WRITTEN QUESTION P-0544/01

by Mario Mantovani (PPE-DE) to the Commission

(19 February 2001)

Subject: Measures to improve taxation for the third system

On 12 February 1999 the Italian Government signed a Protocol of Understanding with the Third System Forum with a view to formally recognising the non-profit sector.

As indicated in the Protocol, the Italian Government intends to:

- consolidate a policy to promote the third system, also encompassing specific measures for southern Italy;

- launch a policy to provide the proper incentives for a commitment to the employability of disadvantaged workers;

- launch a promotion policy to capitalise on the whole fund of experience to be tapped in the different groupings into which the third system breaks down, namely collective organisations, the social cooperative movement, the voluntary sector, NGOs, mutual societies, and citizens' action groups.

Having regard to these aims, the Italian Government maintains that, in addition to the other commitments, it has taken steps, starting on the date on which the Protocol was initialled, with a view to:

- giving full and rapid effect to the provisions extending the concessions and incentives already provided for SMEs (small and medium-sized enterprises) to cover non-profit-making social enterprises, including support for the promotion and development agencies sponsored by the third system;

- assessing, also at European level, whether more favourable tax treatment might be applied as regards VAT, as and where necessary;

- setting up the supervisory body (the third system authority) within a month of the date of adoption of the relevant provision, which was linked to the 1999 Finance Act.

Can the Commission say what action has been taken by the Italian Government to fulfil the promise to promote a Europe-wide campaign in support of tax relief for those who aid non-profit-making initiatives to show social solidarity?

Would it also be possible to draw up a recommendation based on Article 128 in order to gear national laws towards better VAT relief, given that the present VAT arrangements are deterring the third system from performing its natural role of providing services to the public in place of the State?

Answer given by Mr Bolkestein on behalf of the Commission

(23 March 2001)

The Commission is not aware of any action of this nature taken by the Italian Government to implement the suggestions made in the Protocol referred to by the Honourable Member.

With regard to the second question, Value Added Tax, as set out in the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes Common system of value added tax: uniform basis of assessment(1), is a broad-based tax on the consumption of goods and services by the final consumer. Its broad coverage is to ensure a neutral impact on the various stages in the supply chain. Nevertheless, Article 13A of the Directive contains a common list of exemptions allowing the non-taxation of certain activities. These exemptions are broadly consistent across all the Community to ensure uniform application and are defined narrowly to limit any distortion to competition that they may cause. Examples include health, welfare, education and some non-profit making activities.

The Commission's current strategy with regard to the improvement of the operation of the tax is set out in its communication to the Parliament and Council(2). The principle objectives here are simplification, modernisation, a more consistent application and better administrative co-operation. Any extension to the existing arrangements with regard to exemption is unlikely to be consistent with these aims. Exemptions encourage distortions to competition, increase the compliance costs for businesses and introduce hidden tax into the supply chain, due to the non-deductibility of related tax on purchases.

However, relief in the form of reduced VAT rates is currently available for a trial three-year period in respect of certain labour intensive activities(3). Under this provision, Italy was authorised to apply a reduced VAT rate to services such as renovation and repairing of private dwellings and domestic care services. This is a very limited experimental exercise to see whether providers of these services can benefit from a reduced rate without risk to the proper operation of the internal market and tax neutrality. Nevertheless, a final decision on the VAT rate applicable to labour intensive services will not be taken before the Commission has reported fully on the impact of the exercise at the end of its trial period in December 2002.

(1) OJ L 145, 13.6.1977.

(2) COM(2000) 348 final.

(3) Council Decision 2000/185/EC, 28 February 2000 (OJ L 59, 4.3.2000).