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Brussels, 28 January 2010

VAT – Commission pursues infringement proceedings against Denmark regarding VAT exemptions

The European Commission has formally requested Denmark to change its law regarding the application of certain exemptions under the VAT Directive. Under Danish law, an exemption from VAT is given to charitable and non-profit making associations' supplies, as well as to goods supplied by second-hand shops. The Commission considers such exemptions to go beyond what is allowed under the VAT Directive. The request takes the form of a reasoned opinion (second step of the infringement procedure provided for in article 258 of the Treaty on the Functioning of the EU). If the relevant national legislation is not amended in order to comply with the reasoned opinion within two month, the Commission may decide to refer the matter to the European Court of Justice.

The VAT Directive establishes a common system of VAT which is based, inter alia, on a uniform definition of taxable transactions. The Directive also provides for VAT exemptions for certain types of transactions. From the settled case-law of the Court of Justice, it has been clearly established that all exemptions have to be strictly interpreted, given that they are exceptions to the general rules on the taxation of supplies of goods and services. Therefore, any exemption which is not provided for under the VAT Directive, nor granted by Council as a derogation, it amounts to an infringement of EC law. Such illicit exemptions could lead to distortions of competition and would make it impossible to ensure that Member States contribute on an equal basis to the Community's own resources. That is why the Commission has to ensure that the exemptions are applied correctly in the Member States (cf. IP/08/1032).

Under Article 132 of the VAT Directive, certain activities which are in the public interest are VAT exempt. That provision does not, however, provide a VAT exemption for every activity performed in the public interest, but only for those which are listed and described therein.

Denmark exempts all supplies carried out by charitable or other non-profit making associations in connection with their running businesses. The Commission considers that such a general exemption goes beyond what is allowed under Article 132 of the VAT Directive, which contains a detailed restrictive description of the activities that can be exempted, as well as certain conditions related to the exemption.

Denmark also applies a general exemption for goods supplied by second-hand shops, if the profits are used entirely for charitable or public-interest purposes, and provided that the shop only sells second-hand goods which it has received for free and only employs voluntary unpaid staff. None of the exemptions in Article 132 cover such supplies.

The Commission's case reference number is 2007/2312.

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


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