INTERNATIONAL TAX PLAZA - CJEU rules in Case C-161/14 Commission vs United Kingdom (VAT – National legislation applying a reduced rate of VAT to supplies of services of installing ‘energy-saving materials’ and supplies of such materials)

(June 4, 2015)

On June 4, 2015 the European Court of Justice (CJEU) ruled in Case C‑161/14 European Commission versus United Kingdom of Great Britain and Northern Ireland (ECLI:EU:C:2015:355).

By its application, the European Commission asks the Court to declare that, by applying a reduced rate of value added tax (‘VAT’) to supplies of services of installing ‘energy-saving materials’ and to supplies of such materials by a person who installs those materials in residential accommodation:

· to the extent that those supplies cannot be considered as ‘the provision, construction, renovation and alteration of housing, as part of a social policy’ for the purposes of Category (10) of Annex III to Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1), as amended by Council Directive 2009/47/EC of 5 May 2009 (OJ 2009 L 116, p. 18) (‘the VAT Directive’);

· to the extent that those supplies fall outside the purview of ‘renovation and repairing of private dwellings’ for the purposes of Category (10a) of Annex III to the VAT Directive, and

· to the extent that those supplies, even if they fall within the purview of renovation and repairing of private dwellings for the purposes of Category (10a) of Annex III to the VAT Directive, include materials which account for a significant part of the value of the services supplied,

the United Kingdom of Great Britain and Northern Ireland has failed to fulfil its obligations under Article 98 of the VAT Directive, read in conjunction with Annex III thereto.

Pre-litigation procedure

· By letter of 29 September 2011, the Commission gave formal notice to the United Kingdom that it should bring to an end the incompatibility of the system of reduced VAT rates provided for in Section 29A of the VAT Act, as specified in Part 2, Group 2, of Schedule 7A to that act, with the provisions of Article 98 of the VAT Directive, read together with Annex III to that directive.

· By letter of 29 November 2011, the United Kingdom replied that it did not agree with the Commission. The United Kingdom accepted that its legislation was contrary to EU law, but only to the extent that it provided for the application of a reduced rate of VAT to supplies of goods and services made in respect of buildings intended for charitable purposes. In that letter, the United Kingdom confirmed its intention to withdraw from the 2013 Budget the reduced rate of VAT applied to the installation of energy-saving materials in buildings intended for use solely for a relevant charitable purpose.

· On 21 June 2012 the Commission sent to the United Kingdom a reasoned opinion in which it restated it position. In its reply of 16 August 2012, the United Kingdom maintained that its legislation complied with EU law, since the reduced rate of VAT concerning buildings intended for charitable purposes had been removed.

· As the Commission was not satisfied with the United Kingdom’s reply, it decided to bring this action.

The CJEU ruled as follows:

1. Declares that, by applying a reduced rate of value added tax to supplies of services of installing ‘energy-saving materials’ and to supplies of such materials by a person who installs those materials in residential accommodation:

- to the extent that those supplies cannot be considered as ‘the provision, construction, renovation and alteration of housing, as part of a social policy’ for the purposes of Category 10 of Annex III to Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, as amended by Council Directive 2009/47/EC of 5 May 2009;

- to the extent that those supplies fall outside the purview of ‘renovation and repairing of private dwellings’ for the purposes of Category 10a of Annex III to that directive, and

- to the extent that even where those supplies fall within the purview of renovation and repairing of private dwellings for the purposes of Category (10a) of Annex III to that directive, those supplies include materials which account for a significant part of the value of the services supplied,

the United Kingdom of Great Britain and Northern Ireland has failed to fulfil its obligations under Article 98 of Directive 2006/112, as amended by Directive 2009/47, read together with Annex III to that directive;

2. Orders the United Kingdom of Great Britain and Northern Ireland to pay the costs.

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