CJEU´s Gemeente Borsele judgment (C-520/14)

In the decision of 12 May 2016, the European Court of Justice (hereinafter: "ECJ") ruled that a regional government authority providing transport services for schoolchildren did not carry out an economic activity for VAT purposes.

In the case at hand, the Dutch municipality of Borsele (hereinafter: "Borsele") offers a transport service for eligible children to schools in the area. For these transport services, Borsele uses the services of other transport companies and these transport companies charge Borsele inclusive of Dutch VAT for the transport services. About one-third of the parents of the schoolchildren using the school transport pays a contribution on the basis of their financial capacity to Borsele, which was around 3% of the total costs of the school transport paid by Borsele (paid to the transport companies). The remaining part of the transport costs was financed by Borsele from public funds.

The parties are in dispute on whether or not Borsele provides services for consideration and thus carries out an economic activity for VAT purposes. The background of this dispute was that Borsele reclaimed all input VAT incurred on the purchased services from the transport companies.

According to the ECJ, about one-third of the parents in question pays a contribution for school transport provided by Borsele. Therefore Borsele in principle supplied services for consideration for VAT purposes. The ECJ stated that in this respect, it is irrelevant that the price paid for an economic activity is higher or lower than the cost price of such activity.

However, the existence of a supply of services for consideration is not sufficient to also establish an economic activity for VAT purposes. In order to determine whether an activity is an economic activity for VAT purposes, all circumstances in which the service is supplied need to be examined. One way of ascertain this is by comparing the circumstances at hand with all circumstances in which passenger transport usually is provided. Furthermore, other factors, such as the number of customers and the amount of earnings, may be taken into account.

The ECJ concludes that the payment by (some of) the parents covers only a small part of the costs incurred by Borsele for the transportation. Therefore, such payment should not be qualified as a consideration for transport services but rather should be seen as a fee instead. As a consequence, there is no direct link between the payments received from the parents and the services supplied by Borsele and such direct link is required in order for a service to qualify as an economic activity for VAT purposes.

In addition, the ECJ concludes that Borsele does not offer services on the general passenger transport market but provides these services to parents of schoolchildren as part of its public service activities. Borsele is regarded the beneficiary and end-consumer of the transport services provided by the transport companies.

The ECJ concludes that with the facts at hand, for VAT purposes Borsele did not provide economic activities and for which Borsele is not a taxable person for the purposes of VAT.