Flashback on ECJ cases C-287/00 (Commission v Germany) – Research activities carried out for consideration by higher education are taxable transactions

On June 20, 2002, the ECJ issued its decision in the case C-287/00 (Commission v Germany).

Context: Failure by a Member State to fulfil its obligations – Sixth VAT Directive – Articles 2(1) and 13(A)(1)(i) – Research activities of public-sector higher-education establishments carried out for consideration – Exemption.

Article in the EU VAT Directive

Articles 2(1) and 13(A)(1)(i) of the Sixth VAT Directive (Articles 2 and 132(1)(i) of the EU VAT Directive 2006/112/EC).

Article 132 (Exemptions for certain activities in the public interest)
1. Member States shall exempt the following transactions:

(i) the provision of children’s or young people’s education, school or university education, vocational training or retraining, including the supply of services and of goods closely related thereto, by bodies governed by public law having such as their aim or by other organisations recognised by the Member State concerned as having similar objects;

Facts & Questions

German VAT legislation: Paragraph 4(21a) of the UStG exempts from VAT ‘transactions effected by public-sector higher-education establishments in connection with research activities. Research activities shall not include activities confined to the application of established knowledge, the administration of research projects or activities not related to research’.
Considering that the VAT exemption under Paragraph 4(21a) of the UStG was contrary to Community law, on 6 November 1998 the Commission sent a letter of formal notice to the Federal Republic of Germany.
In that letter, after having recalled the content of Paragraph 4(21a) of the UStG, the Commission stated that a State university is a taxable person for VAT purposes in so far as it is not acting as a public authority, but is effecting transactions for consideration and that the research activities carried out by a taxable person are, in the light of the Sixth Directive, taxable, non-exempt transactions. It also recalled the wording of Article 2(1) of the Sixth Directive and stated that, given that research activities are not exempt, in particular under Article 13 of the Sixth Directive, it considered that, by exempting from VAT the activities of State universities, the Federal Republic had failed to fulfil its obligations under Article 2(1) of the Sixth Directive.
Since the German Government did not reply to the letter of formal notice, although it requested, and was granted, an extension until mid-March 1999 of the period within which to reply, the Commission issued a reasoned opinion by letter of 26 August 1999, calling on the Federal Republic of Germany to take the measures necessary to comply with it within two months of its notification.
In the reasoned opinion, after having pointed out that, under Paragraph 4(21a) of the UStG, the research activities of State universities are exempt from VAT and cited Article 2(1) of the Sixth Directive, the Commission repeated in point 3 of that opinion that a State university is a taxable person for VAT purposes in so far as it is not acting as a public authority, but is effecting transactions for consideration and that the research activities carried out by a taxable person are, in the light of the Sixth Directive, taxable, non-exempt transactions. According to the Commission, by exempting from VAT those activities of State universities, the Federal Republic of Germany had failed to fulfil its obligations under Article 2(1) of the Sixth Directive. Finally, the Commission recalled that, in accordance with Article 226 EC, it had informed the German Government of that breach of Community law by its letter of formal notice of 6 November 1998.

AG Opinion

Therefore, I believe that the Court should:

1) declare that the Federal Republic of Germany has failed to fulfill its obligations under Art. 2 of the Sixth VAT Directive;

2) order the Federal Republic of Germany to pay the costs.

Decision

1. Declares that, by exempting from value added tax the research activities carried out for consideration by public-sector higher-education establishments pursuant to Paragraph 4(21a) of the Umsatzsteuergesetz (Law on Turnover Taxes) of 27 April 1993, as amended by Paragraph 4(5) of the Umsatzsteuergesetz-Änderungsgesetz of 12 December 1996, the Federal Republic of Germany has failed to fulfil its obligations under Article 2 of the 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;

2. Orders the Federal Republic of Germany to pay the costs.

Summary

By Article 4(21a) of the Umsatzsteuergesetz (Law on sales tax) of 27 April 1993, as amended by Paragraph 4(5) of the Umsatzsteuergesetz-Änderungsgesetz of 12 December 1996, the research activities carried out for consideration by higher education from VAT, the Federal Republic of Germany has failed to fulfill its obligations under Article 2 of the Sixth Directive.

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