Sales, Use and International Tax Articles
Sales, Use and International Tax Activity Update - July 2010
France Confuses Lawyers and Social Workers
EU law allows for a reduced rate of tax to apply to supplies of goods and services set out in Annex III of VAT Directive (2006/112/EC). Point 15 of Annex III refers to supplies of goods and services by organizations recognized as being devoted to social well being by Member States and engaged in welfare or social security work (this corresponds to point 14 of Annex H to the Sixth Directive).
France has applied the reduced rate of 5.5% to the services of lawyers paid in full or in part by the State under the legal aid scheme since 1991. The objective is to promote access to justice for the least affluent and believe this falls under point 14 of Annex H.
The European Commission, in a reasoned opinion back in 2006, informed the French Republic that supplies of lawyers under subsidized legal aid arrangements could not be treated as supplies by organizations recognized as being devoted to social well being. Since France did not amend its national law the EC initiated infringement proceedings.
The European Court of Justice upheld the EC’s position finding that the supply of lawyers under the legal aid scheme did not fall within any of the categories listed in Annex III. Although lawyers may occasionally undertake work assisting recipients of legal aid they cannot be regarded as organizations recognized as being devoted to social well being. The legal services are the same as those provided to clients that do not receive aid from the state. The amount paid by the client does not change the nature of the services received.
The French assertion that standard rating legal services under the legal aid scheme would jeopardize access to justice for the most disadvantaged was considered unfounded. Regardless, that objective would not be a valid reason to fail to comply with EU law.
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