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EC Launches New Round Of VAT Infringement Proceedings

by Ulrika Lomas, for, Brussels

26 December 2006

The European Commission on Thursday issued a number of reasoned opinions addressed to Austria (over its application of the reduced rate to supplies of goods in connection with the treatment of waste water and refuse and over its levying of VAT on cars leased in other Member States), France (over the application of a reduced rate to certain services supplied by lawyers) and Italy (over the extension of the fiscal amnesty, the "condono fiscale", to VAT debts incurred in 2002).

Unless the Member States in question bring their legislation in compliance within two months of receipt of these opinions, the Commission may decide to refer these cases to the Court of Justice of the European Communities.

Austrian VAT provisions allow for the application of the reduced VAT rate to all transactions concerning the disposal of waste water and refuse.

However, according to the EC, by applying this reduced rate of VAT, Austrian VAT law breaches EU law because those transactions are not covered by the provisions of the Sixth VAT Directive relating to the application of reduced VAT rates.

Austria also levies VAT on car related expenditure incurred outside the country. The tax is levied in particular on taxable persons leasing cars in other Member States.

In accordance with article 17.2 of the Sixth VAT Directive (Directive 77/388/EEC), taxable persons are entitled to deduct the VAT paid or due in respect of goods and services acquired for the purpose of their taxable transactions. Austria applies exceptional provisions barring most taxable persons from deducting VAT on car related expenditure.

Since 1995, in order to discourage Austrian taxable persons from leasing cars in other Member States -where a refund of VAT is available in accordance with the 8th VAT Directive (Directive 79/1072/EEC)-, Austria has levied non-deductible Austrian VAT on taxable persons leasing cars abroad.

France, meanwhile, applies a reduced VAT rate (5.5%) to services provided by lawyers within the framework of legal aid ("aide juridictionnelle"). Under this framework, the services provided are totally or partially paid by the State.

Article 12.3 of the Sixth VAT Directive (Directive 77/388/EEC) provides that the supplies of goods and services subject to VAT are normally subject to a standard rate of at least 15%, but the Member States may opt to apply one or two reduced rates of no less than 5% to goods and services listed in Annex H (restricted list of goods and services eligible for a reduced rate in the Member States).

However, this list does not include services provided by lawyers. Accordingly, the Commission has decided to issue a Reasoned Opinion on this subject addressed to France.

Explaining its action against Italy, in conclusion, the European Commission announced that:

"By Finance Act 2004 the Italian Government extended to year 2002 the tax amnesty (the “condono”) adopted under Finance Act 2003. The Finance Act 2003 allows taxpayers to regularise different unpaid taxes, including VAT. According to these fiscal arrangements if a taxable person makes use of the amnesty for a certain taxable year the Italian administration waives its right to control in the future VAT which was not paid for that period. The taxpayers may “wipe the slate clean” by simply paying to the State a fixed sum, if no return was filed, or a percentage (2%) of the VAT that would have been payable in respect of the goods and services supplied in each taxable year. The waiver of further controls on unpaid VAT applies even if it is proven that irregularities were committed."

"The Commission considers that this scheme is in breach of the 6th VAT Directive (see IP/04/1243) and has brought an action against the Republic of Italy before the European Court of Justice (see Case C-132/06). The Commission claims that the Directive requires taxing all goods and services supplied within the country and it obliges Member States to ensure that taxable persons fulfil their obligation to declare and pay VAT."

"In the Commission’s view, the measures adopted by Italy go beyond the margin of discretion that Member States enjoy for adjusting their controls on the basis of human and technical resources available to them. Italy’s action appears to be an overt renunciation of controls for the collection of VAT thus being in breach of the obligations it has assumed with regard to the application of Community law."

"Consequently, it is only natural that the Commission equally opposes Italy's decision to extend the application of the above-mentioned fiscal arrangements to the year 2002 and thus, after having given the Italian authorities the opportunity to submit their observations with a letter of formal notice it has now addressed to them a reasoned opinion."

TAGS: Italy

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