The European Charities’ Committee on VAT (ECCVAT) has launched its 2019 manifesto, calling for charities to receive fairer treatment under the VAT tax system to allow them to maximise the impact of their work.
ECCVAT estimates that charities in the EU lose about €6 billion a year in irrecoverable VAT. It says the VAT system treats charities differently depending on the types of service they provide, with most either outside the scope of VAT because they are provided free of charge, meaning charities are unable to recover VAT on purchases made to support these activities. It points out that most charities that do charge for their services also suffer from irrecoverable VAT because their services are classified as exempt under Article 132 (1) a-q of the VAT Directive (2006/112/EC).
In its manifesto, ECCVAT highlights two windows of opportunity to make the VAT system fairer for charities. It recommends the adoption of a proposal by the European Commission that seeks more flexibility when setting VAT rates. In addition to keeping a standard VAT rate of minimum 15%, the Commission suggests that Member States be able to put in place two separate reduced rates of between 5% and the standard rate chosen by the Member State, one exemption from VAT (or ‘zero rate’), and one reduced rate set at between 0% and the reduced rates. This proposal is currently being discussed at the Council.
With the EU elections coming up, ECCVAT also urges current and future EU decision-makers to take the situation of charities in the EU into account, stating that improving the VAT treatment of charities would have a positive impact on millions of Europeans benefiting from services provided by charities.
It also makes a number of suggestions for making improvements, including:
– Recognising the specific position of charities to ensure they receive the benefit of reduced rates and zero rates
– Allowing the deduction of input VAT of non-taxable services and deliveries provided by charities
– Protecting current derogations and reduced rates and make them available to charities across Europe
– Clarifying the VAT system
And, at a national level, introducing VAT compensation refund schemes to help charities compensate costs of irrecoverable VAT.