TAXATION: GERMANY AND AUSTRIA IN THE DOCK OVER VAT RULES.

On October 15, 2002, the Court of Justice delivered a judgement in Case C-427/98 where it ruled that Germany is infringing Article 11 of the Sixth VAT Directive (77/388/EC). Despite the judgement handed down by the Court, Germany has not yet taken measures to enable its taxable persons to be refunded. The new infringement proceedings, based this time on Article 228 of the Treaty, may be linked to a call for penalty payments to be imposed for failure to comply with a Court judgement. In this specific case, an even application of the VAT principle would make it more tempting for manufacturers of products (such as cosmetics or household products) to issue money-off vouchers. Moreover, consumers would be able to enjoy discounts more often.

As Community law stands at present, Member States may maintain restrictions on the right to deduct that existed in their national legislation at the time when the Sixth VAT Directive entered into force. These restrictions therefore differ from one Member State to another. Transactions in respect of which Austria does not allow deduction of VAT include the purchase, repair and rental of passenger cars. In order to ensure that Austrian taxpayers do not procure these services in another Member State (in which no such restriction exists and where they can obtain a refund of VAT on such expenses), Austria taxes all expenditure incurred in another Member State for services, already taxed in that other Member State...