WRITTEN QUESTION E-3729/00

by Michel Hansenne (PPE-DE) to the Commission

(30 November 2000)

Subject: VAT deductions VAT Committee guidelines

According to a notice issued by the Irish VAT authorities in August 1990, which was published in a brochure entitled VAT and Financial Services (June 1999, Appendix VIII, p. 102), at a recent meeting of the VAT Committee in Brussels, an agreement was reached to the effect that all expenditure relating to the purchase or sale of company shares concerns exempted activities and therefore does not give rise to an entitlement to deduct VAT at source.

Can the Commission, which provides the chairman and secretariat of the Advisory Committee on VAT set up under Article 29 of Directive 77/388/EEC(1), confirm that the committee adopted the above guidelines unanimously? If it can, why has it not made them public?

Why has the Commission submitted only two reports on the application of the common system of value added tax in the Member States since 1992, when, under the terms of Article 34 of Directive 77/388/EEC, it should have submitted a first report on 1 January 1982 and further reports every two years since then?

(1) OJ L 145, 13.6.1977, p. 1.

Answer given by Mr Bolkestein on behalf of the Commission

(2 February 2001)

The Commission can confirm that delegations at the July 1990 meeting of the VAT Committee were unanimous in the view that VAT on costs relating to share transactions is not deductible, such transactions being exempt under Article 13(B)(d)(5) of 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.

The VAT Committee, which was set up under Article 29 of the Directive, is an advisory committee. This means that its guidelines have no legal force and the Member States are not obliged to apply them. A Member State may therefore choose to deviate from the common interpretation, but such divergences can also result from court rulings condemning practices based on common interpretations. Since the guidelines are not legally binding, they cannot be invoked in court by parties in litigation. Nor do they figure in the accession treaties of new Member States.

Furthermore, the rules of procedure adopted by the Committee under Article 29(3) of the Sixth Directive state that Member States may publish guidelines adopted on specific questions, but that they do so on their own responsibility.

In these circumstances, the Commission does not see publishing the guidelines of the VAT Committee as part of its responsibilities.

However, the lack of transparency and the guidelines' lack of legal status did lead the Commission, in June 1997, to present a proposal for a directive changing the status of the VAT Committee(1). The proposal is intended to give legal force to Commission decisions adopted with the Committee's assent and to ensure their official publication. The Commission believes that changing the Committee's status would enable more uniform application of the common VAT system throughout the Community. The Council has yet to come to an agreement on the proposal.

The Commission's 1994 report on the functioning of the transitional arrangements(2) and its 1996 technical memorandum on the common VAT system offer a detailed description of how the VAT system works. The scant progress achieved in the Council since the 1996 report means that there has been very little material change in the working of the common

VAT system. This is why the Commission, on 7 June last year, adopted a new strategy to improve the operation of the VAT system within the context of the internal market(3). Meanwhile the Commission has preferred to concentrate on new legislative projects, including proposals for directives on e-commerce, taxable persons, the right of deduction and reduced rates on highly labour-intensive services.

(1) OJ C 278, 13.9.1997.

(2) COM(94) 515 final.

(3) COM(2000) 348 final.