The Charity Tax Group (CTG) campaigns on behalf of charities to seek changes in tax legislation and administration.

CTG press release: 13/04/11

CTG welcomes new EU VAT study

The European Commission has today published an important study by consultants Copenhagen Economics on VAT in the public sector and exemptions in the public interest.

The Charity Tax Group has been working closely with other charities across Europe through the European Charities’ Committee on VAT (ECCVAT) to highlight the concerns of charities about the current VAT regime and welcomes this latest study which demonstrates clearly the problems that charities experience with the current VAT system.

CTG comments

The Copenhagen Economics study has found that the present treatment of public bodies has distortive effects in relation to economic decisions they take, in particular about outsourcing and competition with the private sector. The study has looked at the eight refund schemes in place in the EU Member States allowing public bodies to recover input VAT (through matching grants) when outsourcing support services. Although the study recommends moving to a full taxation model, it agrees that refund schemes could be extended throughout the EU and, crucially, argues that any refunds should apply not only to taxpayer-funded bodies, but also to charities (and similar bodies) replacing or supplementing state provision of public services.

The study raises very important issues for the future treatment of public bodies and charities in the EU and its findings need to be carefully analysed and weighed before any decisions are reached. But it clearly demonstrates that the present system is unsatisfactory and causes serious distortions, not least in the area of outsourcing from public bodies to charities where the VAT system causes severe problems at present. The conclusion of the study that a generalised refund scheme should be open to bodies providing public good that are not taxpayer funded, as in the Canadian model, is very welcome. The implications of moving to a full taxation model would be enormous and politically contentious, and CTG strongly hopes that the universal refund scheme option will be considered positively.

Peter Jenkins, tax adviser to the Charity Tax Group, said: “This fresh thinking on the issue of charities and VAT will focus attention on what has been a long-running problem facing those charities that make the most contribution to the delivery of services to the public. Its findings are timely and welcome.”

Note:

For more information about CTG’s work on European VAT issues please contact Chris Lane at info@charitytax.info or 020 7222 1265 or Helen Donoghue on 07802 305750.