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Brussels, 21 December 2006

VAT - Infringement proceedings against Austria, France and Italy

The European Commission has issued a number of reasoned opinions addressed to Austria (over its application of the reduced rate to supplies of goods in connection with the treatment of waste water and refuse and over its levying of VAT on cars leased in other Member States), France (over the application of a reduced rate to certain services supplied by lawyers) and Italy (over the extension of the fiscal amnesty, the "condono fiscale", to VAT debts incurred in 2002). These reasoned opinions are the second stage of the infringement procedure under Article 226 of the EC Treaty. Unless the Member States concerned bring their legislation in compliance within two months of receipt of these opinions, the Commission may decide to refer these cases to the Court of Justice of the European Communities.

Austria: Supplies of goods connected with the disposal of waste water and refuse

The Austrian VAT provisions provide for the application of the reduced VAT rate to all transactions concerning the disposal of waste water and refuse. By applying this reduced rate of VAT, the Austrian VAT law breaches EU law because those transactions are not covered by the provisions of the Sixth VAT Directive relating to the application of reduced VAT rates.

Article 12 (3) (a) of the Sixth VAT Directive presupposes that the same rate of VAT, the standard rate applies to all transactions. Only by way of exception may Member States apply a reduced rate. The transactions to which Member States may apply a reduced rate of VAT are listed in Annex H to the Directive.

According to Category 17 of this Annex, Member States may subject to reduced rates of VAT only services, not goods, supplied in connection with street cleaning, refuse collection and waste treatment, other than the supply of such services by bodies referred to in Article 4 (5) of the Directive.

In accordance with the Case-Law of the Court of Justice -which states that Annex H is subject to strict interpretation-, Austria cannot apply a reduced rate of VAT to supplies of goods connected with the treatment of waste water and refuse. The Commission has therefore decided to issue a reasoned opinion addressed to Austria.

Austria: Cars leased in other Member States.

Austria levies VAT on car related expenditure incurred outside the country. The tax is levied in particular on taxable persons leasing cars in other Member States.

In accordance with article 17.2 of the Sixth VAT Directive (Directive 77/388/EEC), taxable persons are entitled to deduct the VAT paid or due in respect of goods and services acquired for the purpose of their taxable transactions. Austria applies exceptional provisions barring most taxable persons from deducting VAT on car related expenditure.

Since 1995, in order to discourage Austrian taxable persons from leasing cars in other Member States -where a refund of VAT is available in accordance with the 8th VAT Directive (Directive 79/1072/EEC)-, Austria levies non-deductible Austrian VAT on taxable persons leasing cars abroad.

In 2003, the European Court of Justice, in response to a question referred by an Austrian court, (article 234 EC Treaty), (see Case C-155/01 Cookies World Vertriebsgesellschaft GmbH v Finanzlandesdirektion für Tirol), interpreted the relevant Community provisions as precluding this national practice. Austria pre-empted the Court's judgement by consulting the VAT Committee on the basis of article 17.7 of the Sixth VAT Directive and amending its legislation so as to restrict its application to expenditure incurred before January 1st 2006. Subsequently Austria again consulted the VAT Committee and amended its legislation so as to extend its application to expenditure incurred before January 1st 2008.

The Commission is of the opinion that these steps do not render this long-existing national measure compatible with Community legislation and has therefore issued a Reasoned Opinion addressed to Austria.

France: Services supplied by lawyers within the framework of legal aid ("aide juridictionnelle")

France applies a reduced VAT rate (5,5%) to services provided by lawyers within the framework of legal aid ("aide juridictionnelle"). Under this framework, the services provided are totally or partially paid by the State.

Article 12.3 of the Sixth VAT Directive (Directive 77/388/EEC) provides that the supplies of goods and services subject to VAT are normally subject to a standard rate of at least 15%, but the Member States may opt to apply one or two reduced rates of no less than 5% to goods and services listed in Annex H (restricted list of goods and services eligible for a reduced rate in the Member States).

However, this list does not include services provided by lawyers. Accordingly, the Commission has decided to issue a Reasoned Opinion on this subject addressed to France.

The Commission notes that the application of the normal VAT rate would have no impact on the financial situation of the beneficiaries of legal aid in those cases where the services are totally paid for by the State. In case of partial payment by the State, the Commission notes that France may choose to use the additional income linked to the application of the normal VAT rate to these services in order to increase the amount of legal aid and thereby offset any increase in costs. Therefore, the application of VAT principles by France, which implies that the standard rate of VAT be applied to these services, is perfectly compatible with the decision taken to grant legal aid and facilitate the access to legal advice for more modest persons.

Italy: Extension of the VAT tax amnesty "condono" to the year 2002.

By Finance Act 2004 the Italian Government extended to year 2002 the tax amnesty (the “condono”) adopted under Finance Act 2003. The Finance Act 2003 allows taxpayers to regularise different unpaid taxes, including VAT. According to these fiscal arrangements if a taxable person makes use of the amnesty for a certain taxable year the Italian administration waives its right to control in the future VAT which was not paid for that period. The taxpayers may “wipe the slate clean” by simply paying to the State a fixed sum, if no return was filed, or a percentage (2%) of the VAT that would have been payable in respect of the goods and services supplied in each taxable year. The waiver of further controls on unpaid VAT applies even if it is proven that irregularities were committed.

The Commission considers that this scheme is in breach of the 6th VAT Directive (see IP/04/1243) and has brought an action against the Republic of Italy before the European Court of Justice (see Case C-132/06[1]). The Commission claims that the Directive requires taxing all goods and services supplied within the country and it obliges Member States to ensure that taxable persons fulfil their obligation to declare and pay VAT.

In the Commission’s view, the measures adopted by Italy go beyond the margin of discretion that Member States enjoy for adjusting their controls on the basis of human and technical resources available to them. Italy’s action appears to be an overt renunciation of controls for the collection of VAT thus being in breach of the obligations it has assumed with regard to the application of Community law.

Consequently, it is only natural that the Commission equally opposes Italy's decision to extend the application of the above-mentioned fiscal arrangements to the year 2002 and thus, after having given the Italian authorities the opportunity to submit their observations with a letter of formal notice it has now addressed to them a reasoned opinion.

Commission cases' reference numbers are 2005/2247 and 2005/2366 (Austria), 2005/2277 (France), and 2006/2227 (Italy).
New: For the press releases issued on infringement procedures in the taxation or customs area see: the latest general information on infringement measures against Member States see:

[1] Action brought on 7 March 2006, Commission of the European Communities v Italian Republic published in the OJ C 118, 6/5/2006, page 11.

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