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Brussels, 3 July 2007

VAT – Commission launches infringement proceedings against the United Kingdom and France.

The European Commission has formally requested the United Kingdom to amend its legislation concerning the refund of VAT borne by taxable persons not established in the EU. It has also requested France to modify its legislation concerning the VAT rates applied to transactions performed by undertakers. The requests take the form of a reasoned opinion (second step of the infringement procedure provided for in Article 226 of the EC Treaty). If the relevant national legislations are not amended within two months in order to comply with the respective reasoned opinions, the Commission may decide to refer these matters to the European Court of Justice.

United Kingdom: recovery of VAT borne by taxable persons not established in the EU.

In December 2004 the United Kingdom amended its domestic VAT legislation transposing the 13th VAT Directive. That Directive lays down the arrangements for the refund of VAT to taxable persons not established in the territory of the Community.

As a result of the amendment, a taxable person established outside the Community is denied the right to recover VAT paid or due in the UK on goods or services in so far as they are used for the purpose of insurance or financial transactions supplied to customers established outside the EU. By contrast, a taxable person established in the Community (in the UK or otherwise) is entitled, under UK domestic legislation, to recover VAT in such cases.

The Commission has taken the view that the 13th VAT Directive, interpreted in connection with the relevant Community legislation, must be understood as allowing taxable persons established outside the Community to recover VAT in the aforementioned cases.

France: VAT rates applied to transactions carried out by undertakers.

Transactions carried out by undertakers in France are not subject to a single tax rate. Transportation of a body in a vehicle is subject to a reduced tax rate, whereas normal tax rates apply to the transportation of a body by a bearer and, in general, all other operations carried out by the company.

The Commission believes that France is making an artificial distinction between these operations, which is not in accordance with Community case law relating to the notion of single composite service. In fact, under this case law, the services provided by undertakers and the delivery of goods related to them constitute one and the same service.

The Commission believes that these operations, as a single composite service, should be subject to a single VAT rate, whether this be a normal or reduced rate. France has the option, if it wishes to do so, of applying the reduced rate in accordance with section 16 of Annex II of the VAT Directive, but this should apply to the whole service.

The Commission's reference numbers are 2005/4756 (UK) and 2005/5051 (France).

For the press releases issued on infringement procedures in the taxation or customs area see:

For the latest general information on infringement measures against Member States see:

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