VAT and customs duties in COVID-19 times in the European Union – do the ends justify all means?

VAT text on coins

 by Andreia Barbosa, PhD Candidate at the University of Minho

Given the international public health emergency, it is paramount to adopt measures to mitigate the global spread of the virus and its underlying impacts at different levels – including at the international trade level.

The adaptation of the tax regime related to international exchanges of goods has already begun to be made, given the need to facilitate (through the reduction of taxation) the acquisition of equipment for the prevention and combat of COVID-19. The European Commission itself has addressed a note to the General- Directors of Tax and Customs Administrations of the Member States (and the United Kingdom), clarifying what exceptional instruments are available to help disaster victims and which can be used to tackle this health crisis without precedents.

In Portugal, the VAT exemption already enshrined in the transmission of goods free of charge, for later distribution to people in need, made to the Portuguese State agencies or other philanthropic organizations [in accordance with the provisions of in articles 51 to 57 of Council Directive 2009/132/EC of October 19th, 2009, which determines the scope of Article 143 (b) and (c) of Directive 2006/112 / EC], was assumed as an instrument capable of promoting aid to the victims of the COVID-19.

The aforementioned exemption, as determined by the Secretary of State for tax affairs (through an order), became applicable to the transmission of goods free of charge to the State, to private solidarity institutions or to other philanthropic organizations, for subsequent placement at the disposal of needy people, even if they (the goods) remain on the property of those bodies. On the other hand, and by the same way (through an order), a subjective extension of the exemption’s incidence was established, considering that people who are receiving health care in the current pandemic context are people considered in need. In other words, those infected by COVID-19 are now considered victims of the catastrophe.

Concerning to customs taxation, the relief from customs duties provided for in articles 74 to 80 of Council Regulation (EC) 1186/2009, of November 16th, 2009 – when directed to goods destined for “ victims of catastrophes ”- seems to know a scope capable of covering imports of protective equipment, other devices or medical equipment relevant in the context of the outbreak of COVID-19. The concession of the relief is subject to a decision by the Commission, which appeared on April 3rd, 2020.

Regarding the export of Personal Protective Equipment, whether or not originating in the Union (such as protective spectacles and visors; face shields – e.g., masks; mouth-nose-protection equipment; protective garments; and gloves), shall be necessary an export authorization issued by the competent Authorities, as foreseen in the Commission Implementing Regulation (EU) no. 2020/402, dated March 14th, 2020. However, exports to Norway, Iceland, Liechtenstein, Switzerland, Faroe Islands, Andorra, San Marino and Vatican City shall not be subject to this new measure, according to Commission Implementing Regulation (EU) no. 2020/426, dated March 19th, 2020.

In addition, the exceptional situation that we are experiencing has motivated the adaptation of customs action with regard, for example, to the admissibility of new requests, the deadline for making decisions on pending requests, and the need to meet the financial difficulties of economic operators for the purposes of compliance with customs obligations, an adaptation which, moreover, meets solutions that already found acceptance in the Union Customs Code itself and in the complementary legislation. Specifically concerning to the control of goods, without neglecting the speed clearance of the personal protective equipment (e.g. masks) –  and in order to verify if they comply with the minimum requirements for the protection of health and safety, the Customs Authorities should carry on a previous control/inspection of those products to ensure they comply with the requirements foreseen in Regulation of the European Parliament and of the Council no. 2016/425 of March 9th, 2016.

Given the uniform legal discipline at the European level – based on Regulations -, in principle, in the customs field, there is no need to adapt the internal discipline, which results in aspects that do not include customs deductibles.

In the context of VAT taxation, although the European discipline – based on Directives – also knows a scope capable of accommodating realities such as the one we live in, its implementation internally will vary according to the contours that each State Member set. That is why the internal VAT legislation must be adapted to new scenarios, initially and naturally not foreseen by the national legislator, as happened in the Portuguese legal system.

However, this adaptation must not fail to be made under the constitutional requirements related to the terms of creation and amendment of tax rules those that contend with essential tax matters: incidence, fees, tax benefits and guarantees of taxpayers.

It is understood that the legislator is unable to foresee all the scenarios that, in practical terms, may arise, and the need to quickly adapt the discipline to such scenarios, in honor of practicality and fiscal efficiency objectives, is also understood. However, not all means justify the ends. In the case of matters that call for special requirements of legality, typicality and certainty, the definition of the scope of exemptions from VAT (or any other tax) must continue to be made under the constitutional rules of each Member State, which establish pillars for the creation and maintenance of rule of law. The consideration for such pillars must be even more evident when, in the face of states of constitutional exception, the Constitution determines that the application of constitutional rules regarding the jurisdiction of the sovereign bodies cannot be affected.

The determination, through non-normative acts, and dictated following the appearance of COVID-19, of the terms in which a tax exemption is considered, does not result in a mere extensive interpretation of tax benefits (as are exemptions). How to justify the inclusion of a new reality in the ratio legis? What is at stake here is an effective alteration of legal and tax precepts, which must comply with constitutional provisions. A contrary understanding seems to admit circumventing the Constitution – as a consecrating instrument of the values ​​considered essential by a community – in the event of a pandemic. Is this the scenario of constitutional easing that is sought in the Member States of the European Union? What will be your limit? Or is there not? Do the ends justify all means?

Picture credits: VAT text on coins by Marco Vech.

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