CJEU – Recent Developments in Value Added Tax 2015

I. S. 4Introduction

The EU VAT system is founded on two basic principles, namely the principle of VAT as a general consumption tax, and the principle of fiscal neutrality. Based on key elements of the VAT system as it was introduced in the 1960s, they have both been developed by the Court as fundamental principles of the system over an extended period of time, spanning almost five decades. Once exclusions from the tax base, such as exemptions and reduced rates, are introduced, however, these two principles became contradictory. This results in a dialectic struggle, whereby a choice must be made when interpreting VAT rules on exclusions. Interpreting these rules in light of the principle of VAT as a tax on consumption, and its corollary, the principle of strict interpretation, will result in a less neutral system. Interpreting these rules according to the principle of fiscal neutrality will result in further erosion of the tax base and legal uncertainty. The chapter begins by presenting a typology of European VAT principles based upon the jurisprudence of the CJEU. It then assesses that jurisprudence, insofar as exclusions from the tax base are concerned, namely rules on VAT exemptions, ...