WRITTEN QUESTION P-3171/02

by Werner Langen (PPE-DE) to the Commission

(30 October 2002)

Subject: VAT exemption for private management companies in Germany

Private management companies have been established in the military sector in the Federal Republic of Germany to provide services for the German Army. The Army provides manpower for GEBE (Development, Procurement and Operations Company) and other companies involved in fleet management, clothing management and land valuation. The companies pay the wages of such personnel who may be employed, for example, as drivers in a fleet management company. Such private companies are exempted from VAT in respect of the wages component of the services that they provide. Without such exemption, the German Army would have to pay VAT in respect of the driving services and wages invoiced by the private companies. The Sixth VAT Directive established a uniform basis of assessment in the EU and largely harmonised the scope of VAT. Pursuant to that Directive, the Member States may not, of their own account, create new exemption categories. Since the operations of the management companies acting for the German Army do not involve the manufacture of or trade in armaments, they cannot be excluded from the scope of the EC Treaty.

Is such VAT exemption compatible with the Sixth VAT Directive?

If not, what will the Commission do to put an end to this breach of European Union law?

Answer given by Mr Bolkestein on behalf of the Commission

(4 December 2002)

According to the question, private management companies, working with manpower provided by the German Army, are not charging VAT on the labour costs component of their services to the Army. The services in question do not involve the manufacture of or trade in armaments. The Honourable Member wonders whether it contravenes the 6th VAT Directive(1) not to charge VAT on labour costs as the German Army should normally pay VAT on services and salaries for which it is invoiced by private companies.

The question would appear to relate to operations other than intra-Community imports and acquisitions on which the armed forces may claim exemption under Articles 14(1)(g) and 28c(B)(b) of the 6th VAT Directive.

Under Article 11 of the 6th VAT Directive, taxable companies are required to charge VAT on everything which constitutes the consideration which has been or is to be obtained in respect of the taxable transactions which they carry out. As labour costs are included in the price invoiced, VAT must be charged on that component too.

The Commission intends to contact the German authorities about this matter.

(1) Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turn-over taxes common system of value added tax OJ L 145, 13.6.1977.