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VAT Rates On Racehorses Under Question By European Commission

by Ulrika Lomas, for LawAndTax-News.com, Brussels

03 December 2008


The European Commission has decided to refer the Netherlands to the European Court over value-added tax rates on horses, in particular thoroughbreds, and has also opened infringement proceedings against four other countries.

The European Commission has decided to refer the Netherlands to the European Court of Justice for applying a reduced VAT rate to horses. At the same time, the Commission formally requested Austria, France, Germany and Luxembourg to amend their legislation with regard to similar issues. If these member states fail to comply with the reasoned opinion within two months, the Commission may also refer them to the Court.

Annex III of the VAT Directive contains a limited list of supplies of goods and services, which may be subject to reduced rates of VAT. Included in that list are foodstuffs for human and animal consumption as well as live animals, seeds, plants and ingredients normally intended for use in the preparation of foodstuffs and agricultural inputs.

Reduced rates constitute exceptions to the general principle that the standard rate applies, and the legislation must therefore be strictly interpreted. Reduced rates may not be applied to the supply of domestic animals kept as pets (dogs, cats, dwarf-rabbits, guinea pigs, canaries etc) nor to ponies and race horses which are neither intended as foodstuff nor for use as agricultural input.

Reduced rates are only applicable to horses used in the generation or production of foodstuffs – the Netherlands however have applied the legislation too broadly. The Netherlands applies a reduced VAT rate of 6% to the supply of certain live animals and in particular race horses which are not normally intended for the generation or production of foodstuffs and therefore not included in Annex III.

The Netherlands did not amend its legislation within the given period of time and therefore it has been referred to the Court of Justice. Also in October 2007, the Commission initiated investigations into similar legislation in other member states.

One of those member states was Italy. After receiving the letter of formal notice, Italy decided to bring its legislation in line with the directive as of the January 1, 2008.

Austria which applies a rate of 10%, Germany of 7%, Luxembourg of 3% and France of 2.1% or 5.5% (depending whether the buyer qualifies as a taxable person or not) do not agree with the Commission's analysis. Therefore the Commission decided send reasoned opinions to these member states concerning the incorrect application of a reduced VAT rate to the supply of certain live animals, and in particular horses, which are not included in Annex III of the directive.


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