CELEX: 62004CJ0246
Sixth VAT Directive
Article 13(B)(b) and (C)(a)
Exemption of leasing and letting of immovable property
Right of option in favour of taxable persons
Non-profit-making sports clubs
Conditions

This reference for a preliminary ruling concerns the interpretation of the provisions of Article 13(B)(b) and (C) 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 (OJ 1977 L 145, p. 1, ‘the Sixth Directive’).
The reference was made in the course of proceedings between Turn- und Sportunion Waldburg and the Finanzlandesdirektion für
Oberösterreich with regard to whether it is possible for non-profit-making sports clubs leasing or letting immovable property
to exercise the option for taxation granted to taxable persons by the national legislature pursuant to Article 13(C)(a) of
the Sixth Directive.

Legal context

Community legislation
Article 13(A)(1) of the Sixth Directive provides:
‘Without prejudice to other Community provisions, Member States shall exempt the following under conditions which they shall
lay down for the purpose of ensuring the correct and straightforward application of such exemptions and of preventing any
possible evasion, avoidance or abuse:
...
(m)      certain services closely linked to sport or physical education supplied by non-profit-making organisations to persons taking
part in sport or physical education;
…’
Under Article 13(B)(b) of the Sixth Directive, the leasing and letting of immovable property are exempt, with the exception
of certain transactions which are not relevant to the present case.
Article 13(C) of that directive provides:
‘Member States may allow taxpayers a right of option for taxation in cases of:
(a) letting and leasing of immovable property;
…
Member States may restrict the scope of this right of option and shall fix the details of its use.’

National legislation
Pursuant to Paragraph 6(1)(14) of the 1994 Law on turnover tax (Umsatzsteuergesetz, ‘the UStG 1994’), transactions of non-profit-making
associations whose purpose under their statutes is the practice or furthering of physical sporting activities are exempt from
value added tax (VAT) and input tax may not be deducted. That exemption does not apply to services supplied as part of an
agricultural or forestry undertaking, an artisanal, business or commercial activity within the meaning of Paragraph 45(3)
of the Federal Tax Code (Bundesabgabenordnung).
Paragraph 6(1)(16) of the UStG 1994 exempts the leasing and letting of immovable property from tax. Making commercial and
other premises available is to be regarded as leasing or letting of immovable property.
According to Paragraph 6(2) of the UStG 1994, a business may treat a transaction which is exempt under Paragraph 6(1)(16)
of the UStG 1994 as subject to VAT.
Under Paragraph 6(1)(27) of the UStG 1994, the transactions of small businesses are exempt from tax. Under Paragraph 6(3)
of the UStG 1994, a business whose transactions are exempt under Paragraph 6(1)(27) may inform the Finanzamt (Tax Office)
in writing that it wishes to waive application of Paragraph 6(1)(27) of the UStG 1994.

The main proceedings and the questions referred for a preliminary ruling
The claimant in the main proceedings is a sports club classed as a non-profit-making association. In 1997 it commenced construction
of an annexe to its clubhouse, part of which was intended to be used for the practice of sport, whilst the other part, having
a surface area equal to approximately a quarter of the total area of the annexe, was to be used as a refreshment bar and leased
to a lessee.  In the 1997 VAT declaration, the club deducted a total amount of ATS 39 285 in respect of the input VAT paid
exclusively for that part of the annexe intended to be used for the bar. It opted to waive application of Paragraph 6(1)(27)
of the UStG 1994 relating to small businesses.
By decision of 27 August 1999, the Finanzamt refused those deductions on the ground that a sports club exempt from tax under
Paragraph 6(1)(14) of the UStG 1994 without having the right to make deductions could not, making use of the right of option,
choose to waive exemption in respect of turnover resulting from the leasing and letting of immovable property.  The individual
exemption available to non-profit-making sports club under Paragraph 6(1)(14) of the UStG 1994 took precedence over the exemption
of leasing and letting of immovable property under Paragraph 6(1)(16) of the UStG 1994.
The complaint brought against that decision was dismissed as unfounded on the ground that Paragraph 6(1)(14) of the UStG 1994,
being a special law, prevails over point 16 of that paragraph. The tax authorities considered that the legal situation in
question was not altered at all by the sports club’s waiver of the rules relating to small businesses.
The claimant brought an action against that decision before the Verwaltungsgerichtshof (Higher Administrative Court). In its
decision making the reference, that court took the view that the tax exemption of services supplied to persons not taking
part in sport or physical education, such as the leasing or letting of a refreshment bar, is not covered by Article 13(A)(1)(m)
of the Sixth Directive and cannot therefore be based on that provision. It was in doubt, however, whether the exemption of
leasing or letting carried out by non-profit-making sports clubs could be based on Article 13(B)(b) of that directive.
Having held that, according to the UStG 1994, sports clubs cannot opt for taxation of their leasing and letting transactions,
the national court was also in doubt with regard to the interpretation of Article 13(C) of the Sixth Directive and to the
possibility of excluding certain taxable persons from the possibility offered to other taxable persons to opt for taxation.
In those circumstances, the Verwaltungsgerichtshof decided to stay the proceedings and to refer the following questions to
the Court for a preliminary ruling:
‘(1)      May a Member State exercise its option under Article 13(C) of the Sixth … Directive … to give taxable persons the right, despite
the tax exemption for the letting of immovable property provided for in Article 13(B)(b) of the directive, to opt for taxation
only in a uniform manner or may the Member State distinguish by reference to types of transactions or groups of taxable persons?
(2)      Does Article 13(B)(b) in conjunction with (C)(a) of the [Sixth] Directive permit Member States’ legislation, such as Paragraph
6(1)(14) of the UStG 1994 in conjunction with Paragraph 6(1)(16) of the UStG 1994, under which the possibility of opting for
taxation of leasing and letting transactions is limited in such a way that non-profit-making sports clubs do not have that
option?’
The decision making the reference also related to a case between Edith Barris and the Finanzlandesdirektion für Tirol and,
in that context, the Verwaltungsgerichtshof referred a third question for a preliminary ruling. However, by order of 16 March
2005, received by the Court on 21 March 2005, it withdrew that third question.

The questions

Preliminary observations
The Austrian Government takes the view that the leasing of the immovable property in question constitutes an act of administration
of assets within the meaning of Paragraph 32 of the Federal Tax Code which is indisputably covered by the exemption relating
to sports clubs laid down by Paragraph 6(1)(14) of the UStG 1994.  It considers that the questions, in this case, must be
reformulated in order to assess whether Paragraph 6(1)(14) of the UStG 1994 correctly transposes Article 13(A)(1)(m) of the
Sixth Directive into Austrian law.
In its view, the question therefore arises whether acts of administration of immovable property, also exempt under Austrian
law, carried out by a non-profit-making sports club, are closely linked to the supply of services by that club to persons
who practise sport or physical education.
According to the Austrian Government, either that link exists, in other words the leasing of property with a view to the operation
of a refreshment bar in a clubhouse for sporting activities may be considered as linked to the services supplied by a sports
club, or those services are in principle ancillary and therefore negligible.
In that regard, it is sufficient to point out that it is not for the Court, in the context of a reference for a preliminary
ruling, to assess whether questions referred to it by a national court are relevant or to rule on the interpretation of national
laws or regulations and to decide whether the referring court’s interpretation of them is correct (see, to that effect, Case
52/77
Cayrol
[1977] ECR 2261, paragraph 32; Case C‑347/89
Eurim-Pharm
[1991] ECR I‑1747, paragraph 16; and Case C‑58/98
Corsten
[2000] ECR I-7919, paragraph 24).
The Court must take account, under the division of jurisdiction between the Community judicature and the national courts,
of the factual and legislative context, as described in the order for reference, in which the questions put to it are set
(see Case C‑153/02
Neri
[2003] ECR I‑13555, paragraphs 34 and 35, and Joined Cases C‑482/01 and C‑493/01
Orfanopoulos and Oliveri
[2004] ECR I‑5257, paragraph 42).
It is therefore appropriate to examine the questions referred for a preliminary ruling against the legislative framework as
defined by the Verwaltungsgerichtshof in its order for reference.

The first question
By the first question, the national court essentially asks the Court whether the Member States, when giving taxable persons
the right to opt for taxation under Article 13(C) of the Sixth Directive, may make a distinction by reference to the types
of transactions or the group of taxable persons.
The Commission submits that the Member States have a wide discretion under the provisions of Article 13(B)(b) and (C) of the
Sixth Directive with regard to exemption or taxation of leasing or letting. It cites case-law according to which certain transactions
and categories of taxable persons may be excluded from the right to opt for taxation in accordance with Article 13(C) of the
directive. That is the case, inter alia, where a Member State has found that that right is being used to evade taxation. Nevertheless,
in exercising their discretion, the Member States must uphold the aims and principles of the Sixth Directive, in particular
the principle of neutrality of VAT and that of proportionality.
As an initial point, it should be noted that the exemptions referred to in Article 13 of the Sixth Directive constitute independent
concepts of Community law whose purpose is to avoid divergences in the application of the VAT system as between one Member
State and another (see, inter alia, Case C‑349/96
CPP
[1999] ECR I‑973, paragraph 15, and Case C‑269/00
Seeling
[2003] ECR I‑4101, paragraph 46).
According to established case-law, the taxation of leasing and letting transactions is a power which the Community legislature
has conferred on the Member States in derogation from the general rule established in Article 13(B)(b) of the Sixth Directive,
according to which leasing and letting transactions are exempt from VAT. The right to deduct attached to that taxation does
not therefore operate automatically in that context, but only if the Member States have made use of the power under Article
13(C) of the Sixth Directive and subject to the taxable persons exercising the right of option allowed to them (see Case C‑269/03
Vermietungsgesellschaft Objekt Kirchberg
[2004] ECR I‑8067, paragraph 20).
As the Court has previously held, it is clear from the wording of Article 13(C) of the Sixth Directive that Member States
may, by virtue of this power, allow persons benefiting from the exemptions provided for by that directive to waive the exemption
in all cases or within certain limits or subject to certain detailed rules (see Case 8/81
Becker
[1982] ECR 53, paragraph 38).
Article 13(C) of the Sixth Directive thus allows the Member States to grant taxable persons the right to opt for taxation
of lettings of immovable property, but also allows them to restrict the scope of that right or withdraw it (see Joined Cases
C‑487/01 and C‑7/02
Gemeente Leusden and Holin Groep
[2004] ECR I‑5337, paragraph 66).
It follows that the Member States have a wide discretion under Article 13(C) of the Sixth Directive.  It is for them to assess
whether they should or should not introduce the right of option, depending on what they consider to be expedient in the situation
existing in their country at a given time (see Case C‑381/97
Belgocodex
[1998] ECR I‑8153, paragraphs 16 and 17; Case C‑12/98
Amengual Far
[2000] ECR I‑527, paragraph 13; and Case C‑326/99
‘Goed Wonen’
[2001] ECR I‑6831, paragraph 45).
Thus, in exercising their discretion with regard to the right of option, the Member States may also exclude certain transactions
or certain categories of taxable persons from the scope of application of that right.
Nevertheless, as the Commission correctly points out, when the Member States use their ability to restrict the scope of the
right of option and to determine the arrangements for its exercise, they are to observe the general objectives and principles
of the Sixth Directive, in particular the principle of fiscal neutrality and the requirement for correct, straightforward
and uniform application of the exemptions provided for (see, to that effect, Case C-283/95
Fischer
[1998] ECR I-3369, paragraph 27, and
‘Goed Wonen’
, paragraph 56).
The principle of fiscal neutrality, which is laid down in Article 2 of First Council Directive 67/227/EEC of 11 April 1967
on the harmonisation of legislation of Member States concerning turnover taxes (OJ, English Special Edition 1967(I), p. 14)
and which is inherent in the common system of VAT, as the fourth and fifth recitals in the preamble to the Sixth Directive
state, requires that all economic activities should be treated in the same way (Case C-155/94
Wellcome Trust
[1996] ECR I-3013, paragraph 38, and
Belgocodex
, paragraph 18). The same is true of economic operators carrying out the same activities (Case C‑216/97
Gregg
[1999] ECR I-4947, paragraph 20).
In that regard, the Court has held that the principle of fiscal neutrality precludes, in particular, treating similar supplies
of services, which are thus in competition with each other, differently for VAT purposes (see, inter alia, Case C‑267/99
Adam
[2001] ECR I‑7467, paragraph 36; Case C‑109/02
Commission
v
Germany
[2003] ECR I‑12691, paragraph 20; and Case C‑498/03
Kingscrest Associates and Montecello
[2005] ECR I‑4427, paragraph 41).
It is clear from that case-law that the identity of the providers of services and the legal form by means of which they exercise
their activities are, as a rule, irrelevant in assessing whether supplies of services are comparable (see Joined Cases C‑453/02
and C‑462/02
Linneweber and Akritidis
[2005] ECR I‑1131, paragraphs 24 and 25).
The answer to the first question must therefore be that Member States, when giving their taxable persons the right to opt
for taxation under Article 13(C) of the Sixth Directive, may make a distinction by reference to types of transactions or groups
of taxable persons provided that they observe the general objectives and principles of the Sixth Directive, in particular
the principle of fiscal neutrality and the requirement of correct, straightforward and uniform application of the exemptions
provided for.

The second question
By the second question, the national court essentially asks whether the provisions of Article 13(B)(b) and (C) of the Sixth
Directive preclude national legislation which, by exempting generally the transactions of non-profit-making sports clubs,
restricts their right to opt for taxation of leasing and letting transactions.
The Commission points out in that regard that Paragraph 6(1)(14) of the UStG 1994 relating to sports clubs, which sets out
the derogation, is drafted in more general terms than the corresponding provision of the Sixth Directive, namely Article 13(A)(1)(m).
Consequently, the rule put in place by Austrian law on VAT lacks the requirements which are the precondition for an exemption
under Article 13(A)(1)(m) of the Sixth Directive.  Under the terms of that provision, the exemption must be for certain supplies
of services closely linked to sport and with a link between the supplier of the services and the beneficiary.
Noting the obligation to interpret in a coherent manner parts A, B and C of Article 13 of the Sixth Directive, the Commission
submits that it is perfectly possible for a sports club which does not fulfil the conditions laid down in Article 13(A)(1)(m)
of that directive, having regard to the scheme of the directive, to opt for taxation of leasing or letting transactions.
As a preliminary point, it should be noted that the Sixth Directive does not contain a rule generally exempting all services
linked to the practice of sport and physical education (see, to that effect, Case C‑150/99
Stockholm Lindöpark
[2001] ECR I‑493, paragraph 22).
The transactions of non-profit-making sports clubs are exempt, as activities in the public interest, pursuant to Article 13(A)(1)(m)
of the Sixth Directive, provided that they are closely linked to the practice of sport or physical education and that the
supplies are made to persons practising sport or physical education (see, to that effect, Case C‑124/96
Commission
v
Spain
[1998] ECR I‑2501, paragraph 15;
Stockholm Lindöpark
, paragraph 19; and Case C‑174/00
Kennemer Golf
[2002] ECR I‑3293, paragraph 19).
In the context of the present reference, the national court takes the view that the leasing of immovable property with a view
to its use as a refreshment bar constitutes neither a supply closely linked to the practice of sport nor a service supplied
to persons practising sport or physical education.  On that view, exemption of the leasing of a refreshment bar cannot be
based on Article 13(A)(1)(m) of the Sixth Directive but may, in principle, be based on Article 13(B)(b) of that directive.
With regard to the question whether the Member States may exclude non-profit-making sports clubs from the right of option
by way of a general exemption of all their transactions, it must be noted that Article 13(C) of the Sixth Directive does not
specify on what conditions and by what means the scope of this right of option may be restricted.  It is therefore for each
Member State to specify, in its national law, the scope of this right of option and to lay down the rules pursuant to which
certain taxable persons may benefit from the right to opt for taxation of the leasing and letting of immovable property.
Nevertheless, as the Court has already held, Article 13(C) of the Sixth Directive does not confer upon the Member States the
right to place conditions on or to restrict in any manner whatsoever the exemptions provided for by part B of that article.
It merely reserves the right to the Member States to allow, to a greater or lesser degree, persons entitled to those exemptions
to opt for taxation themselves, if they consider that it is in their interest to do so (see
Becker
, paragraph 39).
In accordance with Article 13(B) of the Sixth Directive, the Member States exempt the leasing or letting of immovable property
under conditions which they lay down for the purpose of ensuring the correct and straightforward application of the exemptions
and of preventing any possible evasion, avoidance or abuse.  The decision of a Member State, pursuant to Article 13(C) of
that directive, to restrict the scope of the right to opt for taxation of leasing of immovable property may be justified,
inter alia, by the same aims.
Such a decision must, however, observe the principle of neutrality reiterated in paragraphs 32 to 34 above.
It is for the national court to determine, having regard to the specific circumstances of the case in the main proceedings
and to the case-law cited above, whether or not the application of a general exemption to all transactions, including the
leasing of immovable property, effected by non-profit-making sports clubs entails a breach of the principle of fiscal neutrality.
Thus, there may be a breach of the principle of fiscal neutrality if a sports club having as its purpose under its statute
the exercise or furthering of physical education could not opt for taxation where that is possible for other taxable persons
carrying out comparable activities which are therefore in competition with those of that club.
In order to determine whether the limits of that discretion were exceeded in the main proceedings, the national court must
also check whether there was a breach of the requirement for a correct, straightforward and uniform application of the exemptions
provided for.  To that end, it must take account, in particular, of the fact that the exemption system instituted by the Sixth
Directive provides for differentiated treatment of the transactions of non-profit-making associations only to the extent that
they are connected to the practice of sport and the services are supplied to persons practising sport. In such a case, those
transactions are exempt from VAT for reasons of the public interest.
The answer to the second question must therefore be that it is for the national court to determine whether national legislation
which, by exempting generally the transactions of non-profit-making sports clubs, restricts their right to opt for taxation
of leasing and letting transactions exceeds the discretion conferred on the Member States, having regard in particular to
the principle of fiscal neutrality and the requirement of correct, straightforward and uniform application of the exemptions
provided for.

Costs
Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court,
the decision on costs is a matter for that court.  Costs incurred in submitting observations to the Court, other than the
costs of those parties, are not recoverable.
On those grounds, the Court (Third Chamber) hereby rules:
1.      Member States, when giving their taxable persons the right to opt for taxation under Article 13(C) 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, may make a distinction by reference to types of transactions or groups of
taxable persons provided that they observe the general objectives and principles of the Sixth Directive, in particular the
principle of fiscal neutrality and the requirement of correct, straightforward and uniform application of the exemptions provided
for.
2.       It is for the national court to determine whether national legislation which, by exempting generally the transactions of non-profit-making
sports clubs, restricts their right to opt for taxation of leasing and letting transactions exceeds the discretion conferred
on the Member States, having regard in particular to the principle of fiscal neutrality and the requirement of correct, straightforward
and uniform application of the exemptions provided for.
[Signatures]
*
Language of the case: German.