Polish VAT Concessions For Children's Items Under Fire From EU

by Ulrika Lomas, Tax-News.com, Brussels

08 December 2008

The European Commission has decided to refer Poland to the European Court of Justice regarding the reduced VAT rate it applies to the supplies of certain children's items.

The Commission has said that it fully supports social and family friendly policies, as part of the EU’s response to the pressing challenge of demographic ageing. However, Brussels argues that the EU VAT rules must be applied uniformly by all member states. It points out that more efficient instruments – such as direct subsidies or personal income tax allowances – can be easily (without the agreement of the 26 other member states) implemented by Poland to reach its objectives.

Poland applies a reduced VAT rate of 7% to the supply of clothing and clothing accessories for infants and to the supply of children's shoes.

According to the VAT Directive (Article 98, in connection with Annex III of Directive 2006/112/EC) only a limited list of supplies of goods and services may be subject to reduced rates of VAT. None of the aforementioned items are included in this exhaustive list, and Poland has been granted no derogation in this regard. The conclusion is that by applying a reduced VAT rate in these cases, Poland is in breach of Community Law.

The Commission sent a 'reasoned opinion' to Poland in February 2008 but Poland did not amend its legislation within the allocated time limit and therefore the Commission has decided to refer the matter to the Court of Justice.

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