The Escape Center is a (for-profit) fitness center, charging VAT on its services. It had been doing so for years at the 21% VAT rate. For the period 2015-2018 it estimated that it had in fact paid too much VAT and requested a 15% VAT refund (i.e., the difference between 21% and 6%). The tax authorities refused to apply the reduced VAT rate of 6% and so a lawsuit followed.

The administration took its classic position: the access is subject to 6% and individual coaching and group lessons are subject to 21%. It based this on the text of the Belgian law (see below). If no split is made between access and guidance, the whole is subject to 21% VAT, according to the tax authorities.

So the question is whether, based on the text of the VAT Directive, the Belgian legislator can decide to subject only the access to a fitness center to 6% VAT. Annex III, point 14 VAT Directive states that "the use of sporting facilities" can be subject to the reduced VAT rate. Our legal text speaks of "The granting of the right of access to facilities for culture, sport or entertainment, as well as the granting of the right to use them (...)" (section XXVIII Table A Annex RD No. 20).

Thus, The Escape Center clearly disagreed with the VAT authorities’ position. Even if one interprets "use sports facilities" restrictively, in its view there is no reason to argue that there would no longer be this right to use a sports facility when additional supervision is provided by instructors.

The Court of Justice essentially agrees with The Escape Center. The Court says that the VAT Directive and the Interpretative Regulation do not define what is meant by the term "the use of sporting facilities". Moreover, the Directive does not give Member States any power to define this concept. Consequently, this concept must be interpreted uniformly.

Next, the Court examines whether the accompaniment must be regarded as part of the right to use sporting facilities. This often appears to be the case. After all, the Court says that services related to sports and physical education should be considered as a whole as much as possible. Certain activities require supervision or group instruction. The fact that access to fitness and group classes are offered as one formula is an indication in this direction.

As already cited, it is noteworthy that a preliminary question was already referred to the Court of Justice in the proceedings in first instance. The reasons for this is that the tribunal considered that, in practice, the Belgian VAT authorities may be treating fitness centers unequally. Certain auditors would accept the 6% rate, others agree to an average VAT rate (based on a split of e.g. 40% of activities at the 6% rate and 60% at the 21% rate or 30% at the 6% rate versus 70% at the 21% rate). 

Still other auditors argue that the 21% rate should be applied to the entirety of the fitness center's activities. Moreover, the Dutch tax administration apparently takes the same view as The Escape Center. These are arguments raised by The Escape Center but were adopted by the tribunal as grounds to submit a request for preliminary ruling to the ECJ.

It exposes a shortcoming that we are all too often confronted with in Belgium: when it comes to reduced rates, there is hardly any "policy." It seems as if each VAT office has its own rules.

The ECJ cites this as a reason why the Belgian administration may not interpret the rules related to the reduced rate for fitness centers restrictively. After all, the legislation pretty much adopts the wording of the directive. In such cases, one cannot restrict the reduced rate through administrative guidelines or practices. However, this is what unfortunately happens all too often. Just think of the reduced rates in the real estate sector.

Another question is whether The Escape Center can now recover the VAT it paid in excess from the Treasury, and whether it must then refund those amounts to its customers. We have already written a post on this interesting question.
https://www.vat-consult.be/blog/excess-vat