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Document 62010CN0524

Case C-524/10: Action brought on 11 November 2010 — European Commission v Portuguese Republic

OJ C 30, 29.1.2011, p. 20–20 (BG, ES, CS, DA, DE, ET, EL, EN, FR, IT, LV, LT, HU, MT, NL, PL, PT, RO, SK, SL, FI, SV)



Official Journal of the European Union

C 30/20

Action brought on 11 November 2010 — European Commission v Portuguese Republic

(Case C-524/10)


2011/C 30/33

Language of the case: Portuguese


Applicant: European Commission (represented by: M. Afonso, Agent)

Defendant: Portugal

Form of order sought

The Commission claims that the Court should:

Declare that, in applying a special scheme to farmers which does not comply with the scheme established by the VAT Directive (1) because it exempts them from the payment of VAT, and in applying a zero rate flat-rate compensation whilst at the same time making a substantial negative compensation in its own resources to offset the levying of VAT, the Portuguese Republic has failed to comply with the provisions of Articles 296 to 298 of the VAT Directive.

Order the Portuguese Republic to pay the costs.

Pleas in law and main arguments

The Portuguese legislation does not provide for the flat-rate compensation of farmers in respect of input VAT. Following an audit of own resources for the years 2004 and 2005, carried out in Portugal on 13 and 14 November 2007, the Portuguese authorities reported that input VAT not deducted by farmers subject to the special scheme had increased to approximately 5.3% and 7.9% of their sales in 2004 and 2005 respectively. Since they took the view that the VAT levied in the farming sector was therefore excessive, the Portuguese authorities made a negative compensation of approximately EUR 70 million in 2004 in its calculations of the basis of assessment of own resources. After examining in detail whether the special scheme applied to farmers in Portugal is compatible with the VAT Directive, the Commission concludes that the Portuguese Republic does not comply with the obligations laid down by Articles 296 to 298 of the VAT Directive. The common flat-rate scheme laid down by the VAT Directive requires an appropriate compensation percentage to be set whenever the relevant macro-economic statistics show that the input VAT levied on farmers subject to that special scheme was not zero or close to zero.

While it is true that Member States are not allowed to set flat-rate compensation percentages which exceed the input VAT levied, since such excessive compensation would constitute State aid to the sectors concerned, it cannot be inferred from this that the Portuguese legislation, which does not provide for any compensation for farmers subject to the special scheme, is compatible with the VAT Directive. Member States may not freely disregard the macro-economic statistics and decide simply that no compensation will be paid in respect of the input VAT levied. If that were the case, the Member State would be applying to its farmers a special scheme substantially different, in its design and objectives, from the common flat-rate scheme for farmers as laid down and regulated in Chapter 2 of Title XII of the VAT Directive.

The Commission is of the view that the special scheme established by the Portuguese legislation for the transactions carried out by farmers is not a correct and consistent application of that common scheme. In fact, the legislation in question simply exempts from tax, and therefore excludes completely from the VAT system, all farmers who do not opt for the normal taxation arrangements. Bearing in mind that the farmers covered by the scheme still represent a significant proportion of the Portuguese farming sector, that option introduced by the national legislature is a serious breach of the principle that tax should be of general application, which states that VAT must be levied as generally as possible and apply to all the stages of the production and distribution of goods and to the provision of services. In addition, the establishment of an exemption applicable to the transactions carried out by farmers is not laid down in any of the provisions of the VAT Directive and directly contradicts the terms of Article 296(1) thereof, which allows Member States only to choose between three well-defined systems for the taxation of farmers: the application of the normal arrangements, the application of the simplified scheme provided for in Chapter 1 of Title XII or the application of the common flat-rate scheme provided for in Chapter 2 of that title.

(1)  Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1).