EN Official Journal of the European Union CE 88/285

(2004/C 88 E/0292)

WRITTEN QUESTION P-1199/04

by Helmuth Markov (GUE/NGL) to the Commission

(14 April 2004)

Subject: VAT levy on EU aid

Recipients of aid from the ESF have asked me to inform the Commission that, under the split taxation assessment procedure, recipients in the Federal Republic of Germany are required to pay VAT and, in addition, must provisionally provide finance for projects as the EU does not make funding available concurrently.

The Commission:

1. Does it share the view that the allocation of aid in general and, in the case of the ESF in particular, should not be organised under Member States' rules in such a way that the recipients are required to pay VAT, thereby making European funding subject to taxation in the Member State?

2. What steps does it intend to take to put an end to such a procedure?

3. On what legal basis can the recipients concerned lodge a complaint or initiate proceedings in response to such a procedure?

4. What action will it take so that, in future, the eventual recipients of EU aid do not have to provide provisional funding themselves over a period of months?

Answer given by Mr Bolkestein on behalf of the Commission

(30 April 2004)

According to the Honourable Member, the recipients of aid from the European Social Fund have complained that in Germany they are required to pay VAT under the split taxation assessment procedure (gesplittete Zuwendungsbescheide). He asks whether the Commission shares the view that the allocation of aid, especially in the case of the European Social Fund, may be organised in such a way that the recipients are required to pay VAT, thereby making European funding subject to taxation in the Member State concerned.

It is not clear from the question exactly what cases are concerned and without more detailed information the Commission is unable to provide specific answers to the questions put. Note, however, that under Article 11, A, (1)(a) of the Sixth VAT Directive (amended) (1), within the territory of the country, the taxable amount in respect of supplies of goods and services is everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser, the customer or a third party for such supplies, including subsidies directly linked to the price of such supplies. The taxation of aid, including Community aid, is therefore not in principle excluded, but it can be, if the funding does not constitute the consideration for the supplies of goods or services – for example if there is no consumption (2). Hence each individual case must be examined in detail to decide whether or not it comes under the scope of VAT and therefore whether or not VAT is due on that transaction. Checking the correct application of Community law by a Member State is the primary responsibility of the national courts, which can examine the specific aspects of a case on a more direct and personal level and can, if they see fit, put preliminary questions to the Court of Justice. European citizens can also lodge a complaint with the Secretariat-General of the Commission. There is a form on the Commission's web site designed to help complainants draft their complaints. (http://europa.eu.int/comm/sg/lexcomm).

The eligibility of VAT in the context of operations cofinanced by the Structural Fund is governed by Commission Regulation (EC) No 1685/2000 (3) laying down detailed rules for the implementation of Council Regulation (EC) No 1260/1999 as regards eligibility of expenditure of operations cofinanced by the Structural Funds

Rule No 7 of the Annex to that Regulation provides that VAT does not constitute eligible expenditure except where it is genuinely and definitively borne by the final beneficiary, or individual recipient, following national rules that must comply with the Sixth Council Directive 77/388/EEC on VAT. In this case, VAT taxation constitutes eligible expenditure and can be included as a cost inherent in the project. VAT is not eligible and is therefore borne by the final beneficiary when it is recoverable by the latter.

In no case may Community cofinancing exceed total eligible expenditure excluding VAT.

According to Article 32(2) of Council Regulation (EC) 1260/1999: ‘when the first commitment is made, the Commission shall make a payment on account to the paying authority. This payment on account shall be 7 % of the contribution from the Funds to the assistance in question. (…) Throughout the lifetime of assistance, the paying authority shall use the payment on account to pay the Community contribution to expenditure relating to this assistance.’

This initial payment on account of 7 % of the amount granted for the period 2000/2006, represents about half the sum for a yearly period.

It is the sole responsibility of the Member States, in accordance with their national rules on financial management, if they decide to use this payment on account or any other source of national financing to pre-finance individual projects.

(1) Council Directive 77/388/EEC of 17 May 1977 on the harmonization 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.

(2) Judgments of the Court of Justice of 29 February 1996 in Case C-215/94, Mohr, ECR 1996 Page I-00959, of 18 December 1997 in Case C-384/95, Landboden-Agrardienste, ECR 1997, p. I-7387, of 22 November 2001 in Case C-184/00, Office des produits wallons, ECR 2001, p. I-9115, and of 13 June 2002 in Case C-353/00, Keeping Newcastle Warm, ECR. 2002, p. I-5419.

(3) As last amended by Commission Regulation (EC) No 448/2004 of 10 March 2004, OJ L 72, 11.3.2004.