Spain Infringing EU VAT Rules

The European Court of Justice has recently ruled that by applying reduced rates of value-added tax (VAT) beyond what is authorized under the VAT Directive, Spain has failed to fulfil its obligations under European Union (EU) law.

The VAT Directive lists the categories of supplies of goods and services to which member states may apply a reduced rate of VAT. Those categories include pharmaceutical products normally used for health care, prevention of illnesses and as treatment for medical and veterinary purposes and medical equipment, aids and other appliances normally intended to alleviate or treat disability, for the exclusive personal use of the disabled.

According to the EU Court of Justice, Spain applies a reduced VAT rate to a broader range of goods than provided for under the VAT Directive in the field of pharmaceutical products and medical equipment.

Firstly, the Court considers that the application of a reduced rate of VAT to medicinal substances, "which can be used habitually and suitably in the production of medicine is contrary to the VAT Directive."

Secondly, the Court considers that the VAT Directive does not authorize a reduced rate of VAT to be applied to "medical devices, material, equipment and appliances used only to prevent, diagnose, treat, alleviate or cure human or animal illnesses or ailments."

Thirdly, the Court declares that the application of a reduced rate of VAT to aids and equipment, which may be used to treat physical disabilities to animals is contrary to the VAT Directive.

Lastly, the Court affirms that a reduced rate of VAT cannot be applied to apparatus and accessories used essentially or primarily to alleviate physical disability in humans, but which are not intended for the exclusive personal use of the disabled.

The Commission issued a reasoned opinion on November 25, 2010, inviting Spain to comply with the VAT Directive, to which Spain reiterated its position that the Spanish VAT legislation is in line with the provisions of the VAT Directive.

Spain is to comply with the Court’s judgment without delay.

Source: Tax-news.com