Brussels briefing — June 2009 

Ecofin: proposal to amend various parts of the VAT Directive

During the ECOFIN (PDF 135 KB) meeting of 9 June 2009, the Council agreed on a general approach to incorporate technical amendments into the VAT Directive, whereas it was rather expected that these amendments would be adopted.

The Commission was indeed of the opinion that the European Parliament, which has already given its opinion on the proposed changes, had to be re-consulted because of the significant amendments made by to Council to its original proposal. This concerns notably the introduction of more far-reaching rules concerning the right of deduction with respect of immovable property and related expenditures. The proposed amendments will repair the consequences of the so-called “Lennartz” principle (ECJ case C-97/90, Lennartz V Finanzamt Munchen III ). This principle has allowed taxable persons choosing to include immovable property used simultaneously for business and non-business purposes in their economic activities to fully recover input VAT incurred on their purchase immediately. Although the non-business use of these goods was subsequently subject to VAT (on the amount of expenditure incurred) spread over the economic lifetime of the property, this has offered significant cash-flows benefits to taxpayers.

The amendments to the VAT Directive should ensure that the initial right of deduction of such goods closely reflects the business use of the property: it will therefore no longer be possible to deduct all input VAT upfront in cases of mixed use.

The document issued by the Council seems to indicate that the amendments should be adopted rapidly (after re-consultation of the European Parliament) and come into effect from 1 January 2011. The potential impacts on VAT planning projects for the real estate sector should be taken into consideration.

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Reference for preliminary ruling C-97/09 (Ingrid Schmelz, discrimination based on residence)

 

The Austrian Unabhängige Finanzsenat referred a number of questions to the ECJ about the exclusion of foreign VAT entrepreneurs of the special scheme for small enterprises. This exclusion follows from article 24(3) of the Sixth Directive, currently article 283(1)(c) of the VAT Directive ("the exclusion articles"). Although the Finanzsenat asked the ECJ for a preliminary ruling, the questions were almost rhetorical as a result of the extensive reasoning of the Austrian court.

 

In this case, Ingrid Schmelz, a resident of Germany, has a house which she rents out in Austria. She wants to apply the special scheme for small entrepreneurs in Austria; this scheme would fully exempt her small turnover in Austria. However, according to the exclusion articles, she cannot apply the scheme because she is not an Austrian resident.

 

First, the Finanzsenat wants to know whether this exclusion of foreign VAT entrepreneurs is in conflict with the prohibition of discrimination (article 12 of the EC Treaty), the freedom of establishment (article 43 of the EC Treaty), the freedom to provide services (article 49 of the EC Treaty) and the principle of equality. More specifically, the Finanzsenat wonders whether this exclusion can be declared void in accordance with Art. 234(1)(b) EC, which gives the ECJ the right to judge the validity and interpretation of acts of the institutions of the Community and the ECB.

 

Because of the application of the exclusion articles, foreign VAT-entrepreneurs are clearly put in a disadvantage compared to domestic VAT entrepreneurs. As explained in different cases (amongst others Grzelczyk (C-184/99) and National Farmers Union (C-354/95)), comparable situations must not be treated differently and different situations must not be treated in the same way, unless such treatment is objectively justified. Furthermore, VAT entrepreneurs are limited in their freedom of establishment when their activities are only exempted in case the entrepreneur is an inhabitant of the Member State concerned, because local suppliers would lose their right to apply the special scheme if they would move to another Member State. A resident restriction also limits the freedom to provide services, because it hinders taxpayers to supply their services to other Member States, when only their local competitors can apply the special scheme. Because of this, the exclusion articles could very well be in conflict with the EC-treaty.

 

In addition, the Austrian court notes that article 24 of the Sixth Directive (article 297 of the VAT Directive) stipulates that EU Member States can exempt the turnover from VAT until a certain threshold is reached. The Finanzsenat therefore wants to know whether this threshold is based on the turnover of the taxpayer in one EU Member State, or whether the threshold is based on the turnover in the whole European Union.

 

With reference to the last question, the Finanzsenat concludes that the exemption should probably be applied on the domestic turnover and not on the turnover gained in the whole European Union.

 

Although the application of the domestic turnover per country could cause an accumulation of benefits from applying the special scheme in several Member States, this would be in line with the system of the VAT Directive, as the taxation of economic activities takes place in the country where these activities are assigned to.

 

Although the special scheme for small entrepreneurs might be irrelevant for most of our firms’ clients, the thorough and convincing judgment of the Austrian court in this case can be seen as a milestone in the EU VAT landscape.

 

Finally the principle that a Directive can be in breach with the EU Treaty is raised for VAT. If the ECJ indeed decides that the special scheme for small entrepreneurs is in breach of the treaty when it concerns taxpayers from other Member States (and this should not be a surprise), this could open the door for further claims in other areas. One possible claim that comes to mind first and foremost is of course why the Directive limits VAT grouping to members that are established in one particular Member State (as confirmed in the Communication recently issued by the EU Commission). Cross-border VAT grouping would allow companies closely bound to another but established in various Member States to benefit from the main advantages of VAT grouping currently applied on a national basis by some countries, such as the reduction of financial burden, the neutralization of some of the VAT costs and some administrative simplifications. That is why especially VAT exempt industries, like the financial services industry, should follow the developments of this case closely.

 

Reference for a preliminary ruling C-103/09 (Weald Leasing Limited, abuse of law)

This is an extremely important referral as it not only addresses the question of whether an arrangement such as that introduced by Weald Leasing is abusive but whether an arrangement to create a cash flow benefit is contrary to the purpose of the Directive.

 

The benefit being achieved in this case by creating a leasing structure to defer the time irrecoverable VAT was incurred by a partly exempt customer, connected to Weald Leasing. The High Court in the UK had previously found for the taxpayer despite finding the arrangement to be artificial and entered into for the sole purpose of creating a tax advantage. This of course satisfied the second test in Halifax plc (Case C-255/02), but not the first, with the High Court finding that deferring irrecoverable VAT was not contrary to the purpose of the Directive. This arguably was a sensible conclusion to reach on the basis that VAT was declared on the lease supplies and recovery of the VAT amount charged was duly restricted by the customer.

 

The questions put to the ECJ unsurprisingly include whether the arrangements put in place are contrary to the purpose of the Directive, and whether it is abusive to enter into arrangements where leasing is not part of a businesses normal commercial operations (as was the case with Weald Leasing). The questions extend to that which seeks a definition of normal commercial operations and where abuse does apply, how the transactions should be redefined.

 

If the ECJ answers the questions such that creating cash flow benefits is not abusive, it could open the door for implementing arrangements to achieve cash flow savings.

 

Reference for a preliminary ruling C-86/09 (Future Health Technologies, exemption for medical services.

 

The questions referred to the ECJ seek to establish whether the services performed by Future Health Technologies are exempt from VAT.

 

What Future Health Technologies did was collect stem cells, process them and then store for future medical use. The question therefore is whether those type of services fall within the expression of hospital and medical care or a closely related activity to such care. Alternatively, could the same services fall within the description of medical care if carried out by or under the supervision of one or more suitably qualified medical professionals.

 

Member States, particularly the UK have been found to restrict the exemptions too narrowly when the interpretation of the exemption schedule has been challenged before the ECJ in the past. It should be of no surprise if the services provided by Future Health Technologies is found to be exempt - or is this a step too far? If indeed the findings of the Court favor the taxpayer, further exemptions may well be sought by providers of medically related services.

 

Reference for a preliminary ruling C-88/09 (Graphic Procédé, qualification as supply of goods or services)

The French Supreme Tax Court has asked the ECJ to define what criteria are to be used to determine whether reprographics is a supply of goods or a provision of services for VAT purposes.

 

The Administrative Court of Appeal held that the criterion to be retained is the importance of the material means used for the activity of reprographics and that in the particular case; the material means were superior to the creative aspect of the supply of reprographics. As a consequence, the Administrative Court has concluded that reprographics is a delivery of goods. The French Tax Doctrine also refers to a material criterion which is the number of copies produced.

 

The Court of Appeal and the French Tax Doctrine’s positions are not in line with the criterion that was used by the French Supreme Tax Court and the ECJ by the past on similar issues:

• The French Supreme Tax Court did not retain the importance of the material means involved but appreciated the material aspect of the supplied good in cases related to the supply of material support for communication or the supply of mould for bottle of perfume;
• The ECJ considered that the sale of an artistic object consists in a delivery of good (C-169/00).

The question referred here to the ECJ should help clarifying the qualification of reprographics and, more generally specify which criteria must be used to distinguish between supply of service and delivery of goods.

 

Reference for preliminary ruling C-58/09 (Leo-Libera GmbH, exemption for gambling)

The Bundesfinanzhof in Germany referred a question to the ECJ about the exemption for betting, lotteries and other forms of gambling (article 135(1)(i) of the VAT Directive).

 

In this case, the German company Leo Libera exploits an arcade of gambling machines and wanted to apply the exemption of art. 135(1)(i) of the VAT Directive. However, according to the German VAT law, this exemption is only applicable to the activities mentioned in the Rennwett- und Lotteriegesetz (law of races and lotteries). Because gambling machines are not listed in this Rennwett- und Lotteriegesetz, Leo Libera cannot apply the exemption.

 

During the parliamentary proceedings of the German law, representatives of parliament wondered whether the exclusion of other forms of gambling than in the Rennwett- und Lotteriegesetz is in line with the VAT Directive. Their concern was that the greater part of all the gambling games in Germany is excluded from this exemption. On the one hand, the VAT Directive does not limit the extent of gambling games that can be excluded from the exemption (see also the Opinion in the Glawe case, paragraph 10) and the Directive does mention explicitly that Member States can implement conditions and limitations. On the other hand, when most gambling games are excluded, both in number and revenue, the Bundesfinanzhof doubts whether Germany crossed a line with the extensive limitation of the exemption. The Bundesfinanzhof therefore refers the following question to the ECJ:

 

Is article135 (1)(i) of Council Directive 2006/112/EC of 28 November 2005 on the common system of value added tax to be interpreted as meaning that Member States are permitted to have a rule by which only specified forms of (race) betting and lotteries are exempt from tax, and all 'other forms of gambling' are excluded from the tax exemption?

 

Reference for a preliminary ruling (VTSI, services in the biotechnology sector)

On 1 April 2009, the German Federal Tax Court decided to refer several questions to the ECJ concerning the place of supply of human cell proliferation by cell culturing by order of other taxable persons resident abroad and to the use of their VAT ID number.

 

The plaintiff is resident in Germany and is engaged in tissue engineering. It takes cells from parts of cartilage (Biopsat) which had been provided by foreign medical institutions for cell proliferation by cell culturing. Subsequently, the cells are returned to the respective patient for implantation. The plaintiff argues that the turnovers have to be qualified as Article 55-services according to the VAT Directive which are not subject to German VAT in case the client is resident in another European member state and uses its national VAT ID number.

 

The referring court asks:

• if cell proliferation for implantation purposes can be qualified as “work” on movable tangible property as defined by Article 55 VAT Directive;
• whether a service is already rendered to the client under his VAT ID number if the clients’ VAT ID number is shown on the supplier’s invoice but an explicit agreement about the use of the number was not made.

Alternatively, the court asks if Article 132 VAT Directive could be interpreted as meaning that the separation of cartilage and the subsequent cell proliferation qualify as “provision of medical care” if the gained cells are re-implanted in the donor.

 

The reference of the German court shows that tissue engineering relates to several basic principles of VAT. The first question is whether tissue engineering is a supply of goods (the cells) or a supply of services (the engineering). If the latter applies - which is more likely - it is questionable whether the services are Article 55-services. This requires a tangible asset which is processed. The German court is of the opinion that human cells are tangible assets in this context (like human organs and blood) and that the processing is not comparable with the (intellectual or scientific) work of a physician (like in the ECJ's Linthorst decision, C-167/95). The question regarding the use of VAT numbers concerns the strict interpretation of German law which requires an "active usage" of the VAT number by the recipient when ordering the services. The German court assumes that the current German regulation is not in accordance with the VAT Directive. Just in case Art. 55 does not apply the court wants to know whether the services are tax-exempt. This question is also relevant for recipients in third countries. However, from 2010 on the place of supply is generally deemed to be where the recipient resides. Direct contractual relations between the tissue engineering company and the patient are not to be expected in practice because tissue engineering companies most commonly work for physicians and hospitals.

 

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On 13 May 2009 Advocate General Mengozzi issued his opinion in the case of Swiss Re Germany Holding GmbH. He concluded that the transfer of reinsurance contracts from a reinsurance company in Germany to an associate reinsurance company in Switzerland was in Germany and that it did not qualify for VAT exemption as an insurance transaction.

Summary of facts

Swiss Re, a German established reinsurance company, transferred 195 reinsurance contracts to a related group company established in Switzerland. The Swiss transferee assumed the rights and obligations of the transferring reinsurer and the transfer was made with the permission of the insured parties. Eighteen of the contracts had a negative value ascribed to them and as a result the value of these contracts was deducted from the value of the remaining 177 contracts to determine the value of the transaction as a whole. The German Tax authorities took the view that the transfer of the contracts was a supply of goods subject to VAT in Germany. The German Court was of the view that it was a supply of services and referred a number of questions to the ECJ for clarification.

AG opinion

The AG concluded that the supply of reinsurance contracts was as a supply of services rather than a supply of goods. He further opined that the “service” was not “insurance” or “reinsurance” for the purposes of the place of supply or VAT rating provisions.

If the transfer was regarded as an insurance transaction it would have been subject to VAT in the jurisdiction of the purchaser and would have qualified for VAT exemption (subject to the availability of option to tax). However, in opining that the transfer was not an insurance transaction the AG was of the view that the transfer would be subject to VAT in the jurisdiction of the seller and that VAT exemption would not apply.

The AG did not distinguish between “insurance” and “reinsurance”. Having regard to principles previously established by the ECJ in CPP and Skandia he noted that the transfer of the reinsurance contracts could not of itself fulfill the necessary conditions laid down for insurance transactions principally that there is a legal relationship between the party which carries out the insurance transaction and the insured parties. He noted that the legal relationship in this case was only established after the transfer had taken place.

Finally, the AG confirmed that the inclusion of contracts with a negative value in the transfer did not impact on his conclusion regarding the place of supply or the application of VAT exemption.

Key conclusions

If the AG’s opinion is followed this will have a significant impact for re(insurance) operators in a number of jurisdictions which currently regard such transfers as non VATable insurance transfers or qualifying for transfer of business relief.

VAT would be chargeable in the jurisdiction in which the transferor/supplier is located until the change in VAT place of supply rules in 2010. This will impact on portfolio/contract transfers from EU based insurers to EU and Non EU insurers and would extend to partial portfolio transfers outside the insurance sector if not covered by a separate VAT exemption within Article 13B(d). To the extent that the purchasers of such portfolios are likely to have limited VAT recovery entitlement (certainly the EU based purchasers) any VAT charged will be an additional cost which may need to be factored into the price to be paid.

As the acquisition of portfolios from non-EU insurers would not attract VAT until 2010, this would put such a transferor/supplier in a more favorable situation.

It is interesting to note that the AG was not asked to consider whether transfer of business relief could apply as the German Federal Tax court had already concluded that it did not. It applied paragraph 40 of Zita Modes taking the view that there was no “transfer of an independent part of an undertaking, including tangible elements and, as the case may be, intangible elements which, together, constitute a part of an undertaking capable of carrying on an independent economic activity”.

While there are clearly circumstances in which portfolio transfers can continue to be regarded as qualifying for transfer of business relief, the determination in this case by the German Federal Tax Court that a partial portfolio transfer does not qualify is unhelpful in supporting the practice which has developed in Member States which currently apply relief in these circumstances (e.g. UK, Ireland). However, it is understood that transfer of business relief is applied in Germany in quite a restrictive manner and is closely linked to the availability of relief under income tax rules. Generally speaking for relief to apply in Germany the assets to be transferred should be regarded as a self contained unit operating separately within an organization prior to their transfer (i.e. not merely an amalgam of assets capable of operating independently following transfer). The application of transfer of business relief in Germany would therefore appear to be more restrictive than that advocated by the Court in Zita Modes. Accordingly, it may continue to be possible to apply transfer of business relief to partial portfolio transfers in Member States which do not apply transfer of business provisions in such a restrictive a manner as Germany. However, in jurisdictions where this relief is not available in a cross-border context issues will remain if the Court follows the AG’s opinion.

Finally, it would not appear that the draft proposal on Financial and Insurance services as it is currently drafted will do anything to relieve the potential VAT cost to be borne by purchasers of insurance contracts (where transfer of business relief would not apply). The proposal does not attempt to separately define “reinsurance” in a way which is broader than “insurance”. Instead it includes a collective definition of “insurance and reinsurance transactions” as “a commitment whereby a person is obliged, in return for a payment, to provide another person in the event of materialization of a risk, with an indemnity or a benefit as determined by the commitment”.

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Judgment C-566/07 (Stadeco, VAT wrongly mentioned on invoice)

This case concerns a Dutch entity (Stadeco BV) which provided services to the Economic Affairs Press and Information Service (Economische Voorlichtingsdienst; the "EVD") in Germany and non-EU countries. This EVD is a body governed by public law and established in the Netherlands. Stadeco issued invoices including VAT to the EVD for the provided services. The EVD paid these amounts and Stadeco transferred the VAT to the Dutch Tax Authorities.

In 1996, the Tax Authorities determined that no VAT was due regarding these services. Therefore, the Tax Authorities refunded the paid VAT under the express condition that Stadeco should issue a credit note to the EVD. During an inspection, the Tax Authorities established that Stadeco had not issued a credit note and because of that, the Tax Authorities imposed a VAT assessment for the refunded VAT.

In relation to this VAT assessment, the Dutch Supreme Court addressed questions to the ECJ concerning the liability of VAT mentioned on an invoice. The Supreme Court first asked whether Art. 21(1)(c) of the EU Sixth Directive means that the issuer of the invoice is liable to VAT in the Netherlands when the place of supply is deemed to be in another EU Member State or non-EU country.

According to the ECJ, the place of supply is not relevant for the application of article 21(1)(c) of the EU Sixth Directive, which states that any person who mentions VAT on an invoice is liable to pay that tax. This article seeks to eliminate the risk of loss of tax revenue which the right to deduct might entail, because the addressee of the invoice could use the invoice to deduct VAT. Therefore, the Dutch Supreme Court has to ascertain which EU Member State's VAT is mentioned on the invoice.

Furthermore, the Dutch Supreme Court asked whether the principle of fiscal neutrality precludes an EU Member State from granting the refund of VAT subject to the requirement that a credit note is issued, while there is no risk of loss of tax revenue.

Because the EU Sixth Directive does not provide a solution in circumstances where the VAT is mentioned in error on an invoice and when VAT is not due on the basis of a transaction is not subject to that tax, the EU Member States itself should provide a solution. However, according to the ECJ, the measures these EU Member States adopt to guarantee the correct collection of VAT and to prevent fraud must not go further than is necessary to meet these objectives. These measures may not undermine the VAT neutrality principle.

Since the issue of a credit note indicates that the addressee has no right to deduct VAT, the ECJ mentions that this requirement can ensure the elimination of the risk of loss of tax revenue. The requirement of a credit note for the refund of the VAT mentioned on the invoice does not go beyond what is necessary to achieve the objective of completely eliminating the risk of loss of tax revenue.

Another important aspect concerns the unjust enrichment when Stadeco would not repay the refunded VAT to its customer. The ECJ again points out the principles set out in the Marks and Spencer case C-309/06, but adds that when Stadeco agreed a fixed price inclusive of taxes, this could be an indication that there is no unjust enrichment issue.

Judgment C-102/08 (Salix, treatment of public bodies)

On 4 June 2008 the ECJ gave its judgment in the Salix case which concerns the treatment of public bodies as taxable persons in VAT, as do a number of other recent cases in the ECJ.

The ECJ ruled on two different aspects:

1. The member states may regard certain otherwise exempt activities (incl. the leasing or letting of immovable property) by public bodies as activities in which the said bodies engage in as public authorities, and effectively that way deny these operators the status of taxable person. Consequently there would be no right to opt for taxation on e.g. the leasing or letting of premises, either. Should a member state decide to take up this option it must, according to the judgment, lay down an express provision in order to be able to rely on the option.

Any other opinion in this respect would in our understanding been against the principle of protection of legitimate expectations. Nevertheless the judgment is considered as a significant success for public bodies in Germany (at least); since public bodies have hitherto been prevented from opting for VAT on letting of premises and making the corresponding VAT deductions on the basis of national administration practice only.

2. Bodies governed by public law are to be considered taxable persons in respect of activities or transactions in which they engage as public authorities where their treatment as non-taxable persons would lead to significant distortions of competition. The ECJ confirmed that this applies also when the non-taxable status of the public body would lead to such distortions to its own detriment.

In case C-430/04 (Halle) it was already ruled that a private person who is in competition with a body governed by public law may rely on the Directive if the non-taxation of that public body would lead to a distortion against the private person. The new judgment thus extends this right also to reverse situations, which is logical both because any distortion of competition caused by non-taxation is contrary to the basic principles of the VAT system and because also the wording of Art. 13(1) second paragraph of the Directive (or Art. 4(5) second subparagraph of the 6th VAT Directive) makes no distinction between distortions to the detriment of different parties.

The Salix and Halle cases, together with another recent judgment C-288/07 (Isle of Wight Council), seem have strengthened the importance of EU law and ECJ legal praxis as sources of law in disputes with national tax authorities in fields of activity where both private enterprises and public bodies operate or may operate at the same time.

Judgment C-256/07 (Mitsui & Co. Deutschland GmbH, reduction of customs value as a consequence of guarantee provisions)

In the January 2009 issue of Brussels briefing we discussed in detail Advocate General Mazák’s findings in the Mitsui & Co Deutschland GmbH (C-256/07) case. The findings addressed the reduction of customs value as a consequence of guarantee provisions. Recently, the ECJ rendered its decision on this case.

In general, the ECJ followed the Advocate General’s findings. This means that, if there is a hidden defect in goods, and the defect existed prior to the goods being imported into the EC – and as a result, the manufacturer must pay the importer pursuant to a contractual guarantee obligation – then this situation reduces the goods’ commercial value and, therefore, their customs value as well.

When customs value is reduced, then Customs must pay back a corrective amount of customs duty to the importer.

This is, in itself, a logical conclusion, as the commercial value (and customs value) at the moment of import to the EC was, in hindsight, set too high. This correction will prevent the use of – to use the ECJ’s words – an arbitrary or notional customs value.

Perhaps the most interesting question was, unfortunately, not dealt with in this case: does this decision still apply when the change in value occurs more than 12 months after importation? (In other words, are Sections 145(2) and 145(3) of the Implementing Regulation of the Community Customs Code (“IRCCC”) valid?) Section 145(3) of the IRCCC contains the restrictive condition that only those changes that have taken place within 12 months of importation may be considered as a price amendment. In our opinion, this condition does support the principle expressed by the ECJ that arbitrary or notional customs values should be prevented.

Therefore, importers could potentially argue that if the commercial value of their goods is reduced even more than 12 months after importation, the customs value should also be reduced. Importers may therefore be wise to request a refund of excess customs duty by submitting a request on the grounds of Section 236 of the CCC.

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European Commission refers Poland to ECJ regarding VAT on cross-border passenger transport services

Poland has been referred to ECJ by the European Commission due to improper application of VAT provisions regarding cross-border passenger transport services supplied by buses registered abroad.

According to the Article 46 of the VAT Directive 2006/112/EC, the place of supply of transport other than the intra-Community transport of goods is the place where the transport takes place, proportionately to the distance covered. This provision covers also passenger transport by buses registered in other Member States.

Poland, however, introduced a different scheme. Polish provisions state that in the case of passenger transport performed by buses registered outside Poland, VAT is payable at the Customs Office and is calculated as a product of 7 percent VAT rate and the amount of PLN 285 for each passenger.

VAT is collected as an average amount per traveler, thus such scheme clearly infringes the Community VAT rules, as tax should be calculated basing on actual ticket price divided proportionately according to the distances traveled in each Member State.

The European Commission sent a reasoned opinion demanding amendments to the above scheme in June 2008. As Poland has not amended above provisions in the time laid down by the Commission, the case was referred to ECJ on 14 May 2009.

European Commission requests Latvia to apply VAT on building land

According to Article 135(1)(k) of the VAT Directive member states must exempt supplies of land which has not been built on but must tax supplies of building land within the meaning of Article 12(2).

Member states are relatively free to define the concept of “building land” and a number of member states apply the derogation allowed in Annex X (part B, paragraph 9) to exempt building land from VAT altogether. Those member states that acceded to the EU after 1.1.1978 and are entitled to apply the said derogation are mentioned in Articles 375 to 390. However, the derogation for building land has not been included in the Article concerning Latvia (Art. 384).

According to Latvian VAT legislation sales of immovable property are VAT exempted except for the first sale of unused immovable property (first sale before first occupation). Since such a first sale may relate to building land which Latvia should, according to the Directive, tax, the Commission opines that the Latvian legislation in incompatible with the EU law.

Based on the direct wording of the Directive the Commission is probably correct, but the relevance of the case (if there will be one in the ECJ) for other member states besides Latvia is not certain at this stage.

Action C-94/09 (Commission/France, VAT rate on funerals)

This action concerns the rate applicable in France to services provided by funeral directors. According to the French VAT rules, the reduced VAT rate applies to the transportation of the body by a vehicle designed especially for that purpose, whereas the other services carried out by funeral directors are subject to the normal VAT rate.

The Commission introduces an action in order to have a single and similar rate applicable to the entirety of the service provided by funeral directors.

The Commission argues that the application of this reduced VAT rate to the sole transportations service is not justified considering that the service provided by the funeral directors consists in a single supply of service from an economic point of view. This single supply of service could not be artificially split.

The Commission also argues that Article 98 (1) of the VAT Directive (which allows the Member States to elect for a reduced rate) does not allow the application of a reduced rate on certain services provided by funeral directors and a normal rate on their other services because it would have as a consequence the reduction of the actual VAT rate applicable to the global service rendered by funeral directors. Thus, according to the Commission, either the reduced rate is applicable to the global service through Article 98 of the VAT Directive, or the standard rate is applicable to the global transaction.

The outcome of this action would certainly have implications for other Member States applying dual rate on components of a single supply of service.

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