On Jan 21, 2016, the ECJ issued its decision in the case C-335/14 (Les Jardins de Jouvence).
Context: Reference for a preliminary ruling — Taxation — Value Added Tax — Sixth VAT Directive — Exemptions — Article 13A(1)(g) — Exemption for the supply of services closely linked to welfare and social security work, provided by bodies governed by public law or by other organisations recognised as charitable — ‘Supply of services and of goods closely linked to welfare and social security work’ — Organisations recognised as charitable — Serviced residence
Article in the EU VAT Directive
Article 13A(1)(g) of the Sixth VAT Directive (Art. 132(1)(g) of the EU VAT Directive 2006/112/EU)
Article 132 (Exemption)
1. Member States shall exempt the following transactions:
(g) the supply of services and of goods closely linked to welfare and social security work, including those supplied by old people’s homes, by bodies governed by public law or by other bodies recognised by the Member State concerned as being devoted to social wellbeing;
Facts
- LJJ, formed in the course of 2004, is a cooperative company constituted under Belgian law whose object, at the material time, consisted in operating and managing care institutions and in engaging in all activities relating directly or indirectly to healthcare and the assistance of the sick, elderly, disabled or other persons.
- In October 2004, LJJ informed the Belgian tax authorities of the commencement of its business activity of renting out small flats designed for able-bodied persons. Those authorities then registered LJJ for VAT purposes.
- On 27 October 2006, LJJ received a provisional licence to operate the serviced residence ‘Les jardins de Jouvence’.
- That serviced residence makes available to its residents dwellings intended for one or two persons, comprising a fitted kitchen, a sitting room, a bedroom and a fitted bathroom. In addition, it provides them with various services for consideration, which are also offered to other persons, namely access to a bar restaurant, a hairdressing and beauty salon, a physiotherapy room, occupational therapy activities, a laundry, a pharmacy where blood can be collected and a doctor’s surgery.
- Between August 2004 and September 2006, LJJ carried out substantial building work and installed equipment corresponding to its business purposes, with a view to commencing the operation of a serviced residence.
- On 5 October and 14 November 2006, the tax authorities carried out an audit of LJJ’s accounts in order to check the way in which the VAT legislation had been applied for the period from 30 August 2004 to 30 September 2006. Following that audit, those authorities concluded that LJJ was not entitled to deduct the VAT in relation to the construction of immovable property during the period between 2004 and 2006, since that company was a taxable person whose transactions in connection with the operation of its serviced residence were exempt in their entirety from VAT pursuant to Article 44(2) of the amended VAT Code. Consequently, those authorities demanded that LJJ repay the amounts of tax wrongly deducted.
- On 25 January 2007, the tax authorities informed LJJ of the cancellation of its VAT current account, with effect from 30 September 2006.
- On 13 February 2007, a demand for payment was served on LJJ, which LJJ opposed, by an application, before the tribunal de première instance de Mons (Mons Court of First Instance) on 20 February 2007.
- By a judgment of 19 June 2012, that court dismissed LJJ’s application as unfounded, holding that bodies whose task or business is to care for elderly persons are exempt from VAT, in accordance with Article 44(2) of the amended VAT Code, and that there was no need to determine whether the services in question were linked in particular to welfare and to social security work and whether they were provided by public law bodies or by bodies recognised by the competent authority as being devoted to social wellbeing.
- On 19 December 2012, LJJ lodged an appeal against that judgment before the cour d’appel de Mons (Mons Court of Appeal).
- LJJ claimed before that court that the formal licence to operate a serviced residence did not necessarily entail recognition that it is devoted to social wellbeing, since the conditions for the approval of serviced residences are fundamentally different from those for the approval of retirement homes. That company also observed that a material intervention on the part of the State, region or municipality, which is a constituent element of the notion of social welfare or social security, was lacking in relation to serviced residences. In the present case, LJJ did not receive any public funding and its residents did not receive any public assistance or subsidy in order to cover the costs relating to the services provided.
- The Belgian State claimed before the cour d’appel de Mons (Mons Court of Appeal) that LJJ’s action should be dismissed, arguing that LJJ, which provided services covered by Article 44(2) of the amended VAT Code, was a taxable person exempt from VAT, which, consequently, did not have a right to deduct that tax. The Belgian State submitted that the serviced residence operated by LJJ, licensed by the Walloon Region, was formally recognised as being devoted to social wellbeing in order to provide services closely linked to welfare. Likewise, the services provided by LJJ, which are directly linked to the accommodation, care and treatment offered to residents with a view to improving their physical and/or mental wellbeing, are devoted to social wellbeing.
Questions
Is a serviced residence, within the meaning of the Decree of the Council of the Walloon Region of 5 June 1997 relating to retirement homes, serviced residences and day-care centres for persons of 60 or over, [which makes available] for profit individual dwellings designed for one or two persons, comprising a fitted kitchen, a sitting room, a bedroom and a fitted bathroom, thereby enabling residents to lead an independent life, together with a range of optional services supplied against payment, with the aim of making a profit, those services not being available exclusively for the occupants of the serviced residences (… a bar restaurant, … hairdressing and beauty salon, … a physiotherapy room, … occupational therapy activities, … a laundry, … a pharmacy and a blood collection point, a doctor’s surgery), a body that is in essence devoted to social wellbeing which carries out supplies ‘of services and of goods closely linked to welfare and social security work’ for the purposes of Article 13A(1)(g) 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 1 (now Article 132(1)(g) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax)? 2
Is the answer to Question 1 different if the serviced residence in question receives, for the supply of the services in question, subsidies or any other form of advantage or funding from public authorities?
AG Opinion
Article 13A(1)(g) of the Sixth Council Directive 77/388/EEC of 11 May 1977 on the harmonisation of legislation of Member States concerning turnover taxes — Common system of value added tax: uniform basis of assessment, should be interpreted as meaning that a serviced residence, such as that at issue in the main proceedings, which offers persons of at least 60 years of age accommodation enabling them to live independently, together with chargeable related services, also available to non-residents, and which does not have the benefit of any financial assistance from the State, can be characterised as an ‘organisation recognised as charitable’ and regarded as supplying services ‘closely linked to welfare’, within the meaning of that provision.
It will be for the national court to determine:
– whether, having regard to the company objects of the serviced residence in question and the nature of the services it offers, this characterisation exceeds the discretion which that provision grants to Member States for the purposes of such characterisation;
– whether the activities of the serviced residence fall within the scope of welfare. In this regard, it must take account of a combination of factors enabling it to be determined whether those activities are intended to assist persons in need; and
– whether the services offered by the serviced residence are essential to the pursuit of such activities.
Decision
Article 13A(1)(g) 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 must be interpreted as meaning that, among the services provided by a serviced residence, such as that at issue in the main proceedings, whose charitable nature must be assessed by the referring court in the light of, in particular, the factors mentioned in the present judgment, those consisting of the provision of dwellings adapted for elderly persons may benefit from the exemption referred to in that provision. The other services provided by that serviced residence may also benefit from that exemption, provided in particular that the services which serviced residences are obliged to offer pursuant to the relevant national legislation are intended to achieve the support and care of elderly persons and correspond to the services which old people’s homes are also obliged to offer in accordance with national legislation.
It is irrelevant in this respect whether or not the operator of a serviced residence such as that at issue in the main proceedings receives a subsidy or any other form of advantage or financial support from public authorities.
Summary
es Jardins de Jouvence SCRL (‘LJJ’) was a co-operative company, which operated and managed care institutions and engaged in activities relating directly or indirectly to healthcare and the assistance of the sick, elderly, disabled or other persons. LLJ constructed an assisted living facility in Belgium with individual dwellings for one or two residents, which were available for those aged 60 or over, enabling them to lead independent lives. Paid services, such as access to a bar restaurant, a hairdressing and beauty salon, a physiotherapy room, occupational therapy activities and a laundry, were available for both residents and non-residents. LJJ reclaimed the VAT incurred on the construction and fitting-out costs, believing that its activities were VATable, because it was profit-seeking and no public funding was paid to it or the residents.
However, the Belgian tax authority argued that LJJʼs activities were exempt, so there was no right to deduct such VAT.
In deciding whether LJJʼs services were exempt under art. 132(1)(g), the ECJ held that it was necessary to establish:
(1)whether LJJ was a body ‘recognised by the Member State concerned as being devoted to social wellbeing’; and
(2)whether LJJʼs services were ‘closely linked to welfare and social security work’ (para. 29 of the judgment).
The ECJ held that the Belgian court must determine the first of these two matters, although being a private entity aiming to make a profit without public financial support did not stop it being seen as a charitable organisation (para. 40 of the judgment).
Also, the ECJ held that a supply of assisted living facilities for the elderly was exempt (art. 132(1)(g)), whether or not the supplier received public financial support (para. 50 of the judgment).
Exemption also applied to optional services that were essential to the provision of the assisted living facilities (e.g. catering, cleaning and laundry), but not to hairdressing and beauty services (para. 54 of the judgment).
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