Cost-sharing exemption: court takes a more lenient view of the share test
The District Court of Gelderland applied the cost-sharing exemption to services supplied to 21 water authorities. Notable, because the share test has in recent years been read ever more strictly.
Het Waterschapshuis is a joint arrangement set up by 21 Dutch water authorities. As an expertise centre and service organisation it delivers services in the form of projects, largely in IT. The water authorities pay the running costs according to allocation keys such as salary, population, surface area or pollution units. A service agreement is concluded for each assignment and a single cost allocation key chosen.
The dispute is whether the cost-sharing exemption applies to those services. The inspector said no, because in his view not all the conditions were met.
The ruling
The District Court of Gelderland held that the services are directly necessary for the water authorities and do not distort competition.
The final condition, that the cost-sharing group claims only reimbursement of each member's share of the joint expenditure, was also met. The inspector argued that the allocation keys do not match actual use. The court held that they do.
The water authorities decide project by project whether to take part. Where they do, Het Waterschapshuis charges participants only the actual costs of that project: shortfalls are topped up and surpluses repaid. The authorities themselves decide how costs are shared. For some projects a key is easier to devise than for others, and the extent to which a project concerns a given authority can vary. What is clear is that no authority is willing to pay for another, so in every case there is agreement that the key represents each member's share. That, the court held, is enough. Following the inspector's reading would make the exemption practically impossible to apply.
Why this matters in practice
The ruling is notable because the cost-sharing exemption has in recent years had to be read ever more strictly. In the KNMG case the Dutch Supreme Court held that the condition is met only where the group claims reimbursement of the members' precise share of the joint expenditure. The Court of Justice had earlier held in SCBIT that analytical accounting methods can establish the exact share for each individual service without difficulty.
In her opinion in KNMG, Advocate General Ettema had already suggested the share test should not be read too strictly. The court appears to have picked that up: the test can also be met where the exact share for each individual service is not charged, provided the members agree that the allocation key represents each of their shares.
Note that the cost-sharing exemption matters not only for groups of public bodies but also for those of educational institutions, care institutions and the like.