Commissioners of Her Majesty’s Revenue & Customs v Isle of Wight Council and Others.
Date: 2008-09-16
19. As the Court has held on numerous occasions, two conditions must be cumulatively fulfilled in order for that provision to apply: the activities must be carried out by a body governed by public law and they must be carried out by that body acting as a public authority (see to that effect, particularly, Case C‑202/90 Ayuntamiento de Sevilla  [1991] ECR I‑4247, paragraph 18, and Fazenda Pública , cited above, paragraph 15).
21. As for the second condition, activities pursued as public authorities within the meaning of that provision are those engaged in by bodies governed by public law under the special legal regime applicable to them and do not include activities pursued by them under the same legal conditions as those that apply to private economic operators (see, particularly, Fazenda Pública , paragraph 17, and the case-law cited).
22. In view of the nature of the analysis to be carried out, it is for the national court to classify the activity at issue in the main proceedings in the light of the criterion adopted above ( Comune di Carpaneto Piacentino and Others , cited above, paragraph 16; Case C-4/89 Comune di Carpaneto Piacentino and Others  [1990] ECR I‑1869, paragraph 11; and Fazenda Pública , paragraph 23).
25. To reply to that question, it is necessary, in the absence of any guidance in the text of the second subparagraph of Article 4(5) of the Sixth Directive, to take into account the scheme and purpose of the Sixth Directive, as well as the place of Article 4(5) in the common system of VAT established by it.
26. It is important to emphasise in that regard that, as a general rule and in accordance with Article 2(1) of the Sixth Directive, the supply of services effected for consideration is to be subject to VAT.
27. Indeed, ‘taxable person’ means, under Article 4(1) of the Sixth Directive, any person who independently carries out in any place any economic activity specified in paragraph 2 thereof, whatever the purpose or results of that activity. ‘Economic activity’ is defined in Article 4(2) as including all activities of producers, traders and persons supplying services (Case C‑284/04 T-Mobile Austria and Others  [2007] ECR I‑5189, paragraph 33).
28. Article 4 of the Sixth Directive gives a very wide scope to VAT (see Case 235/85 Commission  v Netherlands  [1987] ECR 1471, paragraph 7, and Case C‑186/89 van Tiem  [1990] ECR I-4363, paragraph 17).
29. However, only activities of an economic nature are covered by that provision (see, to that effect, Case C‑306/94 Régie dauphinoise  [1996] ECR I‑3695, paragraph 15; Case C‑77/01 EDM  [2004] ECR I‑4295, paragraph 47; Case C‑465/03 Kretztechnik  [2005] ECR I‑4357, paragraph 18; and T-Mobile Austria and Others , cited above, paragraph 34).
30. It is only by way of derogation from that general rule that certain activities of an economic nature are not to be subjected to VAT. Such derogation is laid down by the first subparagraph of Article 4(5) of the Sixth Directive, under which activities engaged in by a body governed by public law acting as a public authority are not to be subject to VAT.
31. That derogation covers principally activities engaged in by bodies governed by public law acting as public authorities, which, while fully economic in nature, are closely linked to the exercise of rights and powers of public authority. In those circumstances, the fact that such bodies are not subject to VAT on those activities does not potentially have an anticompetitive effect, inasmuch as they are generally engaged in exclusively, or almost exclusively, by the public sector.
32. However, even where those bodies carry on such activities in their capacity as public authorities, they are to be considered taxable persons, under the second and third subparagraphs of Article 4(5) of the Sixth Directive, where their treatment as non-taxable persons would lead to significant distortions of competition or again if those activities, provided they are not carried out on such a small scale as to be negligible, are listed in Annex D to that directive.
34. It is that undesirable result that the Community legislature sought to avoid by providing, in the third subparagraph of Article 4(5) of the Sixth Directive, that the activities specifically listed in Annex D to that directive (telecommunications, the supply of water, gas, electricity and steam, the transport of goods, port and airport services and passenger transport, etc.) are, ‘in any event’, unless they are negligible, to be subject to VAT, even when they are carried on by bodies governed by public law acting as public authorities.
35. In other words, the treatment of bodies governed by public law as non-taxable persons in respect of those activities is, unless such activities are negligible, presumed to lead to distortions of competition. It is thus clear from the wording of the third subparagraph of Article 4(5) of the Sixth Directive that the treatment of those bodies as taxable persons results from the carrying-on, as such, of the activities listed in Annex D to that directive, irrespective of the question whether or not a particular body governed by public law faces competition at the level of the local market on which it carries on those same activities.
36. Furthermore, there may exist, on the national level, other activities of an essentially economic nature, not listed in Annex D to the Sixth Directive, the list of which may vary from one Member State to another or from one economic sector to another, which are carried on in parallel both by bodies governed by public law in their capacity as public authorities and by private operators.
38. The second and the third subparagraphs of Article 4(5) of the Sixth Directive are, consequently, closely linked since they pursue the same objective, namely the treatment of bodies governed by public law as taxable persons, even when they are acting as public authorities. Those subparagraphs are thus subject to the same logic, by which the Community legislature intended to limit the scope of the treatment of bodies governed by public law as non-taxable persons, so that the general rule stated in Articles 2(1) and 4(1) and (2) of that directive, under which any activity of an economic nature is, in principle, to be subject to VAT, is observed.
42. Thus, the principle of fiscal neutrality, a fundamental principle of the common system of VAT (see, particularly, Case C‑255/02 Halifax and Others  [2006] ECR I‑1609, paragraph 92), precludes economic operators carrying on the same activities from being treated differently as far as the levying of VAT is concerned (see, particularly, Case C‑216/97 Gregg  [1999] ECR I-4947, paragraph 20).
43. In that regard, it must be recalled that the second subparagraph of Article 4(5) of the Sixth Directive is intended to ensure compliance with the principle of fiscal neutrality (Case C‑430/04 Feuerbestattungsverein Halle  [2006] ECR I‑4999, paragraph 24).
44. Whilst it is true that the Sixth Directive provides for certain derogations which may interfere to some extent with the application of the principle of fiscal neutrality, like the derogation under the second subparagraph of Article 4(5) of the Sixth Directive (see, to that effect, Case C‑378/02 Waterschap Zeeuws Vlaanderen  [2005] ECR I‑4685, paragraph 43), since that provision permits the treatment of bodies governed by public law as non-taxable persons provided that such treatment would only distort competition insignificantly, the fact remains that that derogation must be interpreted in such a way that the least possible damage is done to that principle.
47. Moreover, as the Court has repeatedly held, Community legislation must be certain and its application foreseeable by those subject to it (see, particularly, Case C-301/97 Netherlands  v Council  [2001] ECR I‑8853, paragraph 43, and Halifax and Others , cited above, paragraph 72). That requirement of legal certainty must be observed all the more strictly in the case of rules liable to entail financial consequences, in order that those concerned may know precisely the extent of the obligations which they impose on them (see, particularly, Case 326/85 Netherlands  v Commission  [1987] ECR 5091, paragraph 24, and Case C‑17/01 Sudholz  [2004] ECR I‑4243, point 34).
48. The principle of legal certainty, which forms part of the Community legal order, must be observed both by the Community institutions and by the Member States when they exercise the powers conferred on them by Community directives (see Case C‑376/02 ‘ Goed Wonen ’ [2005] ECR I‑3445, paragraph 32).
51. Thus, neither the local authorities nor the private operators will be in a position to provide, with the required certainty, for the conduct of their affairs if, on a given local market, the provision by the local authorities of off-street parking will or will not be subject to VAT.
52. That situation is therefore likely to jeopardise the principles of fiscal neutrality and legal certainty.
60. It is important to record, as is clear from paragraph 30 of the present judgment, that the treatment of bodies governed by public law as non-taxable persons under the first subparagraph of Article 4(5) of the Sixth Directive constitutes a derogation from the general rule that any activity of an economic nature be subjected to VAT, and that this provision must, therefore, be interpreted strictly. But the second subparagraph of Article 4(5) restores that general rule in order to avoid such treatment of those bodies leading to significant distortions of competition. The latter provision cannot therefore be construed narrowly.
64. However, the purely theoretical possibility of a private operator entering the relevant market, which is not borne out by any matter of fact, or by any objective evidence or by any analysis of the market, cannot be assimilated to the existence of potential competition. To make such an assimilation, that possibility must be real, and not purely hypothetical.