Flashback on ECJ cases C-498/03 (Kingscrest Associates and Montecello) – The word ‘charitable’ which must be interpreted in an uniform way in all the language versions of the Directive

On May 26, 2005, the ECJ issued its decision in the case C-498/03 (Kingscrest Associates and Montecello).

Context: Sixth VAT Directive – Article 13A(1)(g) and (h) – Exempt transactions – Supplies closely linked to welfare and social security work – Supplies closely linked to the protection of children and young persons – Supplies made by bodies other than those governed by public law and recognised as charitable by the Member State concerned – Private, profit-making entity – Meaning of ‘charitable’

Article in the EU VAT Directive

Article 13A(1)(g) and (h) of the Sixth VAT Directive (Articles 132(1)(g) and 132(1)(h) of the EU VAT Directive 2006/112/EC).

Exemptions for certain activities in the public interest

Article 132
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 appellants in the main proceedings formed the partnership Kingscrest for the purpose of operating residential care homes in the United Kingdom. Kingscrest is run for profit and is therefore not a ‘charity’ within the meaning of the national legislation. It operates four homes, all of which were formerly registered by the relevant local authorities under the Registered Homes Act 1984 or the Children Act 1989 and are now registered under the Care Standards Act 2000.
According to the order for reference, it is common ground that Kingscrest’s supplies are of ‘welfare services’ within the meaning of item 9 of Group 7 in Schedule 9 to the amended VAT Act and that the partnership is a ‘state-regulated private welfare institution’ within the meaning of that provision.
Until 21 March 2002, the supplies made by Kingscrest were subject to VAT. Since that date, they are exempt, by decision of the Commissioners, on the ground that, in accordance with item 9, the partnership ceased to make taxable supplies from that date.
The appellants in the main proceedings appealed against that decision on the ground that item 9 of Group 7 in Schedule 9 to the amended VAT Act is incompatible with Article 13A(1)(g) and (h) of the Sixth Directive. They claim that in introducing the concept of ‘state-regulated private welfare institution’, the national legislation has gone beyond what is permissible under the Sixth Directive.
The Commissioners replied that the expression ‘charitable’ used in Article 13A(1)(g) and (h) of the Sixth Directive refers to a Community law concept which does not have the same meaning as that of ‘charitable’ in domestic law. ‘Organisations recognised as charitable by the Member State concerned’, within the meaning of that provision, can include organisations registered under the Registered Homes Act 1984, the Children Act 1989 or the Care Standards Act 2000.

Questions

(1) Is it permissible to resort to other language versions of the Sixth … Directive … to elucidate the meaning of the word “charitable” in Article 13A(1)(g) and (h), or must the word have the same meaning as in domestic law?

(2) If Article 13A(1)(g) and (h) are to be interpreted as applying to an organisation that is recognised as having a social character, are they to be interpreted as applying to a profit-making entity such as the Kingscrest Residential Care Homes partnership?

(3) Are Article 13A(1)(g) and (h) of the Directive to be interpreted as meaning that they confer on Member States a discretion to recognise for the purposes of those provisions an organisation which is registered under the Care Standards Act 2000 (or the Registered Homes Act 1984 or the Children Act 1989) but which is not a body governed by public law and does not have the status of a charity under the domestic law of the Member State concerned?

AG Opinion

(1) In order to clarify the meaning of the expression “charitable” contained in 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, reference must be made to the other language versions of those provisions, and the term cannot be given the meaning which it has in national law if that would lead to divergent interpretations.

(2) The fact that an economic operator who carries out operations treated as exempt by Article 13A(1)(g) and (h) of the Sixth Directive aims at making a profit does not in principle constitute an obstacle to its being regarded as a “charitable organisation”.

(3) The Member States enjoy a discretion as to whether to grant a private entity, for the purposes of the abovementioned provisions, the status of a “charitable organisation”, but, when exercising that discretion, they must observe the principle of neutrality of VAT and the principle of equal treatment as between taxable persons and must have regard to the nature of the activity and the aims for which it is carried on, so that it is classified by reference to predetermined, objective and abstract criteria which take account of the nature of the business, its organisational structure and the manner in which it is conducted. In all cases, it is for the national court to appraise the extent to which such limitations are complied with

Decision

1. The word ‘charitable’ in the English version of 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 is a concept with its own independent meaning in Community law which must be interpreted taking account of all the language versions of that directive.

2. The meaning of ‘organisations recognised as charitable by the Member State concerned’ in Article 13A(1)(g) and (h) of the Sixth Directive 77/388 does not exclude private profit-making entities.

3. It is for the national court to determine, having regard, in particular, to the principles of equal treatment and fiscal neutrality, and taking account of the content of the supplies of services in question, as well as the conditions for making them, whether the recognition of a private profit-making entity, which as such does not have charitable status under domestic law, as charitable for the purposes of the exemptions under Article 13A(1)(g) and (h) of the Sixth Directive 77/388 exceeds the discretion granted by those provisions to the Member States for the purposes of such recognition.

Summary

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