The Advocate General of the European Court of Justice (ECJ) has issued an opinion in the Gemeente Borsele case. This concerns the question of whether a local authority should be treated as a taxable person for value added tax (VAT) purposes where it is providing transport services for consideration (although this consideration amounted to only 3% of the transport costs).

The Dutch Supreme Court had referred the following questions for a preliminary ruling by the ECJ:

  1. Should Article 2 (1) (c) and Article 9 (1) of the EU VAT Directive be interpreted to mean that with regard to school transport costs where the municipality relies on external transport carriers and receives contributions from parents of 3% of the transport costs a municipality should be regarded as a taxable person within the meaning of the VAT Directive?
  2. For this purpose should the arrangement as a whole be considered or should an assessment be made for each transport operation separately?
  3. If the latter is the case should a distinction be made according to whether pupils are transported over a distance between 6 and 20 kilometers or over a distance exceeding 20 kilometers?

Relevant provisions of EU VAT Directive

Under Article 2 (1) (c) of the VAT Directive the transactions subject to VAT include the supply of services for consideration within the territory of a Member State by a taxable person acting as such.

Under Article 9 (1) a “taxable person” means any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity. Any activity of producers, traders or persons supplying services, including mining and agricultural activities and activities of the professions is regarded as ‘economic activity’.

Advocate General’s Opinion

The Advocate General proposes that where a municipality is organizing school transport by relying on external transport carriers and is receiving contributions of 3% of the transport costs from parents it is not acting as a taxable person for the purposes of the EU VAT Directive. If the referring court holds that competition is distorted by a significant number of transport services the municipality would then be considered to be acting as a taxable person for VAT purposes.

The ECJ is not obliged to follow the Advocate General’s opinion when it reaches its preliminary opinion although it may use the opinion for guidance.