The European Commission has launched a four-month public consultation on the review and possible revision of the VAT rules on the public sector including the special rules for public bodies and the tax exemptions in the public interest.
This is a priority area identified by the Commission in the push for a new VAT regime tailored to the single market which is simpler, more robust and efficient.
The VAT treatment of public bodies and the exemptions in the public interest has raised a number of concerns over the years. For example, certain supplies provided by public bodies are considered as non-taxable for VAT purposes even if they qualify as an economic activity, according to general VAT principles.
Increasing privatisation and deregulation of activities, which were traditionally the exclusive reserve of the public sector, have led to distortions of competition between public and private operators engaged in similar activities. In addition, public-private partnerships which are increasingly used for a range of activities (ie, infrastructure projects) were not envisaged when the legislation was drawn up.
This technical consultation presents several reform options including full taxation of public bodies and activities in the public interest; full compensation of input VAT at EU level; deletion of special rules relating to public bodies, while retaining all or most of the current exemptions in the public interest; sectorial reform and possible selective amendments of the current rules.
At this stage, no decision has been taken on the principle and context of a future legislative proposal.
The comment period closes on 14 February 2014.
The consultation paper is available HERE