On The Exemption of Closely Related Activities in Article 132(1)(b) & (i) in The VAT Directive

Abstract: The exemptions in the public interest in Article 132 of the VAT directive constitute independent concepts of Community law whose purpose is to avoid divergences in the application of the VAT system from one Member State to another. In deciding whether a good or service is exempt the case law of the CJEU has established two main principles, the principle of fiscal neutrality and the principle of strict interpretation. In addition to the supplies which are explicitly stated as exempt, subparagraph 132(1)(b) and 132(1)(i) also exempts certain activities which are closely related to either medical supplies in a hospital setting, or educational supplies made by institutions. The interpretation of a closely related supply is a question that has been posed by the member states to the CJEU frequently. But it is still to some extent uncertain and has not been widely covered in the existing doctrine. Therefore, the main purpose of this thesis is the research question: What does it mean that an activity is closely related. In answering the research question, the thesis considers the current body of case law, published papers, and the underlying principles, in order to answer three underlying research questions of importance to closely related activities. In response to the first question, this research has found that the neutrality of the closely related activities is regulated in the corollary Article 134 of the VAT directive, which stipulates that a closely related activity needs to be essential to the transactions exempted, and that the service provided can not be for the basic purpose of attaining additional income. The research has further examined the statement by the CJEU, that a closely related supply needs to be ancillary to the principal supply of the body providing it. It has found that these terms are used differently in the case of closely related activities than they are in the established composite supply doctrine. This is as closely related activities tend to be ancillary to the purpose of the exempted supply, and can be supplied by a different legal person than the one making the principal supply. Lastly, the research has considered also closely linked supplies, that are also covered by the corollary articles 133 & 134 of the VAT directive, to investigate if these are the same as closely related activities. It has found that closely linked supplies are not the same as closely related activities, this is as they only consider if entire categories of services are closely linked to their respective subparagraph.