Flashback on ECJ Cases – C-200/04 (iSt) – Organization of language trips and study stays abroad in scope of TOMS

On October 13, 2005, the ECJ issued its decison in the case C-200/04 (iSt).

Context: Sixth VAT Directive – Special scheme for travel agents and tour operators – Article 26(1) – Scope – Package comprising travel to the host State and/or the stay in that State and language tuition – Principal service and ancillary service – Definition – Directive 90/314/EEC on package travel, package holidays and package tours

Article in the EU VAT Directive

Article 26 of the Sixth Directive (Articles 306-310 of the EU VAT Directive 2006/112/EC), entitled ‘Special scheme for travel agents’, which appears in Title XIV of that directive, entitled ‘Special schemes’, provides as follows:

1. Member States shall apply value added tax to the operations of travel agents in accordance with the provisions of this Article, where the travel agents deal with customers in their own name and use the supplies and services of other taxable persons in the provision of travel facilities. This Article shall not apply to travel agents who are acting only as intermediaries and accounting for tax in accordance with Article 11A(3)(c). In this Article travel agents include tour operators.

3. If transactions entrusted by the travel agent to other taxable persons are performed by such persons outside the Community, the travel agent’s service shall be treated as an exempted intermediary activity under Article 15(14). Where these transactions are performed both inside and outside the Community, only that part of the travel agent’s service relating to transactions outside the Community may be exempted’.

Facts

St is a limited-liability company established under German law. It offers to its customers programmes called, inter alia, ‘High School’ and ‘College’.
The ‘High School’ programme is aimed at schoolchildren aged between 15 and 18 who wish to attend a high school or similar institution abroad, in particular in English-speaking countries. Candidates for those programmes submit an application to iSt which, following an interview, decides whether or not to admit them. ISt undertakes to find those who are admitted a place at the selected high school.
The order for reference states that where the ‘High School’ programme takes place in the United States, the student is provided with accommodation for the duration of the visit with a host family which is chosen in cooperation with one of iSt’s local partner organisations. A representative of the partner organisation is available to the student for discussion at the school and in the home of the host family. The same organisation offers the student the opportunity to tour the host country by coach or plane in the company of other exchange students.
The package offered by iSt in those circumstances includes the return flight to the United States from Frankfurt-am-Main with a guide, flight connections within Germany, return flight connections within the United States to and from the destination, board and lodging with the host family, classes at the selected high school, support from the partner organisation and its local representatives during the visit, preparatory meetings, preparatory materials and travel cancellation insurance.
As for the ‘College’ programme, which is for students and school-leavers, it is the responsibility of the partner organisation to pay the tuition fees to the selected college out of funds received from iSt for its services and to ensure that the participants are enrolled in that college for a period of from one to three terms. The participants book their flights themselves and do not receive board and lodging in host families, but in the selected college.
Having at first classified the services provided by iSt as ‘travel services’ within the meaning of Paragraph 25 of the UStG 1993, the Finanzamt subsequently took the view that in fact they were educational or training services which should be exempt under Paragraph 4(23) of that law. As a consequence of classifying the services in question as exempt services, for which no deduction of the VAT charged was possible, the Finanzamt reduced the VAT excesses declared by that company for the years 1995 to 1997.
ISt brought an action against that decision before the appropriate Finanzgericht, seeking an increase in the amount of tax on inputs for the three years in question. By its decision, the Finanzgericht upheld iSt’s application, finding that the services supplied are travel services within the meaning of Paragraph 25 of the UStG 1993 and that Paragraph 4(23) of that law did not apply.

Questions

Does the special scheme for travel agents set out in Article 26 of Directive 77/388/EEC1 also apply to transactions entered into by an undertaking which organises ‘High School Programmes’ and ‘College Programmes’ involving periods of three to ten months spent in a foreign country, which are offered to participants by the undertaking in its own name and which are provided using services performed by other taxable persons?

AG Opinion

Article 26 of the Sixth Council Directive 77/388/EEC of 17 May 1977 must be interpreted as applying also to transactions entered into by an undertaking organising “High School” and “College” programmes involving periods of three to 10 months spent in a foreign country, which are offered to participants by the undertaking in its own name and which are provided using services performed by other taxable persons

Decision

Article 26 of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment, should be interpreted as meaning that it applies to a trader who offers services such as the ‘High School’ and ‘College’ programmes involving the organisation of language and study trips abroad and which, in consideration of the payment of an all-inclusive sum, provides in its own name to its customers a stay abroad of three to 10 months and buys in services from other taxable persons for that purpose.

Summary

Article 26 of the Sixth Directive must be interpreted as applying to an economic operator who provides services such as the ‘High-School’ and ‘College’ programs, which consist in the organization of language trips and study stays abroad, and who, for that purpose, in its own name, against payment of a total price, provides its customers with a stay abroad of three to ten months, making use of the services of other taxpayers.

Source