Value added tax — National law exempting non-profit-making sports club — Exemption for leasing and letting of immovable property — Taxpayers having right of option to tax — Sports club building annexe — Part of annexe being leased as refreshment bar — Whether Community law entitling member states to restrict availability of option to tax — Preliminary ruling given
The appellant in the main proceedings was a sports club based in Austria, which was classed as a non-profit-making association. As such, its transactions were, as activities in the public interest, exempt from VAT under article 13(A)(1)(m) of Council Directive 77/388 (the Sixth Directive), provided that they were closely linked to the practice of sport or physical education.
In 1997, the appellant built an annexe to its clubhouse. Part of the annexe was to be used for sport but one-quarter of the total area was to be leased to a third party and run as a bar. In its VAT declaration, the club deducted an amount in respect of the input tax paid exclusively for the bar area. It opted to waive the exemption from tax for small businesses under Austrian law.
The tax authorities refused to allow the deduction on the basis that, since the appellant was exempt from tax under article 13(A)(1)(m), it could not waive the exemption available under article 13(B)(b) in respect of turnover resulting from the leasing and letting of immovable property, pursuant to article 13(C).
At first instance, the national court dismissed the appellant’s challenge to that decision on the ground that the exemption for non-profit-making sports clubs, as a special law, prevailed over the exemption for the leasing and letting of immovable property. On appeal, the court doubted whether the exemption for leasing and letting could be restricted by reference to the types of transactions or taxable persons. It therefore referred the matter to the European Court of Justice for a preliminary ruling.
Held: The preliminary ruling was given in favour of the respondent.
Under article 13(C), member states were entitled to distinguish between types of transactions or groups of taxable persons provided that they did so in accordance with the general objectives and principles of the Sixth Directive, in particular the principle of fiscal neutrality and the requirement that exemptions should be applied in a correct, straightforward and uniform way.
Article 13(C) gave member states a wide discretion to grant taxable persons the right to opt for taxation of lettings, but it also allowed them to restrict the scope of that right or to withdraw it. It was for a member state to assess whether it should introduce the right of option, in the light of what it considered to be expedient in the situation existing in its country at a given time.
The national court had to decide whether the domestic law exceeded the discretion conferred on member states, bearing in mind, inter alia, that the principle of fiscal neutrality could be breached should a non-profit-making sports club be unable to opt for taxation when it was possible for other taxable persons carrying out comparable activities in competition to do so.
Eileen O’Grady, barrister
