91999E2861

WRITTEN QUESTION P-2861/99

by Michel Hansenne (PPE-DE) to the Commission

(7 January 2000)

Subject: Common VAT system eighth directive

In Question No 2083/90(1), Mr Fernand Herman put the following question to the Commission: In the United Kingdom, the Crown, local authorities and similar bodies can obtain VAT refunds on supplies of goods and services which they purchase, as well as the VAT paid on imported goods, provided these supplies or imports are not intended for activities which are subject to VAT (non-business purposes) or are partially exempt from VAT. This procedure, known as the refund scheme is applied irrespective of whether or not the bodies concerned are liable to the tax. Does this procedure comply with the sixth VAT Directive?

Why has the Commission only given a provisional and incomplete reply, without ever providing a definitive answer to the question?

Following on from my predecessor's question, does the Commission consider that public bodies in other Member States can also benefit from this procedure and could ask HM Customs and Excise to refund VAT on the basis of the eighth directive for goods and services obtained in the UK on which local VAT may have been charged?

(1) OJ C 164, 24.6.1991, p. 10.

Answer given by Mr Bolkestein on behalf of the Commission

(1 February 2000)

The common VAT system provides that the Member States, regions, counties, municipalities and other bodies governed by public law are not normally considered liable to VAT on activities or operations they engage in as public authorities. Accordingly, no VAT is due on those activities or operations.

However, goods and services supplied by taxable persons to Member States, regions, counties, municipalities and other bodies governed by public law, as well as goods imported by them, are subject to VAT.

As they are not liable to VAT on activities or operations engaged in by them as public authorities, Member States, local authorities and other bodies governed by public law are not entitled to deduction of VAT paid on the purchase of goods and services. Of course, their non-taxable status also makes them ineligible for the refund, under the procedure provided for by the eighth Directive(1), of VAT paid in a Member State other than that of establishment.

To prevent VAT considerations influencing whether public authorities carry out certain operations themselves or privatise them, several Member States, including the UK, have introduced a scheme of total or partial refund of VAT paid by public bodies on purchases of goods and services. It is important to note that this entails a purely financial operation between different public bodies and is governed by the respective national policy for the financing of public authorities.

Consequently, such a scheme does not conflict with the sixth VAT Directive(2).

(1) OJ L 331, 27.12.1979.

(2) OJ L 145, 13.6.1977.