© 2025 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
H2b. Devoted to social wellbeing/charitable
General
- Same principles apply to 'devoted to social wellbeing' as applied to 'charitable'
"[51] It is common ground that these principles are applicable mutatis mutandis to Article 132(1)(g) of the Principal VAT Directive, which substitutes the expression "devoted to social wellbeing" for the expression "charitable". The Care Standards Act 2000 ("CSA 2000") has been replaced by HSCA 2008." (LIFE v. HMRC [2020] EWCA Civ 452, Arnold, Floyd, Newey LJJ)
- But being charitable does not necessarily mean being devoted to social wellbeing
"[84] I agree with counsel for LIFE that none of these purposes, with the possible exception of the first, can properly be characterised as purposes "devoted to social wellbeing" in the sense in which that concept is used in Article 132(1)(g). The UT's reasoning focuses upon the public benefit test. As the UT explained, in The Independent Schools Council v Charity Commission [2011] UKUT 421 (TCC), [2012] Ch 214 the Upper Tribunal held at [44] that there are two related aspects of public benefit: the first is that the nature of the purpose itself must be such as to be a benefit to the community and the second is that those who may benefit from the carrying out of the purpose must be sufficiently numerous and identified in such a manner as to constitute a section of the public. But the fact that a charity's purposes must be for the public benefit in that sense does not necessarily mean that those purposes are "devoted to social wellbeing". "Social wellbeing" concerns the wellbeing of members of society. That does not include such matters as promoting animal welfare or the efficiency of the armed forces." (LIFE v. HMRC [2020] EWCA Civ 452, Arnold, Floyd, Newey LJJ)
Devoted
- Query whether must be exclusively devoted to social wellbeing
"[101] I agree that the appeals should be dismissed for the reasons given by Arnold LJ. On the question which divides my Lords, Arnold and Newey LJJ, as to whether, as Arnold LJ considers, it may be arguable that to qualify for exemption under Article 132(1)(g), a body "recognised by the Member State concerned as being devoted to social wellbeing" has to be devoted exclusively to social wellbeing, or whether, as Newey LJ considers, exclusive devotion is not necessary, my provisional view would be that of Newey LJ, for the reasons he gives. This point is, however, not material to the resolution of LIFE's appeal for the reasons which Arnold LJ gives within paragraph 89, and with which I agree. Given that the point was not fully argued before us, I would prefer not to express a concluded view." (LIFE v. HMRC [2020] EWCA Civ 452, Arnold, Floyd, Newey LJJ)
"[99]...It would make little sense to preclude a Member State from granting exemption in respect of a supply promoting social wellbeing just because the supplier also supplied, or had objects permitting it to supply, different services." (LIFE v. HMRC [2020] EWCA Civ 452, Newey LJ)
- Devoted refers to a continuing/stable social engagement
"[82] That being said, in order to give an answer which will be of use to the referring court, it must be observed that, subject to verification by that court, some of the information contained in the documents before the Court appears to be of some relevance for the purposes of the examination seeking to establish whether the applicant in the main proceedings, despite being a lawyer, has shown a stable social engagement in operating his business during the period at issue in the main proceedings." (EQ C-846/19)
Profit-making
- EU concept of charitable does not exclude profit-making suppliers
"[40] In those circumstances, in order not to deprive the first indent of Article 13A(2)(a) of the Sixth Directive of all purpose, it must necessarily be accepted that, where the Community legislature, as in Article 13A(1)(g) and (h), has not expressly made entitlement to the exemptions in question subject to the absence of a profit-making aim, the pursuit of such an aim cannot preclude entitlement to those exemptions (see, to that effect, Kennemer Golf, paragraph 34, and Hoffmann, paragraph 38).
...
[44] That conclusion is not undermined by the fact that the appellants in the main proceedings, in view of the fact that they pursue a profit-making aim, do not have charitable status under domestic law, in spite of the fact that the English version of Article 13A(1)(g) and (h) of the Sixth Directive reserves the exemptions thereunder for organisations recognised as ‘charitable’. As is clear from the reply to the first question, the concepts mentioned in the Sixth Directive are independent concepts of Community law and not concepts of domestic law." (Kingcrest Associates Ltd C-498/03)
Relevant factors
- Relevant matters: public interest of activities, recognition of others, costs met by social security
"[44] In that regard, it follows from the Court’s case-law that, when considering whether to recognise, as being devoted to social wellbeing, bodies other than those governed by public law, it is for the national authorities, acting in accordance with EU law and subject to review by the national courts, to take various factors into account. These may include the existence of specific provisions, be they national or regional, legislative or administrative, or tax or social security provisions; the public interest nature of the activities of the taxable person concerned; the fact that other taxable persons carrying on the same activities already enjoy similar recognition; and the fact that the costs of the supplies in question may be largely met by health insurance schemes or by other social security bodies, in particular where private operators have contractual relations with those bodies (see, to that effect, judgments of 10 September 2002, Kügler, C‑141/00, EU:C:2002:473, paragraph 58, and of 21 January 2016, Les Jardins de Jouvence, C‑335/14, EU:C:2016:36, paragraph 35)." (Finanzamt D C-657/19)
"[72] In paragraphs 57 and 58 of Kügler, cited above, the Court added that, in order to determine which organisations should be recognised as charitable within the meaning of Article 13A(1)(g) of the Sixth Directive, the national authorities should, in accordance with Community law and subject to review by the national courts, take a number of factors into consideration. Those factors include the public interest of the activities of the taxable person in question, the fact that other taxable persons carrying on the same activities already have similar recognition, and the fact that the costs incurred for the treatment in question may be largely met by health insurance schemes or other social security bodies." (Dornier C-45/01)
- Significance of cost being borne by social security reduced where it is indirect
"[51] Second, while it is true that the fact that the costs of the supplies concerned are borne to a great extent by a social security body, such as the care and support insurance fund, is a factor which must be taken into account for the purposes of assessing the classification of the taxable person concerned as a body devoted to social wellbeing, the significance of that factor is reduced where the assumption of those costs by that fund is carried out, as in the present case, only indirectly, through the MDK, without being based on an express decision of that fund or deriving from a contract entered into by it with that taxable person for the purposes of providing those services. In that regard, the mere possibility of concluding a contract, without making use of that possibility, cannot suffice."(Finanzamt D C-657/19)
- Permissible to distinguish based on how costs of supplies are funded that applies to all candidates for recognition as charitable
"[35] As regards, first, the two thirds threshold, it should be noted that, in accordance with the case‑law set out in paragraph 31 above, the fact that the costs of the services concerned may have been borne largely by statutory health insurance funds or by other social security bodies is an element which may be taken into account in determining the organisations which must be granted recognition for the purposes of Article 13A(1)(g) of the Sixth Directive." (Zimmermann C-174/11 - the 2/3 funding from social security condition did not apply to officially recognised voluntary welfare associations)
- Absence of public funding does not exclude recognition
"[39] ... Therefore, the lack of public financial support does not in itself exclude such recognition, since that must be assessed in the light of all the relevant factors of the present case." (Les Jardins de Jouvence C-335/14)
- 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)