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Brussels, 18 March 2010

VAT – Commission takes Portugal and Hungary to Court and asks France to modify its VAT legislation

The European Commission has decided to refer a case concerning the VAT flat rate scheme for farmers in Portugal, and another case regarding the refund of VAT credits in Hungary, to the Court of Justice. At the same time, the Commission has formally requested that France modify its legislation regarding the exemption of certain boat-related supplies.

Portugal flat rate scheme for farmers

Under the VAT Directive, where the application of the normal VAT arrangements to farmers 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 by the farmers.

Instead of introducing such a flat rate scheme for farmers, 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, farmers are not compensated for the VAT paid on their inputs, for which they have to pay 5-12% VAT on agricultural inputs. 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 Commission sent a reasoned opinion to Portugal in June 2009 (IP/09/1015), but since the reply received in September 2009 was not satisfactory, the Commission decided to refer the case to the Court of Justice.

Hungarian VAT credit reimbursement rules

The Hungarian VAT legislation grants taxable persons the option to choose between carrying forward their excess VAT (which results from deductible VAT exceeding payable VAT in a tax period) to the next tax period, or immediately claiming a refund for it. However, the reimbursement of excess VAT cannot be claimed on the basis of input VAT charged on a purchase that has not yet been paid for by the taxable person. As a result, taxable persons whose tax returns consistently show “excesses”, are de facto obliged to carry forward the excess input VAT into the following tax period.

The Commission considers that this regime infringes Article 183 of the VAT Directive which states that where for a given tax period, the amount of deductions exceeds the amount of VAT due, Member States may either make a refund or allow the carry over of the excess VAT forward to the following period, under the conditions which they shall determine.

Despite the Commission’s request (IP/09/1463) to respect the principle of fiscal neutrality in VAT refunds, Hungary has not taken timely action to change its legislation. The Commission has therefore decided to refer the case to the Court of Justice.

French exemption of supplies related to ships

The scope of France's VAT exemption for supplies related to ships goes beyond what is permitted by the VAT Directive. In particular, the French exemption applies to all ships used for the transport of passengers and commercial activities, while it should be limited to vessels used for navigation on the high seas. The Commission has therefore formally requested that France amend its legislation within 2 months. This request was sent in the form of a reasoned opinion, second step of the infringement procedure article 258 TFEU.

The Commission's case reference number are respectively 2008/2082, 2005/4808 and 2008/2287.

New: For detailed information on these cases please see:

For the latest general information on infringement measures against Member States


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