Case C-524/10

European Commission

v

Portuguese Republic

‛Failure of a Member State to fulfil obligations — Common system of value added tax — Directive 2006/112/EC — Articles 296 to 298 — Common flat-rate scheme for farmers — Flat-rate compensation percentage set at nil rate’

Summary of the Judgment

Tax provisions — Harmonisation of laws — Turnover taxes — Common system of value added tax — Flat-rate scheme for farmers

(Council Directive 2006/112, Arts 296 to 298)

A Member State which exempts farmers from payment of VAT and applies a flat-rate compensation percentage at a nil rate fails to fulfil its obligations under Articles 296 to 298 of Directive 2006/12 on the common system of value added tax.

It cannot be accepted that a mere exemption of agricultural activities, because it would, from an operational viewpoint, be equivalent to the application of a flat-rate compensation percentage at a nil rate, might be regarded as a correct transposition of the rules of that directive relating to the flat-rate scheme for farmers and, in particular, of Articles 296 to 298 of that directive.

The option of reducing flat-rate compensation percentages to a nil rate constitutes an option which is in addition to the option, provided for in the first sentence of the second subparagraph of Article 298 of Directive 2006/12, of rounding those percentages up or down to the nearest half-point. However, that option of reduction to a nil rate is made available to Member States only where the percentages resulting from the calculations made in accordance with the first subparagraph of Article 298, even when they are greater than 0.5%, are not less insignificant than that figure and, consequently, where the overall burden of input VAT borne by flat-rate farmers can itself be regarded as insignificant.

Further, while the macro-economic data relating to flat-rate farmers alone, to which Article 298 of Directive 2006/12 refers, do comprise inputs (intermediate consumption and gross fixed-asset formation) and outputs (final production, including own consumption), together with the total amount of taxes relating to inputs, the flat-rate compensation percentages are obtained by dividing the total amount of taxes relating to inputs by the outputs. The VAT which may be payable on output transactions and, consequently, the possibility of the farmers, in particular those covered by the flat-rate scheme, being in tax credit, is therefore not taken into account in determining the applicable flat-rate compensation percentage.

(see paras 54, 55, 59, 68)

Case C-524/10

European Commission

v

Portuguese Republic

‛Failure of a Member State to fulfil obligations — Common system of value added tax — Directive 2006/112/EC — Articles 296 to 298 — Common flat-rate scheme for farmers — Flat-rate compensation percentage set at nil rate’

Summary of the Judgment

Tax provisions — Harmonisation of laws — Turnover taxes — Common system of value added tax — Flat-rate scheme for farmers

(Council Directive 2006/112, Arts 296 to 298)

A Member State which exempts farmers from payment of VAT and applies a flat-rate compensation percentage at a nil rate fails to fulfil its obligations under Articles 296 to 298 of Directive 2006/12 on the common system of value added tax.

It cannot be accepted that a mere exemption of agricultural activities, because it would, from an operational viewpoint, be equivalent to the application of a flat-rate compensation percentage at a nil rate, might be regarded as a correct transposition of the rules of that directive relating to the flat-rate scheme for farmers and, in particular, of Articles 296 to 298 of that directive.

The option of reducing flat-rate compensation percentages to a nil rate constitutes an option which is in addition to the option, provided for in the first sentence of the second subparagraph of Article 298 of Directive 2006/12, of rounding those percentages up or down to the nearest half-point. However, that option of reduction to a nil rate is made available to Member States only where the percentages resulting from the calculations made in accordance with the first subparagraph of Article 298, even when they are greater than 0.5%, are not less insignificant than that figure and, consequently, where the overall burden of input VAT borne by flat-rate farmers can itself be regarded as insignificant.

Further, while the macro-economic data relating to flat-rate farmers alone, to which Article 298 of Directive 2006/12 refers, do comprise inputs (intermediate consumption and gross fixed-asset formation) and outputs (final production, including own consumption), together with the total amount of taxes relating to inputs, the flat-rate compensation percentages are obtained by dividing the total amount of taxes relating to inputs by the outputs. The VAT which may be payable on output transactions and, consequently, the possibility of the farmers, in particular those covered by the flat-rate scheme, being in tax credit, is therefore not taken into account in determining the applicable flat-rate compensation percentage.

(see paras 54, 55, 59, 68)