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EC Criticizes Danish VAT Exemptions,
by Ulrika Lomas, Tax-News.com, Brussels
Monday, February 01, 2010
The European Commission has formally requested
that Denmark amend its law pertaining to the application of certain exemptions
under the value-added tax (VAT) Directive.
Under Danish law, an exemption from VAT is accorded to charitable and non-profit
making associations' supplies, as well as to goods supplied by second-hand shops.
The Commission considers that such exemptions go beyond what is allowed under
the VAT Directive.
According to the Commission, the VAT Directive establishes a common system of
VAT, based, among other things, on a uniform definition of taxable transactions. The
Directive also provides for VAT exemptions for certain types of transactions.
The Commission points out that, from the settled case law of the European Court of Justice,
it has been clearly established that all exemptions have to be strictly interpreted,
given that they are exceptions to the general rules on the taxation of supplies
of goods and services. Therefore, any exemption that is not provided for under
the VAT Directive, nor granted by Council as a derogation, amounts to an infringement
of European Community law.
Such illicit exemptions, the Commission argues, could lead to distortions of
competition and would make it impossible to ensure that member states contribute
on an equal basis to the Community's own resources. Consequently, the Commission
said that it has to ensure that the exemptions are applied correctly in the member states.
The Commission states that: “Under Article 132 of the VAT Directive, certain
activities which are in the public interest are VAT exempt. That provision does
not, however, provide a VAT exemption for every activity performed in the public
interest, but only for those which are listed and described therein.”
It continues: “Denmark exempts all supplies carried out by charitable
or other non-profit making associations in connection with [the running of] their businesses. The Commission considers that such a general exemption goes beyond what is allowed
under Article 132 of the VAT Directive, which contains a detailed restrictive
description of the activities that can be exempted, as well as certain conditions
related to the exemption.”
It adds: “Denmark also applies a general exemption for goods supplied
by second-hand shops, if the profits are used entirely for charitable or public-interest
purposes, and provided that the shop only sells second-hand goods which it has
received for free and only employs voluntary unpaid staff. None of the exemptions
in Article 132 cover such supplies.”
The request takes the form of a reasoned opinion (the second step of the infringement
procedure provided for in article 258 of the Treaty on the Functioning of the
EU). If the Danish government has not responded in a satisfactory manner to the reasoned opinion within two months, the Commission may decide to refer
the matter to the European Court of Justice.
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