art. 13(A)(1)(i) only where they were actually supplied as services ancillary to the education which constituted the principal service. A service might be regarded as ancillary if it did not constitute an end in itself, but a means of better enjoying the principal service.

The supply of a teacher by one educational establishment to another in order for the teacher temporarily to carry out teaching duties under the responsibility of the latter establishment was an activity which could, in principle, be described as a supply of services closely related to education. Where there was a temporary shortage of teachers in some educational establishments, making qualified teachers attached to other establishments available to those experiencing the shortage would enable students better to enjoy the education provided by the host establishments. It was not necessary for services closely related to that education to be supplied directly to those students.

Furthermore, any lack of a close connection between the principal activity of the establishment making teachers available and its secondary activity — the supply of services closely related to education — was, in principle, irrelevant. However, the benefit of the exemption provided for under art. 13(A)(1)(i) was subject to certain conditions. First, both the principal activity of education and the supply of goods or services which were closely related to that activity had to be provided by one of the bodies referred to in art. 13(A)(1)(i). In order for the making available of teachers for the benefit of the host establishments to be exempt, the activity had to be provided by a body governed by public law that had an educational aim, or by another organisation defined by the member state concerned as having similar objects. That condition was likely to be satisfied in this case. Moreover, it was clear from the first indent of art. 13(A)(2)(b) that, if a supply of services or goods was not to be precluded from being granted exemption as provided for, inter alia, in art. 13(A)(1)(i), the main transaction, to which that supply was closely linked, should itself be exempt. Second, the supply of services or goods which were closely related to the main transactions referred to, inter alia, in art. 13(A)(1)(i) might be granted exemption only if they were essential to the transactions exempted, having a nature and quality such that, without recourse to such a service, there could be no assurance that the education provided by the host establishments and, consequently, the education from which their students benefited would have an equivalent value. There might well be commercial placement agencies whose services were not exempt and whose activities included the supply of teaching staff to schools or universities. For the supply of teachers by the taxpayer to be regarded as essential to the education provided by the host establishments, it would have to be of a nature such that the same level and quality of teaching could not be assured simply by turning to such placement agencies. It was for the referring court, taking into account all of the specific facts, to determine the essential character of the services supplied by the taxpayer.

Third, according to the second indent of art. 13(A)(2)(b), the supply of services or goods was not to be granted exemption as provided for in art. 13(A)(1)(i) if its basic purpose was to obtain additional income for the organisation by carrying out transactions which were in direct competition with those of commercial enterprises liable for VAT. That exclusion was a specific expression of the principle of fiscal neutrality, which precluded, in particular, treating similar supplies of services, which were thus in competition with each other, differently for VAT purposes.

Finally, art. 13(A)(2)(a) gave member states the power to make the granting to bodies other than those governed by public law of the exemption provided for in, inter alia, art. 13(A)(1)(i) subject to one or more of the conditions set out in art. 13(A)(2)(a).

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