EU update on VAT in legal aid cases, and the Services Directive

No cutting VAT on legal aid cases

In an opinion issued on 11 February 2010, Advocate General Jääskinen considered the question of the application of a reduced VAT rate in relation to legal aid. Since 1991 France has been applying a reduced rate of 5.5% VAT to services rendered by lawyers in the context of partial or full legal aid. The Commission alleged that this breached the terms of Directive 2006/112 on the common system of VAT, which contains an exhaustive list of services to which a reduced rate of VAT may be applied. In its defence France argued first, that this reduced rate of VAT was required to ensure access to justice, and secondly, that it could apply a reduced rate of VAT to these services as they concern the “supply of… services by organisations recognised as being devoted to social wellbeing by member states and engaged in welfare or social security work”. The Advocate General disagreed, stating that whilst legal aid is an essential element of ensuring access to justice, applying the normal VAT rate of 19.5% would not limit such access.

Member states must do better

As widely expected, a survey published last month by Eurochambres revealed that only nine out of 27 member states have so far fully complied with their obligations under the Services Directive. A number have failed to set up the one-stop-shop for services providers (the so called “Point of Single Contact”). Another concern is that the screening process designed to examine barriers to effective service provision in national law was not done satisfactorily during the three year implementation period. Observers are waiting to see whether the Commission will take infringement proceedings against those national governments lagging behind.

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