In the joined cases C-379/24 and C-380/24, the Court of Justice of the European Union (CJEU) examines, from a Spanish perspective, the application of the VAT exemption for services supplied by independent groups of persons to their members (Article 132(1)(f) of the VAT Directive).
Background
Both cases concern two groups established in Spain to provide cleaning services.
The first case (C-379/24) relates to the establishment in Spain of a shared infrastructure intended to provide comprehensive cleaning services in hospitals and centres where the members carry out healthcare and social care activities.
In the second case (C-380/24), a group was created as a shared infrastructure aimed at comprehensive cleaning services in the centres and facilities of its members, which are linked to educational activities (pre-school, primary, secondary, upper secondary, and vocational training).
Both entities entered into contracts with third parties to manage the cleaning activities (staff allocation, recruitment, payroll processing, training, etc.).
Following a tax audit, the Spanish tax authorities subjected the services supplied by these groups to their members to VAT, essentially on the grounds that the conditions for the exemption were not met under Spanish VAT law. Among other reasons, the authorities considered that cleaning services were not used “directly and exclusively” for the members’ exempt activities and that this could lead to distortions of competition.
Referral to the CJEU
The Spanish court referred two questions to the CJEU concerning the scope of the exemption.
The first question asked whether EU law permits Spanish legislation to make the exemption conditional upon the group’s services being used “directly and exclusively” in the exempt activity of the group’s members, thereby excluding services of a general nature (such as cleaning) even where they are necessary for the exercise of that activity.
The second question asked whether it is compatible with EU law to presume that the absence of such exclusivity entails a distortion or risk of distortion of competition, so that the exemption may be refused automatically without a specific analysis and proof of such distortion.
At this point, the discrepancy lies in the different wording of the Spanish VAT Law (“that such services are used directly and exclusively in that activity and are necessary for the exercise of the same”) and the VAT Directive (“for the purpose of rendering their members the services directly necessary for the exercise of that activity”). The Spanish provision, which is clearly more restrictive than the directive, is now being censured by the CJEU.
The CJEU’s findings
The core of the CJEU’s decision focused on the interpretation of “services directly necessary” under the VAT Directive. The court acknowledged that Article 132(1)(f) requires a link with the members’ exempt activity, but it does not require the services to constitute an indispensable input for a specific transaction. It is sufficient that the supply is “directly necessary” for the exercise of the exempt activity.
This point is decisive in the Spanish context, because national legislation imposes a requirement that the service be used “directly and exclusively” in the exempt or non-taxable activity, whereas the directive, which is significantly less strict, limits itself to direct necessity for carrying out the activity.
The court noted that supplies that do not contribute directly to the pursuit of activities in the public interest and are, in reality, aimed at the pursuit of other activities fall outside the exemption. In other words, the criterion is not formal “exclusivity” but rather a direct contribution to the performance of the exempt activity in the public interest.
Accordingly, general services such as cleaning may be regarded as directly necessary both in healthcare and in education, particularly in light of the specific hygiene requirements in those sectors.
As regards distortion of competition, the CJEU accepted that member states may lay down conditions to prevent it, but those conditions cannot alter the substance of the exemption. Therefore, generally excluding all services that could also be used for activities not exclusively related to the exempt activity would, in practice, reintroduce exclusivity as a general rule.
The court concluded that distortion of competition is not presumed; it must be assessed on a concrete basis and not automatically.
Implications of the ruling
The CJEU’s judgment requires a reassessment of the compatibility of Spanish legislation with the VAT Directive to the extent that the former incorporates a more restrictive standard than the latter. In sectors such as healthcare, where shared structures for auxiliary services are common, the ruling opens the door to defending the exemption for “general” support services where they are directly necessary, and where their potential use in taxable contexts is not, in itself, sufficient to exclude them.
This judgment is another example of a well-established line of case law: exemptions in VAT, as exceptions, must be interpreted strictly but always in accordance with the purpose of EU law, and member states may not introduce, by legislation or administrative interpretation, additional requirements or more restrictive readings that undermine their substance.
A separate analysis is warranted regarding the practical consequences of the scope of this decision, which is always something to bear in mind whenever we deal with a member state that fails to comply with EU law.
