© 2025 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
H3. Closely related supplies exemptions
GENERAL
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- The main supply must, itself, be an exempted transaction
"[36] Moreover, it is clear from the first indent of Article 13A(2)(b) of the Sixth Directive that, in order for a supply of services or goods not to be precluded from being granted exemption as provided for, inter alia, in Article 13A(1)(i), the main transaction, to which that supply is closely linked, must itself also be an exempted transaction (see Case C‑415/04 Stichting Kinderopvang Enschede [2006] ECR I‑1385, paragraph 22)." (Horizon College C-434/05)​
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- EU law does not require that the closely related supplies be made to the person receiving the exempt supply
Supplies of catering and theatre performances by students
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"[43] ... activities carried out in circumstances such as those at issue in the main proceedings, consisting in students of a higher education establishment supplying, for consideration and as part of their education, restaurant and entertainment services to third parties, may be regarded as supplies ‘closely related’ to the principal supply of education and accordingly be exempt from VAT, provided that those services are essential to the students’ education and that their basic purpose is not to obtain additional income for that establishment by carrying out transactions in direct competition with those of commercial enterprises liable for VAT, which it is for the national court to determine." (Brockenhurst College C-699/15)
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Supplies of teachers from one educational establishment to another
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"[32] In fact, in order for students of the host establishments better to enjoy the education provided by those establishments, it is not necessary for services closely related to that education to be supplied directly to those students. Furthermore, any lack of a close connection between the principal activity of the establishment making teachers available and its secondary activity – the supply of services closely related to education – is, in principle, irrelevant." (Horizon College C-434/05)
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- Supplies closely related to welfare need not be provided directly to person requiring welfare support
"[35] First, in the light of the wording of Article 132(1)(g) of the VAT Directive, that provision does not lay down any requirement relating to the recipient of exempted transactions but attaches, by contrast, importance to the intrinsic nature of those transactions and to the status of the operator providing the services or supplying the goods concerned (see, to that effect, judgment of 21 January 2016, Les Jardins de Jouvence, C‑335/14, EU:C:2016:36, paragraph 46)."(Finanzamt D C-657/19)
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Meaning of closely related​
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- Does not call for especially narrow interpretation in light of purpose
"[23] As the Advocate General noted in point 23 of his Opinion, that concept does not, however, call for an especially narrow interpretation since the exemption of activitiesclosely related to hospital and medical care is designed to ensure that the benefits flowing from such care are not hindered by the increased costs of providing it that would follow if it, or closely related activities, were subject to VAT." (Commission v. France C-76/99)
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- Activities ancillary to core exempt supply
"[24] Thus, a supply of services can be regarded as ‘closely related’ to those latter services only where they are actually supplied as services ancillary to the education provided by the relevant establishment, which constitutes the principal supply (see, to that effect, judgments of 14 June 2007, Horizon College, C‑434/05, EU:C:2007:343, paragraphs 27 and 28 and the case-law cited, and 25 March 2010, Commission v Netherlands, C‑79/09, not published, EU:C:2010:171, paragraph 50)." (Brockenhurst College C-699/15)
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"[28] The supply of goods or services can be regarded as ‘closely related’ to education, and thus subject to the same tax treatment under Article 13A(1)(i) of the Sixth Directive, only where they are actually supplied as services ancillary to the education which constitutes the principal service (see, by analogy, Case C‑76/99 Commission v France [2001] ECR I‑249, paragraphs 27 to 30; Dornier, paragraphs 34 and 35; and also Ygeia, paragraphs 17 and 18)." (Horizon College C-434/05)
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- Activities that are a means of better enjoying the principal exempt supply
"[25] In accordance with the Court’s case-law, a service may be regarded as ancillary to a principal supply if it does not constitute an end in itself, but a means of better enjoying the principal supply (judgment of 25 March 2010, Commission v Netherlands, C‑79/09, not published, EU:C:2010:171, paragraph 51 and the case-law cited)." (Brockenhurst College C-699/15)
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"[29] It follows from the case-law of the Court that a service may be regarded as ancillary to a principal service if it does not constitute an end in itself, but a means of better enjoying the principal service (see, to that effect, in particular, Joined Cases C‑308/96 and C‑94/97 Madgett andBaldwin [1998] ECR I‑6229, paragraph 24; CPP, paragraph 30; Dornier, paragraph 34; and Ygeia, paragraph 19)." (Horizon College C-434/05)
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- Does not include supplies which are an end in themselves rather than a means of better enjoying other types of service
"[34] In this case, it is common ground that the psychotherapeutic treatment given in Dornier's out-patient facility by qualified psychologists generally constitutes services provided to the patients as an end in themselves and not as a means of better enjoying other types of services. In so far as that treatment is not ancillary to hospital or medical care, it is not an activity closely related to services exempted under Article 13A(1)(b) of the Sixth Directive.
[35] Accordingly, the Court finds that psychotherapeutic treatment given in an out-patient facility of a foundation governed by private law by qualified psychologists who are not doctors is an activity closely related to hospital or medical care within the meaning of Article 13A(1)(b) of the Sixth Directive only when such treatment is actually given as a service ancillary to the hospital or medical care received by the patients in question and constituting the principal service."(Dornier C-45/01)
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Or: must be an indispensable stage in the process of supply achieving objective
CJEU appears to combine the closely related and essential (see below) requirements
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"[59] As regards, in the first place, the requirement referred to in Article 132(1)(g) of the VAT Directive that the supply of services must be closely linked to welfare and social security work, it should be recalled that, in accordance with the case-law of the Court, that requirement must be read in the light of Article 134(a) of the VAT Directive, which requires, in any event, that the supply of goods or services concerned be essential to the transactions relating to welfare and social security work (judgment of 15 April 2021, Administration de l’Enregistrement, des Domaines et de la TVA, C‑846/19, EU:C:2021:277, paragraph 59 and the case-law cited)." ​(Momtrade Ruse C-620/21)
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"[31] As regards, in the first place, the condition that the supplies of services must be closely linked to welfare and social security work, that condition must be read in the light of Article 134(a) of the VAT Directive, which requires, in any event, that the supply of goods or services concerned be essential to the transactions exempted within the scope of welfare and social security work (see, to that effect, judgment of 9 February 2006, Stichting Kinderopvang Enschede, C‑415/04, EU:C:2006:95, paragraphs 24 and 25)." (Finanzamt D C-657/19)
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"[29] The Court has held, as regards medical services, that, in view of the objective pursued by the exemption provided for in Article 13(A)(1)(b) of the Sixth Directive, it follows that only the supply of services which are logically part of the provision of hospital and medical-care services, and which constitute an indispensable stage in the process of the supply of those services to achieve their therapeutic objectives, is capable of amounting to ‘closely related activities’ within the meaning of that provision, given that only such services are of a nature to influence the cost of health care which is made accessible to individuals by the exemption in question (see judgment in Ygeia, C‑394/04 and C‑395/04, EU:C:2005:734, paragraph 25).
[30] It is for the referring court to determine, having regard to all the particulars of the disputes before it, whether or not the activity at issue in the main proceedings is indispensable." (De Fruytier C-334/14)
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"[52] In that regard, it must be borne in mind that, in accordance with the first indent of Article 13A(2)(b) of the Sixth Directive, the Member States are not to exempt the supply of services envisaged, inter alia, in Article 13A(1)(g) if they are not essential to the transactions exempted. As is apparent from the case-law of the Court, that provision, which is binding on the Member States, lays down conditions which must be taken into account for the interpretation of the various exemptions referred to therein, which, like that provided for in Article 13A(1)(g), concern the supply of services or goods which are ‘closely related’ or ‘closely linked’ to an activity in the public interest (see, to that effect, judgment in Ygeia, C‑394/04 and C‑395/04, EU:C:2005:734, paragraph 26)." (Les Jardins de Jouvence C-335/14)
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Examples re closely related
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- Transport of sample for the purpose of testing is closely related to medical care
"[24] For the purpose of any possible exemption from VAT for the act of transmitting medical samples, it is appropriate to have regard to the purpose for which those samples are taken. Thus, where a duly authorised health-care worker orders, for the purpose of making his diagnosis and with a therapeutic aim, that his patient should undergo an analysis, the transmission of the sample, which logically takes place between the taking of the sample and the analysis itself, must be regarded as closely related to the analysis and must therefore be exempt from VAT (see, as regards services which, since they do not have a therapeutic aim, must be subject to VAT, Case C-384/98 D v W [2000] ECR I-0000, paragraph 19)." (Commission v. France C-76/99)
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- Supplies of catering in a training restaurant provided by catering students closely related to education
"[28] In the present case, it is apparent from the order for reference that the practical training was designed to form an integral part of the student’s curriculum and that, if it were not provided, students would not fully benefit from their education.
[30] In that regard, the order for reference notes that the catering functions of the restaurant are all undertaken by students of the College, under the supervision of their tutors, and that the purpose of operating the College’s training restaurant is to enable the students enrolled in catering and hospitality courses to learn skills in a practical context." (Brockenhurst College C-699/15)
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- Supplies of performances by arts students closely related to education
"[31] The same applies to the performing arts courses. The College, through the students enrolled on those courses, stages concerts and performances to enable the students to acquire practical experience.
[32] It must be stated that, without these practical aspects, the education provided by the College in the fields of catering and hospitality and of the performing arts would not have an equivalent value." (Brockenhurst College C-699/15)
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- Temporary supply of teacher from one educational establishment to another
"[30] As Horizon College and the Commission essentially submit, the supply of a teacher by one educational establishment to another in order for the teacher temporarily to carry out teaching duties under the responsibility of the latter establishment is an activity which can, in principle, be described as a supply of services closely related to education. Indeed, where there is a temporary shortage of teachers in some educational establishments, making qualified teachers attached to other establishments available to those experiencing the shortage will enable students better to enjoy the education provided by the host establishments." (Horizon College C-434/05)
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- Supply of agency nursing staff
"[42] We agree that, particularly in the context of the finding we have made by way of judicial notice as set out at paragraph 27(13) without agency nursing staff the NHS at least would not be able offer safe medical care. The agency nurses provided as a supply of staff by the Appellant provide what we consider to be an essential resource that enable the Appellant's clients to provide a standard of medical care which would not be provided were the hospitals to have to rely only on permanent employed and bank nursing staff (bank nurses are contracted directly to the hospital or Trust and provide additional flexible resource). Therefore, and as articulated in Horizon, the medical care received by the patients of the Appellant's clients would not be of equivalent value without the provision of agency staff by the Appellant and other providers to the hospitals and similar state regulated establishments. Thus, the nature of the activity carried on by the Appellant is "in principle" closely related to medical care." (1st Alternative Medical Staffing Ltd v. HMRC [2025] UKFTT 1320 (TC), Judge Brown KC)
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ARTICLE 134 LIMITS
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Mandatory limits for exemption for closely related supplies
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"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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- Limits only apply to closely related supplies, not core exemption supplies
"[32] Furthermore, contrary to what is claimed by the Commission, Article 134 of the VAT Directive in no way excludes the possibility of applying the exemption provided for in point (i) of Article 132(1) of that directive to private organisations that provide educational services for commercial purposes. As the Advocate General pointed out in point 31 of her Opinion, Article 134 of the VAT Directive is applicable only to transactions closely related to the exempted educational services within the meaning of point (i) of Article 132(1) thereof, that is to say, not to transactions in the core area of those services (see, to that effect, Joined Cases C‑394/04 and C‑395/04 Ygeia [2005] ECR I‑10373, paragraph 26; and Case C‑415/04 Stichting Kinderopvang Enschede [2006] ECR I‑1385, paragraphs 22 and 25)." ​(MDDP C-319/12)
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(a) ESSENTIAL TO THE TRANSACTION EXEMPTED​
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- Of a nature and equality that without them, the exempt supply would not have equivalent value
"[28] As regards the second condition, it follows from paragraph 39 of the judgment of 14 June in Horizon College (C‑434/05, EU:C:2007:343), that, in order to be classified as supplies of services essential to the exempt activities, those supplies must be of a nature and quality such that, without recourse to them, there could be no assurance that the education provided by the body referred to in Article 132(1)(i) of Directive 2006/112 and, consequently, the education from which their students benefit, would have an equivalent value." (Brockenhurst College C-699/15)
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"[39] In order to be described in those terms, the temporary supply of teachers, such as that at issue in the main proceedings, should be of a nature and quality such that, without recourse to such a service, there could be no assurance that the education provided by the host establishments and, consequently, the education from which their students benefit, would have an equivalent value (see, by analogy, Stichting Kinderopvang Enschede, paragraphs 27, 28 and 30)."(Horizon College C-434/05)
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- Supplies to the person providing the core exempt supply only essential if non-exempt alternatives not equivalent
"[40] In that regard, it should be observed, as the Netherlands Government has done, that there may well be commercial placement agencies whose services are not exempt and whose activities include the supply of teaching staff to schools or universities. In the main proceedings, for the supply of teachers by Horizon College to be regarded as essential to the education provided by the host establishments, it would have to be of a nature such that – owing, for example, to the qualifications of the staff in question or the flexibility of the terms of their supply – the same level and quality of teaching could not be assured simply by turning to such placement agencies.
[41] It falls to the referring court, taking into account all of the specific facts of the dispute before it, to determine the essential character of the services supplied by Horizon College." ​(Horizon College C-434/05)
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(b1) BASIC PURPOSE NOT TO OBTAIN ADDITIONAL INCOME​
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- Not to be used to exclude supplies to non-members of a golf club
"[29] Accordingly, the term ‘additional income’ within the meaning of Article 134(b) of Directive 2006/112 cannot be construed in such a way as to lead to a restriction of the scope of the exemption in Article 132(1)(m) of that directive on the basis of the status of the recipients of the supply in question as members or non-members, a criterion that was deliberately excluded when the exemption was defined." ​(Bridport and West Dorset Golf Club Limited C-495/12)
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- Charges do not cover the cost of making the supply
"[40] Furthermore, it is not disputed that the prices charged by the College cover only 80% of the cost of the meals. It does not therefore appear that the services at issue in the main proceedings are intended to generate additional income for the College by carrying out transactions in direct competition with those of commercial enterprises subject to VAT, such as restaurants or theatres." (Brockenhurst College C-699/15)
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- Only charging to cover costs does not necessarily exclude additional income purpose
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"[44] .. In that regard, the fact that an establishment engaged in such a placement activity receives payment equal to the salary which it pays to the teachers thus supplied is not, in itself, sufficient to establish that the transaction is not intended to obtain additional income." ​(Horizon College C-434/05)
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(b2) TRANSACTIONS IN DIRECT COMPETITION WITH TAXABLE COMMERCIAL ENTERPRISES​
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- Express enunciation of fiscal neutrality
"[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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Direct competition: relevant factors​
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- Who the customers are and how they access the service
"[36] In the main proceedings, it is common ground, first of all, that the restaurant and entertainment services provided by the College are open only to people previously registered on a mailing list held by that establishment. In particular, the referring court has stated that, for the performances, the audience usually consists of the friends and family of the College students, as well as people previously registered on the College’s database.
[37] Further, the College’s training restaurant is available only by reservation and upon the condition that it be fully booked, with a minimum of thirty covers being required for the students to obtain maximum benefit from their supply of services. Thus, meals are cancelled if the required threshold is not reached, unlike in a commercial restaurant where reservations are in principle unconditionally honoured." (Brockenhurst College C-699/15)
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- Who provides the service/their competence level
"[38] Lastly, it is clear from the information provided by the referring court that the concerts, performances and restaurant services are entirely organised, carried out and supplied by students enrolled at the College, a situation which is fundamentally different from that of students undertaking an internship in a commercial entity, where they join a professional team supplying such services in the competitive conditions prevailing in the respective markets." (Brockenhurst College C-699/15)
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Direct competition: examples​
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- Student restaurants and theatre performances not comparable to commercial suppliers
"[39] It thus appears that the services offered by the College, as part of the courses taught to its students, to a limited number of third parties, are substantially different from those habitually offered by a commercial theatre or restaurant and are aimed at a different public, in that they do not meet the same needs of the consumer." (Brockenhurst College C-699/15)
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- Agency nurses supplied by state regulated and commercial providers
"[44] We consider, on the facts, that it provides a service akin to that provided by other commercial providers and potentially to that provided by state regulated institutions. The nature of the market for such services (to the extent that it involves both commercial and state regulated providers) drives the conclusion that all suppliers will make taxable supplies because the exemption of such services by state regulated institutions would distort the commercial market and breach Article 134. The position may well have been otherwise pre 2010 when all nursing agencies were registered with the CQC but that is not the case before us." (1st Alternative Medical Staffing Ltd v. HMRC [2025] UKFTT 1320 (TC), Judge Brown KC)
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