Judgment summary
This is a request for a preliminary ruling from the Hoge Raad der Nederlanden (Supreme Court of the Netherlands), made by decision of 28 March 2025 and received at the Court on 23 June 2025, transmitted to the General Court on 9 July 2025 under Article 50b of the Statute of the Court of Justice (1).
The reference concerns the interpretation of Article 11, Article 132(1)(b) and (g) and Article 133(a) of Council Directive 2006/112/EC (the VAT Directive) (1). It arose from proceedings between Fiscale Eenheid Stichting X c.s. (Tax entity X) and the Staatssecretaris van Financiën concerning VAT imposed on Tax entity X for services carried out by one of its members for the period 1 April to 30 June 2016 (2).
The General Court held that Article 132(1)(b) and (g) of the VAT Directive, read with Article 11, must be interpreted as meaning that a VAT group may rely on those exemptions only where the services in question are provided to third parties by a member of the group which itself satisfies all the conditions for exemption, including the requirement, where the supplier is not a body governed by public law, that it be a duly recognised medical care institution and a body recognised as devoted to social wellbeing (42).
Background
Tax entity X is a VAT group made up of two foundations and three limited liability companies governed by Netherlands law, all involved in various aspects of care for people with intellectual disabilities admitted to residential care homes or other forms of accommodation (9).
Only one of the two foundations in Tax entity X is duly recognised as a body admitting persons to a facility for the purpose of care, under Article 11(1)(c) of the Law on Turnover Tax, and it is also the only member recognised as a body devoted to social wellbeing for the purposes of Article 11(1)(f) of that law (10).
One of the three limited liability companies belonging to Tax entity X, referred to as company Y, provides services consisting of day and night supervision, remotely from the care location and using various technical means, of persons with intellectual disabilities residing in a care institution or other accommodation where care is provided (11).
Tax entity X declared and paid the turnover tax due on the services provided by company Y to third parties not belonging to the tax entity for the period 1 April to 30 June 2016, then lodged an objection, arguing those services were exempt under Article 11(1)(c) and (f) of the Law on Turnover Tax (12).
The Dutch tax authorities rejected the claim on the ground that company Y was neither a recognised body admitting persons for care purposes nor a body devoted to social wellbeing, and so did not meet the conditions for exemption (13). Tax entity X's action before the rechtbank Zeeland-West-Brabant led to an appeal before the Gerechtshof 's-Hertogenbosch, which upheld Tax entity X's appeal, holding that the exemption conditions had to be assessed at the level of the VAT group and that it sufficed for a single member of the group to be duly recognised (13).
The State Secretary for Finance appealed on a point of law to the Hoge Raad der Nederlanden, arguing that the exemption question should be assessed in relation to the specific legal person providing the services, not at the level of the tax entity (14).
Core dispute
The referring court asked whether national provisions transposing Article 132(1)(b) and (g) of the VAT Directive, applied to a VAT group under Article 11 of that directive, should be assessed at the level of the group as a whole or at the level of the specific member actually supplying the services to third parties, where only one member of the group satisfies the conditions for exemption (14, 15).
The first question referred asked whether Article 11, read with Article 132(1)(b) and (g), means the exemptions apply only where supplies to third parties are made by a legally independent member of the VAT group which, considered individually, meets all the conditions for exemption (16).
The second question, to be answered only if the first was answered in the negative, asked whether it would be sufficient for the applicability of Article 132(1)(b) and (g) and Article 133(a) that only one legally independent member of the VAT group satisfies all the conditions for exemption (16).
Court findings
The Court recalled that Article 11 of the VAT Directive allows Member States to treat closely bound but legally independent persons as a single taxable person, in the interests of simplifying administration or combating abuses such as the splitting-up of an undertaking (18, 19). Where a Member State implements this scheme, a member of a VAT group cannot be treated individually as a separate taxable person from the group (20, 21), and supplies made to or by a member of the group are treated, for VAT purposes, as made to or by the group itself (22, 23).
However, the Court held that this does not preclude assessing whether a particular member of the group satisfies the conditions concerning its status as an economic operator for the purposes of the exemptions in Article 132(1)(b) and (g); the question of whether a member is a separate taxable person differs from the question of the conditions for the group's reliance on those exemptions (24).
The Court noted that Article 132(1)(b) and (g) make no mention of the concept of 'taxable person' referred to in Article 11, and that the terms specifying VAT exemptions concerning the status or identity of the economic agent must be interpreted strictly (26, 32, 33). The exemptions are located within Chapter 2 of Title IX, headed 'Exemptions for certain activities in the public interest', indicating that the public interest nature of the transactions is decisive (35).
The conditions for exemption under Article 132(1)(b) require, cumulatively, that services be undertaken under social conditions comparable to those applicable to bodies governed by public law, and that the operator be a hospital, centre for medical treatment or diagnosis, or other duly recognised establishment of a similar nature (29). Under Article 132(1)(g), the conditions require that the services be closely linked to welfare and social security work and that the supplier be a body governed by public law or another body recognised as devoted to social wellbeing (31).
The Court found that extending the exemptions to a VAT group as regards services provided by a member which is not duly recognised, even where another member enjoys such recognition, would jeopardise the objectives of the recognition requirement, namely ensuring that only establishments pursuing activities in line with those provisions qualify, and enabling Member States to apply the conditions in Article 133 (37, 38).
The Court also found that such an interpretation would be inconsistent with the principle of fiscal neutrality, since it would result in different VAT treatment of the same services depending on whether the operator belonged to a VAT group or not (41).
Outcome
The Court ruled that Article 132(1)(b) and (g) of the VAT Directive, read together with Article 11, must be interpreted as meaning that a VAT group formed on the basis of Article 11 may rely on those exemptions only where the supplies of services in question are provided to third parties by a member of the group which itself satisfies all the conditions for the application of those exemptions, including the requirements that the supplier, where not a body governed by public law, be a duly recognised medical care institution and a body recognised as devoted to social wellbeing (42).
Given this answer, the Court held that there was no need to answer the second question referred (43). The decision on costs was left to the referring court, as the proceedings constitute a step in the action pending before it; costs incurred in submitting observations to the General Court, other than those of the parties, were not recoverable (44).
Major issues / areas of contention
- Whether a VAT group under Article 11 of the VAT Directive may rely on the public-interest exemptions in Article 132(1)(b) and (g) where only one member of the group is duly recognised for that purpose.
- Whether the exemption conditions relating to the status of the supplier must be assessed at the level of the VAT group as a whole or at the level of the individual member actually supplying the services to third parties.
- How the treatment of a VAT group as a single taxable person under Article 11 interacts with exemptions containing subject-based conditions under Article 132(1)(b) and (g).
- Whether extending the exemption to unrecognised members of a VAT group would be consistent with the principle of fiscal neutrality.
- Whether the objectives of Article 11 (administrative simplification and combating abuse) support extending exemptions to services supplied by non-qualifying group members.