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ECJ VAT C-380/24 (Educat Serveis auxiliars) – Questions – Legality of VAT exemption denial for educational cleaning services

12 hours ago
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The ECJ issued the preliminary ruling in the case C-380/24 (Educat Serveis auxiliars).

Context:

Articles in the EU VAT Directive

Article 132(1)(f) of Council Directive 2006/112/EC of 28 November 2006

Exemptions for certain activities in the public interest’:
‘Article 132
1. Member States shall exempt the following transactions:
…
(f) the supply of services by independent groups of persons, who are carrying on an activity which is exempt from VAT or in relation to which they are not taxable persons, for the  purpose of rendering their members the services directly necessary for the exercise of that activity, where those groups merely claim from their members exact reimbursement of their share of the joint expenses, provided that such exemption is not likely to cause distortion of competition’

Facts & Background

  • The appellant was formed as a ‘Sociedad Cooperativa Catalana Limitada’ (Limited Catalan Cooperative Society; SCCL) on 15 July 2010. The aim was to create shared infrastructure for its members with regard to the provision of comprehensive cleaning services in the establishments and facilities in which its members carry on their educational activities (nursery, primary education, compulsory secondary education, baccalaureate study and vocational training). On 22 July 2010, it obtained a certificate acknowledging its right to the exemption, conditional on fulfilment of the requirements for benefiting from that right.
  • On 15 July 2010, the same date as that of its formation, the appellant concluded a contract with ‘GESTORA DE SERVEIS PER A LA SANITAT, SL’ (‘GESESA’), under which the latter would provide services relating to the management of administrative functions and of the staff engaged by the appellant EDUCAT. GESESA thus assigned the staff to the facilities and also assigned the tasks; it selects the staff, prepares their payslips, handles incidents (including acting in and managing staff dismissal proceedings), ensure that sufficient training is given to meet legislative requirements, and provides materials. The contract justifies the subcontracting of that activity on the basis that GESESA has the
    experience, knowledge and resources necessary to conduct the management of the cleaning services which EDUCAT provides to its members.
  • On 11 November 2013, the tax inspectorate began an inspection of the appellant, in relation to value added tax for the periods from 2010, first quarter, to 2012, fourth quarter, and corporation tax for the periods from September 2009 to August 2012, which concluded, so far as the present case is concerned, with the assessment for VAT on the transactions carried out by EDUCAT on account of the provision of the cleaning services to its members. The basis for that assessment was that the exemption provided for in Article 20(1)(6) of the VAT Law cannot be applied, as the appellant did not provide the services directly, but rather it used an external company which actually carries out an essential part of them. Furthermore, the cleaning services are not linked, directly and exclusively, to the exempt activity and, therefore, the application of the exemption could lead to a distortion of competition. In short, the requirements of Article 20(1)(6) of the VAT Law are not met and VAT at the general rate is to be charged to the purchaser of the service. The TEARC confirmed that decision on the basis of a judgment given by the Audiencia Nacional (National High Court, Spain) on 30 June 2017, which held, in essence, that the direct provision of the service was an indispensable requirement for the exemption from VAT under Article 20(1)(6) of the VAT Law to apply, since, otherwise, there would be a real risk of  distortionof competition.
  • Against that decision confirming that the cleaning services provided by EDUCAT to its members are subject to VAT, the appellant (after having improperly appealed [the assessment to VAT] to a second administrative review body, that appeal having been declared inadmissible by the TEAC (Central Tax Tribunal, Spain; the upper body of the TEARC)), brought an administrative appeal before this court, emphasising the fact that the TEAC has accepted the interpretation given in the judgment of the Court of Justice of 21 September 2017, in Case C-616/15, regarding the possibility that support services necessary for the exempt activity may, for reasons of economies of scale, be delegated to entities whose management is shared. This means that the exemption cannot be refused on the ground that the administrative management of the staff has been subcontracted
    to a third-party company that works with the SCCL, as it contributes to [achieving] the aim of the exemption and is in the spirit of the rule. The discussion, therefore, centres on requirement (a) of Article [20](1)(6) of the VAT Law.

Questions

  • Is a national rule – Article 20(1)(6) of the VAT Law – which contains the stipulation that it relates to services provided directly and exclusively to the exempt activity (‘(a) such services are used directly and exclusively in the course of that activity and are necessary in order to carry it out;’) contrary to the meaning and purpose intended by the EU legislature with the exemption contained in Article 132(1)(f) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, where that stipulation is interpreted such that a service – cleaning in the area of education – [is not considered to be] exclusive to that exempt sector, even though it is singular, technical and complex in its organisation – calling for the continuous cleaning and  disinfection of facilities attended and occupied by children over long periods of time – and nature, as well as absolutely necessary?
  • Is an interpretation of Article 20(1)(6) of the VAT Law contrary to the meaning and purpose intended by the EU legislature with the exemption contained in Article 132(1)(f) of Directive 2006/112/EC where, in order to refuse the exemption in accordance with EU limits, non-exclusivity in the provision of the service to the activity is equated with causing distortion of competition, thereby combining national and EU limits in order to refuse it? Please clarify whether the limit of ‘not distorting competition’ implies refusing the exemption, if it is not disputed by the parties, whatever the extent of its effect may be ([judgment of 20 November 2003, Taksatorringen, C-8/01, EU:C:2003:621], paragraph 48), on the basis that any exemption is a break with the general principle – acknowledged by the Court of Justice – of liability to tax.

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