Procedural Autonomy in VAT?

We use the term „procedural autonomy of member states” all the time in VAT law. But where did it come from? And is it actually a principle?

In this episode, Paweł Mikuła talks with Stefanie Geringer, Post-doctoral Researcher at Vienna University and Masaryk University in Brno. Together, they explore the historical evolution of VAT procedural law from 1967 to today, question whether „autonomy” is even the right word, whether it makes sense to invoke it, and whether the VAT Quick Fixes package changed anything in formal obligations.

This episode is essential for academics, tax lawyers, judges, practitioners who want to understand the mechanics of EU VAT law – especially the procedural VAT law.

This article is a short summary note from a discussion with tax law expert Nevia Čičin-Šain and does not constitute a sourced academic paper. The analysis presented reflects the conversation’s key insights and points rather than comprehensive research.

VAT Procedural Law in the European Union: Harmonization and Member State Autonomy

Introduction

This article summarizes a podcast conversation between Paweł Mikuła, partner and founder of “Halcyon | Tax. Customs. Legal.”, and Stefanie Geringer, a post-doctoral researcher at Vienna University and Masaryk University in Brno. The discussion focuses on the historical development of VAT procedural law in the EU and the concept of „procedural autonomy” of member states.

The Difference Between Substantive Law and Procedural Law

Drawing a line between substantive law and procedural law is difficult, especially in VAT. Stefanie makes a traditional distinction: substantive law is the „what” and procedural law is the „how.” Procedural law concerns how the law is enforced and applied.

Procedural law includes provisions on procedures themselves, such as registration requirements. It also includes institutional requirements, meaning the authorities that apply and enforce the law. It can be noted that there is currently discussion at the EU level about what an EU VAT authority or agency could look like.

In Poland there was significant academic discussion about whether formal obligations like registration, submitting information, and providing documents are procedural or substantive obligations.

This question is not unique to Poland or to VAT law. However, she noted that the question may not be too important because what matters is the allocation of competence between the EU and member states. If the EU has not made use of its competence, then it is up to member states to define the law.

Historical Evolution of VAT Procedural Law

The Second Directive (1967)

The first approximation measures in VAT procedural law appeared in the Second Directive of 1967. These measures concerned four main obligations: bookkeeping, invoicing, filing tax returns, and payment of VAT due. However, the directive left much discretion to member states. Interestingly, Article 12 contained these obligations, but an Annex further opened up flexibility for member states.

The Sixth Directive

The Sixth Directive introduced registration requirements to confirm existing practices in member states. It also included initial measures on simplification for smaller businesses. The directive introduced what is now Article 273 of the VAT Directive, which allows member states to introduce additional obligations to ensure correct VAT collection.

The Eighth and Thirteenth Directives

These directives harmonized procedures for refunding input VAT to businesses established abroad. The Thirteenth Directive applies to third-country businesses and is still relevant today. It requires member states to refund input VAT based on certain criteria and prohibits them from treating EU businesses less favorably than third-country businesses. However, much is left to member states and practices vary significantly.

The preparatory materials showed there were divergent practices among member states. There was a need to create a common system so businesses would not be hindered in providing goods and services across borders. There was also fear that different rules would create unwanted competition between member states.

The Transitional System (1993)

In 1993, the transitional system introduced the intra-community supply and acquisition of goods. This brought the first cross-border procedure where tax authorities from at least two member states work together. The recapitulative statement (EC Sales List) was introduced, requiring information to go from one member state to another. VAT identification numbers for businesses were also introduced to make the common reporting system work.

Recent Developments

Since 1993, there have been mainly refinements in the law. Invoicing rules have been prominent in reform proposals. Recent developments include the one-stop-shop (OSS) schemes. There are now three OSS schemes. The current refund procedure also works on a similar concept. A similar concept is now in place for the cross-border SME procedure.

The ViDA (VAT in the Digital Age) initiative will introduce e-invoicing obligations for cross-border transactions.

The Destination-Based System

The EU VAT system is moving toward a destination-based system. For B2B supplies of services, Article 44 of the VAT Directive establishes that the place of supply is where the customer is located (where the business is established or has a fixed establishment).

For B2C supplies, there is also movement toward taxing at the destination, where the customer lives. This is because it is assumed customers consume goods and services where they are established.

This movement toward a destination-based system creates compliance requirements for businesses in various destination countries. Digitalization has made it easier to offer services across borders, making procedural issues more relevant in recent years.

The „Principle” of Procedural Autonomy

Origins of the Term

The term „principle of procedural autonomy of member states” appears often in case law and literature. It originally came from academic literature. Someone framed this notion and then the Court of Justice started using it.

Criticism of the Term

According to Stefanie this framing is misleading. The former Advocate General Michal Bobek has been very critical of the court’s use of this term. Stefanie does not consider this „principle” to be comparable to other general principles of EU law applied in VAT field.

What the court describes as „procedural autonomy” is simply the reality of shared competence. VAT is an area of shared competence where both the EU and member states have competence. Article 113 of the Treaty on the Functioning of the European Union gives the EU legislature power to set standards for VAT law. Where the EU has not made use of these powers, it is up to member states to define the law.

„Competence” Not „Autonomy”

Stefanie prefers the word „competence” over „autonomy.” The word „autonomy” implies member states are completely free to do what they want. This is not true because member states must still consider primary law requirements, fundamental rights under the Charter, and general principles of EU law.

Court of Justice Case Law and Procedural Matters

The Court of Justice sometimes invokes procedural autonomy but in other cases takes very strict positions on specific procedural matters. For example, the court has ruled on:

• Who must prove conditions for exemptions or deductions
• Tax authorities must prove conditions for VAT fraud or abuse
• Burden of proof cannot be disproportionate
• Irrebuttable presumptions are not allowed
• Taxpayers should have instruments to rebut estimations

It is acknowledged that this is a controversial field. The court has different approaches to intervening with national law. She suggested it may depend on which chamber decides and which judges are involved. Some judges interpret Article 267 (on preliminary requests) restrictively, saying the court should only interpret EU law. Other decisions imply what the court wants to see as an end result at national level.

Current Scope of Member State Discretion

Member states seem to still have significant discretion. They are not bound to apply certain time limits or certain interest rules. Evidence rules generally follow what Stefanie called the „sphere theory”: each party must prove what is favorable to them. Authorities must prove wrongdoing, while businesses must prove they have a certain right.

Member states can define how procedures should be designed and which institutions apply the law. They can decide whether to have a one-tier or two-tier tax authority and make decisions about geographical scope.

There is also a human factor in enforcement. When assessing facts, officials may arrive at different conclusions because cases are not always identical.

Formal Requirements and the Quick Fixes

The conversation addressed whether formal requirements are procedural or substantive. Before the Quick Fixes, if a business fulfilled substantive conditions for an exemption (such as for intra-community supply of goods), they had the right to the exemption even without fulfilling formal conditions like presenting proof that goods left the country.

However, the Quick Fixes introduced requirements that to apply the exemption on intra-community supplies, businesses must submit the EC Sales List and ensure their buyer is registered for EU VAT purposes. The legislation stated these are substantive requirements. Although it remains debatable if these requirements have substantive character in nature.

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