VAT neutrality: a principle of EU law or a principle of the VAT system?

Abstract

According to recent CJEU case law, fiscal neutrality is not a rule of primary law which can condition the validity of a provision of an European Directive; it is only a principle of interpretation, to be applied concurrently with the principle of strict interpretation of the VAT exemptions. In this article it is suggested that the principle of fiscal neutrality has been contained in the European Treaties since 1957, and it is an implementation in VAT matters of the concept of the EU principle of non-discrimination. Discrimination is sometimes expressly authorised by EU law, but for a transitional period in the case of VAT exemptions. The distinction between non-discrimination and VAT neutrality is not based on historical or economic evidence and it creates logical inconsistencies. The CJEU gives priority to uniform interpretation above the objectives of the Treaties but this does not improve the functioning of the internal market.