Global Trends in VAT/GST and Direct Taxes

S. 463I. Introduction

In 2009 Rita de la Feria noted that the EU VAT treatment of public sector bodies is slowly moving in the wrong direction.

VAT exemptions have been said to be the fundamental structural imperfection of the common VAT system or have been considered to be its original sin. Abolishing VAT exemptions would be the proper medicine so badly needed. However, not all activities undertaken by public bodies are exempt. Most activities are outside the scope of VAT, others are exempt and some are taxable. This complex system results in a high level of legal uncertainty for its participants and numerous questions have already had to be clarified by the ECJ.

The problems lie deep. De la Feria already noted in 2009 that the provisions of the common VAT system dealing with public bodies no longer seem to reflect economic realities. Competition between public and private sectors is steadily increasing, traditional boundaries of public and private sectors are becoming blurred, and a distortion of competition triggered by the set of old provisions is becoming more evident. This is also true for direct tax issues. Accordingly, providing competitive neutrality of public bodies in direct taxa...