Repon for the Hearing delivered in Case 348/87

I — Facts and main proceedings

1. The appellant in the main proceedings (hereinafter referred to as SUFA) is a non-profit-making foundation set up in 1961 which organizes and holds lotteries the proceeds of which go to social and cultural institutions in the Netherlands. Since 1971, following the setting up of the Stichting Algemene Loterij Nederland (hereinafter referred to as ALN') to which those institutions are affiliated, the permission necessary to organize those lotteries on behalf of the affiliated institutions has been granted to ALN. ALN has, in turn, entrusted the organization and the holding of the lotteries to SUFA. Under the terms of the agreement concluded between the two foundations, all costs arising from the holding of the lottery are charged to and reimbursed by ALN.

2. Each of the two foundations is run by a managing board which is elected internally, independently of the other foundation's managing board. With the exception of one member who has a seat on both managing boards, there is no common management. However, one member of ALN's managing board attends all meetings of SUFA's managing board as an observer and vice versa. As a foundation, SUFA does not have its own funds or its own credit facility at a bank. It commenced its activities with initial capital put up by ALN as a permanent loan. The activities of SUFA consist exclusively in organizing and holding lotteries on behalf of ALN, while ALN merely distributes the revenue from the lotteries, after deduction of the costs of holding the lotteries, amongst the social and cultural institutions which are affiliated to it.

3. The dispute in the main proceedings arose following the payment, on the basis of its tax returns, of turnover tax in the amount of HFL 21978 in respect of the costs of services supplied by SUFA to ALN during April 1983. SUFA lodged a complaint against the amount of tax paid but that complaint was dismissed by the inspector of taxes. In his decision, the inspector maintained that SUFA is not an independent group of persons providing services to its members, but that it performs its activities for a single principal and that principal, ALN, is not a member of SUFA.

4. SUFA appealed against that decision to the Gerechtshof (Regional Court of Appeal) in The Hague. In its appeal SUFA argued that it could not be considered to be an independent undertaking since it forms a fiscal unit with ALN. Thus, as a mere dependent extension of ALN, it must also enjoy the tax exemptions which apply to ALN. It is common ground that the activities of ALN and of its affiliated institutions are not subject to turnover tax under Article ll(1)(f) and (u) of the Netherlands' Wet op de omzetbelasting 1968 (Law on Turnover Tax 1968, hereinafter referred to as the Law) in its 1978 version.

5. Article ll(1)(f) of the Law empowers the Government to exempt:

6. On 7 May 1986 the Gerechtshof dismissed the appeal lodged by SUFA on the grounds that the two foundations were independent of one another, despite their close economic and structural relationship, and could thus not be regarded as constituting a fiscal unit. Moreover, the Gerechtshof emphasized that SUFA, unlike ALN, could not be described as an independent group of persons or bodies providing services to its members in return for reimbursement of their share of the joint expenses, since SUFA supplies those services exclusively to ALN and not to the institutions affiliated to that foundation. On those grounds, the Gerechtshof considered that Article 13(A)(1)(f) of the Sixth Directive is not applicable.

7. SUFA appealed against that judgment to the Hoge Raad der Nederlanden (Supreme Court of the Netherlands). By judgment of 4 November 1987, the Hoge Raad rejected three of SUFA's four grounds of appeal, and in particular the claim that the two foundations constitute a fiscal unit. With regard to the ground of appeal directed against the part of the Gerechtshof's judgment in which it was held that the exemption provided for under Article 11(1)(u) of the Law is not applicable to the activities of SUFA, the Hoge Raad considers that the definition of services which are exempt under that provision must be the same as the definition of the supplies of services which must be exempt under Article 13(A)(1)(f) of the Sixth Directive. Therefore, since an appreciation of that ground of appeal depends on the reply to the question whether the aforesaid provision of the Sixth Directive embraces services such as those provided by SUFA to ALN, the Hoge Raad has referred the following question to the Court of Justice for a preliminary ruling:

II — Written observations submitted to the Court

1. The appellant in the main proceedings, SUFA, which points out its close statutory, contractual and material relationship with ALN, argues that if ALN had not been set up, SUFA could claim the exemption in question, since it organizes lotteries on behalf of the institutions affiliated to the ALN. The only function of the ALN is to hold the authorization to organize the lotteries and to distribute the proceeds of those lotteries amongst the institutions affiliated to it. Moreover, the activities of SUFA would be exempt if they were performed by the ALN since SUFA performs its activities only on behalf of the ALN and the institutions affiliated to the ALN, so there is no valid reason for refusing the exemption to SUFA.

2. The Netherlands Government states that Article 13(A)(1)(f) of the Sixth Directive creates an exemption which applies, under certain specific conditions, to the supply of services for the benefit of their members by independent groups of taxable persons who are exempt from tax or of nontaxable persons, groups which in the Netherlands are usually described as associations. In that way the basic purpose of the provision is achieved, which is to prevent the levying of taxes on activities which are subcontracted by taxable persons who are exempted from tax and by nontaxable persons in so far as services are provided in the context of mutual cooperation, expressly mentioned in the provision relating to exemption. The application of exemptions or nontaxable treatment on a case-by-case basis to individual taxable or nontaxable persons does not achieve that purpose. It may therefore be considered that the effect of the exemption envisaged by the provision in question is, as it were, to extend the scope of the other exemptions and of treatment as a nontaxable person in such a way that the tax burden is not increased when, usually for reasons of efficiency, it is decided to act in association.

3. The Commission of the European Communities points out first that the principal purpose of the Sixth Directive is the harmonization of the laws of the Member States relating to value-added tax (VAT). With regard to the exhaustive list of VAT exemptions in Article 13(A) of the Sixth Directive, the Commission is of the opinion that those exemptions must be regarded as independent concepts of Community law and, as the Court has consistently held, they must be interpreted restrictively since they constitute a derogation from the general principle according to which VAT is levied on all services and goods supplied for consideration to a consumer by a taxable person acting as such, and are not defined by reference to purely material or functional criteria.

1 Language of the case: Dutch.