Flashback on ECJ Cases – C-49/09 (Commission v Poland) – Application of reduced rate – Clothing and clothing accessories for babies and children’s shoes

On October 28, 2010, the ECJ issued its decision in the case C-49/09 (Commission v Poland).

Context: Failure of a Member State to fulfil obligations – Value added tax – Directive 2006/112/EC – Later accession of Member States – Transitional provisions – Temporal application – Application of a reduced rate – Clothing and clothing accessories for babies and children’s footwear

Article in the EU VAT Directive

Article 98 in the EU VAT Directive

Article 98

1. Member States may apply either one or two reduced rates.

2. The reduced rates shall apply only to supplies of goods or services in the categories set out in Annex III. The reduced rates shall not apply to electronically supplied services.

3. When applying the reduced rates provided for in paragraph 1 to categories of goods, Member States may use the Combined Nomenclature to establish the precise coverage of the category concerned.

Facts & Questions

Considering that the application of a reduced VAT rate of 7% to supplies, import and intra-Community acquisition of clothing and clothing accessories for babies and of children’s footwear is contrary to Article 98 of Directive 2006/112, in conjunction with Annex III thereto, the Commission decided to initiate proceedings for failure to fulfil obligations under Article 226 EC. By letter of 23 March 2007 it invited the Republic of Poland to submit its observations.
In its reply of 22 May 2007, the Republic of Poland submitted that the application of a reduced VAT rate to the goods concerned forms part of the measures aimed at supporting families and increasing the birthrate in Poland, which are in line with the objectives of the ‘Lisbon Strategy’. It also referred to the application of reduced VAT rates on those goods in Ireland, Luxembourg and the United Kingdom. Finally, it considered that, in the light of the limited application in time of the reduced rate at issue, there could be no distortion of competition.
Since it was not convinced by that reply, the Commission issued a reasoned opinion on 1 February 2008 in which it called on the Republic of Poland to take the measures required to comply with it within two months of the date of receipt.
By letter of 31 May 2008, the Republic of Poland reiterated its position.
Since the Commission was not convinced by the arguments of the Republic of Poland, it decided to bring the present action.

AG Opinion

I therefore propose that the Court should:

1. Dismiss the action;

2. Order the European Commission to pay the costs.

Decision

1. Declares that, by applying a reduced value added tax rate of 7% to supplies, import and intra-Community acquisition of clothing and clothing accessories for babies and of children’s footwear, the Republic of Poland has failed to fulfil its obligations under Article 98 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, in conjunction with Annex III thereto;

2. Orders the Republic of Poland to pay the costs.

Summary

By applying a reduced VAT rate of 7% to the supply, importation and intra-Community acquisition of clothing and clothing accessories for babies and children’s shoes, Poland has failed to fulfill its obligations under Article 98 in conjunction with Annex III of the VAT directive.

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