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Italy And Sweden Face EC Action Over VAT

by Ulrika Lomas, Tax-News.com, Brussels

27 March 2007


The European Commission announced on Friday that it has decided to bring Italy before the Court of Justice for extending a tax amnesty on VAT to 2002.

In its Finance Act 2004, the Italian Government extended to 2002 the tax amnesty (or condono) adopted under the Finance Act 2003.

The Finance Act 2003 allowed taxpayers to regularise different unpaid taxes, including VAT. According to these fiscal arrangements the Italian administration waived 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 already considered that the tax amnesty was in breach of the 6th VAT Directive, and brought an action against the Republic of Italy before the European Court of Justice. The Commission argued 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.

It stated last week that:

"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."

The Commission has also sent Sweden a formal request to amend its rules concerning the reduced rate of VAT applied to supplies, importations and intra-Community supplies of audio books.

Currently Sweden applies a rate of 6 % instead of the normal rate of 25 % to supplies of audio books.

Under the VAT Directive, a reduced rate can be applied to:

  • Medical equipment intended to alleviate or treat disability, for the exclusive personal use of the disabled; and
  • Supply of printed books.

Sweden considers that audio books are covered by the exemptions in Annex III to the VAT Directive, since they could be regarded as an aid which alleviates disability or at least should not be treated differently than books in paper form. Therefore, it applies the reduced rate of VAT to such products.

However, according to the Commission there is no legal base for applying such a reduced rate. The EC sent a formal letter of notice to Sweden in April 2006, and received an "unsatisfactory" reply in June 2006.

The request takes the form of a reasoned opinion, the second stage of the infringement procedure laid down in the EC Treaty.

TAGS: Italy

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