Sales, Use and International Tax Activity Update - May 2010

EC Isn’t “Horsing” Around on Standard Rate of Supplies

Annex III of the VAT Directive provides a list of supplies of goods and services that can be reduced rated. This list contains exceptions to the general principle that the standard rate apples to all supplies. Member States do not have the option to apply the reduced rate to items that are not included on the list.

Included in the list are foodstuffs for human and animal consumption, live animals, seeds, plants, and ingredients normally intended for use in the preparation of foodstuffs and agricultural inputs. However, the reduced rate does not apply to the supply of animals kept as pets nor to ponies and pet or race horses since these are not intended for human or animal consumption.

Austria, France, Germany and Luxembourg apply the reduced rate to supplies of horses, in particular, race horses. As this violates the VAT Directive the European Commission sent a reasoned opinion to these Member States in November 2008. Since they have not amended their national legislation accordingly the Commission has referred the matter to the European Court of Justice. 

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