Commission Rules Against Germany And Austria On VAT

by Ulrika Lomas, Tax-News.com, Brussels

28 July 2003

The European Union has initiated infringement proceedings against the government of Germany for failing to act on a previous judgement by the European Court of Justice in October last year which ordered the country's tax authorities to remove certain VAT restrictions.

"On 15 October 2002, the Court of Justice delivered a judgment in Case C-427/98 (Commission v Germany) in which it found that, by not allowing adjustment of the right to deduct VAT for producers of goods who have reimbursed posteriori money-off vouchers used by final consumers to obtain the relevant goods at a reduced price, Germany is infringing Article 11 of the Sixth VAT Directive (77/388/EC)," the Commission announced last week, adding:

"In its judgment, the Court upheld its earlier ruling given on 24 October 1996 in Case C-317/94 (Elida Gibbs Ltd). Despite the judgment handed down by the Court, Germany has not yet taken measures to enable its taxable persons to be refunded. Since Germany has not communicated the measures taken to comply with the judgment finding against it, the Commission has decided to initiate new infringement proceedings, based this time on Article 228 of the Treaty; the Commission may call for penalty payments to be imposed for failure to comply with a Court judgment."

The Commission has also initiated proceedings against the Austrian tax authorities for a breach of the sixth directive on VAT (Value Added Tax) which rules that the same service cannot be taxed twice in two different member states.

In a further statement, the Commission states:

"As Community law stands at present, Member States may maintain restrictions on the right to deduct that existed in their national legislation at the time when the Sixth VAT Directive entered into force. These restrictions therefore differ from one Member State to another. Transactions in respect of which Austria does not allow deduction of VAT include the purchase, repair and rental of passenger cars."

The Commission ruling continues:

"In order to ensure that Austrian taxpayers do not procure these services in another Member State (in which no such restriction exists and where they can obtain refund of VAT on such expenses), Austria taxes all expenditure incurred in another Member State for services, already taxed in that other Member State, that would not be eligible for deduction of VAT in Austria, but for which VAT is recoverable in the other Member State.

"Furthermore, Austria cannot blame taxpayers for making use - quite legally - of the scope afforded them by the law as it stands. So long as the Member States have not reached agreement on harmonisation of the rules governing restrictions on the right to deduct VAT (the Commission put forward a proposal for such harmonisation in 1998), they have to accept the individual jurisdiction of Member States in this area. This means that Austria is not entitled to interfere with the jurisdiction of the other Member States and to apply internal taxation whose sole practical purpose is to undo the refund legally obtained in another Member State."

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