Flashback on ECJ cases C-415/04 (Kinderopvang Enschede) – Exemption for services as an intermediary between persons seeking and persons offering a childcare service

On February 9, 2006, the ECJ issued its decision in the case C-415/04 (Kinderopvang Enschede).

Context: Sixth VAT Directive – Exemptions – Supply of services linked to welfare and social security work and protection and education of children or young peopleh

Article in the EU VAT Directive

Article 13A(1)(g) and (h) of Sixth Council Directive 77/388/EEC (Articles 132(1)(g) and 132(1)(h) 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:

(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;
(h) the supply of services and of goods closely linked to the protection of children and young persons by bodies governed by public law or by other organisations recognised by the Member State concerned as being devoted to social wellbeing;

Facts

The Foundation is a non-profit-making organisation which provides childcare, at a variety of locations, for children under school age and for children of school age outside school hours. It also maintains a list of host parents who, after screening by the Foundation, look after children in their own homes. Host parents may attend a training course paid for by the Foundation. For parents opting to have their child looked after by a host parent, the Foundation puts them in touch with the host parents on its list who are most appropriate for the parents’ needs. The Foundation then acts as intermediary in the conclusion of a written agreement between the parents and the host parents. If, after a period of time, one of the parties wishes to discontinue the agreement or the terms of the agreement are breached, the parents of the child may again make use of the services of the Foundation. The Foundation does not accept any liability for damage arising from any breach of the agreement. Nor does it guarantee that the host parents will indeed be able to mind the child during the hours requested.
For the services which it provided as intermediary, the Foundation charged parents, during the period at issue in the main proceedings, the sum of NLG 3.45 per child for each hour during which the services of a host parent were used. Parents also paid the host parents an hourly rate of NLG 5 per child.
On the basis of that provision of services, the Foundation paid NLG 6 424 in respect of VAT for the period from 1 January to 31 March 1998 pursuant to a tax demand. The Foundation, however, lodged an objection with the Tax Inspectorate, seeking reimbursement of the tax paid on the basis of Article 11(1)(f) of the 1968 Law, Article 7(1) of the Implementing Regulation and item 6 of Annex B(b) thereto, arguing that the effect of those provisions was to exempt those services from VAT. The Tax Inspectorate dismissed that objection.
The Foundation appealed against the Tax Inspectorate’s decision to the Gerechtshof te Arnhem (Regional Court of Appeal in Arnhem). By its ruling of 9 April 2001 the Gerechtshof te Arnhem found in favour of the Foundation and set aside the decision of the Tax Inspectorate. The Staatssecretaris van Financiën then brought an appeal on a point of law against that ruling before the Hoge Raad der Nederlanden (Supreme Court of the Netherlands).

Questions

Must Article 13A(1)(g), (h) and (i) of the Sixth Directive be construed as meaning that the service provided as described [in the decision of the national court], consisting in intermediary activities in connection with the care of children under school age and of schoolchildren outside of school hours in the homes of host parents, falls to be regarded as a service covered by one or more of those provisions?

AG Opinion

Where a body governed by public law or an organisation recognised as charitable by the Member State concerned acts as intermediary between persons seeking and persons offering childcare services, its service as intermediary may be exempted from VAT under Article 13A(1)(g) or (h) 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 only if:

– subjection to VAT would hinder access to the childcare services by increasing their cost;

– the childcare services themselves qualify for exemption under the same provision(s);

– the childcare services are of a kind or quality of which those seeking those services could not be assured if they did not use the intermediary services; and

– the basic purpose of the intermediary services is not to obtain additional income by carrying out transactions which are in direct competition with those of commercial enterprises liable for VAT.

Decision

Article 13A(1)(g) and (h) 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, read together with Article 13A(2)(b) thereof, must be interpreted as meaning that services as an intermediary between persons seeking, and persons offering, a childcare service, provided by a body governed by public law or an organisation recognised as charitable by the Member State concerned, may benefit from exemption under those provisions only where:

– the childcare service itself meets the conditions for exemption laid down in those provisions;

– that service is of such a nature or quality that parents could not be assured of obtaining a service of the same value without the assistance of an intermediary service such as that which is the subject-matter of the dispute in the main proceedings;

– the basic purpose of the intermediary services is not to obtain additional income for the service provider by carrying out transactions which are in direct competition with those of commercial enterprises liable for value added tax.

Summary

The Court found that services as an intermediary between persons seeking and persons offering a childcare service, provided by a body governed by public law or an organisation recognised as charitable by the Member State concerned, may benefit from exemption only where:

the childcare service itself meets the conditions for exemption laid down in those provisions;
that service is of such a nature or quality that parents could not be assured of obtaining a service of the same value without the assistance of an intermediary service such as that which is the subject-matter of the dispute in the main proceedings; and

the basic purpose of the intermediary services is not to obtain additional income for the service provider by carrying out transactions which are in direct competition with those of commercial enterprises liable for value added tax.

Source