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The VAT directive

Council Directive 2006/112/EC, known as the VAT directive or sometimes the principal VAT directive, consolidates the basis of the system of value added tax in the European Union. It is essentially a recast of the text of the 1977 sixth VAT directive.

The text of this directive was adopted by ministers on 28 November 2006, published in the Official Journal on 11 December 2006, and came into force on 1 January 2007:

Council Directive 2006/112/EC "the VAT directive" (118 pages, PDF)

The Value Added Tax Act 1994 is the main primary legislation implementing the system of VAT in the UK.

Definition of taxable person

According to Article 2(1)(a)of the VAT directive, and leaving aside the more complicated rules governing the taxation of cross-border transactions, VAT applies to "the supply of goods for consideration within the territory of a Member State by a taxable person acting as such".

The definition of a taxable person, and of acting as a taxable person when making supplies, is therefore at the heart of the scope of the VAT system.

The definition is covered by five separate articles of the VAT directive. The following quotes provides references to the relevant text.

Article 9(1) [4(1)-(2) in sixth directive]. 'Taxable person' shall mean any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity.
Any activity of producers, traders or persons supplying services, including mining and agricultural activities and activities of the professions, shall be regarded as 'economic activity'. The exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis shall in particular be regarded as an economic activity.

Article 10 [4(4) first subparagraph in sixth directive]. The condition in Article 9(1) that the economic activity be conducted 'independently' shall exclude employed and other persons from VAT in so far as they are bound to an employer by a contract of employment or by any other legal ties creating the relationship of employer and employee as regards working conditions, remuneration and the employer's liability.

Article 11 [4(4) second subparagraph in sixth directive]. After consulting the advisory committee on value added tax (hereafter, the 'VAT Committee'), each Member State may regard as a single taxable person any persons established in the territory of that Member State who, while legally independent, are closely bound to one another by financial, economic and organisational links.
A Member State exercising the option provided for in the first paragraph, may adopt any measures needed to prevent tax evasion or avoidance through the use of this provision.

Article 12 [4(3) in sixth directive]. Member States may regard as a taxable person anyone who carries out, on an occasional basis, a transaction relating to the activities referred to in the second subparagraph of Article 9(1) and in particular one of the following transactions:
(a) the supply, before first occupation, of a building or parts of a building and of the land on which the building stands;
(b) the supply of building land. "Building land" shall mean any unimproved or improved land defined as such by the Member States.

Article 13(1) [4(5) in sixth directive].

States, regional and local government authorities and other bodies governed by public law shall not be regarded as taxable persons in respect of the activities or transactions in which they engage as public authorities, even where they collect dues, fees, contributions or payments in connection with those activities or transactions.

However, when they engage in such activities or transactions, they shall be regarded as taxable persons in respect of those activities or transactions where their treatment as non-taxable persons would lead to significant distortions of competition.

In any event, bodies governed by public law shall be regarded as taxable persons in respect of the activities listed in Annex I, provided that those activities are not carried out on such a small scale as to be negligible.

Article 13(2). Member States may regard activities, exempt under Articles 132, 135, 136, 371, 374 to 377, and Article 378(2), Article 379(2), or Articles 380 to 390, engaged in by bodies governed by public law as activities in which those bodies engage as public authorities.

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Last changed by Franck at 3:30 PM on Friday 14 December 2007.

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