VAT – refund of VAT to taxable persons not established in the country of refund – the European Commission has decided to bring an action against Luxembourg before the Court of Justice - Main contents

The European Commission has decided to take the Grand Duchy of Luxembourg to the Court of Justice for its lengthy delays in refunding VAT to taxable persons not established in its territory. Refunds are currently paid with considerable delays, some date back to 2000 and are still outstanding. This is a breach of the six-month deadline laid down in the Eighth Directive on the common VAT system (79/1072/EEC) and it causes major cash-flow difficulties for traders.

According to Mr Lászlo Kovács, Member of the Commission with special responsibility for taxation and customs, the Lisbon objective implies, among other actions, facilitating intra-Community trade for operators. He went on to say that compliance by the Member States with the rules that allow a normal application of the VAT system, and particularly tax relief by means of the deduction system for taxable persons, must be very carefully monitored.

Member States are required to refund VAT to taxable persons not established in the country within six months of the date on which the application for refunding was submitted, in accordance with Article 7(4) of the Eighth VAT Directive (79/1072/EEC).

Although this provision has been correctly incorporated into Luxembourg's legislation, a large number of complaints have been referred to the Commission Furthermore, in its reaction to the reasoned opinion that had been issued against it, the Grand Duchy of Luxembourg acknowledged the situation. The Commission, which has already decided to bring an action against Italy before the Court of Justice for a similar situation (see IP/02/1601), intends to enforce the current rules strictly.

Background information

Under the Sixth VAT Directive, taxable persons are entitled to the deduction or refunding of VAT on the expenditure incurred for the purposes of their taxable operations, regardless of the Member State, in which the expenditure subject to VAT is made. In this way neutrality is achieved: comparable goods and services bear the same tax burden, whatever the length of the production and distribution chain. The Eighth VAT Directive harmonised at Community level procedures for refunding VAT to taxable persons established in a Member State other than the State of refund. In 1998 (see IP/98/560) the Commission submitted a proposal for a Directive aimed at improving the situation by authorising taxable persons to deduct in their country of residence any VAT they have paid in the other Member States.

The latest information on infringements proceedings against the Member States can be found on the following site:

http://europa.eu.int/comm/secretariat_general/sgb/droit_com/index_en.htm