RSM Poland


The ECJ on provision of services by public bodies

The ECJ on provision of services by public bodies - the judgement of 12 May 2016 - Gemeente Borsele reference number C-520/14


On 12 May 2016, the Court of Justice of the European Union issued a judgement in the case of Gemeente Borsele under reference number C-520/14. The case concerns a Dutch municipality which, under separate regulations, is obliged to provide transport for school pupils. Although it concerns a public entity, it is worth for entrepreneurs to become familiar with the judgement in view of the fact that it provides some important guidance as to when and under what conditions given activity may be regarded as economic activity.

The Dutch municipality of Borsele organizes transport for school pupils. Under local law, one-third of parents of pupils for whom school transport was provided paid contributions, equivalent to 3% of the amount paid by that municipality to external provider for transport services. The difference of 97 % was financed by the municipality from public funds.

The municipality claimed that, because it was a taxable person for the purposes of VAT in respect of the provision of school transport services in return for payment of contributions, it was thus entitled to deduct from that payment the VAT that had been charged by transport undertakings. The tax authorities, however, rejected the claim. In the end the municipality of Borsele appealed to the Supreme Court of the Netherlands, which decided to stay the proceedings and to refer the case to the ECJ for a preliminary ruling on the issue.

The task of the ECJ was to resolve whether the municipality providing transport for school pupils - as was the case in the described facts, i.e. at a small cost - should be regarded as a taxable person for the purposes of tax on goods and services and, consequently, whether the municipality may deduct the tax as shown on purchase invoices for the service. 

The ECJ pointed out that the term "taxable person" means any person who independently carries out in any place any economic activity, whatever the purpose or results of that activity. 

In order to establish whether a given activity may be regarded as economic activity, it is necessary to compare all circumstances in which the entity concerned supplies the services in question with the circumstances in which that type of service is usually provided.

The municipality of Borsele receives payment. There is no doubt, however, that the payment does not correspond to the actual cost of transport provided for school pupils. In this regard, the Court emphasized that lack of symmetry between the cost of the transport services provided by the municipality and the payment made by parents is not sufficient for that payment to be regarded as consideration for that service. Consequently, it is not possible to regard transport services provided by the municipality as part of economic activity.

Moreover, the Court was of opinion that the municipality of Borsele appears to be a beneficiary and final consumer of transport services which it acquires from transport undertakings with which it deals and which it makes available to parents of pupils as part of its public service activities, rather than an entity offering passenger transport services.

Consequently, the Court stated that the municipality of Borsele, in connection with the services as described in the main proceedings, does not carry out an economic activity and is not therefore a VAT payer. 

Despite the fact that this judgement concerned a Dutch entity, it also carries implications for Polish taxpayers - primarily, but not only, for public bodies.

The adjudicating panel points out that the payment for the provision of services should not always be regarded as consideration. It is necessary to differentiate between a fee and payment for service. In case of fee, consideration cannot be considered, which is a prerequisite to regard the service as an economic activity. In addition, to answer the question whether the entity performs service as part of its economic activity subject to VAT, it is necessary to analyse the market conditions in which such operations are usually carried out - it must be determined whether the entity actually operates as an entrepreneur.


If you have any questions or need to discuss the topic, you are strongly encouraged to contact our expert, Tomasz BEGER:


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