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04.02.2021 | KPMG Law Insights

ECJ: No decision on the classification of remunerated teaching offers of public universities as a service or economic activity within the meaning of Union law

ECJ: No decision on the classification of remunerated teaching offers of public universities as a service or economic activity within the meaning of Union law


In a nutshell

The ECJ (judgment of 04.07.2019 – C-393/17) confirmed that the provision of services for consideration, which can be attributed to higher education activities, fall under the concept of services in Article 57 TFEU if they are offered by private entities acting with the intention of making a profit.

There was no discussion of the question that has recently arisen as to whether courses offered by public universities to working people for a fee and with the intention of making a profit (e.g. weekend manager seminars) must be regarded as services within the meaning of EU law and as an economic activity within the meaning of state aid law.

Background

Two operators of a non-accredited private university in Belgium sought the annulment of fines imposed on them before a Belgian appeals court. The reason for the criminal sanction payment was what the Flemish law enforcement agency considered to be the unlawful awarding of academic titles. Among other things, the two operators of the university saw the penalty provision as a violation of the Services Directive (2006/123/EC). The Belgian court referred a number of questions to the ECJ for a preliminary ruling (Article 267 TFEU). In particular, the concept of service and its application to the offerings of the private university were decisive.

The Advocate General at the ECJ had taken this case as an opportunity to subject the “Humbel criteria”, which have been used since the Humbel and Edel case (263/68), to a current review. The argumentation in the opinion was relevant with regard to the question of whether, in particular, university offers for the further education of professionals provided against payment were to be qualified as services under Article 57 TFEU. This would have raised the question of whether, in particular, the paid further training of professionals constitutes an economic activity within the meaning of state aid law, which would have to be shown as such in the separation account under state aid law (Art. 107 para. 1 TFEU in conjunction with. para. 2.1.1. et seq. of the Union Framework for State Aid for Research, Development and Innovation of 21.05.2014 [2014/C 198/01]).

The “Humbel Criteria”: According to Art. 57 TFEU, a service is a service rendered for remuneration, whereby this must be understood in the sense of an economic consideration for the service rendered. Despite the levying of a school fee, it is true that education is fundamentally not to be regarded as a service, since the state does not take up a profit-making activity within the framework of the national education system, but fulfills its social, cultural and educational duties. According to recent case law, this also applies to institutions of higher education in the state education system insofar as they are financed primarily from public funds, even if fees must occasionally be paid to cover costs.

Conversely, the services of private higher education institutions fall under the concept of services within the meaning of Article 57 TFEU if the services in question are provided against payment and the institutions are essentially financed from private funds and seek to make a profit.

The opinion of the Advocate General: The Advocate General had questioned this assessment, which originated in the 1980s. He argued that the sharp boundary for state and private universities could no longer apply in today’s higher education landscape:

“What is governmental in a world where (even) state universities set up campuses in other Member States or enter into joint ventures with various other institutions and/or establish spin-off companies for teaching and research?” (GA at ECJ, 15.11.2018 – C-393/17, ECLI:EU:C:2018:918 para. 73.)

The image of the noble state university, exclusively concerned with the common good, versus the capitalist construct of the private university, is outdated, as the former also charges fees for courses of study as well as (weekend) events for managers. There is a parallel with the health care system, which, although partly characterized by private providers, is classified as a non-economic service of general interest to which the freedom to provide services does not apply. Consequently, an exclusion of the general interest could not be assumed from the outset in the case of private education providers.

Therefore, the Advocate General suggested that one could differentiate, among other things, according to the individual activity (especially each course of study), the level of education, the financing and the size of the market of the offer, in order to determine whether a service falling within the higher education system should be subsumed under the concept of service (the proposed criteria will be here a closer look).

Decision

The question thus raised as to the classification of a paid educational offering of a predominantly or far predominantly publicly financed educational institution was not necessarily to be decided in the present proceedings. The ECJ did not take up the Advocate General’s discussion. Rather, it relied on established case law and held that educational services provided for a fee by private educational institutions fall within the definition of services if the institutions are substantially financed by private funds and they seek to make a profit.

What can the reader take away?

Following the ECJ’s decision, the fundamental exemption from the scope of the Services Directive for predominantly publicly funded educational services remains unchanged.

The outcome of the discussion, which was initiated by the Advocate General’s argumentation in the Opinion, on the classification of teaching services offered by public universities for remuneration and with the intention of making a profit as services within the meaning of Union law and as an economic activity within the meaning of state aid law thus remains open.

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