In its Judgment of 29 October 2015 in Saudaçor, C-174/14, EU:C:2015:733, the Court of Justice of the European Union (CJEU) followed the Opinion of Advocate General Jääskinen (of 25 June 2015, C-174/14, EU:C:2015:430, paras 59-67) and ruled that the concept of ‘other bodies governed by public law’ within the meaning of Article 13(1) of Directive 2006/112 on the common system of value added tax (VAT) must not be interpreted by reference to the definition of ‘body governed by public law’ in Article 1(9) of Directive 2004/18 on public procurement (now substituted by Art 2(4) of Directive 2014/24).
This is an important Judgment because it consolidates the atomisation of concepts that are increasingly relevant for the application of EU economic law in a scenario of ever growing recourse to private law institutions by the public sector in the organisation of its activities. Thus, it is worth looking closely at the reasons that led to this disconnect between concepts of 'body governed by public law' for the purposes of different branches of EU economic law (namely, taxation and public procurement).
In the Saudaçor case, the dispute concerned the VAT treatment of Sociedade Gestora de Recursos e Equipamentos da Saúde dos Açores SA (Saudaçor). This entity was created by Regional Legislative Decree No 41/2003/A of the Autonomous Region of the Azores (RAA) transforming the Institute of Financial Management of the Health Service of the RAA into a limited company with exclusively public capital, that company being wholly owned by that region.
Saudaçor has the task of providing services of general economic interest in the field of health and, particular, the planning and management of the regional health system and associated information systems, infrastructure and facilities and the completion of construction, conservation, rehabilitation and reconstruction work on health establishments and services, in particular in areas covered by natural disasters and in areas regarded as risk areas.
Saudaçor had not been charging VAT to the RAA for the provision of these services. It relied on the exemption as a non-taxable person under Article 13(1) of Directive 2006/112, according to which
States, regional and local government authorities and other bodies governed by public law shall not be regarded as taxable persons in respect of the activities or transactions in which they engage as public authorities, even where they collect dues, fees, contributions or payments in connection with those activities or transactions.
However, when they engage in such activities or transactions, they shall be regarded as taxable persons in respect of those activities or transactions where their treatment as non-taxable persons would lead to significant distortions of competition.
In this setting, the Public Treasury opened an investigation and considered that the services provided by Saudaçor in respect of the planning and management of the regional health service concern areas of activity involving private initiative, which means that treatment as a non-taxable person for VAT purposes might lead to distortions of competition, thus challenging Saudaçor's status as a non-taxable person.
The appeals of the case went all the way up to the Supreme Administrative Court of Portugal, who harboured doubts as to the interpretation of the concept 'other bodies governed by public law' used by the judge of instance, which had decided that
for the purpose of interpreting the rule laid down in the first subparagraph of Article 13(1) of Directive 2006/112, under which bodies governed by public law are not regarded as taxable persons for VAT purposes, there is no need to refer to the concept of ‘body governed by public law’ defined, in the context of public procurement law, in Article 1(9) of Directive 2004/18 since the latter concept is understood in a broad sense, whereas the concept of ‘body governed by public law’ within the meaning of the first subparagraph of Article 13(1) of Directive 2006/112 must be interpreted strictly when applying the rule of treatment as a non-taxable person for VAT purposes because that rule constitutes an exception to the general rule of taxation of any economic activity (C-174/14, para 24).
whilst it is clearly established in the [CJEU]’s case-law that only the activities of bodies governed by public law acting as public authorities are excluded from liability to VAT, it cannot be determined on the basis of that case-law whether an entity such as Saudaçor, having regard to its legal status as a limited company originating from the transformation of a State entity, comes within that concept of body governed by public law. The question arises in particular whether the scope of that concept tallies with the scope of the concept of ‘body governed by public law’ in Article 1(9) of Directive 2004/18 in the context of the definitions of the various categories of ‘contracting authorities’ (C-174/14, para 28, emphasis added).
In his Opinion, AG Jääskinen considered that there was no need to consider the compatibility of the definition in Article 13(1) of Directive 2006/112 and that in Article 1(9) of Directive 2004/18. In his view, such irrelevance of the concept of ‘body governed by public law’ within the meaning of Directive 2004/18 for the interpretation of Article 13(1) of Directive 2006/112 derived from the following reasons
63. Article 13 has been regarded in the Court’s case-law as an exemption which should be placed in the general context of the common system of VAT. Thus, as a derogation from the principle that any activity of an economic nature must be subjected to VAT, the first subparagraph of Article 13(1) of Directive 2006/112 must be interpreted strictly. Obviously, this also holds for the interpretation of the concept of ‘other bodies governed by public law’ in the first subparagraph of Article 13(1).
64. By contrast, in the light of the objectives pursued by the provisions of Union law on the coordination of the procedures for the award of public contracts, and in particular the dual objective of opening up competition and transparency, the concept of ‘body governed by public law’ within the meaning of Article 1(9) of Directive 2004/18 should be given a broad and functional interpretation.
65. It should be stated that the meanings of, on the one hand, ‘body governed by public law’ for the purposes of Directive 2004/18 and, on the other, ‘other bodies governed by public law’ for the purposes of Directive 2006/112 cannot be the same, as those two directives have very different objectives (sic) [...]
66. It should be added that, as was rightly pointed out by the United Kingdom Government, the Union legislature made the deliberate choice not to make reference in Directive 2006/112 to the concept of ‘body governed by public law’ which appears in Directive 2004/18. In other contexts, where it considered that a link should be made between two instruments of EU law, the Union legislature chose to adopt the definition used in Directive 2004/18 by means of a cross-reference (Opinion of AG Jääskinen in C-174/14, paras 63-66, references omitted and underlining added--other emphasis in the original).
In my view, this approach creates two difficulties. Firstly, if concepts of identical wording are to be interpreted differently depending on the ultimate goals of the rules of EU economic law in which they are inserted, legal certainty can hardly be satisfied. Secondly, the narrow interpretation of Article 13 could have been implemented through a strict approach to the concept of 'activities or transactions in which they engage as public authorities', or to the existence of 'distortions of competition'. This would have been preferable to the dissociation of concepts that are meant to determine the subjective scope of application of rules of EU economic law--which, by the way, are meant to be applied concurrently to the those entities.
In its final Judgment, the CJEU followed the Opinion of AG Jääskinen and ruled that
46 By defining in broad terms the concept of ‘body governed by public law’ and, as a result, the concept of ‘contracting authorities’, Article 1(9) of Directive 2004/18 seeks to define the scope of that directive in a sufficiently extensive manner so as to ensure that the rules on, in particular, transparency and non-discrimination which are required in connection with the award of public contracts apply to all State entities which do not form part of the public administration but which are nevertheless controlled by the State, in particular by means of their financing or their management.
47 However, the context of the concept of ‘other bodies governed by public law’ referred to in Article 13(1) of Directive 2006/112 is fundamentally different.
48 That concept is not intended to define the scope of VAT but, on the contrary, makes an exception to the general rule on which the common system of that tax is based, namely the rule that the scope of that tax is defined very broadly as covering all supplies of services for consideration, including those provided by bodies governed by public law (see, to that effect, judgment in Commission v Netherlands, C-79/09, EU:C:2010:171, paragraphs 76 and 77) (C-174/14, paras 46-48, emphasis added).
I have difficulty accepting the reasoning of the CJEU as persuasive. Taken literally, it would mean that the rules that determine the (material, and personal?) scope of application of a norm are only those of a positive nature--ie rules of inclusion--whereas the negative rules that free situations or agents from coverage by that norm--ie rules of exclusion--would not be seen as able to construct its scope. This is logically confusing, as delineating the actual scope of application of a norm involves taking into account both the elements that determine what is included and those that determine what is not included therein [for a discussion on the validity and effectiveness of restrictive legal norms, see K Larenz, Metodología de la Ciencia del Derecho, 2a ed (Madrid, Ariel, 2001) 252-253].
Moreover, when the CJEU engages in the determination of whether Saudaçor meets the requirements to be considered within the category of ‘other bodies governed by public law’ for the purposes of Article 13(1) of Directive 2006/112 (paras 55 and ff), the CJEU uses criteria that are fundamentally aimed at determining if: 1) it has powers that traditionally would belong to the public sector (paras 58-59), 2) the region that owns it can exercise decisive control over it (paras 60-65), and 3) it engages in any competition with private providers (para 66). Implicitly, the CJEU also considers whether more than 50% of its funding comes from the public sector (para 63), and it stresses that the activity carried out by Saudaçor is a service of general economic interest (para 67), to the effect of (implicitly) determining that it is not of a purely commercial nature.
Thus, in my view, these are fundamentally the same criteria and considerations that would apply under the test designed to determine whether an entity is a body governed by public law under the applicable public procurement rules. Functionally, then, the analysis actually carried out by the CJEU is convergent in the fields of taxation and procurement. I consequently struggle to see what was there to be won in the position that "the concept of ‘other bodies governed by public law’ within the meaning of Article 13(1) of [Directive 2006/112] must not be interpreted by reference to the definition of ‘body governed by public law’ in Article 1(9) of Directive 2004/18".
It seems that the CJEU is only willing to engage in functionalism in the application of the rules, but not in the formulation of the concepts that underpin them. This creates significant confusion and threatens legal certainty. Specially when it is impossible to know in which situations where it is confronted with (almost) identically drafted provisions of EU economic law the CJEU will adopt a single 'EU law' autonomous concept or more than one... Nothing is what it seems under EU economic law...
