This article has been saved to your Favorites!

EU Wants VAT Exemption For Crisis Supplies For Members

By Todd Buell · April 12, 2021, 11:52 AM EDT

The European Commission, the European Union's executive body, wants to create a value-added tax exemption for purchases of goods and services donated to EU countries and citizens during times of crisis, the commission said Monday.

VAT payments reduce the quantity of goods and services the commission can purchase to hold in reserve or pass on to member countries, its proposal said. Moreover, compliance costs are a burden on businesses providing services to the EU, it added.

"There is therefore an urgent need for immediate action," the commission said.

"This will allow the EU to purchase more goods and services that are, for instance, intended for free distribution to a member state, a national health authority or a hospital," the commission added. The proposal said the measures are estimated to save the commission about €110 million ($131 million) in VAT costs this year.

The new measures would allow the commission and other EU bodies to import and purchase goods and services free of VAT when the purchases are donated to member states as part of an EU emergency response. Items covered under the proposal include testing materials, personal protective equipment, camp beds and radiation-measuring devices, as well as other items.

EU tax commissioner Paolo Gentiloni said the coronavirus pandemic had shown that crises have a broad impact on societies and that fast responses are essential.

"Today's proposal supports the EU's goal to react to crises and emergencies in the EU," he said in a news release. "It will also ensure that the financial impact of EU-level relief efforts to fight the pandemic and support the recovery is maximized."

The legislation is an amendment to the EU's law on VAT. The draft law is being submitted to the European Parliament for its opinion and to the EU's council of member states for legislative adoption. If approved unanimously by the council, the law would apply from the beginning of this year.

The proposal announced Monday complements earlier VAT policy measures designed to ease the accessibility of medical products earlier in the pandemic. In April 2020, the commission waived customs and VAT charges on imports of masks and protective equipment. In December, EU member countries agreed on a commission proposal to allow a VAT exemption for vaccines and testing kits sold to hospitals.

--Editing by Vincent Sherry. 

For a reprint of this article, please contact reprints@law360.com.