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Brussels, 25 June 2009

VAT: The European Commission requests Portugal to modify its flat-rate scheme applied to farmers

The European Commission has formally requested Portugal to change its law since it is of the opinion that Portugal does not apply a flat rate scheme for farmers consistent with the objectives of the scheme which is laid down in the VAT Directive. As a result farmers opting for the flat rate scheme may face financial disadvantages. The request takes 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 legislation is not amended in order to comply with the respective reasoned opinion, the Commission may decide to refer the matter to the European Court of Justice.

Where the application to farmers of the normal VAT arrangements is likely to give rise to difficulties, Member States may apply a flat-rate scheme designed to offset the VAT charged on purchases of goods and services made by the flat-rate farmers. When a farmer opts for this flat rate scheme, he is no longer covered by the normal VAT rules: he may not deduct the VAT paid on his inputs and he is released from his obligations relating to payment of tax, invoicing, declaration and accounting. In order to compensate him for the VAT paid on inputs which he cannot deduct, a flat-rate compensation (calculated by each Member States on the basis of macro-economic statistics) will be paid to him.

Instead of introducing a flat rate scheme for farmers in line with the provisions of the VAT Directive, Portugal has introduced an optional exemption for agricultural activities, exempting VAT on supplies provided by the farmer, unless he opts to apply the normal VAT arrangements. In addition, the flat-rate compensation percentage is fixed at a zero rate: farmers are not compensated for the VAT paid on their inputs while they have to pay VAT on agricultural inputs of 5-12%. Given that too much VAT is levied from the sector, Portugal makes a substantial negative compensation in its own resources to compensate for this factor.

The Commission takes the view that the flat rate scheme applied to farmers in Portugal clearly conflicts with the purpose of the scheme and is not in line with the VAT Directive.

The zero compensation may no more be applied. It is indeed a fact that at the time of Portugal's accession to the Community, when the scheme was first adopted, many of the products used for agricultural production were subject to a rate of zero per cent, which would have accounted for the setting of a compensation percentage at 0%. However, the conditions have since changed and now it seems that a number of agricultural inputs are taxed at a rate of 5% in Portugal, while agricultural machinery and agricultural fuel are even subject to a rate of 12%.

The Commission's case reference number is 2008/2082.

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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