French law and the VAT Directive: meeting the compliance challenge in 2012

Abstract

The objective of VAT harmonisation rules pursued by all VAT Directives and the primacy of EU law require that comparable situations should receive the same treatment and fall under the same legal regime throughout the EU. As only the European Court of Justice (ECJ) may interpret EU law (Article 267 of the Treaty on the Functioning of the European Union (TFEU)), the Court in Luxembourg plays a crucial part in harmonising VAT rules. A national court’s reference for a preliminary ruling allows the ECJ to exercise its pre-judicial capacity in order to decide the meaning of a directive and therefore whether a Member State’s chosen interpretation complies with EU law. Actions for failure to fulfil obligations under Article 258 TFEU are more drastic, as they allow the Commission to subject a domestic rule to the review of the ECJ after the concerned state’s failure to review its internal law in accordance with the ECJ’s decision. Whether the meaning of a VAT Directive is decided after a reference for a preliminary ruling or an action for failure to fulfil obligations, Member States have a duty to act accordingly as they otherwise run the risk of facing a significant financial penalty. In these times of severe budgetary restrictions, it is preferable to react swiftly, and even to anticipate. The developments in French legislation, case law and administrative guidelines in 2012 illustrate the point. Because France has been or is likely to be condemned for failing to comply with ECJ case law, the French Parliament, French judges and the French tax authorities amended the law and changed its interpretation in 2012 in an attempt to make it compatible with the meaning of the VAT Directive as recently decided by the ECJ.