The Saarland Fiscal Court has ruled that turnover from the operation of a private martial arts school that is run with the intention of making a profit is not eligible for exemption from turnover tax.
Practical example:
The Saarland Ministry of Economic Affairs confirmed to the plaintiff private martial arts school for the years 2016 and 2017 that it was properly carrying out vocational training measures. This confirmed that it offered professional training (for police, security personnel, nursing staff, educational staff), among other things. The plaintiff therefore claimed that its transactions were tax-exempt in accordance with Section 4 no. 21 letter a) double letter bb) UStG and Art. 132 para. 1 letter i VAT Directive (with reference to BFH, judgment of 28.5.2013, XI R 35/11). However, the tax office treated the plaintiff's sales as taxable.
Despite the available certificate from the competent state authority, the tax court ruled that their lessons did not constitute a supply directly serving the purpose of school and education within the meaning of Section 4 no. 21 letter a) UStG. The decisive factor in this respect is that martial arts lessons are not equivalent to the teaching, deepening and development of knowledge and skills in relation to a broad and diverse range of subjects that characterize school and university lessons.
The exemption under Art. 132 (1) (i) of the VAT Directive does not apply
- without proof of the extent to which revenue is generated from courses whose participants use or intend to use them for subsequent employment.
- The intention of the martial arts school to make a profit is also detrimental. Tax exemption in accordance with § 4 no. 23 UStG (education of children and young people) requires proof that the martial arts school has actually taught young people who are difficult to educate to channel aggression and control violence, for example.
Note: In the opinion of the tax court, the sales of the martial arts school are not tax-exempt because they do not directly serve the purpose of schooling and education. The services of private schools and other general education or vocational training institutions are only tax-exempt if the competent state authority certifies that they properly prepare students for a profession or an examination to be taken before a legal entity under public law. The certificate issued by the competent state authority binds the tax office and the tax court as a basic decision within the meaning of § 171 para. 10 AO with regard to the question of whether the institution in question as such properly prepares for a profession or an examination to be taken before a legal entity under public law. However, the assessment of the other requirements for an exemption in accordance with § 4 no. 21 letter a) double letter bb) UStG is the responsibility of the tax authorities or the tax court.
Assessment of performance
It is true that, in the case in dispute, there were certificates from the competent state authority for the years in dispute stating that the plaintiff was preparing for a profession. However, the lessons given by the plaintiff did not constitute a service provided by private schools and other general education or vocational training institutions that directly served the purpose of schooling and education. It was not clear to the tax court whether and, if so, to what extent the plaintiff provided courses for schools or universities. Irrespective of this, a martial arts school does not teach, deepen and develop knowledge and skills in relation to a broad and diverse range of subjects (see also Lower Saxony Tax Court, judgment of 20.2.2020, 11 K 170/19). Rather, the courses offered are designed to impart specialized knowledge. It is true that, in addition to school and university education, training and further education as well as vocational retraining are also tax-exempt. However, in the case in dispute, the plaintiff did not explain the extent to which sales in the years in dispute were generated from courses whose participants used them for a later professional activity or aimed to do so.
The professional training opportunities for police, security personnel, nursing staff etc. claimed by the plaintiff were also not proven. According to Art. 133 of the VAT Directive, Member States may, in individual cases, make the granting of exemptions under Art. 132(1)(i) of the VAT Directive to bodies which are not bodies governed by public law subject to the condition that the bodies concerned may not systematically aim to make a profit. However, this is not evident in the case in dispute.
According to the BFH ruling of 28.5.2013, XI R 35/11, a martial arts school could be tax-exempt. However, in the follow-up decision to the ECJ ruling of 14.3.2019, C-449/17 (A & G Fahrschul-Akademie), the BFH agreed with the amended, stricter ECJ interpretation of the law (BFH ruling of 23.05.2019 - V R 7/191210 and BFH ruling of 16.12.2021 - V R 31/21).
When benefits are tax-free
The tax exemption (§ 4 no. 22 letter a) UStG) only applies to legal entities under public law, administrative and business academies, adult education centers or institutions that serve charitable purposes or the purpose of a professional association. This is not the case for the private martial arts school in the form of a GbR. With regard to the exemption of § 4 no. 23 letter a) UStG, there is no proof that it actually taught young people who are difficult to educate how to channel aggression and control violence.