Tuesday, March 13, 2018
The European Commission has sent formal letters to the governments of Bulgaria and Germany requesting that they amend aspects of their value-added tax regimes.
In the case of Bulgaria, the Commission has asked the Government amend the VAT rules with respect to companies trading in fuel, and for the non-business use of company assets.
According to the Commission, small companies trading in fuel in Bulgaria are currently obligated to provide "excessive" amounts of money in advance to guarantee their ability to pay their VAT bill. However, large companies need only deposit a guarantee of an amount equal to the VAT due for their transactions.
The Commission considers this legislation incompatible with the VAT Directive and with the freedom to conduct a business under the Charter of Fundamental rights of the EU.
In a separate case, Bulgaria has been requested to change its rules on how VAT due is calculated when business assets are used for private or non-business purposes and when business assets are transferred to another member state.
The infringement proceedings against Germany relate to the improper application of the VAT flat rate scheme for farmers.
The flat rate scheme is an alternative to VAT registration for farmers. Those registering as a flat rate farmer do not account for VAT or submit returns and so cannot reclaim input tax. However, they can charge and keep a flat rate "addition" when selling goods and services to VAT-registered customers. The flat rate addition represents compensation for farmers for the loss of input tax on purchases. Only those farmers whose non-farming activities fall below the VAT registration threshold are permitted to use the scheme.
The scheme is intended to be used by farmers who are likely to experience administrative difficulties when following normal VAT rules. However, according to the Commission, Germany applies the flat-rate scheme by default to all farmers, including owners of large farms who would not encounter any such difficulties.
Citing figures from the German Supreme Audit Institution, the Commission said that applying the flat rate scheme in this way results in overcompensation for the input VAT that they have paid.
The Commission argues that the wrongful application of the VAT flat rate scheme in Germany "generates major distortions of competition in the internal market."
Both member states have two months to respond to the Commission's concerns. If the Commission is not satisfied with their responses, it may issue either member state a reasoned opinion on the disputed laws (the second stage of infringement proceedings).