Germany - ECJ Decision on application reduced rate
ECJ: Application of German reduced VAT rate on horses incompatible with EU VAT Directive
On 12 May 2011, the Court of Justice of the European Union (ECJ) gave its decision in Commission v. Germany (C-453/09). The case was referred to the ECJ by the European Commission on 19 November 2009. There was no opinion of the Advocate General in the case.
(a) Facts.
(b) Decision. The Court first observed that point 1 of Annex III to the EU VAT Directive provides that a lower VAT rate only may be used in respect of live animals normally intended for use in the preparation of foodstuffs.
The Court noted that by using of the adverb 'normally' in the second part of the phrase in point 1 of Annex III, the EU legislature intended to refer to animals which, usually and in general, are intended to enter the human and animal food chain. This is usually and generally not the case for horses. Consequently, only the supply of a horse for slaughter to be used in the preparation of foodstuffs may be subject to a reduced VAT. This means that point 1 of Annex III of the EU VAT Directive does not allow a Member State to apply a reduced VAT rate to all supplies of live horses, whatever their intended use.
The Court rejected the argument of the German government that one category of animals cannot be treated differently and held that the general application of a reduced rate to horses also cannot be based on the principle of neutrality because a horse destined for slaughter is not similar to a racehorse or a pet horse where that animal is sold as such. Therefore, those categories of horses are not in competition, which means that they can be subject to different VAT rates.
The Court also rejected the argument of the German government that the application of a reduced rate could be based on Art. 20 of Regulation No. 504/2008, because that Regulation intends to ensure that a horse which enters the human food chain is not unfit for consumption. However, it is not possible to determine on the basis of EU legislation, whether a horse is finally used for consumption.
In addition, the Court rejected the argument that the application of a reduced VAT rate can be based on point 11 of Annex III of the EU VAT Directive because horses are not used, usually and in general, in agricultural production. This means that point 11 of Annex III does not allow to apply a reduced VAT rate to all supplies of horses.
Consequently, the Court held that by applying a reduced VAT rate to all supplies, imports and intra-Community acquisitions of horses, Germany has failed to fulfil its obligations under Arts. 96 and 98 in conjunction with Annex III of the EU VAT Directive.
Note: It may be noted that on 3 March 2011 the ECJ decided the same with respect to the Netherlands.
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