European Commission v French Republic.
Date: 2010-06-17
31. As a preliminary point, it should be recalled that the Commission has standing to seek a declaration that a Member State has failed to fulfil obligations which were created in the initial version of a Community measure, subsequently amended or repealed, and which were maintained in force under the new provisions (Case C‑275/04 Commission  v Belgium  [2006] ECR I-9883, paragraph 35, and judgment of 11 December 2008 in Case C‑174/07 Commission  v Italy , paragraph 31).
34. In the absence in Directive 2006/112 of a definition of the ‘supply of services by organisations recognised as being devoted to social wellbeing by Member States and engaged in welfare or social security work’ referred to in point 15 of Annex III, that concept should be interpreted in the light of its context within Directive 2006/112 (see, by analogy, Commission  v Spain , paragraph 17, and Case C-3/09 Erotic Center  [2010] ECR I‑0000, paragraph 14).
35. In that regard, it follows from Article 98 of Directive 2006/112 that the application of either one or two reduced rates is an option accorded to the Member States as an exception to the principle that the standard rate applies. Furthermore, according to that provision, the reduced rates of VAT may be applied only to the supplies of goods and services specified in Annex III to that directive. It is settled case-law that provisions which are in the nature of exceptions to a principle must be interpreted strictly (see, inter alia, Commission  v Spain , paragraphs 18 and 19 and case‑law cited, and Erotic Center , paragraph 15).
36. Taking into account the objectives pursued by the legislature, the Court has already held in relation to the concept of ‘organismes reconnus comme ayant un caractère social par l’État membre concerné’ (‘organisations recognised as charitable by the Member State concerned’) under Article 13(A)(1)(g) of the Sixth Directive, corresponding to Article 132(1)(g) of Directive 2006/112 (‘bodies recognised by the Member State concerned as being devoted to social wellbeing’), that it is in principle sufficiently broad to include natural persons and private profit-making entities (see Case C-216/97 Gregg  [1999] ECR I-4947, paragraph 17; Case C‑144/00 Hoffmann [2003] ECR I-2921, paragraph 24; and Kingscrest Associates and Montecello , paragraphs 35 and 47).
37. Although the term ‘organisation’ suggests the existence of an individualised entity performing a particular function, there is nothing to prevent those conditions being satisfied by natural persons (see Gregg , paragraph 18, and Hoffmann , paragraph 24). Likewise, the pursuit of a profit-making aim, whilst it may be a relevant criterion to be taken into account in determining whether an organisation is charitable, by no means precludes it altogether from being charitable (see Kingscrest Associates and Montecello , paragraph 46).
41. It is clear from case-law that Member States have a discretion to recognise certain organisations as being devoted to social wellbeing. However, that discretion must be exercised in accordance with Community law and, in particular, within the limits laid down in Directive 2006/112 (see, to that effect, Case C-141/00 Kügler  [2002] ECR I‑6833, paragraphs 54 to 57; Kingscrest Associates and Montecello , paragraphs 51 and 52; and Case C-415/04 Stichting Kinderopvang Enschede  [2006] ECR I‑1385, paragraph 23).
43. In that regard, it is clear from the wording of point 15 that it permits Member States to apply a reduced rate of VAT not to all supplies of services related to social wellbeing, but only to services provided by organisations which meet the dual requirement of being themselves devoted to social wellbeing and being engaged in welfare or social security work.
44. The intention of the European Union legislature to make the option of applying a reduced rate refer only to supplies of services provided by organisations meeting that dual requirement would be frustrated if a Member State were free to classify private profit-making entities as organisations within the meaning of point 15 merely because those entities provide inter alia services related to social wellbeing.
45. Therefore, in order to comply with the wording of point 15 of Annex III to Directive 2006/112, a Member State cannot apply a reduced rate of VAT to supplies of services provided by private profit-making entities merely on the basis of an assessment of the nature of those services without taking into account, inter alia, the objectives pursued by those entities viewed as a whole and whether they are engaged in welfare work on a permanent basis.
46. In the present case it must be stated that, in the light of its overall objectives and the fact that any engagement in welfare work is not permanent, the professional category of lawyers as a whole, as referred to in Article 279(f) of the CGI, cannot be regarded as devoted to social wellbeing.
47. Thus, even supposing that the services provided by lawyers under the legal aid scheme are related to social wellbeing and can be classified as ‘engagement in welfare or social security work’, that fact is not sufficient to conclude in this case that those lawyers may be classified as ‘organisations … devoted to social wellbeing … and engaged in welfare or social security work’, within the meaning of point 15 of Annex III to Directive 2006/112.
49. It must therefore be held that, in applying a reduced rate of VAT to the supply of services by lawyers, for which they are paid in full or in part by the State under the legal aid scheme, the French Republic has failed to fulfil its obligations under Articles 96 and 98(2) of Directive 2006/112.
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