WRITTEN QUESTION E-2024/96 by Francesco Baldarelli (PSE) to the Commission (19 July 1996)

Subject: VAT rate on public transport in Italy

Council Regulation (EEC) No. 1893/91 ((OJ L 169, 29.6.1991, p. 1. )) of 20 June 1991 confirms the principle of the commercial autonomy of public transport companies. It is obvious that companies which provide urban and cross-country public transport services should be able to operate according to the principles of free competition and under uniform operating conditions.

Italian companies are at a considerable disadvantage by comparison with companies in other EU Member States since, in Italy, the VAT (19%) relating to the purchase of goods and services is not recoverable and constitutes an additional burden on the cost of supplying the service. Since the revenue derived from the sale of tickets is exempt from VAT under Italian law (Articles 10 and 19(3)(c) of DPR 26-10-72 No 633), that same law prevents the input tax charged on the purchase of capital goods from being recovered. Things are better in virtually all the other EU Member States, where the VAT paid on investment items is recoverable.

Is the Commission aware of this state of affairs, which undermines the principle of competition?

In view of the liberalization of the market, does the Commission not think that it should take action to standardize the conditions in which the various public transport companies operate in the EU Member States?

Answer given by Mr Monti on behalf of the Commission (9 October 1996)

The Commission is aware that Italy exempts from value added tax without the right to deduct input tax the supply of urban public passenger transport.

The supply of public passenger transport services is an economic activity which is subject to value added tax (VAT) and Member States may apply either their standard rate or a reduced rate. Therefore, enterprises providing public transport are generally entitled to recover the value added tax they incur on their purchases. However, the sixth value added tax Directive (388/77/EEC) ((OJ L 145, 11.6.1977, as amended by Council Directive 96/42/EC of 25.6.1996, OJ L 170, 9.7.1996. )) grants the right to Member States to continue, as a temporary measure, the application of an exemption, without right of deduction, to passenger transport services. As a consequence, suppliers of such tax exempted services are not entitled to recover the value added tax paid on purchases relating to those supplies.

Currently two Member States, Ireland and Denmark, exempt all kinds of public passenger transport services whereas Italy uses the exemption selectively applying it only to urban public transport.

The Commission is aware that the application of a value added tax exemption to passenger transport creates distortion of competition between different modes of transport. It is making every effort to achieve a higher degree of harmonisation in applying value added tax to passenger transport services and, in particular, to do away with exemption. The Commission will address this issue again within the working programme leading to a new common system of VAT for the single market. In the meantime it is a matter for Italy to decide whether or not to continue with the exemption of urban public transport services.