WRITTEN QUESTION E-1261/02 by Carlos Ripoll y Martínez de Bedoya (PPE-DE) to the Commission. Tax in the Balearic Islands.
Date: 2002-05-06
Institutions: European Parliament, Provisional data
Subjects: Balearic Islands, environmental protection, hotel industry, housing, residence permit, tax on consumption, tax system, tourism

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6.2.2003

In the explanatory memorandum to that law it is stated that the tax is to be levied on stays (which are an
expression of a tax-payer’s financial means) in accommodation owned by holiday companies.

This new tax is to be imposed on the client paying for the accommodation, whilst VAT is imposed on the
businessman providing the accommodation. In both cases the businessman takes on all the obligations vis-
à-vis the tax authorities, whilst the cost is ultimately borne by the consumer.

Does the Commission not consider that this constitutes a case of double taxation levied on one and the
same taxable event, namely a stay in rented holiday accommodation?

(2003/C 28 E/100)

WRITTEN QUESTION E-1261/02

by Carlos Ripoll y Martínez de Bedoya (PPE-DE) to the Commission

Subject: Tax in the Balearic Islands

(6 May 2002)

On 23 April 2002 the Government of the Balearic Islands adopted Law 7/2001 on a tax to be levied on
stays in accommodation owned by holiday companies and to be paid into a fund which has been set up to
improve tourist facilities and to protect the environment.

In the explanatory memorandum to that law it is stated that the tax is to be levied on stays (which are an
expression of a tax-payer’s financial means) in accommodation owned by holiday companies.

Does the Commission not think that such a tax may affect freedom of establishment in the case of
companies intending to operate in the Balearic Islands?

Does the Commission not think that such a tax would have a distorting effect on a company’s decision as
to where to trade, since it would constitute a factor external to the market and would therefore tend to
undermine the foundations upon which the internal market is built?

Joint answer
to Written Questions E-1258/02, E-1259/02, E-1260/02 and E-1261/02
given by Mr Bolkestein on behalf of the Commission

(5 August 2002)

As the Honourable Member is aware, Law 7/2001 adopted on 23 April 2001 by the Autonomous
Community of the Balearic Islands introduces a levy on stays in tourist accommodation establishments.
The client pays the levy and the tourist establishment collects it. Although Law 7/2001 calls it a tax, it is
in practice more a tourism levy which is also imposed in some other EU destinations, e.g. as a ‘temporary
residence levy’.

The levy referred to by the Honourable Member has not been harmonised at Community level. The rules
governing it and the criteria for imposing it therefore fall within the tax jurisdiction of the Member States
as long as the fundamental principles of Community law are complied with.

Regarding the question of how the objective of sustainable development of territorial and environmental
resources relates to the Community’s ‘polluter pays’ principle, in its Communication of July 1997 (1) the
Commission stated that it is the characteristics and effects of a measure that determine how it will be
judged with respect to Community law and not what the Member States call it. In general terms, a levy is
considered as environmental if its taxable base has a clear negative effect on the environment. In the law in

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question the levy is determined on the basis of the number of nights spent in a tourist accommodation
establishment. It cannot therefore be considered to be based on the Community’s ‘polluter pays’ principle,
even if the revenue from the levy is destined to finance a fund to improve tourism and protect the
environment.

With regard to the aim of improving the tourist product in the Balearic Islands by means of funds
obtained from a tax levied only on the tourist accommodation sector rather than on the whole tourist
industry in the Balearics, the Commission would point out that it is up to the national tax authority to
decide on the form of the tax and whether to apply it to other tourist sector operators such as restaurants,
tourist activity centres, cinemas, etc. as well.

Nor does the Commission consider that this is a case of double taxation incompatible with the harmonised
VAT system (2). Article 33 of
‘without prejudice to other
the Sixth VAT Directive establishes that
Community provisions, this Directive shall not prevent a Member State from maintaining or introducing
taxes on insurance contracts, taxes on betting and gambling, excise duties, stamp duties and, more
generally, any taxes, duties or charges which cannot be characterized as turnover taxes.’

The Court of Justice has had to rule on numerous occasions (3) on the concept of tax ‘which cannot be
characterised as turnover tax’. In point 11 of its judgment of 31 March 1992 in Case C-200/90, the Court
pointed out that the purpose of Article 33 was to prevent the functioning of the common system of VAT
from being jeopardised by the introduction of taxes, duties or charges levied on the movement of goods
and services in a way comparable to VAT, and went on to recall the essential characteristics of VAT (4).

The levy whose legality with regard to Community law the Honourable Member questions does not have
the essential characteristics of VAT that would, according to the Court’s settled case-law, lead it to be
considered incompatible. In particular, the levy does not apply to all sectors but to a single sector, that of
hotels and other tourist accommodation; it is not proportional to the price of the services and there is no
passing on/deducting mechanism as there is in the case of VAT.

the EC Treaty), Community law precludes the application of any national

With regard to freedom of establishment (Article 43 of the EC Treaty) and the free movement of services
(Article 49 of
legislation
(including tax legislation) which without objective justification impedes, hampers or makes it less attractive
for an operator actually to exercise those freedoms and which in particular has the effect of making the
provision of services between Member States more difficult than the provision of services purely within
one Member State (5). In this instance, however, there does not seem to be tax discrimination between the
tourism accommodation establishments, all of which are in the Balearic Islands.

Moreover, while it is settled law that tourists are recipients of services and the freedom of provision of
services includes their freedom to go to another Member State to receive a service (6), the Commission does
not at
the measure in question affects tourists in a
discriminatory or disproportionate manner. The Commission is continuing to examine the matter.

this stage have information suggesting that

(1) Commission Communication ‘Environmental Taxes and Charges in the Single Market’, OJ C 224, 23.7.1997.
(2) Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States
relating to turnover taxes (cid:1) Common system of value added tax: uniform basis of assessment, OJ L 145,
13.6.1977.

(3) Most recently in its judgment of 9 March 2000 in Case Evangelischer Krankenhausverein Wien C-437/97, judgment

of 9 March 2000, ECR 2000 page I-01157.

(4) These are as follows:

(cid:1) VAT applies generally to transactions relating to goods or services;
(cid:1) it is proportional to the price of those goods or services;
(cid:1) it is charged at each stage of the production and distribution process;
(cid:1) it is imposed on the added value of goods and services, since the tax payable on a transaction is calculated after
deducting the tax paid on the previous transaction. Case Denkavit C-200/90, judgment of 31 March 1992, ECR
1992 page I-02217.

(5) Case C-381/93 Commission/France, judgment of 5 October 1994, pp. 16 and 17, ECR 1994 page I-05145; Case
C-118/96 Safir, judgment of 28 April 1998, pp. 22 and 23, ECR 1998 page I-01897; CaseC-439/99 Commission/
Italy pp. 22, judgment of 15 January 2002, not yet published.

(6) According to the Court’s case law in Case Luisi and Carbone C-286/82, judgment of 31 January 1984, p. 16, ECR
judgment of 24 November 1998, p.15, ECR 1998

1984 page 00377; and Case Bickel and Franz C-274/96,
page I-07637.