WRITTEN QUESTION E-0797/99

by Gerhard Hager (NI) to the Commission

(6 April 1999)

Subject: Exemption from turnover tax

Private establishments and private individuals provide significant social welfare benefits and, by taking over these tasks help the state in the performance of its duties. These benefits, which are in some cases labour-intensive and costly, are thus no longer provided by public-law establishments at public expense. The state saves considerable sums by no longer having responsibility for these tasks. Nevertheless Community law provides for a specific exemption from turnover tax only for such public law establishments (art. 13a of Sixth Council Directive 77/388/EEC(1) of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes).

1. Is a Member State entitled to provide tax exemptions for natural persons in addition to the exemptions provided for in Community law?

2. How does the Commission justify this differing treatment in Community law between public-law establishments on the one hand and private establishments and/or persons on the other? Does the Commission feel that this distinction is still valid today?

3. Are there initiatives and efforts to extend the tax exemptions under Community law, and what form do these take?

4. If so, from whom do these initiatives come, and how far have they progressed?

Answer given by Mr Monti on behalf of the Commission

(7 May 1999)

1. The exemptions referred to in Article 13 of 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(2), are to be strictly interpreted since they constitute derogations from the general principle that tax is to be levied on all economic operations carried out for consideration by a taxable person(3). It follows that where a provision of Article 13(A)(1) refers to services provided by "bodies" it cannot be applied to services provided by natural persons.

2. The wording of Article 13 reflects the situation at the time the Sixth Directive was adopted, when the services referred to by the Honourable Member were probably provided almost exclusively by bodies recognised as charitable by the Member State concerned. Since then the situation has changed a great deal and such services are increasingly provided by private establishments and individuals, which is leading to distortions of competition and calls for reconsideration of the merits of certain exemptions under Article 13 of the Sixth VAT Directive.

However, private establishments are not excluded a priori from the scope of the exemptions referred to by the Honourable Member. They may also qualify where they are recognised by the Member State concerned as charitable and meet any additional conditions imposed by the Member State in application of Article 13(A)(2).

3. and 4. The Commission has presented a working programme(4) for the introduction by stages of a common system of VAT better adapted to the requirements of a real single market. One of the pillars of this programme is the modernisation of the present VAT system, including the revision of the exemptions provided for in Article 13(A) of the Sixth VAT Directive to avoid distortions of competition such as those referred to by the Honourable Member and achieve a more neutral VAT system.

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

(2) OJ L 145, 13.6.1977.

(3) Cf. Court of Justice judgements of 15 June 1989, Case 348/87, and 11 August 1995, Case C-453/93.

(4) COM(96) 328 final.