HvJ EG, 18-01-2001, nr. C-150/99

The Swedish State argues that the provision was justified on the basis of Article 13(B)(b) of the Sixth Directive, since the services exempted constituted ‘leasing or letting of immovable property, that is to say the making available of property for use by a third party for a limited period in exchange for consideration; nothing in Article 13(B)(b) confines the exemption to leasing or letting for defined purposes or periods. At the hearing, the Swedish State stressed that the fact that Article 13(A)(1)(m) exempts ‘certain sport-related services provided by non-profit-making organisations does not mean that no such services can be exempted on other permitted grounds when provided by commercial undertakings.

Lindöpark submits that the provisions of Article 13(A)(1)(m) and (B)(b) implicitly preclude any national rule containing exemptions broader than those in the directive.

The Commission stresses that the exemptions under Article 13 must be interpreted strictly.5. The exemption in Article 13(A)(1)(m) clearly applies only to supplies made by non-profit-making organisations. Leasing or letting of immovable property is generally for a relatively long period and involves exclusive use by the tenant.

It may first of all be noted that — as is accepted by all those who have submitted observations in this case — the exemption in Article 13(A)(1)(m) is confined to non-profit-making bodies.6.

Secondly, the exemption in Article 13(B)(b) cannot apply to anything other than the leasing or letting of immovable property, a concept which, in turn, cannot extend to all transactions granting access to immovable property, whether for the purpose of practising sport or physical education or for any other purpose, regardless of the characteristics of such access, but must in my view be limited by certain of the characteristics inherent in a contract of leasing or letting. Although these will of necessity vary in detail as between national legal systems, some of the core characteristics relevant to the definition of the concept in the context of the Sixth Directive have been set out by Advocate General Alber in his Opinions of 27January 2000 in the ‘road toll cases.7. In its judgments of 12 September 2000 in those cases, the Court has stressed in particular the need that the agreement between the parties should take account of the duration of the enjoyment of the property, in particular as a factor determining the consideration due.8.

There is no need at the present stage to define the concept of leasing or letting any further. The disputed provision was a general one exempting all supplies of premises or other facilities for sports or physical education purposes.9. Although contained in a part of the VAT Law dealing with exemptions relating to immovable property, its wording was thus such as to cover not only services exempted under Article 13(B)(b) because they constituted leasing or letting of immovable property but also services exempted under Article 13(A)(1)(m) because they were provided by non-profit-making organisations. However, by virtue of the general scope of that wording, it seems also to have been sufficiently broad to cover services, other than leasing or letting, provided by commercial undertakings, in respect of which Article 13 makes no provision for exemption.

Since VAT is a general tax on consumption which must apply to all transactions in respect of which no authorised exemption is possible, the national court's first question may thus be answered in general terms similar to those in which it is posed, to the effect that a national provision laying down a general exemption from VAT for all transactions making premises and other facilities available for the practice of sport or physical education is contrary to the provisions of the Sixth Directive.

However, for the purposes of the main proceedings it is not enough to establish merely that the exemption laid down in the disputed provision went beyond what was permitted by the Sixth Directive and was to that extent incompatible with Community law; it must further be determined whether the specific application of the exemption to the transactions in issue partook of that incompatibility. There being no dispute that Lindöpark, as a commercial undertaking, cannot qualify for the exemption under Article 13(A)(1)(m), the national court must examine the transactions entered into between Lindöpark and its customers and determine whether they fall within the concept of leasing orletting of immovable property, and thus whether they may be exempted under Article 13(B)(b), or not.

The Swedish State submits that the system of exemptions is wide-ranging and that categorisations are not always self-evident. The relevant provision has never been interpreted by the Court in a situation such as the present, although in 1997 a German court asked, in a reference which was later withdrawn,10. whether the hiring-out of tennis courts constitutes ‘leasing or letting of immovable property, showing that the question is not clear. Both Germany and the United Kingdom treat the making available of sports facilities as such leasing or letting, at least in certain circumstances.11. Lindöpark and the Commission, however, consider that the provisions of Article 13(A)(1)(m) and (B)(b) are perfectly clear in precluding an exemption in the circumstances of this case. The Commission submits that, unlike a lease or let, the making available of sports facilities such as a golf course is for a limited period and purpose, is generally not exclusive and involves constant supervision, management and maintenance by the provider.

The concept of ‘leasing and letting of immovable property is not defined in the directive. Nor, as pointed out by the Swedish State, has the Court yet been called upon to provide any comprehensive definition. To the extent that the Court had considered the matter before the present request for a preliminary ruling was made, it was concerned mainly with the scope of the exclusions for hotel and similar accommodation12. or for premises and sites for parking vehicles13. and with the status of a transaction surrendering a lease.14. Since then, however — and indeed since the hearing in the present case — it has given one more general indication, namely that one essential element of a contract of leasing or letting is that the agreement between the parties should take account of the duration of thelessee's right to use the property, in particular with a view to determining the price paid.15.

In any event, that concept, like all the exemptions from VAT laid down in the Sixth Directive, must be given a Community definition and cannot be allowed to vary from one Member State to another.16. And, as the Commission has stressed, the Court has consistently held that the exemptions under Article 13 of the Sixth Directive must be interpreted strictly.17. Consequently, the type of broad definition of leasing and letting argued for by the Swedish State, and by the United Kingdom Government at the hearing, cannot be accepted.

Although it is for the national court to ascertain the precise nature of the transactions in question, I consider for at least two reasons that Lindöpark's business, as it has been described to the Court, did not fall within the concept of leasing or letting of immovable property.

First, there is the general question whether the transaction should be regarded as the occupation of the immovable property or as the supply of services for which the property is an incidental, albeit essential, prerequisite.

An example of that distinction might be provided by comparing the provision of accommodation in a hotel — which could be considered to fall within the Community definition of ‘leasing and letting for these purposes on the ground that otherwise there would have been no need to exclude it from the exemption18. — with the provision of a meal in the hotel restaurant. Whereas the occupation of a hotel bedroom for one or more nights (or even for a shorter period) may well be classified as a let in various legal systems, this is unlikely ever to be the case for the consumption of a meal in the public dining room in the same hotel. In the case of the occupation of a bedroom, the dominant feature of the contract is the use of the premises, whereas in the case of the restaurant meal the dominant feature is theprovision of the meal, no matter how important the decor or other facilities may be in the customer's choice of venue.

Into which of those categories did Lindöpark's transactions fall?

It is clear that some transactions making sports facilities available may constitute leasing or letting of immovable property, while others do not. If a sports field belonging to a private owner is placed at the exclusive disposal of a club or other sporting entity for a lengthy period in exchange for payment, that clearly falls within the definition. Where, however, an individual pays an entrance fee to gain transient access, amongst other individuals, to a public swimming pool, it would be stretching the concept beyond any reasonable limit to regard such a transaction as leasing or letting.

A similar contrast may be drawn with specific regard to a golf course. If a person or entity were to pay for the exclusive use of a course for a specified period — say, in order to organise a tournament or championship — with a concomitant right to charge entrance fees for players and/or spectators, that would appear to partake fairly clearly of the nature of a lease or let. The same would not apply, however, to the casual golfer or group of golfers coming to play a round. Whilst it is obviously difficult to play golf without a course to play it on, the service provided in that case is the opportunity to play the game and not the opportunity to occupy the course. Indeed, a golfer may be thought of not as occupying the course in any sense but as traversing it.19. He or she has the right merely to move from one part of a golf course to the next, at a pace usually determined in part by other users of the course, for the sole purpose of enjoying the facilities provided at each stage. In that, the first 18 holes do not perhaps differ in essence from the 19th.

Only the national court can make the findings of fact necessary to categorise Lindöpark's activities but in doing so it should bear in mind that, in order to be classified as a lease or let of immovable property, a contract must not lack any of the essential characteristics of a lease or let and, in the words of Advocate General Alber in his Opinion — alluded to at the hearing in this case by the United Kingdom Government — in the ‘road toll cases,20. ‘the characteristics of a lease should predominate in the contract.

The Court has now held in those same cases21. that an essential characteristic of such contracts is that the agreement between the parties should take account of the duration of the enjoyment of the property, in particular as acriterion for determining the price. Advocate General Alber also stressed that the characteristics of a lease are not dominant where a road user pays a toll, the chief purpose of the contract between the parties being not the use of the property but the provision of a service using that property, and pointed out that the situation of a number of drivers using a road at the same time can in no way be compared with that of joint tenants of immovable property. Such drivers — and the same applies to golfers — have no protection from unauthorised use by third parties, nor can they make general use of the property.

I would add, as salient and typical characteristics of a lease or let, that it necessarily involves the grant of some right to occupy the property as one's own and to exclude or admit others, a right which is, moreover, linked to a defined piece or area of property. In the light of all those considerations, Lindöpark's activities, as described to the Court, do not appear to me to be of the nature of a lease or let of its golf course or any part thereof.

Secondly, and more specifically, it is clear from item 13 in the list in Annex H to the Sixth Directive,22. of supplies which may be subject to reduced rates of VAT, that the ‘use of sporting facilities is in principle subject to VAT. It is very difficult to imagine that sporting facilities, in that context, could not include immovable property — in fact, I take that to be the type of facility primarily envisaged. 23. For Lindöpark's services to be exempt, it would thus be necessary for there to be some definite factor distinguishing them from the ‘use of sporting facilities in the normal sense and characterising them as a lease or let. No evidence of any such factor appears to have been adduced in the national proceedings and certainly none has been referred to before this Court. In its absence, I consider that provision of the ‘use of sporting facilities on a commercial basis falls conclusively within the category of taxable transactions in the scheme of the Sixth Directive.

Additional guidance can therefore be given to the national court in the context of its first question by saying that the commercial provision of premises or other facilities for the purpose of practising sport or physical education may not in principle be exempted from VAT. In order to qualify for exemption under Article 13(B)(b) of the Sixth Directive, a transaction must be distinguished from normal instances of the provision of sports facilities by having the essential characteristics of a lease or let, which include the grant of a right to occupy a defined piece orarea of immovable property as one's own and to exclude or admit others, and an agreement between the parties taking account of the duration of that occupation, in particular as a criterion for determining the price; such characteristics must, moreover, predominate in the contract.

The Swedish State concedes that Article 13 of the Sixth Directive confers a right to exemption and Article 17 a right to deduction, on both of which individuals may rely before a national court. However, the right to deduct is dependent on the obligation to pay VAT, which cannot be considered to be a right conferred on individuals. Specifically, individuals cannot claim a right to deduct input tax when they have paid no output tax.

Lindöpark submits that all tax legislation imposes obligations but the Sixth Directive also confers a concomitant right to deduct. Exemption removes both the obligation and the right, which is one conferred on individuals.

The Commission notes that it may be advantageous to be subjected to VAT, since exemption can give rise to an increased tax burden in that input tax cannot be deducted and no charge can be passed on.36. There is thus no paradox in reasoning that Article 13, by granting exemption in certain circumstances, confers a corresponding right to be taxed on taxable persons making supplies in other circumstances.

Here, I agree essentially with Lindöpark. Although the case-law refers in general to ‘rights conferred on individuals, it is of course essential that the rule of law infringed should be intended to confer the particular right in respect of which the claim for damages is made. In the main proceedings in the present case,Lindöpark is claiming damages in respect of a failure to allow it to deduct input tax. The right to deduct input tax is one conferred by Article 17(2) of the Sixth Directive, which has been recognised — as accepted by the Swedish State — as conferring rights on individuals on which they may rely before a national court.37. Its content is clearly identifiable from the terms of Article 17(2), read in conjunction with the other relevant provisions. A national provision exempting transactions for which there is no basis for exemption under the Sixth Directive denies individuals that right and thus infringes a rule intended to confer rights on individuals.

According to the Court's well-established case-law,38. a breach of Community law is sufficiently serious where, in the exercise of its legislative powers, the Member State manifestly and gravely disregarded the limits on its discretion in that regard. The factors which the competent court may take into consideration include the clarity and precision of the rule breached, the measure of discretion left by that rule to the national authorities, whether the infringement and the damage caused were intentional or involuntary, whether any error of law was excusable or inexcusable, and whether the position taken by a Community institution may have contributed to the omission or, as the case may be, to the adoption or retention of national measures or practices contrary to Community law.39. In the context of breaches involving the inadequate implementation of a directive, the Court has concentrated more particularly on the first two factors, although the others may remain relevant.

It is perhaps worth stressing in that regard that these various factors are to be taken into consideration globally and are not cumulative requirements the absence of any one of which means that there is no serious breach. Indeed, depending on the circumstances, any one of them may be a sufficient though not a necessary condition to establish State liability. For example, the Court has held that if, at the time when it committed the infringement, the Member State in question was not called upon to make any legislative choices and had onlyconsiderably reduced, or even no, discretion, the mere infringement of Community law may be sufficient to establish the existence of a sufficiently serious breach.40.

Another instance is the situation where the breach is particularly obvious. In French, the Court has always used — originally with regard to liability incurred by the Community — the term ‘violation suffisamment caractérisée. This is now normally translated into English as ‘sufficiently serious breach. However, the underlying meaning of ‘caractérisé, which gives rise to its inherent implication of seriousness, includes the notion that the breach (or other conduct) has been clearly established in accordance with its legal definition, in other words, that it is a definite, clear-cut breach. This may help to explain why the term was previously translated41. as ‘sufficiently flagrant violation and may throw additional light on the choice of factors which the Court has indicated should be taken into consideration when deciding whether a breach is ‘sufficiently serious. Svea Hovrätt may have had similar considerations in mind when referring to a ‘sufficiently serious (clear) breach in its question.

Thus, in any event — echoing the Court's basic definition of a manifest and grave disregard by the relevant entity of the limits on its discretion — a clear-cut breach — an act or omission about which there can be no doubt that it goes frankly beyond what is permitted by Community law — will normally be a breach serious enough for the Member State responsible to incur liability.

These are, as I have said, properly matters for the national court to decide, but this Court may give guidance when it is in a position to do so. 42. That, I consider, is the case here. I shall accordingly consider in turn the factors regarded by the Court as significant.

The existence of a direct causal link between the breach of the obligation resting on the State and the loss sustained by the injured party is the final condition which must be met for a right to reparation to arise. Again, this is primarily a matter for the national court, although this Court may provide guidance, or even make a specific ruling where it has sufficient information at its disposal.

In the present case, Svea Hovrätt has neither sought a ruling as to the existence of a direct causal link, nor even raised that aspect of the case in its order for reference. Nor, moreover, have the parties to the main proceedings, the Commission or the United Kingdom Government addressed the issue in their observations. Indeed, it appears that the Swedish State did not deny the existence of such a link in the proceedings at first instance.

In those circumstances, I consider that it would be inappropriate for the Court to make a specific ruling. Nevertheless, there is in my view one aspect of this case which merits some brief comment, namely the relationship between the alleged loss and the reparation sought.

It appears that what is being sought in the main proceedings is an agreed principal sum of SEK 500 000, equivalent (presumably in round figures) to the amount of VAT which Lindöpark was unable to deduct during the relevant period (apparently 1995), together with interest thereon, which is still in dispute.

Whilst there has thus apparently been agreement between the parties on the amount of the basic claim in this case, it should be pointed out that in principle reparation for loss caused to individuals as a result of breaches of Community law must be commensurate with that loss.48. In the case of an unjustified exemption from VAT on outputs leading to an inability to deduct VAT on inputs, the loss sustained will in general be the difference between the amount of input tax which could have been deducted and the amount of output tax which would have had to be accounted for. Because of the value added (including any profit element), that difference will normally be in favour of the revenue authorities and not thetaxpayer, although there may be situations where the reverse is true.49. On a different level, a business may suffer as a result of being exempt from VAT on its outputs because customers who are also taxable persons will find themselves having to pay and pass on VAT charges which have become ‘frozen in the price and will thus tend to seek alternative supplies on which they can deduct the whole of the VAT.

Additionally in this regard, Lindöpark has asked the Court to address a point on which Svea Hovrätt has not sought a ruling, namely whether it is entitled, if successful in its claim, to specific interest on the principal sum to compensate it for the unavailability of that sum between the date on which it should have been able to deduct it and the date of the award. Here again, although it is not for this Court to rule on a matter on which it has not been requested to do so, it may be borne in mind that the reparation should be commensurate with the loss suffered. With specific regard to interest, although in the slightly different context of Article 6 of the Equal Treatment Directive,50. the Court has held that full compensation cannot leave out of account factors such as the effluxion of time which may in fact reduce its value, and that the award of interest must be regarded as an essential component of compensation.51. A final point to remember is that the criteria for determining the extent of reparation must not be less favourable than those applying to similar claims based on domestic law.52.