EU Commission Takes Member States To Task Over VAT Legislation

by Ulrika Lomas, Tax-News.com, Brussels

22 July 2004

The European Commission has initiated various levels of infringement proceedings against the governments of Luxembourg, Spain, Austria, Portugal and Finland in relation to the misapplication of VAT rules.

In the case of Luxembourg, proceedings concern the obligation of a Member State to refund VAT to taxable persons not established in the country within six months of the application for a refund under the EC treaty. Although this provision has been correctly transposed into Luxembourg legislation, the Commission has been informed that for some time Luxembourg has failed to comply with the time limit and has fallen well behind with refunds.

Despite the Luxembourg Government’s announcement of a plan to remedy the situation, the Commission continues to receive numerous complaints regarding the substantial delays, and as a result has decided to send a formal request that the rules be properly applied.

In the case of Spain, the Commission is to initiate proceedings in the European Court of Justice over the scheme it applies on goods removed from tax warehouses. EU law allows Member States to establish tax warehouses as well as customs warehouses.

To control the removal of goods placed in tax warehouses, Spain has made removal subject to completion of a special form and the payment of VAT. In so doing it has doubled the formalities (imposing a special form in addition to the normal VAT declaration and two successive VAT payments) in a manner prohibited by the Directive. Despite promising to amend its legislation in response to the reasoned opinion addressed to it on this point, Spain has yet to introduce any change.

The case against Portugal is based on an implication in Portuguese legislation that prohibits payment of VAT through an account placed in a financial entity established in a Member State other than Portugal. The Commission takes the view that this situation runs against the freedoms enshrined in the Treaty and, in particular, the free movement of goods, the freedom to provide services and the freedom to make payments.

According to Finnish VAT law, a taxable person who is not established in Finland may, upon request, be registered as the person liable to pay VAT with regard to the taxable transactions carried by him within Finland. Through this scheme, he is entitled to deduct VAT paid by him in Finland, thus avoiding the reimbursement mechanism provided for under the Eighth VAT Directive.

However, as a precondition for submitting such a request, the non-established taxable person has to appoint a tax representative who is domiciled in Finland. The Commission takes the view that this obligation of appointing a tax representative breaches Community law.

The Commission has also taken Austria to task over a simplified tax scheme that exists in Austria for the international carriage of passengers by taxable persons established in other Member States and in certain third countries.

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