Flashback on ECJ Cases – C-524/10 (Commission v Portugal) – Zero rate Portuguese flat-rate agricultural scheme in violation of EU law

On March 8, 2012, the ECJ issued its decision in the case C-524/10 (Commission v Portugal).

Context: Failure of a Member State to fulfil obligations — Common system of value added tax — Directive 2006/112/EC — Articles 296 to 298 — Common flat-rate scheme for farmers — Flat-rate compensation percentage set at nil rate

Article in the EU VAT Directive

Article 296, 297, 298 in the EU VAT Directive

Article 296 (Common flat-rate scheme for farmers)

1. Where the application to farmers of the normal VAT arrangements, or the special scheme provided for in Chapter 1, is likely to give rise to difficulties, Member States may apply to farmers, in accordance with this Chapter, a flat-rate scheme designed to offset the VAT charged on purchases of goods and services made by the flat-rate farmers.

2. Each Member State may exclude from the flat-rate scheme certain categories of farmers, as well as farmers for whom application of the normal VAT arrangements, or of the simplified procedures provided for in Article 281, is not likely to give rise to administrative difficulties.

3. Every flat-rate farmer may opt, subject to the rules and conditions to be laid down by each Member State, for application of the normal VAT arrangements or, as the case may be, the simplified procedures provided for in Article 281.

Article 297

Member States shall, where necessary, fix the flat-rate compensation percentages. They may fix varying percentages for forestry, for the different sub-divisions of agriculture and for fisheries. Member States shall notify the Commission of the flat-rate compensation percentages fixed in accordance with the first paragraph before applying them.

Article 298

The flat-rate compensation percentages shall be calculated on the basis of macro-economic statistics for flat-rate farmers alone for the preceding three years. The percentages may be rounded up or down to the nearest half-point. Member States may also reduce such percentages to a nil rate.

Facts & Questions

By its action, the European Commission asks the Court to declare that, in applying to farmers a special scheme which does not comply with the scheme established by Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1, ‘the VAT Directive’), because it exempts them from the payment of value added tax (‘VAT’), and in applying a flat-rate compensation percentage at a nil rate, while at the same time making a substantial negative compensation in own resources payable to the European Union in relation to the collection of VAT, the Portuguese Republic has failed to fulfil its obligations under Articles 296 to 298 of that directive.

AG Opinion

I propose that the Court should:

(1) declare that, in applying to farmers a special scheme which derogates from the directive and which exempts them from the payment of VAT and applies flat-rate compensation at a nil rate to them, the Portuguese Republic has infringed Articles 296 to 298 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax;

(2) dismiss the action as to the remainder;

(3) order each party to bear its own costs.

Decision

Declares that by applying to farmers a special scheme which does not comply with the scheme established by Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, because it exempts farmers from payment of value added tax and involves the application of a flat-rate compensation percentage at a nil rate, the Portuguese Republic failed to fulfil its obligations under Articles 296 to 298 of that directive;

Personal comments/VATupdate

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