Brussels, 17/01/2003 (Agence Europe) - On Thursday the European Commission decided to take France and Spain to the Court of Justice for applying special measures to the deduction of value added tax (VAT) in the case of subsidies and Belgium for charging VAT on resale rights. The Commission has also formally asked Spain to change its law concerning the procedure for removing goods from a tax warehouse. The Commission considers the three Member States' practices contrary to the common VAT system.
Belgium. Resale rights provide artists and, after their death their estates, with a share in any profit made when their work is resold. Since there is no legal connection between the person who purchases the art and the artist, there is no taxable transaction within the meaning of the Sixth VAT Directive. However, when works are sold at art auctions in Belgium, VAT is charged on the resale rights.
Spain (subsidies). The Sixth VAT Directive allows Member States to include subsidies in the denominator used to calculate the "deductible proportion" for taxable persons who carry out both activities on which VAT is deductible or exempt. Spain has made use of this possibility. However, it applies the proportion to taxable persons all of whose transactions are taxed, on the sole grounds that they are receiving subsidies. Moreover, Spanish law imposes a limit on the right to deduct where goods are acquired with a capital grant. The Commission believes these rules infringe a basic right under VAT law, i.e. the right to deduct enshrined in the Sixth VAT Directive.
France. The Sixth VAT Directive allows Member States to include subsidies in the denominator used to calculate the "deductible proportion" for taxable persons who carry out both activities on which VAT is deductible or exempt. After receiving a letter of formal notice, France told the Commission that it was no longer applying a proportion to taxable persons all of whose transactions are taxed, on the sole grounds that they are receiving subsidies. However, it continues to limit the right to deduct where subsidies are used to acquire capital goods. The Commission believes these rules infringe a basic right under VAT law, i.e. the right to deduct.
Spain (goods leaving a tax warehouse). The Sixth VAT Directive allows Member States to establish tax warehouses as well as customs warehouses. To control the removal of goods placed in tax warehouses, Spain has made removal subject to completion of a special form and the payment of VAT. It has thereby doubled the formalities (two forms - the VAT declaration and two successive VAT payments) in a manner prohibited by the Directive and contrary to the objective of simplifying taxable operations which is why tax warehouses were created in the first place.