Opinion on the proposal for a Council Directive amending Directive 77/388/EEC and determining the scope of Article 14(1)(d) as regards exemption from value added tax on the final importation of certain goods () (94/C 397/18)

On 12 October 1994 the Council decided to consult the Economic and Social Committee, under the Article 99 of the Treaty establishing the European Community, on the abovementioned proposal.

The Section for Economic, Financial and Monetary Questions, which was responsible for preparing the Committee's work on the subject, adopted its Opinion on 6 December 1994. The Rapporteur was Mr Janssen.

At its 321st Plenary Session (meeting of 21 December 1994), the Committee unanimously adopted the following Opinion.

1. Content of and background to the Directive

1.1. The EC Directives (77/388 and 83/181) link exemption from VAT on final importation of goods to the rules governing exemption from customs duties. This was achieved by incorporating the customs text into the VAT Directive virtually wholesale.

The reasons for the link are as follows:

- Fiscal commitments under international treaties;

- In most Member States customs authorities are responsible for the practical application of exemption.

The opening of the internal frontiers as of 1 January 1993 makes this link more than ever appropriate. The abolition of controls and formalities at internal frontiers means that the terms import and export are now applicable only to trade between the Community and non-Community countries.

1.2. Logically this link means however that changes in the customs duty exemption Regulation should be mirrored by corresponding changes to the VAT exemption Directive.

In June of this year the Commission drew up a proposal (94/212 final) to replace the customs duty exemption Regulation. This was accompanied by a proposal to replace Directive 83/181 on VAT exemption. The Council asked the Committee to issue an Opinion on the Directive.

1.3. The reasons for the changes to the customs duty exemption Regulation were as follows:

- Codification of texts: the original Regulation has been in force since 1984 and has been amended six times in the last ten years.

- Updating of concepts: the amounts of some exemptions have been increased to more realistic levels to take account of inflation.

- Simplification: exemptions in respect of consignments between individuals and for travellers are now dealt with in a single chapter.

- Unrealistic conditions or conditions which are difficult to monitor have been reformulated.

Essentially, this proposal consolidates, updates and simplifies the old legislation, without making any radical changes to the content.

1.4. The new customs duty text is incorporated into the current proposal amending the VAT exemption Directive.

The Directive also contains the following provisions:

- The Commission has adopted a different technical approach: where previously the customs duty exemptions text was copied, now it is merely referred to.

- The Directives covering goods contained in travellers' luggage and small consignments sent by individuals becomes superfluous and is abolished. These reliefs are now incorporated into the customs duty Regulation, and also apply to the tax field by way of a reference in the Directive.

- Customs duty and VAT exemptions continue to differ in certain respects, the points of divergence being listed in an annex to the Directive:

Some goods enjoying exemption from customs duty remain subject to VAT, e.g. scientific materials and used household effects for a secondary residence.

Some goods enjoying exemption from customs duty may be made subject to VAT by individual Member States, e.g. goods of negligible value imported by way of mail order.

Some goods are exempted from VAT only subject to specific conditions, e.g. articles intended for handicapped persons are exempted on condition that the articles are imported by handicapped persons' organizations and are donated with no commercial intent on the part of the donor.

Some VAT exemptions may continue to be granted by the Member States, e.g. in connection with frontier agreements with countries outside the Community.

2. The Committee's comments

2.1. Although the Committee has not been formally consulted on the Regulation on reliefs from customs duty, the Committee, in discussing the VAT Directive, has as far as possible taken account of the link between the Directive and the Regulation. In so doing the Committee has relied on the information supplied by the Commission's departments.

2.2. The new technical approach to the rules on VAT exemption consisting of references to the customs duty Regulation, rather than the wholesale incorporation of the detailed rules, is undoubtedly a practical way of simplifying procedures, and the Committee endorses it. Any future changes to the customs duty exemption arrangements will now automatically be reflected in the VAT exemption rules.

2.3. However the Committee would point out that if customs duty exemptions are extended without bearing in mind the automatic effect of this on VAT exemptions, this might have an undesirable effect on government revenues. It is up to the Commission to ensure that the customs duty and VAT exemption rules are properly coordinated in this respect.

The Committee also draws attention to the fact that simplification does not always imply transparency or clarity. The reference approach could entail problems of interpretation for certain affected parties (citizens, consumers, SMEs).

The Committee wishes to draw the attention of the Commission and the Council to the fact that a number of rules and exceptions listed in annex K are essential for competitive conditions in the internal market. In particular a situation must not arise where the import of certain goods from outside the Community enjoys exemption, whereas a European producer of the same goods is subject to VAT. This would either affect the competitive position of European producers or lead to the possible transfer of production or a shift in trade affecting government revenues, with European producers first exporting products and then reimporting them into the Community, free of VAT.

Done at Brussels, 21 December 1994.

The President

of the Economic and Social Committee

Carlos FERRER

() OJ No C 282, 8. 10. 1994, p. 3.