CJEU disagrees with Advocate-General on meaning of competition and fiscal neutrality in VAT Directive.

19 Jan 2017

Article 13 of the VAT Directive exempts public bodies from VAT except where this would lead to significant distortions of competition. The decision in Case C-288/07 Commissioners of Her Majesty’s Revenue & Customs –v- Isle of Wight Council (2008) ECR I-7203 appeared to say that if the public body and private operators carry on an activity of the same nature, then fiscal neutrality requires that they both be subject to VAT but where the nature of the economic analysis of the distortion of competition (if any) to be carried out was very unclear. In particular, it remained unclear whether a distortion of competition was to be presumed in such circumstances. In Case 344/15 National Roads Authority v Revenue Commissioners, the Advocate General Spzunar on 8th September 2016 expressed the view that even though there was no evidence of actual competition between the Irish public operator of two toll roads (the NRA) and private toll road operators, fiscal neutrality required that the NRA should be subject to VAT on the tolls it charged in the same way as private operators because the two activities were similar in nature so that a distortion of competition must be presumed.

In a decision handed down on 19th January 2017 the CJEU took a different view. The CJEU stated that while the general principle was that any economic activity was to be subject to VAT, that principle could not be applied in a way which deprived the exemption for public bodies of its effectiveness. Treating a public body as non-taxable requires an assessment of economic circumstances. The exception in relation to significant distortions of competition “[43]….presupposes, first, that the activity in question is carried on in competition, actual or potential, with that carried on by private operators and, secondly, that the different treatment of those activities for VAT purposes leads to significant distortions of competition, which must be assessed having regard to economic circumstances. [44] It follows that the mere presence of private operators on a market, without account being taken of matters of fact, objective evidence or an analysis of the market, cannot demonstrate the existence either of actual or potential competition or of a significant distortion of competition.” Since there was no economic analysis or evidence that the NRA competed (actually or potentially) with the private operators, the Court held that the NRA should not be regarded for the purposes of Article 13 as competing with private operators.

Michael M. Collins SC acted for the National Roads Authority.

Please click here for the full judgment.