WRITTEN QUESTION E-1260/02

by Carlos Ripoll y Martínez de Bedoya (PPE-DE) to the Commission

(6 May 2002)

Subject: Tax in the Balearic Islands

On 23 April 2002 the Government of the Balearic Islands adopted Law 7/2001 on a tax to be levied on stays in accommodation owned by holiday companies and to be paid into a fund which has been set up to improve tourist facilities and to protect the environment.

In the explanatory memorandum to that law it is stated that the tax is to be levied on stays (which are an expression of a tax-payer's financial means) in accommodation owned by holiday companies.

This new tax is to be imposed on the client paying for the accommodation, whilst VAT is imposed on the businessman providing the accommodation. In both cases the businessman takes on all the obligations vis-à-vis the tax authorities, whilst the cost is ultimately borne by the consumer.

Does the Commission not consider that this constitutes a case of double taxation levied on one and the same taxable event, namely a stay in rented holiday accommodation?

Joint answerto Written Questions E-1258/02, E-1259/02, E-1260/02 and E-1261/02given by Mr Bolkestein on behalf of the Commission

(5 August 2002)

As the Honourable Member is aware, Law 7/2001 adopted on 23 April 2001 by the Autonomous Community of the Balearic Islands introduces a levy on stays in tourist accommodation establishments. The client pays the levy and the tourist establishment collects it. Although Law 7/2001 calls it a tax, it is in practice more a tourism levy which is also imposed in some other EU destinations, e.g. as a temporary residence levy.

The levy referred to by the Honourable Member has not been harmonised at Community level. The rules governing it and the criteria for imposing it therefore fall within the tax jurisdiction of the Member States as long as the fundamental principles of Community law are complied with.

Regarding the question of how the objective of sustainable development of territorial and environmental resources relates to the Community's polluter pays principle, in its Communication of July 1997(1) the Commission stated that it is the characteristics and effects of a measure that determine how it will be judged with respect to Community law and not what the Member States call it. In general terms, a levy is considered as environmental if its taxable base

has a clear negative effect on the environment. In the law in question the levy is determined on the basis of the number of nights spent in a tourist accommodation establishment. It cannot therefore be considered to be based on the Community's polluter pays principle, even if the revenue from the levy is destined to finance a fund to improve tourism and protect the environment.

With regard to the aim of improving the tourist product in the Balearic Islands by means of funds obtained from a tax levied only on the tourist accommodation sector rather than on the whole tourist industry in the Balearics, the Commission would point out that it is up to the national tax authority to decide on the form of the tax and whether to apply it to other tourist sector operators such as restaurants, tourist activity centres, cinemas, etc. as well.

Nor does the Commission consider that this is a case of double taxation incompatible with the harmonised VAT system(2). Article 33 of the Sixth VAT Directive establishes that without prejudice to other Community provisions, this Directive shall not prevent a Member State from maintaining or introducing taxes on insurance contracts, taxes on betting and gambling, excise duties, stamp duties and, more generally, any taxes, duties or charges which cannot be characterized as turnover taxes.

The Court of Justice has had to rule on numerous occasions(3) on the concept of tax which cannot be characterised as turnover tax. In point 11 of its judgment of 31 March 1992 in Case C-200/90, the Court pointed out that the purpose of Article 33 was to prevent the functioning of the common system of VAT from being jeopardised by the introduction of taxes, duties or charges levied on the movement of goods and services in a way comparable to VAT, and went on to recall the essential characteristics of VAT(4).

The levy whose legality with regard to Community law the Honourable Member questions does not have the essential characteristics of VAT that would, according to the Court's settled case-law, lead it to be considered incompatible. In particular, the levy does not apply to all sectors but to a single sector, that of hotels and other tourist accommodation; it is not proportional to the price of the services and there is no passing on/deducting mechanism as there is in the case of VAT.

With regard to freedom of establishment (Article 43 of the EC Treaty) and the free movement of services (Article 49 of the EC Treaty), Community law precludes the application of any national legislation (including tax legislation) which without objective justification impedes, hampers or makes it less attractive for an operator actually to exercise those freedoms and which in particular has the effect of making the provision of services between Member States more difficult than the provision of services purely within one Member State(5). In this instance, however, there does not seem to be tax discrimination between the tourism accommodation establishments, all of which are in the Balearic Islands.

Moreover, while it is settled law that tourists are recipients of services and the freedom of provision of services includes their freedom to go to another Member State to receive a service(6), the Commission does not at this stage have information suggesting that the measure in question affects tourists in a discriminatory or disproportionate manner. The Commission is continuing to examine the matter.

(1) Commission Communication Environmental Taxes and Charges in the Single Market, OJ C 224, 23.7.1997.

(2) 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, OJ L 145, 13.6.1977.

(3) Most recently in its judgment of 9 March 2000 in Case Evangelischer Krankenhausverein Wien C-437/97, judgment of 9 March 2000, ECR 2000 page I-01157.

(4) These are as follows: VAT applies generally to transactions relating to goods or services; it is proportional to the price of those goods or services; it is charged at each stage of the production and distribution process; it is imposed on the added value of goods and services, since the tax payable on a transaction is calculated after deducting the tax paid on the previous transaction. Case Denkavit C-200/90, judgment of 31 March 1992, ECR 1992 page I-02217.

(5) Case C-381/93 Commission/France, judgment of 5 October 1994, pp. 16 and 17, ECR 1994 page I-05145; Case C-118/96 Safir, judgment of 28 April 1998, pp. 22 and 23, ECR 1998 page I-01897; CaseC-439/99 Commission/Italy pp. 22, judgment of 15 January 2002, not yet published.

(6) According to the Court's case law in Case Luisi and Carbone C-286/82, judgment of 31 January 1984, p. 16, ECR 1984 page 00377; and Case Bickel and Franz C-274/96, judgment of 24 November 1998, p.15, ECR 1998 page I-07637.