WRITTEN QUESTION E-0119/00

by Michl Ebner (PPE-DE) to the Commission

(27 January 2000)

Subject: Turnover tax on passenger transport EU Directive 77/388/EEC of 17 May 1977

Directive 77/388/EEC(1) of 17 May 1977 refers to turnover tax on passenger transport. At present only three of the fifteen Member States (Austria, Germany and Belgium) have transposed this directive and levy turnover tax on passenger transport through their territory. This imposes extra red tape and cost on passenger transport operators offering passenger transport through these three countries. This state of affairs is hardly compatible with the principles of freedom of movement and the promotion of cross-border activities.

- The aim of the European Community is harmonisation and the creation of equal conditions for all Member States. Is this being achieved with the transposition of Directive 77/388 of 17 May 1977?

- Is it conducive to European integration for only three of the fifteen Member States to have transposed Directive 77/388/EEC?

- Transport operators from Austria, Germany and Belgium are able to cut costs as they do not have to pay turnover tax on passenger transport through other EU countries. Does the implementation of this EU directive therefore constitute a distortion of free competition?

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

Answer given by Mr Bolkestein on behalf of the Commission

(14 March 2000)

The basic rule for the taxation of passenger transport is Article 9.2(b) of Directive 77/388/EEC(1) which states that The place where transport services are supplied shall be the place where transport takes place, having regard to the distance travelled. Under this rule Member States can apply a positive rate of VAT to domestic passenger transport and to domestic legs of intra-Community and international passenger transport.

However, there are a certain number of derogations from this basic rule, including those negotiated by Member States when joining the Community. The main causes of variation are that the Sixth Directive permits Member States to apply one or two reduced rates of VAT (of not less than 5 %) to supplies of specific goods and services (passenger transport services are included in this category Article 12, 3, (a) and Annex H, 5) and that Member States applying reduced rates lower than the minimum fixed by the Directive are permitted to continue to do so provided those rates were in force on 1 January 1991 (this enables Member States to retain zero rates or super-reduced rates for passenger transport Article 28, 2) and finally that a Member State may continue to exempt passenger transport services, under the conditions existing in that Member State (Article 28, 3, (b) and Annex F, 17).

All Member States have transposed the Sixth VAT Directive into their national legislation, but there may still be different rules of application in the Community.

Because of this disparity of treatment of passenger transport, the Commission presented a proposal for a Council directive(2) in 1992, which aimed to establish detailed rules for the common application of VAT to passenger transport services on the roads and internal waterways of the Community. The proposal was to maintain existing VAT rates and exemptions but to determine the place of taxation as the place from where the passenger transport started. Unfortunately, the proposal was not adopted by the Council, and the Commission withdrew its proposal by Decision 97/C 2/02.

In view of the difficulties encountered when trying to create a uniform taxation scheme for all kind of passenger transport, the Commission decided to launch a study to gain a better understanding of the economic data and practical consequences of taxation in the whole field of passenger transport. The study was to aid the Commission in preparing a report for Parliament and Council on the overall situation regarding VAT and passenger transport, taking into account the developments in the transport sector and having regard for the proper functioning of the single market. The report by the consultant in charge of this study was presented in 1998 and has been made public by the Commission.

In the framework of reviewing the overall VAT strategy in order to improve the functioning of the VAT system, the Commission will take this question into account when preparing this new programme and determining its future priorities in the field of VAT.

(1) The Sixth Council Directive 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) COM(92) 416 final.