© 2025 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
A9. Competitive neutrality
GENERAL​
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Three different meanings of fiscal neutrality
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"[46] In relation to those points, it should be borne in mind that, in the field of VAT, the concept of neutrality is used in different senses.
[47] On the one hand, recalling that the deduction mechanism provided for under the Sixth Directive is intended to relieve the trader entirely of the burden of the VAT payable or paid in the course of all his economic activities, the Court has held that the common system of VAT seeks to ensure neutrality of taxation of all economic activities, provided that those activities are themselves subject in principle to VAT (see inter alia, to that effect, Case C‑174/08 NCC Construction Danmark [2009] ECR I‑10567, paragraph 27, and Case C‑277/09 RBS Deutschland Holdings [2010] ECR I‑13805, paragraph 38).
[48] On the other hand, according to settled case‑law, the principle of fiscal neutrality means that supplies of goods or services which are similar, and which are accordingly in competition with each other, may not be treated differently for VAT purposes (see, inter alia, Joined Cases C‑453/02 and C‑462/02 Linneweber and Akritidis [2005] ECR I-1131, paragraph 24, and Joined Cases C‑259/10 and C‑260/10 Rank Group [2011] ECR I‑10947, paragraph 32 and the case‑law cited)." (Zimmermann C-174/11)
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"[28] Since both the referring court and the parties have referred to the principle of fiscal neutrality, it may be convenient to commence by clarifying the meaning of that expression. Indeed, a quick overview of the Court’s case-law shows that the expression ‘principle of fiscal neutrality’ is used in at least three different contexts.
[29] First, that expression is often used to describe the fact that a person who has had to pay VAT to acquire goods or services can then deduct it if these goods or services are in turn intended to be used for the purposes of a taxable activity. This is clearly the primary meaning of that expression.
[30] Second, the principle of fiscal neutrality is sometimes understood as reflecting, in VAT matters, the principle of equal treatment. When it is used in that sense, such a principle can, of course, be invoked to challenge the validity of a provision of the VAT Directive.
[31] Third, the Court sometimes uses that expression to indicate that VAT should be neutral from a competitive point of view. In essence, the idea is that similar goods or services which are in competition with each other should be treated in the same way. That principle is, however, somewhat different from the principle of equal treatment since it does not constitute some kind of overarching rule of primary law that can determine the validity of a stated exemption. Used in this (third) sense, the idea of fiscal neutrality is rather an interpretative principle which comes into play when other methods of interpretation do not lead to a conclusive result." (I GmbH C-228/20, AG Hogan)
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"[36] In other contexts, there is greater emphasis on the aspect of equal treatment of all supplies or all taxpayers as regards the levying of VAT and the applicable rate of VAT. The forms of words which the Court has chosen to describe that application of the principle of neutrality vary.
[37] In a number of decisions it has stated: ‘The principle of fiscal neutrality precludes … economic operators carrying on the same activities from being treated differently as far as the levying of VAT is concerned.’
[38] In other judgments, the Court has stated that the principle of fiscal neutrality precludes, in particular, ‘treating similar supplies of services, which are thus in competition with each other, differently for VAT purposes’. The Court has frequently added by way of clarification in this regard that the identity of the manufacturer or the provider of the services and the legal form by means of which they exercise their activities are, as a rule, irrelevant in assessing whether products or services supplied are similar.
[39] Those formulations each emphasise different aspects: in some cases equal treatment for economic operators and in others equal treatment for the services supplied by them. However, they are based on the same understanding of the principle of neutrality. Its scope would, in particular, be too restricted if, on the basis of the phrase quoted in point 37, only identical services had to be treated equally for tax purposes, as the United Kingdom Government contends. Rather, in addition to that, the principle of neutrality also requires equal treatment for supplies which serve the same purpose, are interchangeable and are therefore in competition with each other." (JP Morgan C-363/05, AG Kokott)
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"As [HMRC] pointed out, there are in fact two elements to fiscal neutrality. First, there is the operation of the input tax deduction system, designed to ensure that the fiscal burden falls on the final consumer rather than on intermediate traders in a supply chain (see for example Case C-111/14 GST-Sarviz AG Germania v Direktor na Direktsia 'Obzhalvane i danachno-osiguritelna praktika' Plovdiv pri Tsentralno upravlenie na Natsionalnata agentsia za prihodite EU:C:2015:267, [2015] STC 1883 at [32]). It is this aspect on which ICSL relies, and which gives rise to its objection that deregistration would systematically undermine the right to deduct. Secondly, the principle of fiscal neutrality requires equal treatment of supplies that are in competition with each other (see recital 7 to the PVD and, for example, Joined Cases C259/10 and C260/10 Rank Group Plc v Revenue and Customs Commissioners EU:C:2011:719, [2012] STC 23 at [32])." (Impact Contracting Solutions Ltd v. HMRC [2025] EWCA Civ 623, Falk LJ)
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Fiscal neutrality as an expression of equal treatment​
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- Intended to reflect equal treatment
"[41] That principle of fiscal neutrality was intended by the Community legislature to reflect, in matters relating to VAT, the general principle of equal treatment (see, to that effect, Case C‑309/06 Marks & Spencer [2008] ECR I‑2283, paragraph 49, and the case-law cited)." (NCC Construction Danmark C-174/08)
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- CJEU referring to fiscal neutrality when it presumably means equal treatment
"[37] Such an interpretation is not contrary to the principle of fiscal neutrality, which precludes economic operators carrying out the same transactions from being treated differently in relation to the levying of VAT (see Case C‑363/05 JP Morgan Fleming Claverhouse Investment Trust and The Association of Investment Trust Companies [2007] ECR I‑5517, paragraph 46 and the case-law cited).
[38] As the Advocate General observes in point 63 of her Opinion, the assessment of the comparability of the services supplied hinges not only on the comparison of individual services, but on the context in which those services are supplied.
[39] As the facts in the main proceedings demonstrate, on account of the obligations described in paragraph 12 of this judgment, which are required under its licence and connected with its status as the universal service provider, an operator such as Royal Mail supplies postal services under a legal regime which is substantially different to that under which an operator such as TNT Post provides such services." (TNT Post UK Ltd C-357/07)
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"[63] TNT is not obliged to offer comparable services. The principle of fiscal neutrality therefore categorically does not require that TNT’s and Royal Mail’s transactions be treated equally for tax purposes. It may indeed be the case that TNT provides some services which are identical to those of Royal Mail, such as, for example, the collection and sorting of postal items. However, the tax‑privileged universal service consists precisely in providing a public postal network as a system of infrastructure facilities and services of specified quality at a particular price. Consequently, the assessment of the comparability of the transactions hinges not only on the comparison of individual services, but on the fact that they are part of a comprehensive range of provision offered by the public postal network." (TNT Post UK Ltd C-357/07, AGO Kokott)
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Legislative enunciations of fiscal neutrality​
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- Article 134
"The supply of goods or services shall not be granted exemption, as provided for in points (b), (g), (h), (i), (l), (m) and (n) of Article 132(1), in the following cases:
(a) where the supply is not essential to the transactions exempted;
(b) where the basic purpose of the supply is to obtain additional income for the body in question through transactions which are in direct competition with those of commercial enterprises subject to VAT." (Article 134)
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"[35] As regards the third condition, it must be noted that that condition is an express enunciation of the principle of fiscal neutrality, which precludes, in particular, treating similar supplies of services, which are thus in competition with each other, differently for VAT purposes (see, to that effect, judgment of 14 June 2007, Horizon College, C‑434/05, EU:C:2007:343, paragraph 34 and the case-law cited)." (Brockenhurst College C-699/15)
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Directive requiring breach of fiscal neutrality​
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- Derogations/differences in treatment may be explicitly provided for
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"[18] The Commission accepts that Article 15(6) of the Sixth Directive expressly derogates from the principle of fiscal neutrality but observes that there is nothing in the legislative history of that article to indicate that Article 15(7) and (9) allow such a derogation; the tax exemption referred to in those paragraphs can therefore cover only goods and services for aircraft used solely for international operations.
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[24] That system is based in particular on two principles. First, each supply of goods and services effected for consideration by a taxable person is subject to VAT. Second, in accordance with the principle of fiscal neutrality, economic operators carrying out the same transactions may not be treated differently in relation to the levying of VAT.
[25] For those reasons, whilst it is common ground that the Sixth Directive may provide for exemptions which depart from the principles referred to in the foregoing paragraph, the Court considers that such exemptions must be interpreted strictly (see, to that effect, SDC, paragraph 20, Case C-216/97 Gregg [1999] ECR I-4947, paragraph 12, and Kügler, paragraph 28)." (Cimber Air C-382/02)
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"[60] It is clear from the case-law that activities which are to some extent comparable and thus to some extent in competition may be treated differently for VAT purposes where the difference in treatment is explicitly provided for. Moreover, if all activities partly in competition with each other had to receive the same VAT treatment, the final result would be — since practically every activity overlaps to some extent with another — to eliminate all differences in VAT treatment entirely. That would (presumably) lead to the elimination of all exemptions, since the VAT system exists only to tax transactions." (Deutsche Bank C-44/11, AG Sharpston)
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"[69] If I then turn to the principle of fiscal neutrality understood here in the sense of competitive neutrality, I have already pointed out that the latter is more an objective of VAT law rather than some true, overarching binding principle, the terms of which can never be compromised by the VAT Directive..." (I GmbH C-228/20, AG Hogan)
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"Eighthly, the principle of fiscal neutrality is not a rule of primary EU law against which it is possible to test the validity of an exemption provided for under Article 13A or which makes it possible to extend such an exemption. Accordingly, the principle of fiscal neutrality does not preclude Article 13A(1)(g) from making it unnecessary for public bodies to be recognised as "charitable" while requiring such recognition in the case of other organisations: Zimmerman at [50] and [53]."
(LIFE v. HMRC [2020] EWCA Civ 452, Arnold, Floyd, Newey LJJ)
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"[64] The Respondents seek to extend those comments in the Deutsche Bank case to the national legislation here. However, I accept Miss Whipple's submission that the case was concerned with a "black letter line" setting the boundaries of an exemption to be found in the Directive itself. The exemption had to be construed strictly and fiscal neutrality principles could not flex those boundaries..." (Sub One Limited v. HMRC [2014] EWCA Civ 773, McCombe, Rimer, Briggs LJJ)
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- Exemption with supplier condition means supplies in competition may be treated differently
"[36] In this connection, it should be observed that the scope of the exemptions in Article 132(1)(b), (g), (h), (i), (l), (m) and (n) of Directive 2006/112 is defined not only by reference to the substance of the transactions covered, but also by reference to certain criteria that the suppliers must satisfy. In providing for exemptions from VAT defined by reference to such criteria, the common system of VAT implies the existence of divergent conditions of competition for different operators.
[37] Accordingly, Article 133(d) of Directive 2006/112 cannot be construed in such a way as would enable the difference in the conditions of competition stemming from the very existence of the exemptions provided for under European Union law to be eliminated, since such a construction would call in question the scope of those exemptions." (Bridport and West Dorset Golf Club Limited C-495/12)
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- Power to impose additional conditions may not be used to reduce distortion of competition required by directive
"[38] National legislation such as that at issue in the main proceedings does not comply with those limits on the power conferred by Article 133(d) of Directive 2006/112. That legislation is not limited to preventing distortions of competition stemming from the conditions under which, in accordance with the national legislation implementing that directive, the exemption is to be granted, but results in the difference in the conditions of competition stemming from the very existence of the exemption in Article 132(1)(m) of Directive 2006/112 being called in question. The exclusion from that exemption is made on the basis of the status of the recipient of the supply of the service in question even though that status does not alter the substance of the supply, namely, the grant of access to the golf course in order to play golf." (Bridport and West Dorset Golf Club Limited C-495/12)
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- Fiscal neutrality not used to override clear words requiring derogation
Identical domestic flights taxed differently depending on whether supplier operated mainly internationally
"[28] Thus, contrary to the contentions of the Commission and the Danish Government, the exemption provided for in Article 15 of the Sixth Directive relates formally, both in paragraphs 7 and 9 and in paragraph 6 of that article, to domestic flights carried out by aircraft used by companies whose business is mainly international.
[29] The fact, referred to by the Commission, that the exemptions within a Member State are provided for in Article 13 of the Sixth Directive and that the conditions for exemption in Article 15 thereof are completely harmonised cannot have the effect of giving Article 15 a meaning different from that which is clear from its wording." ​(Cimber Air C-382/02 - on what is now Art 148(e))
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- Derogations to be interpreted in way that does the least possible damage
"[44] Whilst it is true that the Sixth Directive provides for certain derogations which may interfere to some extent with the application of the principle of fiscal neutrality, like the derogation under the second subparagraph of Article 4(5) of the Sixth Directive (see, to that effect, Case C‑378/02 Waterschap Zeeuws Vlaanderen [2005] ECR I‑4685, paragraph 43), since that provision permits the treatment of bodies governed by public law as non-taxable persons provided that such treatment would only distort competition insignificantly, the fact remains that that derogation must be interpreted in such a way that the least possible damage is done to that principle.
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[46] On the other hand, if those distortions are analysed by reference to the activity as such, irrespective of the conditions of competition prevailing on a given local market, compliance with the principle of fiscal neutrality is ensured, given that all bodies governed by public law are either taxable or non-taxable persons, the sole strain on that principle concerning only relations between those bodies and private operators, and that to the extent that the distortions of competition remain insignificant." (Isle of Wight C-288/07)
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“[57]…Compliance with the principle of fiscal neutrality is a fundamental feature of the VAT system. The CJEU has acknowledged that while the PVD allows for certain derogations which may interfere to some extent with the application of the principle of fiscal neutrality (like the derogation in the second subparagraph of article 13(1)) it does so only where the treatment of bodies governed by public law as non-taxable persons "would only distort competition insignificantly" and the derogation "must be interpreted in such a way that the least possible damage is done to that principle" ( para 44).” (Northumbria Healthcare NHS Foundation Trust v. HMRC [2025] UKSC 37)
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Effect of principle of fiscal neutrality (similar supplies taxed the same) ​
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- Cannot be invoked to challenge terms of Directive
"[35] In that regard, while the principle of fiscal neutrality is inherent in the common system of VAT established by the VAT Directive, that principle, as it is a specific expression of the principle of equality at the level of secondary EU law and in the particular field of taxation, does not allow the scope of a provision of that directive to be extended in such a way as to run counter to the clear wording of that directive (see, to that effect, judgment of 15 November 2012, Zimmermann, C‑174/11, EU:C:2012:716, paragraph 50 and the case-law cited), which can be amended only following the intervention of the EU legislature, as the Advocate General stated in point 61 of his Opinion.
[36] Second, it is common ground, as the Commission observed, in essence, that the literal interpretation of Articles 312 and 315 and of the first paragraph of Article 317 of the VAT Directive, referred to in paragraph 30 above, leads to a differentiated tax burden on supplies in a Member State, depending on whether the work of art was the subject of such an intra-Community acquisition, was acquired by the taxable dealer in the territory of the same Member State or was imported from a third country.
[37] It is clear, however, that that situation results directly from the wording of the applicable provisions." (Mensing C-180/22)
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"[50] From that viewpoint, it should be borne in mind that the principle of fiscal neutrality – a particular expression of the principle of equal treatment at the level of secondary EU law and in the specific area of taxation (see, to that effect, NCC Construction Danmark, paragraph 44) – is not a rule of primary law against which it is possible to test the validity of an exemption provided for under Article 13 of the Sixth Directive..." (Zimmermann C-174/11)
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- Directive may expressly require or permit distinctions to be drawn irrespective of fiscal neutrality
"[51] Indeed, the activities in the public interest which must be exempted from VAT, the activities which may be exempted by the Member States and those which may not, as well as the conditions to which activities eligible for exemption may be made subject by the Member States, are defined by the content of Article 13A of the Sixth Directive (see Case C‑144/00 Hoffmann [2003] ECR I‑2921, paragraph 38, and Case C‑253/07 Canterbury Hockey Club and Canterbury Ladies Hockey Club [2008] ECR I‑7821, paragraph 38).
[52] Accordingly, the principle of fiscal neutrality does not preclude, for example, the situation under Article 13A(1)(g) of the Sixth Directive, whereby, for the purposes of the exemption, it is unnecessary for bodies governed by public law to be recognised as ‘charitable’, but such recognition is required in the case of organisations other than bodies governed by public law.
[53] As is apparent from paragraphs 42 and 52 above, in the context of the exemption provided for under Article 13(1)(g) of the Sixth Directive, it is not in relation to bodies governed by public law that the principle of fiscal neutrality requires equal treatment in terms of recognition as ‘charitable’, but in relation to all other organisations, each as compared with the others." (Zimmermann C-174/11)
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See above on instances where the Directive requires/permits breaches of fiscal neutrality.
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- Principle of interpretation to be applied alongside other principles where there is not a clear answer
"[49] It is in that latter sense that the concept of neutrality is relevant in the present case. As is clear from the case‑law set out in paragraph 22 above, in the interpretation of the exemptions provided for under Article 13 of the Sixth Directive, the principle of fiscal neutrality must be applied alongside the principle that those exemptions must be interpreted strictly (see also, to that effect, Case C‑44/11 Deutsche Bank [2012] ECR, paragraph 45)." (Zimmermann C-174/11)
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[31] Third, the Court sometimes uses that expression to indicate that VAT should be neutral from a competitive point of view. In essence, the idea is that similar goods or services which are in competition with each other should be treated in the same way. That principle is, however, somewhat different from the principle of equal treatment since it does not constitute some kind of overarching rule of primary law that can determine the validity of a stated exemption. Used in this (third) sense, the idea of fiscal neutrality is rather an interpretative principle which comes into play when other methods of interpretation do not lead to a conclusive result." (I GmbH C-228/20, AGO)
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- Cannot be used to extend the wording of an exemption
"[50]...Nor does that principle make it possible for the scope of such an exemption to be extended in the absence of an unequivocal provision to that effect (see, to that effect, VDP Dental Laboratory, paragraphs 35 to 37, and Deutsche Bank, paragraph 45)." ​(Zimmermann C-174/11)
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- But can be used to depart from normal linguistic meaning
"[26] In that regard, whilst it is true that the term ‘persons’ is, on its own, wide enough to include not only natural persons, but also unincorporated associations and corporate persons, in normal linguistic usage only natural persons take part in sport even if this is done in groups of persons.
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[30] It follows, besides, from that interpretation that the exemption for transactions effected by undertakings or organisations mentioned in Article 13A(1)(m) of the Sixth Directive would not benefit certain persons who participate in sport solely because they participate in it within a structure managed by a club. That interpretation would not be consistent with the principle of fiscal neutrality, inherent in the common system of VAT, in compliance with which the exemptions provided for in Article 13 of the Sixth Directive must be applied (see, to that effect, Case C‑283/95 Fischer [1998] ECR I-3369, paragraph 27). In fact, that principle precludes, in particular, economic operators who effect the same transactions being treated differently in respect of the levying of VAT (see, to that effect, Case C‑216/97 Gregg [1999] ECR I‑4947, paragraph 20). It follows that that principle would be disregarded if the possibility of invoking the benefit of the exemption under Article 13A(1)(m) of the Sixth Directive depended on the organisational structure particular to the sporting activity practised." (Canterbury Hockey Club C-253/07)
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- Or adopt broader interpretation of exemption
"[40] On the market for sales of second-hand cars, taxation on the overall sale price of the supply by sale and leaseback undertakings would create a distortion of competition to their detriment and in favour, in particular, of firms trading in second-hand vehicles which benefit from the taxation scheme based on the profit margin. As a means of satisfying purchasers’ legitimate expectation to pay the same price for vehicles of the same quality, whether they are sold by an undertaking trading in second-hand cars or by a sale and leaseback undertaking, the latter could not reasonably be expected to absorb in the sale price the amount of the VAT owed by it and thereby reduce its margin.
[41] The application of the arrangements provided for in Article 26a of the Sixth Directive to sale and leaseback undertakings allows in those circumstances precisely the achievement of the aim of the Community legislature in adopting those arrangements, that is, to avoid double taxation and distortions of competition in the area of second-hand goods.
[42] In the circumstances, taking account of the aims of Article 26a of the Sixth Directive, that article is to be interpreted as meaning that it does not exclude from the category of taxable dealer sale and leaseback undertakings which purchase cars second-hand, when the resale forms part of their normal business and the intention to resell is present at the moment of purchase, even when the reselling is secondary in comparison with the leasing." (Jyske C-280/04)
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- Used to support application of directive condition to all non-public bodies rather than only some
"[59] That interpretation is, moreover, consistent with the principle of fiscal neutrality, which precludes, inter alia, as stated in paragraph 42 above, operators which carry on the same activities from being treated differently as far as the levying of VAT is concerned (judgment of 6 November 2003, Dornier, C‑45/01, [60] It follows that a Member State may, in the exercise of its discretion, subject a private hospital to the condition that it be ‘duly recognised’ in order for the provision of medical care by that hospital under social conditions comparable with those applicable to bodies governed by public law to be exempted under Article 132(1)(b) of the VAT Directive." (I GmbH C-228/20)
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- Principle constraining the exercise of any discretion by Member States
"[41] That principle of fiscal neutrality was intended by the Community legislature to reflect, in matters relating to VAT, the general principle of equal treatment (see, to that effect, Case C‑309/06 Marks & Spencer [2008] ECR I‑2283, paragraph 49, and the case-law cited)." (NCC Construction Danmark C-174/08)
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"[27] In that regard, it must be pointed out that the exemptions provided for by Article 13(B) are to be applied in accordance with the principle of fiscal neutrality inherent in the common system of VAT (see, to that effect, Case C-45/95 Commission v Italy [1997] ECR I-3605, paragraph 15). That requirement also applies when the Member States exercise their power under Article 13(B)(f) to lay down the conditions and limitations of the exemption. In according that power to the Member States, the Community legislature did not authorise them to undermine the principle of fiscal neutrality which underlies the Sixth Directive." (Fischer C-283/95)
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- Principle constraining exercise of permission by Member States
"[64] The Respondents seek to extend those comments in the Deutsche Bank case to the national legislation here. However, I accept Miss Whipple's submission that the case was concerned with a "black letter line" setting the boundaries of an exemption to be found in the Directive itself. The exemption had to be construed strictly and fiscal neutrality principles could not flex those boundaries. Here we are not concerned with such boundaries. We are concerned with a differentiation in treatment between traders supplying similar goods within the same national exemption category. The Appellant submits that if an exemption is in principle permitted in national law by the VAT Directive it must be applied consistently with the principle of fiscal neutrality. I think that Miss Whipple's submission in this respect is supported by the authorities cited in paragraph 60 of the Appellant's skeleton argument, i.e. Christoph-Dornier-Stiftung v Finanzamt Giessen [2005] STC 228 at [42] and Copy-Gene A/S v Skatteministeriet [2010] STC 1799 at [64]." (Sub One Limited v. HMRC [2014] EWCA Civ 773, McCombe, Rimer, Briggs LJJ)
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- Member state cannot rely on conditions that breach fiscal neutrality
"[37] It follows that, as the Advocate General pointed out in point 72 of her Opinion, where, as in the cases in the main proceedings, the conditions or limitations which a Member State imposes on the exemption from VAT for games of chance or gambling are contrary to the principle of fiscal neutrality, that Member State cannot rely on such conditions or limitations to refuse an operator of such games the exemption which he may legitimately claim under the Sixth Directive." (Linneweber C-453/02, §33)
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- Addition to list of state-regulated entities to achieve fiscal neutrality
"[71] It is apparent to me that, when considering whether services are state regulated at [92] to [93], the Court of Appeal is considering whether that service is as a matter of fact regulated by the state (be it at a national, regional or local level) rather than whether services fall within the definition in Note 8. This is because it is self-evident that a typical consumer would not have any awareness of Schedule 9. They would be far more likely to be aware of whether a service is in fact regulated. It is also apparent from the Court of Appeal's earlier discussion of the UT decision which references "system of protections and guarantees which is absent in the case of unregulated services."
[72] Applying the Court of Appeal's reasoning, and my "own experience of the world", I consider that a typical consumer would regard services regulated by CIW as similar to the provision of the same support regulated by an act of any of the legislatures expressly mentioned in Note 8. (Cascade Care Ltd v. HMRC [2025] UKFTT 1332 (TC), Judge Blackwell)
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- Principle cannot be relied on against national law provisions implementing directive provisions that derogate from principle
"[86] However, as the Commission has rightly pointed out, that principle does not transcend the legislation. It is stated in general terms in Article 17(2) of the Sixth Directive and it may be subject to the limitations and derogations expressly provided for in the directive. (24) The principle of neutrality and the right to deduct cannot therefore preclude or render inapplicable a provision of national law which transposes such a derogating provision of the Sixth Directive.
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[88] The effects of that legislation which are criticised by NCC therefore derive from the derogations from the principle of neutrality which are expressly provided for by the Sixth Directive and intended by the Danish Government on the basis of those provisions." (NCC Construction Danmark C-174/08, AG Bot)
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THE PRINCIPLE​
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Similar supplies in competition with each other not to be taxed differently
"[39] Moreover, in accordance with the principle of fiscal neutrality on which, in particular, the common system of VAT established by the Sixth Directive is based, economic operators carrying out the same transactions may not be treated differently in relation to the levying of VAT (see Case C-382/02 Cimber Air [2004] ECR I‑8379, paragraphs 23 and 24)." (Jyske C-280/04)
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"[54] In addition, it must be recalled that the principle of fiscal neutrality precludes, in particular, treating similar supplies of services, which are thus in competition with each other, differently for VAT purposes (see, to that effect, Kügler, paragraph 30, and Commission v Germany, paragraph 20)."
(Kingcrest Associates Ltd C-498/03)
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"[24] That system is based in particular on two principles. First, each supply of goods and services effected for consideration by a taxable person is subject to VAT. Second, in accordance with the principle of fiscal neutrality, economic operators carrying out the same transactions may not be treated differently in relation to the levying of VAT." (Cimber Air C-382/02)
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"[54] As can be seen from Rank, the principle of fiscal neutrality requires that supplies of goods and services which are similar, and therefore are in competition with each other, not be treated differently for VAT purposes. Supplies of services are similar where they have similar characteristics and meet the same needs from the point of view of consumers, so that their use is comparable, and where the differences between them do not have a significant influence on the consumer's decision to use one or the other.
[55] As counsel for LIFE accepted, it is clear from the case law of the CJEU that consideration is not restricted to the characteristics of the services in themselves, but may extend to the context in which those services are provided. Accordingly, counsel for LIFE did not suggest that the mere fact that the requirement that a private welfare institution or agency be "state-regulated" was a criterion which applied to the context in which welfare services are provided, rather than a feature of the actual services themselves, meant that that criterion was impermissible. Rather, he submitted that the criterion was impermissible because state-regulation of the provider did not have a significant influence on the consumer's decision, or at any rate there was no evidence that it did have a significant influence.
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[61] ... Secondly, [the taxpayer] submitted that the UT had failed to ask itself the right question, which was whether regulation made any significant difference to the consumer. I accept the second submission, and therefore it is unnecessary to consider the correctness of the first submission." (LIFE v. HMRC [2020] EWCA Civ 452, Arnold, Floyd, Newey LJJ)
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- Breach established where different in treatment of two supplies which are identical from view of consumer
"[39] Furthermore, as the European Commission has pointed out, that interpretation is also required in the light of the principle of fiscal neutrality, which precludes in particular two transactions which are identical or similar from the point of view of the consumer, which are therefore in competition with one another, from being treated differently with regard to VAT (see, to that effect, judgment of 4 March 2021, Frenetikexito, C‑581/19, EU:C:2021:167, paragraph 32)." (BE C-182/20)
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"[48] ... Furthermore, it is apparent from the case-law of the Court that that principle must be interpreted as meaning that a difference in treatment for the purposes of VAT of two deliveries of goods or two supplies of services which are identical or similar from the point of view of the consumer and meet the same needs of the consumer is sufficient to establish an infringement of that principle (see, to that effect, judgment of 10 November 2011, Rank Group, C‑259/10 and C‑260/10, EU:C:2011:719, paragraph 36)..." (WEG C-449/19)
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- Use of the supplies is comparable and the differences do not have a significant influence on choice of average consumer
"[53] In order to determine whether two supplies of services are similar within the meaning of that case-law, account must primarily be taken of the point of view of a typical consumer, avoiding artificial distinctions based on insignificant differences (see The Rank Group, paragraph 43 and the case-law cited).
[54] Two supplies of services are therefore similar where they have similar characteristics and meet the same needs from the point of view of consumers, the test being whether their use is comparable, and where the differences between them do not have a significant influence on the decision of the average consumer to use one such service or the other (see The Rank Group, paragraph 44 and the case-law cited)." (Pro Med Logistik C-454/12)
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- Are the supplies interchangeable?
"[48] Therefore, it is for the referring court to examine whether the dairy beverages classified as foodstuffs covered by heading 2202 of the CN and the hot dairy beverages classified as a service covered by Section 56 of the PKWiU (‘Food and beverage serving services’) are interchangeable from the point of view of the average consumer." (YD C-146/22)
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- Assess "primarily" from point of view of average consumer
"[47] As regards the assessment of the similarity of the goods or services concerned, which is ultimately a matter for the national court to determine, it is clear from the Court’s case-law that account must be taken primarily of the point of view of an average consumer. Goods or services are similar where they have similar characteristics and meet the same needs from the point of view of consumers, the test being whether their use is comparable, and where the differences between them do not have a significant influence on the decision of the average consumer to use one or other of those goods or services (judgment of 9 November 2017, AZ, C‑499/16, EU:C:2017:846, paragraph 31 and the case-law cited)." (YD C-146/22)
​
- Similarity depends on context not just the nature of the supply
"[55] In addition, it must be observed that the assessment of the comparability of the services supplied hinges not only on the comparison of individual services, but also on the context in which those services are supplied (see Case C-357/07 TNT Post UK [2009] ECR I-3025, paragraph 38)." (Pro Med Logistik C-454/12)
​
"[71] ... Given that context, it cannot be taken as conceding any more than that the services themselves (as opposed to the context in which they were provided) were objectively similar. It did not amount to a concession by HMRC, let alone a finding by the FTT, that charities and non-state regulated private welfare providers were perceived by consumers in the same way. Still less did it amount to a concession or finding that state-regulated and non-state regulated private welfare providers were perceived by consumers in the same way." (LIFE v. HMRC [2020] EWCA Civ 452, Arnold, Floyd, Newey LJJ)
​
- Does not depend on proof of competition/distortion (as that would mean VAT treatment required case by case assessment)
"[47] The principle of fiscal neutrality includes the principle of elimination of distortion in competition as a result of differing treatment for VAT purposes (see, to that effect, Case C‑481/98 Commission v France [2001] ECR I-3369, paragraph 22). Therefore, distortion is established once it is found that supplies of services are in competition and are treated unequally for the purposes of VAT (see, to that effect, Case C‑404/99 Commission v France [2001] ECR I-2667, paragraphs 45 to 47). It is irrelevant, in that connection, whether the distortion is substantial." (JP Morgan C-363/05)
​
"[42] The United Kingdom Government further submits that, even if the existence of a competitive relationship is the decisive factor, the difference in tax treatment has no effect on it, because the amount of the extra tax burden borne by ITCs is in practice too small.
[43] That cannot be accepted. The principle of fiscal neutrality precludes unequal treatment of similar and therefore competing goods or services as regards exemption from VAT. Breach of that principle does not require the unequal taxation actually to result in a demonstrable distortion of competition. Otherwise exemption would apply on a case‑by‑case basis. That is because the actual influence of the taxation of fund management on competition depends on the underlying circumstances of the individual case, such as, for example, the cost structure of the particular type of fund and the price sensitivity of the fund segment concerned." (JP Morgan C-363/05, AG Kokott)
​
- Permissible to treat supplies to different groups of customers differently
"[47] That conclusion cannot be called into question by the argument advanced by the German Government and implicitly based on the principle of fiscal neutrality, according to which the supply of heating by an association of residential property owners to the property owners belonging to that association should be exempt from VAT in order to ensure equal treatment for VAT purposes between, on the one hand, the owners and tenants of single family homes not subject to VAT, who are respectively exempt from VAT, where they supply heat to themselves as property owners or where they simultaneously lease the house and the heating system, and on the other, the co-owners of properties subject to VAT, where the association to which they belong supplies them with heating.​
[48]...However, it must be pointed out that the line of argument advanced by the German Government is based on a comparison of supplies of goods to two clearly distinct groups of consumers and that the fact that those groups are potentially treated differently is merely the consequence of the choice made by the persons belonging to those groups to own or not to own a dwelling in a building under co-ownership." (WEG C-449/19)
​
- Private law operators must each be subject to the same conditions for the purpose of recognition
"[50] It may be stated at the outset that compliance with the principle of fiscal neutrality requires, first, that all of the categories of establishments governed by private law referred to in Article 13A(1)(b) of the Sixth Directive be subject to the same conditions for the purpose of their recognition for the provision of similar services. In the present case, therefore, it is for the national court to ascertain whether the national legislation complies with that requirement or whether, on the contrary, it restricts the application of the conditions in question to certain types of establishments whilst excluding others." ​(LUP C-106/05)
​
- Fiscal neutrality to be assessed separately for similar supplies with different contexts
"[61] By its second question in Case C‑454/12, the referring court asks whether it is necessary to have regard, for the purposes of the answer to the first question in Case C‑454/12 and the single question in Case C‑455/12, to the fact that taxi undertakings and minicab undertakings are required to supply their services under a special agreement which applies to those different undertakings indiscriminately and under almost identical conditions.
...
[63] In that regard, it must be observed that the services at issue in the main proceedings consist, essentially, in the transport of patients carried out pursuant to an agreement such as the agreement between Sickness Insurance Fund A and the Association, which applies indiscriminately to the taxi undertakings and minicab undertakings which are parties to it. It is apparent from the documents before the Court that the transport fare is fixed in that agreement and that it applies in the same way to the two categories of transport. In addition, that agreement does not give rise to any obligation for those two categories of transport to carry on business or to provide transport other than that already existing under the agreement, namely the obligation that the transport is in fact carried out. Taxi undertakings are thus not subject, in the context of such an agreement, to the statutory requirements imposed on them outside the scope of that agreement.
[64] If those facts should be borne out – this being a matter for the referring court to determine – that court would then have to take the view that, under the agreement between Sickness Insurance Fund A and the Association, the transport of passengers by taxi is not a concrete and specific aspect of the category of service of transport of passengers and their accompanying luggage. Furthermore, that activity would therefore have to be considered to be similar, from the point of view of the average user, to the activity of local transport of passengers by minicab. However, this cannot preclude the activity of the transport of patients under agreements concluded between sickness insurance funds and passenger transport undertakings from being able to constitute, as a whole, a concrete and specific aspect of the services supplied by undertakings for the transport of passengers and their accompanying luggage, within the meaning of the case-law cited in paragraph 44 of the present judgment." (Pro Med Logistik C-454/12)
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- Would breach fiscal neutrality/distort competition to treat supplies during liquidation as non-economic
"[40] Even if the initiation of insolvency proceedings, such as those at issue in the main proceedings, normally entails the disappearance of the undertaking concerned, the fact remains that, as long as that undertaking continues its activities during the insolvency proceedings, it is in competition with other taxable persons carrying out services similar to its own, so that the services concerned must, in principle, be treated in the same way for VAT purposes." (BE C-182/20)
​
Different transactions with economically similar outcomes not required to be taxed the same
"[31] It is true that Wako could have remained a tenant and sub-let the property to CFI for a lower rent than that which it had to pay the landlord or that it could have paid compensation to the landlord so that the latter would accept early termination of the lease. In both cases, the economic impact would have been comparable to that of the transaction at issue in the main proceedings, without the parties concerned having to pay VAT.
[32] However, that does not justify interpreting Article 13B(b) of the Sixth Directive so as to mean that it also applies to a supply of services that does not include the assignment of a right to occupy property.
[33] An approach of that kind would be contrary to the VAT system's objectives of ensuring legal certainty and a correct and coherent application of the exemptions provided for in Article 13 of the Sixth Directive. The Court observes in that connection that, to facilitate the application of VAT, it is necessary to have regard, save in exceptional cases, to the objective character of the transaction in question (see Case C-4/94 BLP Group [1995] ECR I-983, paragraph 24). A taxable person who, for the purposes of achieving a particular economic goal, has a choice between exempt transactions and taxable transactions must therefore, in his own interest, duly take his decision while bearing in mind the neutral system of VAT (see, to that effect, BLP Group, cited above, paragraphs 25 and 26). The principle of the neutrality of VAT does not mean that a taxable person with a choice between two transactions may choose one of them and avail himself of the effects of the other." (Cantor Fitzgerald C-108/99)
​
- Supplies that are treated as single supply not similar to those supplies separately for fiscal neutrality purposes
​
"[47] That conclusion cannot be called into question by the argument advanced by the German Government and implicitly based on the principle of fiscal neutrality, according to which the supply of heating by an association of residential property owners to the property owners belonging to that association should be exempt from VAT in order to ensure equal treatment for VAT purposes between, on the one hand, the owners and tenants of single family homes not subject to VAT, who are respectively exempt from VAT, where they supply heat to themselves as property owners or where they simultaneously lease the house and the heating system, and on the other, the co-owners of properties subject to VAT, where the association to which they belong supplies them with heating.
[48] It is true that, according to established case-law, the principle of fiscal neutrality, which was intended by the EU legislature to reflect, in matters relating to VAT, the general principle of equal treatment (judgment of 29 October 2009, NCC Construction Danmark, C-174/08, EU:C:2009:669, paragraph 41 and the case-law cited), precludes in particular treating similar goods and supplies of services, which are thus in competition with each other, differently for VAT purposes (judgment of 14 December 2017, Avon Cosmetics, C-305/16, EU:C:2017:970, paragraph 52 and the case-law cited). Furthermore, it is apparent from the case-law of the Court that that principle must be interpreted as meaning that a difference in treatment for the purposes of VAT of two deliveries of goods or two supplies of services which are identical or similar from the point of view of the consumer and meet the same needs of the consumer is sufficient to establish an infringement of that principle (see, to that effect, judgment of 10 November 2011, Rank Group, C-259/10 and C-260/10, EU:C:2011:719, paragraph 36). However, it must be pointed out that the line of argument advanced by the German Government is based on a comparison of supplies of goods to two clearly distinct groups of consumers and that the fact that those groups are potentially treated differently is merely the consequence of the choice made by the persons belonging to those groups to own or not to own a dwelling in a building under co-ownership." (WEG C-449/19)
​
[39] It is clear from the paragraphs set out above that the principle of fiscal neutrality is concerned with ensuring that supplies of similar goods and services, which are thus in competition with each other, are treated the same way for VAT purposes. The CJEU clearly states, at para 39 of Purple Parking, that 'the treatment of several services as a single supply for the purposes of VAT necessarily leads to tax treatment different from that that those services would have received if they had been supplied separately … Accordingly, a complex supply of services consisting of several elements is not automatically similar to the supply of those elements separately'. This passage shows that the principle of fiscal neutrality is not a factor to be taken into account in determining whether a transaction consisting of more than one element should be regarded as a single supply or as several independent supplies. Further, para 40 indicates that the fact that the UK zero rates the supply of cold water is not relevant to the question whether the different elements provided by the Middle Temple are a single supply of services or several supplies." (HMRC v. Middle Temple [2013] UKUT 250 (TCC), Judges Sinfield and Gort)
​
PROOF OF COMPLIANCE/NON-COMPLIANCE​
​
- Comparison with alleged similar supplies
"[43]...On the other hand, it should be examined whether, as Ms van den Hout-van Eijnsbergen submits, the Member State concerned, during the tax years at issue in the main proceedings, made the activities of psychotherapists with a teaching diploma subject to a VAT regime which was different from that applied to psychiatrists and psychologists carrying out the same activities.
...
[45] If so, the national legislation at issue in the main proceedings would exceed the discretion enjoyed by the Member States under Article 13A(1)(c) of the Sixth Directive only if the quality of the treatments carried out by psychotherapists could be regarded, having regard to their professional qualifications, as equivalent to that of similar treatments carried out by psychiatrists, psychologists or any other medical or paramedical profession, a matter which it is for the referring court to determine in the light of all of the relevant circumstances of the case before it.
[46] In that respect, the referring court will be able to take into account, in particular, the fact that the applicant in the main proceedings has a teaching diploma and that the psychotherapy treatments which she carried out during the relevant tax years took place within a statutory framework, under the control of the Public Health Inspectorate and in accordance with conditions set out in specific legislation, respect of which is attested to by entry in a register provided for that purpose, these circumstances being such as to ensure that she had, for the exercise of her activities, the required professional qualifications." (Solleveld C-443/04)
​
- Evidence permitted but not required
'[70] Counsel for LIFE submitted that this assessment was not open to the UT because there was no evidence to support it. There is no indication in any of the judgments of the CJEU in this field, however, that a national court requires evidence such as a consumer survey or expert report in order to determine whether services are regarded as similar by consumers for these purposes. While the case law does not rule out such evidence being admitted in cases of difficulty, it is clear that in most cases the national court is expected to make an assessment using its own experience of the world." (LIFE v. HMRC [2020] EWCA Civ 452, Arnold, Floyd, Newey LJJ)
​
Burden of proof​
​
- FTT holding burden on taxpayer to prove fiscal neutrality not breached by its interpretation
"[210] As regards the second question, for the reasons given by [HMRC] in paragraphs 201 to 208 above, we consider that, in this case, the normal rule in tax cases applies and it is for the Appellant to prove that the application of the reduced rate to cider and not to other alcoholic beverages did not infringe the principle of fiscal neutrality." (JD Wetherspoon Plc v. HMRC [2025] UKFTT 658 (TC), Judge Beare)
​
- FTT requiring T to prove that there were no circumstances in which its interpretation would give rise to a breach of fiscal neutrality
"[242] Having said that, we do not think that the Appellant has satisfied the burden of establishing, on the balance of probabilities, that there were no other alcoholic beverages of this kind which could have been regarded by the typical consumer as being similar to cider. For instance, it is possible that, at some time during the Relevant Period, there was a high alcohol cider with an ABV of 8.5%:
(1) which was marketed as a cider to consumers who were attracted to craft, artisanal or small batch ciders;
(2) which tasted very similar to a cider with an ABV of just under 8.5%; and
(3) the intoxicating effects of which would have been little different from the intoxicating effects of that cider.
[243] The same point arises even more clearly in the case of a beverage with an ABV of under 8.5% which would have qualified as a cider but for being "up–labelled" to an ABV of 8.5%.
[244] It follows that, in our view, the Appellant has not established that there were no circumstances in which the application of the reduced rate of VAT to cider would have given rise to a breach of the principle of fiscal neutrality." (JD Wetherspoon Plc v. HMRC [2025] UKFTT 658 (TC), Judge Beare)
​
POTENTIAL GROUNDS FOR DISTINCTION ​
​
Characteristics of supply​
​
- Whether supply comes with ancillary services may be basis for distinction
"[43] Consequently, a method of classifying foodstuffs, such as that at issue in the main proceedings, based in particular on whether those foodstuffs are accompanied by ancillary services, with a view to their consumption, is not, in itself, incompatible with EU law." (YD C-146/22)
​
- Support services to enable immediate consumption distinguishes supplies
"[44] This must all the more be so since, while both points 1 and 12a of Annex III to the VAT Directive can concern identical or similar foodstuffs as, respectively, ‘foodstuffs’ and food that is the subject of ‘restaurant and catering services’, it follows from Article 6 of Implementing Regulation No 282/2011 that, for the purpose of classifying a taxable transaction as ‘restaurant and catering services’, the EU legislature wished to attach decisive importance not to the foodstuffs themselves or to the method of preparation of the food or its delivery, but to the supply of support services accompanying the supply of the prepared food, such services having to be sufficient for the immediate consumption of that food and predominant in relation to the supply thereof (see, to that effect, judgment of 22 April 2021, Dyrektor Izby Administracji Skarbowej w Katowicach, C‑703/19, EU:C:2021:314, paragraph 58)." (YD C-146/22)
​
- For drinks take account of ingredients, consistency, external appearance, taste, smell, ability to customise
"[49] In those circumstances, first, the referring court will have to take account, as regards the properties of the beverages at issue in the main proceedings, of the fact that they have similarities, in particular that they are prepared from the same main ingredient, namely milk, and that, according to the findings of the tax authority, they have similar liquid consistency and external appearance.
[50] Nevertheless, the referring court will also have to ascertain, in that context, whether the beverages at issue in the main proceedings are likely to differ materially in their taste, consistency and smell, in particular since, as the Polish Government stated in its written observations, the consumer could, as regards the hot dairy beverages subject to a reduced VAT rate of 8%, order additional ingredients which are liable to have a considerable impact on those aspects. Furthermore, the referring court will have to take into consideration the fact that the beverages at issue in the main proceedings have different temperatures, which is liable to have a considerable impact on their respective properties, such as their taste and smell.
[51] Second, it is apparent from the order for reference and the wording of the first question referred for a preliminary ruling that the referring court established that the two types of dairy beverage at issue in the main proceedings are aimed at satisfying the same consumption need for sugary non-alcoholic beverages.
[52] Third, as regards the question of whether the differences between the dairy beverages at issue in the main proceedings are such as to have a decisive influence on the choice of the average consumer to purchase one or the other of those beverages, it should be borne in mind that, in that regard, it is necessary to take account of the differences in the characteristics of the goods or services at issue and their use which are, therefore, inherent to those goods or services and of the differences in the context in which those goods or services are supplied (see, to that effect, judgment of 9 September 2021, Phantasialand, C‑406/20, EU:C:2021:720, paragraph 41 and the case-law cited).
[53] In that context, it should be noted that the beverages marketed by YD are intended, on account of being prepared specifically at the request of customers and served hot, for immediate consumption, whereas that is not necessarily the case for dairy beverages marketed in shops, on the composition of which consumers, moreover, have no influence. It appears, subject to verification to be made by the referring court, that that difference is liable to have a decisive influence on the choice of the consumer to purchase one or the other of those beverages, since that choice is not made in the same circumstances or with the same goal, and even less so if consumers can change the composition of the former beverages by ordering additional ingredients." (YD C-146/22)
​
- Meatball sub different to other heated sandwiches
"[72] I did not detect in the submissions for the Respondents any contention that the toasted sandwich "subs" supplied by the Appellant could be significantly distinguished in character, for present purposes, from the products that were the subject of the "zero-rate" findings of the Tribunals in the cases identified in Section A of the appendix. The two types of supplies were, it seems to me, "two supplies of services which are identical or similar from the point of view of the consumer and meet the same needs of the consumer" (the Rank judgment paragraph 36). In that sense, there appears to have been a breach of fiscal neutrality. However, that I think could not be said of the Appellant's meatball marinara, and I did not take the Appellant so to contend." (Sub One Limited v. HMRC [2014] EWCA Civ 773, McCombe, Rimer, Briggs LJJ)
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Use/anticipated use​
​
- Identical goods with different intended uses not in competition
"[66] Third, with regard to the argument concerning the principle of neutrality of VAT, which is said to preclude the applicable VAT rate from being determined by reference to the use of the horses, it must be borne in mind that, according to settled case-law, the principle of fiscal neutrality inherent in the common system of VAT precludes treating similar goods and supplies of services, which are thus in competition with each other, differently for VAT purposes, so that those goods or supplies must be subjected to a uniform rate (see, inter alia, Case C‑267/99 Adam [2001] ECR I‑7467, paragraph 36, and Case C‑94/09 Commission v France [2010] ECR I‑0000, paragraph 40). However, taking their respective uses into account, a horse destined for slaughter is not similar to a racehorse or a pet horse where that animal is sold as such. Therefore, as pointed out by the Advocate General in point 78 of his Opinion, those categories of horses are not in competition, meaning that they can be subject to different rates of VAT." (Commission v. Netherlands C-41/09)
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Identity of supplier​
​
- Identity of supplier irrelevant
"[34] It is clear from that case-law that the identity of the providers of services and the legal form by means of which they exercise their activities are, as a rule, irrelevant in assessing whether supplies of services are comparable (see Joined Cases C‑453/02 and C‑462/02 Linneweber and Akritidis [2005] ECR I‑1131, paragraphs 24 and 25)." (Turn- und Sportunion C-246/04 - CJEU said Member States can exclude categories of taxable person from the right to opt to tax leasing of immovable property, subject to fiscal neutrality)
​
"[25] It is clear from that case-law and from the judgments in Case C-216/97 Gregg [1999] ECR I-4947, paragraph 20, and Fischer, that the identity of the manufacturer or the provider of the services and the legal form by means of which they exercise their activities are, as a rule, irrelevant in assessing whether products or services supplied are comparable.
[26] As the Advocate General pointed out in points 37 and 38 of her Opinion, in order to determine whether the activities at issue in the case leading to the judgment in Fischer were comparable, the Court only examined the comparability of the activities at issue and took no account of the argument that the games of chance differed for the purposes of the principle of fiscal neutrality, for the simple reason that they are organised by or in public casinos.
...
[28] Since the identity of the operator of a game of chance is not relevant where it falls to be determined whether the unlawful organisation of that game must be considered to be in competition with the lawful organisation of the same game, it must a fortiori be so where it falls to be determined whether two games of chance or two gaming machines operated lawfully must be considered to be in competition with one another.
[29] It follows that, in exercising their powers under Article 13B(f) of the Sixth Directive, that is to say, the power to determine the conditions and limitations subject to which the operation of games of chance and gaming machines is to be exempted from the VAT provided for by that provision, the Member States cannot validly make that exemption dependent upon the identity of the operator of such games and machines." (Linneweber C-453/02)
​
- May be breached if option to tax depends upon supplier not being entitled to exemption
"[47] Thus, there may be a breach of the principle of fiscal neutrality if a sports club having as its purpose under its statute the exercise or furthering of physical education could not opt for taxation where that is possible for other taxable persons carrying out comparable activities which are therefore in competition with those of that club." (Turn- und Sportunion C-246/04)
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Objects of entity making supply​
​
- Profit-making/non-profit making nature of supplier distinction would breach fiscal neutrality
"[58] Accordingly, national legislation may not, in implementing the exemption provided for under Article 13A(1)(g) of the Sixth Directive, lay down materially different conditions for profit-making entities, on the one hand, and non-profit making legal persons falling under Paragraph 4(18) of the UStG, on the other.
[59] It follows that Article 13A(1)(g) of the Sixth Directive, interpreted in the light of the principle of fiscal neutrality, precludes a threshold such as the two thirds threshold in so far as, in relation to supplies of goods or services which are essentially the same, that threshold is applied – for recognition as ‘charitable’ for the purposes of that provision – to some taxable persons governed by private law, but not to others." (Zimmermann C-174/11)
​
"[41] ​As regards, secondly, the principle of fiscal neutrality, it must be remembered that that principle precludes, in particular, treating similar supplies of services, which are thus in competition with each other, differently for VAT purposes (see, to that effect, Case C-141/00 Kügler [2002] ECR I‑6833, paragraph 30, and Case C‑109/02 Commission v Germany [2003] ECR I‑12691, paragraph 20).
[42] Clearly, as the Advocate General observed, in essence, in paragraph 29 of his Opinion, that principle would not be observed if, where the national legislature has not made the exemption subject to the condition set out in the first indent of Article 13A(2)(a) of the Sixth Directive, the welfare services covered in Article 13A(1)(g) and (h) were treated differently for VAT purposes depending on whether the entities which provide them are profit-making or not." (Kingcrest Associates Ltd C-498/03)
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- No distinction between supplier of second hand goods who purchased with primary v. secondary purpose of onward sale
"[40] On the market for sales of second-hand cars, taxation on the overall sale price of the supply by sale and leaseback undertakings would create a distortion of competition to their detriment and in favour, in particular, of firms trading in second-hand vehicles which benefit from the taxation scheme based on the profit margin. As a means of satisfying purchasers’ legitimate expectation to pay the same price for vehicles of the same quality, whether they are sold by an undertaking trading in second-hand cars or by a sale and leaseback undertaking, the latter could not reasonably be expected to absorb in the sale price the amount of the VAT owed by it and thereby reduce its margin." (Jyske C-280/04)
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Mode of operation​
​
- Closed-ended investment fund not relevantly different to open-ended investment fund
"[29] An interpretation of Article 13B(d)(6) of the Sixth Directive exempting from VAT the management of open-ended funds, and not the management of closed-ended funds, would be contrary to the principle of fiscal neutrality on which, in particular, the common system of VAT established by the Sixth Directive is based, and which precludes economic operators carrying out the same transactions being treated differently in relation to the levying of VAT (see, to that effect, Case C-382/02 Cimber Air [2004] ECR I-8379, paragraphs 23 and 24; Case C-280/04 Jyske Finans [2005] ECR I‑10683, paragraph 39; and Abbey National, paragraph 56)." (JP Morgan C-363/05)
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Quality
​
- Quality/professional qualifications of supplier may be relevant to customer
"[40] In order to determine whether medical care is similar, it is appropriate to take into account, concerning the exemption laid down in Article 13A(1)(c) of the Sixth Directive and having regard to the objective pursued by that provision, the professional qualifications of the care providers. In fact, where it is not identical, medical care can be regarded as similar only to the extent that it is of equivalent quality from the point of view of recipients.
[41] It follows that the exclusion of a profession or specific medical-care activity from the definition of the paramedical professions adopted by the national legislation for the purpose of the exemption from VAT laid down in Article 13A(1)(c) of the Sixth Directive is contrary to the principle of fiscal neutrality only if it can be shown that the persons exercising that profession or carrying out that activity have, for the provision of such medical care, professional qualifications which are such as to ensure a level of quality of care equivalent to that provided by persons benefiting, pursuant to that same national legislation, from an exemption."(Solleveld C-443/04)
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Funding
​
- Not permissible to distinguish based on how cost of supplies are funded that only applies to some candidates for exemption
"[63] In the light of all the foregoing considerations, the answer to the questions referred is that, under Article 13A(1)(g) of the Sixth Directive, interpreted in the light of the principle of fiscal neutrality, the VAT exemption for out-patient services supplied by commercial service-providers may not be made subject to a condition such as that at issue in the main proceedings, by virtue of which the costs relating to those services must, during the preceding calendar year, have been borne wholly or partly by the statutory social security or social welfare authorities in at least two thirds of cases, where that condition is not capable of ensuring equal treatment in relation to the recognition, for the purposes of that provision, of the ‘charitable’ nature of organisations other than bodies governed by public law." (Zimmermann C-174/11 - the 2/3 funding from social security condition did not apply to officially recognised voluntary welfare associations)
​
- Fact that some suppliers receive public funding does not prevent supplies being comparable
"[50] However, in the present case, the lack of financial assistance from public authorities to LJJ and the fact that social security bodies do not assume responsibility for the price of the services performed by LJJ have no bearing on the nature of the services provided by LJJ, those services being comparable to services provided by other operators receiving public assistance or financial support from public authorities. Therefore, the principle of fiscal neutrality does not preclude giving the same treatment, with regard to VAT, to those services." (Les Jardins de Jouvence C-335/14 - T wanted to be taxable in order to recover inputs)
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Location of supply​
​
- Paramedical services should be exempt regardless of where they are provided
"[49] Lastly, it must be pointed out that that interpretation of the term medical care in Article 13A(1)(b) is in keeping with the principle of fiscal neutrality because paramedical services, such as treatment given by qualified psychologists, are exempt from VAT regardless of where they are provided." (Dornier C-45/01)
​
- Laboratory tests cannot be treated differently based on where carried out if qualitatively the same
"[29] Moreover, the Court has stated that, it would be contrary to the principle of fiscal neutrality to make medical tests prescribed by general practitioners subject to a different VAT scheme depending on where they are carried out when they are equivalent from a qualitative point of view in the light of the professional qualifications of the service providers in question (see, to that effect, judgment of 8 June 2006, L.u.P., C‑106/05, EU:C:2006:380, paragraph 32).
[30] Therefore, the answer to the first question is that Article 132(1)(b) and (c) of Directive 2006/112 must be interpreted as meaning that the provision of medical care such as that at issue in the main proceedings, supplied by a medical specialist in clinical chemistry and laboratory diagnostics, is capable of falling within the scope of the exemption under Article 132(1)(c) of that directive, where it fails to meet all the conditions for the application of the exemption under Article 132(1)(b) of the directive." (Peters C-700/17)
​
"[32] This interpretation is, moreover, consistent with the principle of fiscal neutrality, which precludes treating similar supplies of services, which are thus in competition with each other, differently for VAT purposes (Case C-109/02 Commission v Germany [2003] ECR I‑12691, paragraph 20; and Kingscrest Associates and Montecello, paragraph 54). It would be contrary to that principle to make medical tests prescribed by general practitioners subject to a different VAT scheme depending on where they are carried out when they are equivalent from a qualitative point of view in the light of the professional qualifications of the service providers in question (see, to that effect, Dornier, paragraph 49; and Joined Cases C‑443/04 and C‑444/04 Solleveld and van den Hout-van Eijnsbergen [2006] ECR I-0000, paragraphs 40 and 41)." (LUP C-106/05)
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Qualifications of service provider
​
-Professional qualifications of service provider may justify different treatment
"[32]...It would be contrary to that principle to make medical tests prescribed by general practitioners subject to a different VAT scheme depending on where they are carried out when they are equivalent from a qualitative point of view in the light of the professional qualifications of the service providers in question (see, to that effect, Dornier, paragraph 49; and Joined Cases C‑443/04 and C‑444/04 Solleveld and van den Hout-van Eijnsbergen [2006] ECR I-0000, paragraphs 40 and 41)." (LUP C-106/05)
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Regulation and powers
​
- Exceptional for regulatory differences to create distinction in eyes of consumer
"[56] In that regard, the Court has accepted that, in certain exceptional cases, having regard to the specific characteristics of the sectors in question, differences in the regulatory framework or the legal regime governing the supplies of goods or services at issue may create a distinction in the eyes of the consumer, in terms of the satisfaction of his own needs (see, to that effect, The Rank Group, paragraph 50 and the case-law cited).
[57] It is thus necessary also to take account of the different statutory requirements to which the two types of transport mentioned in paragraph 48 of the present judgment are subject and, therefore, of their respective characteristics by which they are distinguished from one another in the eyes of the average consumer." (Pro Med Logistik C-454/12)
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- Must have a significant influence on the consumer to permit different treatment
"[61] ... Secondly, [the taxpayer] submitted that the UT had failed to ask itself the right question, which was whether regulation made any significant difference to the consumer. I accept the second submission, and therefore it is unnecessary to consider the correctness of the first submission." (LIFE v. HMRC [2020] EWCA Civ 452, Arnold, Floyd, Newey LJJ)
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- State regulated welfare services different to non-regulated services from consumer perspective
"[73] Accordingly, I consider that it was open to the UT to conclude that welfare services provided by state-regulated private welfare bodies are significantly different to those provided by non-state-regulated private welfare bodies in the eyes of consumers. Moreover, I agree with the UT's assessment." (LIFE v. HMRC [2020] EWCA Civ 452, Arnold, Floyd, Newey LJJ)
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- Being a charity amounts to "some form of regulation" which may mean consumer views the service differently
"[78] In my judgment the answer to that question is that there is no contravention of the principle of fiscal neutrality. Item 9 distinguishes between private welfare bodies which are subject to some form of regulation and those which are not. The former may be either "state-regulated" or charities, which are not "state-regulated", but are required to be established solely for charitable purposes which are for the public benefit and are subject to supervision by the Charity Commission. I consider that, viewed through the eyes of the consumer, just as there is a significant difference between welfare services provided by private welfare bodies which are not "state-regulated" and those which are, so too there is a significant difference between welfare services provided by private welfare bodies which are not "state-regulated" and those which are provided by charities. Many third sector organisations are charities, and in my view consumers do see them differently to unregulated private providers. By contrast, I consider that the average consumer would see little relevant difference between services provided by charities and those provided by state-regulated private providers." (LIFE v. HMRC [2020] EWCA Civ 452, Arnold, Floyd, Newey LJJ)
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- Reason why competitor not regulated (e.g. different part of UK) not relevant
"[93] I do not accept this submission. In my view the UT was correct to say that Item 9 does not discriminate between private welfare providers located in the different nations of the UK. It does discriminate between state-regulated providers and non-state regulated providers, but for the reasons given above that does not contravene the principle of fiscal neutrality. Given that it is not a breach of that principle to deny the benefit of the exemption to non-state regulated providers, the reason why certain providers do not qualify as being "state-regulated" is immaterial. Whether it is because they are located in a nation which does not regulate day care services, or for some other reason, the result is the same, namely that they are perceived by consumers as significantly differently to state-regulated providers." (LIFE v. HMRC [2020] EWCA Civ 452, Arnold, Floyd, Newey LJJ)
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- Differences between taxis and mini-cabs re manner of taking bookings creates difference in consumer eyes
"[58] In the present cases, the referring court has stated that minicab operators can respond only to bookings for transport which are received at their place of business or at the home of the operator, whereas taxi operators are authorised to respond on request, which implies that vehicles are stationed at specific locations or placed on call to respond. It also pointed out that there were differences between those two types of transport as regards the taking, placing and implementation of bookings for transport and so far as concerns the placing of cars on standby and advertising. According to that court, those differences, individually or in combination, are such as to prevent any risk of confusion between transport by taxi and transport by minicab. Finally, it stated that the signs and characteristics reserved for taxis may not be used for minicabs.
[59] Such differences at the level of the statutory requirements to which the two types of transport concerned are subject, where they are proven – this being a matter which it is for the referring court to ascertain – are liable to create, in the eyes of the average user, a difference between those types of transport, each of them being likely to address separate needs of that user and, consequently, to have a decisive influence on his decision to opt for one or other of those types of transport, with the result that the principle of fiscal neutrality does not preclude them from being treated differently for tax purposes." (Pro Med Logistik C-454/12)
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. - But not for customer who uses both under indiscriminate and identical agreements
"[63] In that regard, it must be observed that the services at issue in the main proceedings consist, essentially, in the transport of patients carried out pursuant to an agreement such as the agreement between Sickness Insurance Fund A and the Association, which applies indiscriminately to the taxi undertakings and minicab undertakings which are parties to it. It is apparent from the documents before the Court that the transport fare is fixed in that agreement and that it applies in the same way to the two categories of transport. In addition, that agreement does not give rise to any obligation for those two categories of transport to carry on business or to provide transport other than that already existing under the agreement, namely the obligation that the transport is in fact carried out. Taxi undertakings are thus not subject, in the context of such an agreement, to the statutory requirements imposed on them outside the scope of that agreement.
[64] If those facts should be borne out – this being a matter for the referring court to determine – that court would then have to take the view that, under the agreement between Sickness Insurance Fund A and the Association, the transport of passengers by taxi is not a concrete and specific aspect of the category of service of transport of passengers and their accompanying luggage. Furthermore, that activity would therefore have to be considered to be similar, from the point of view of the average user, to the activity of local transport of passengers by minicab. However, this cannot preclude the activity of the transport of patients under agreements concluded between sickness insurance funds and passenger transport undertakings from being able to constitute, as a whole, a concrete and specific aspect of the services supplied by undertakings for the transport of passengers and their accompanying luggage, within the meaning of the case-law cited in paragraph 44 of the present judgment." (Pro Med Logistik C-454/12)
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- Exemption because carried out in the context of powers of representation would breach fiscal neutrality
"[67] That finding must also be made, moreover, in order to comply with the principle of fiscal neutrality, which is expressly laid down in Article 134(b) of the VAT Directive and which precludes treating similar supplies of services, which are thus in competition with each other, differently for VAT purposes (see, to that effect, judgment of 4 May 2017, Brockenhurst College, C‑699/15, EU:C:2017:344, paragraph 35). That principle would be infringed if, when suppliers entrusted with powers of representation for protection, such as those at issue in the main proceedings, carry out not only transactions inherent in the protection of persons lacking legal capacity but also transactions similar to those carried out outside such powers, the latter transactions being exempt from VAT solely because they are carried out in the context of those powers." (EQ C-846/19)
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- Drugs prescribed by overseas registered doctor similar to drugs prescribed by UK registered doctor
"[160] We conclude that the supplies made by Pearl Chemist of medicines dispensed on the lawful prescriptions of UK and non-UK registered doctors respectively are similar and that treating them differently for VAT purposes by zero-rating the former supplies and standard rating the latter is a breach of the principle of fiscal neutrality." (Pearl Chemist Limited v. HMRC [2019] UKFTT 264 (TC), Judge McKeever)
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Whether there is already sufficient capacity for a particular service​
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- Not permissible to refuse exemption on the basis that there is already sufficient supply capacity
[67] The referring court states, in that regard, as mentioned in paragraph 21 above, that the consequence of applying the national legislation at issue is that the exemption provided for in Article 132(1)(b) of the VAT Directive applies only if the services supplied by the private hospital in question meet specified needs under social security law. Thus, in practice, a private hospital would have no prospect of being included in the hospital plan for the Land in which it is located or of concluding care supply contracts with the statutory health insurance funds if enough hospital beds for a particular speciality are already available within the Land in question.
[68] As the Advocate General observed in points 111 and 112 of his Opinion, it follows from the information provided by the referring court that the providers of statutory accident insurance, the Land-level health insurance fund associations and substitute fund associations all enjoy a discretion as to whether to conclude an agreement with a hospital and that the Länder are not obliged to include in their hospital plan private non-university hospitals that carry on their activities under social conditions comparable with those applicable to bodies governed by public law.
[69] The exercise of such discretion depending on needs defined under social security law may, contrary to the principle of fiscal neutrality, result in similar private hospitals being treated differently as regards the exemption laid down in Article 132(1)(b) of the VAT Directive in respect of similar services supplied under social conditions comparable with those applicable to bodies governed by public law." (I GmbH C-228/20)
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Legal form through which activity carried on not preventing exemption
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- Exemption should not depend on form of organisation
"[64] Thirdly, it follows from the principle of fiscal neutrality that operators must be able to choose the form of organisation which, from a strictly commercial point of view, best suits them, without running the risk of having their transactions excluded from the exemption under Article 13B(d)(6) of the Sixth Directive (see Abbey National, paragraph 68, and GfBk, paragraph 31)." (ATP PensionService A/S C-464/12)
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- Non-individual can rely on exemption for persons taking part in sport
"[30] It follows, besides, from that interpretation that the exemption for transactions effected by undertakings or organisations mentioned in Article 13A(1)(m) of the Sixth Directive would not benefit certain persons who participate in sport solely because they participate in it within a structure managed by a club. That interpretation would not be consistent with the principle of fiscal neutrality, inherent in the common system of VAT, in compliance with which the exemptions provided for in Article 13 of the Sixth Directive must be applied (see, to that effect, Case C‑283/95 Fischer [1998] ECR I-3369, paragraph 27). In fact, that principle precludes, in particular, economic operators who effect the same transactions being treated differently in respect of the levying of VAT (see, to that effect, Case C‑216/97 Gregg [1999] ECR I‑4947, paragraph 20). It follows that that principle would be disregarded if the possibility of invoking the benefit of the exemption under Article 13A(1)(m) of the Sixth Directive depended on the organisational structure particular to the sporting activity practised.
[31] In order to ensure the effective application of the exemption under Article 13A(1)(m) of the Sixth Directive, that provision must be interpreted as meaning that services supplied in connection with, among others, sports practised in groups of persons or within organisational structures put in place by sports clubs are, generally, eligible to benefit from the exemption under that provision. It follows that, to determine whether supplies of services are exempt, the identity of the material recipients of those services and the legal form under which they benefit from them are irrelevant." (Canterbury Hockey Club C-253/07)
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- Company can rely on exemption for medical care provided by professionals
"[30] The principle of fiscal neutrality precludes, inter alia, economic operators carrying on the same activities from being treated differently as far as the levying of VAT is concerned. It follows that that principle would be disregarded if the possibility of relying on the exemption which is envisaged for the provision of medical care referred to in Article 13(A)(1)(c) were dependent on the legal form in which the taxable person carries on his activity (see, to that effect, Gregg, cited above, paragraph 20)." (Kugler C-141/00)
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- Individuals can rely on exemption for medical care provided by bodies governed by public law etc.
"[19] That interpretation, to the effect that the terms 'establishment‘ and 'organisation‘ do not refer only to legal persons, is, in particular, consistent with the principle offiscal neutrality inherent in the common system of VAT and in compliance with which the exemptions provided for in Article 13 of the Sixth Directive must be applied (see, to that effect, Case C-283/95 Fischer [1998] ECR I-3369, paragraph 27).
[20] The principle of fiscal neutrality precludes, inter alia, economic operators carrying on the same activities from being treated differently as far as the levying of VAT is concerned. It follows that that principle would be frustrated if the possibility of relying on the benefit of the exemption provided for activities carried on by the establishments or organisations referred to in Article 13A(1)(b) and (g) was dependent on the legal form in which the taxable person carried on his activity." (Gregg C-216/97)
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"[36] Thus the Court has already held, in respect of a private entity aiming to make a profit, that the expression ‘other organisations recognised as charitable by the Member State concerned’ in Article 13A(1)(g) of the Sixth Directive does not exclude from that exemption natural persons running a ‘business’ (see Gregg, cited above, paragraph 21)." (Kingcrest Associates Ltd C-498/03)
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Previously
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"[20] Certain of the exemptions mentioned in Article 13A(1) of the Sixth Directive, including the one provided for in paragraph (g) of that provision, expressly refer to the concept of 'body' or 'organization', whereas others do not. The position is, therefore, that in the former case the exemption may be claimed only by legal persons whereas in the latter case it may also be claimed by natural persons including traders." (Bulthuis-Griffioen C-453/93)
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- Soloist musicians can rely on the exemption for cultural services as "cultural bodies"
"[27] Consequently, the principle of fiscal neutrality requires that individual performers, as long as their services are recognised as cultural, may be regarded, like cultural groups, as bodies similar to public-law bodies supplying certain cultural services mentioned in Article 13A(1)(n) of the Sixth Directive." (Hoffmann C-144/00)
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Position in supply chain
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- Exemption should not be denied to sub-contracted services
"[71] In those circumstances, transactions crediting contributions to such accounts are essential to the management of a special investment fund.
[72] The principle of fiscal neutrality supports that conclusion: if such services were to be made subject to VAT when provided by a third party, that would give pension funds which have decided to record themselves the contributions made by pension customers an advantage over those which have decided to make use of a third party for that purpose, even though subcontracting such services could provide advantages in terms of efficiency to pension funds and thus to their customers (see, to that effect, GfBk, paragraph 31)." (ATP PensionService A/S C-464/12)
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Organisational structure within group/company may affect VAT outcome
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- Single company not the same as company with branch or subsidiary in different territory
"[45] That finding is not called into question by the argument that a company which has its principal establishment in a Member State and a branch in a third State must, for VAT purposes, be taxed in the same way as a company, also established in a Member State, which provides the same services without recourse to such a branch or which has, for that purpose, a subsidiary in that third State. Those different possibilities reflect situations which are clearly different and cannot therefore be treated in the same way by the tax system.
[46] In that regard, furthermore, taxable persons are generally free to choose the organisational structures and the form of transactions which they consider to be most appropriate for their economic activities and for the purposes of limiting their tax burdens (Case C‑277/09 RBS Deutschland Holdings [2010] ECR I‑13805, paragraph 53).
[47] Thus, a trader’s choice between exempt transactions and taxable transactions may be based on a range of factors, including on tax considerations relating to the neutral system of VAT (see Case C‑108/99 Cantor Fitzgerald International [2001] ECR I‑7257, paragraph 33).
[48] In addition, as is apparent from the case-law of the Court, where it is possible for the taxable person to choose from among a number of transactions, he may choose to structure his business in such a way as to limit his tax liability (see, inter alia, Case C‑255/02 Halifax and Others [2006] ECR I‑1609, paragraph 73, and RBS Deutschland Holdings, paragraph 54).
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Legality of transactions
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- No distinction between supplies of lawful goods and supplies of unlawful goods
"[19] In accordance with the principle of fiscal neutrality on which the Sixth Directive is based, that provision entails no distinction, as far as exemptions are concerned, between lawful and unlawful exports. When the latter consist of goods which fall within the scope of the Sixth Directive, they must accordingly be treated in the same manner as lawful exports of the same goods." (Lange C-111/92)
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- No distinction between lawful services and unlawful services (e.g. gambling)
"[22] The foregoing considerations relating to the import or supply of goods apply equally to the supply of services such as the organisation of games of chance. Those games, and roulette in particular, are lawfully played in a number of Member States. Since the unlawful transactions at issue in the main proceedings are in competition with lawful activities, the principle of fiscal neutrality precludes their being treated differently as regards VAT
[23] The unlawful operation of games of chance therefore falls within the scope of the Sixth Directive." (Fischer C-283/95)
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National law tax treatment
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- Income tax treatment of transaction irrelevant
"[56] By the same token, contrary to the Danish Government’s assertions, the fact that contributions to a pension fund may be deductible from taxable income under income tax law cannot have any impact on whether or not pension fund activities are exempt from VAT: national income tax legislation cannot call in question the uniform nature of the exemptions provided for under the EU VAT rules." ​​​(ATP PensionService A/S C-464/12)
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