Dear Mr L.,

On 30 July 1999 you made a complaint to the European Ombudsman concerning alleged failure by the European Commission to pay refund of VAT on Research Contracts for Trinity College Dublin. In your complaint you allege that, since 1995, the Commission has failed to pay refunds of VAT which are due in respect of research projects carried out under the Third Framework programme. According to the complaint, Trinity College Dublin applied to the Commission for a refund by letter dated 2 December 1998 and sent a reminder on 18 February 1999, but neither letter has received a reply.

On 7 September 1999, I forwarded the complaint to the President of the European Commission. The Commission sent its opinion on 23 November 1999 and I forwarded it to you with an invitation to make observations, which you sent on 20 January 2000.

On 27 April 2000, I made a request for further information from the Commission. On 5 June 2000, the Commission requested an extension of deadline, on grounds that a detailed analysis of all accounts involved was required. On 7 June 2000, I replied extending the deadline until 30 June 2000. The Commission sent its second opinion on 3 July 2000. I forwarded it to you with an invitation to make observations, which you sent on 4 September 2000.

To avoid misunderstanding, it is important to recall that the EC Treaty empowers the European Ombudsman to inquire into possible instances of maladministration only in the activities of Community institutions and bodies. The Statute of the European Ombudsman specifically provides that no action by any other authority or person may be the subject of a complaint to the Ombudsman.

The Ombudsman's inquiries into your complaint have therefore been directed towards examining whether there has been maladministration in the activities of the European Commission.

I am writing now to let you know the results of the inquiries that have been made.

THE COMPLAINT

The complainant alleges that, since July 1995, the Commission has failed to pay refunds of VAT which are due to Trinity College Dublin, in respect of research projects carried out under the Third Framework programme. The University has had correspondence with both the Irish tax authorities and the Commission. The latest letter was addressed to the Commission in December 1998 and a reminder was sent in February 1999. According to the complainant no reply has been received to either letter.

The complainant annexed the correspondence with the Commission to his complaint. In this correspondence the Commission points out that the VAT reimbursement question has been subject of diverging interpretations of the Sixth VAT Directive (77/388/EEC) between the Commission and the Irish tax authorities. The Commission also mentions that universities subject to VAT are normally refunded by their Member States of origin in the research projects.

THE INQUIRY

The Commission's opinion

The Commission made the following points:

Trinity College Dublin participated in research and development projects co-financed by the Commission under the Third Framework programme (1990-1994). The contracts under which the work was performed included provisions for refund by the Commission of VAT payments made by the University where the University could not otherwise recover the VAT, and a number of repayments were made accordingly.

The practice of refunding VAT payments made was interrupted during 1995. The circumstances in which the interruption occurred were as follows:

In accordance with the Sixth VAT Directive, contractors who undertook research activities on behalf of the Commission should be able to recuperate the VAT payments through National Fiscal Authorities on the grounds that such research activities may be considered 'services' provided to the Commission services. There arose a concern that in some cases the system of VAT refunding could lead to double payment - by the Member State and by the Commission.

In order to anticipate problems arising from the aforementioned it was decided to issue a standard form to all contractors claiming VAT refund. This form contained two parts - one related to the procedural requirements of the contract, the second was to be completed by the Fiscal Authorities indicating the reason why the contractor could not recover the VAT amount at national level.

Since the suspension of VAT refund, the Commission services have received the forms referred to above from contractors. Following analysis of the replies by the Commission services, an internal note was issued on 21 September 1998, defining under which conditions payments may be made and outlining the procedure to be followed. This note gave no instruction with regard to whether a payment should be made in the case of any particular contract.

To reach a decision on each contract concerned, the Commission services have had to re-open the files and examine the VAT situation. This implies a considerable administrative effort, as many of the files had already been closed and often the officials in charge have changed.

Regarding outstanding claims for VAT repayments by the three universities in Dublin (Trinity College Dublin, Dublin City University, University College Dublin) the Commission services have concluded that in accordance with the contract conditions applicable to the Third Framework Programme, and consistent with administrative provisions to ensure avoidance of 'double payment', VAT should be refunded.

The Commission services have contacted the University authorities and will continue this interaction to clarify details of payments already made and of outstanding VAT refunds. Payments due will be made on each contract following completion of administrative procedures.

Trinity College states that it applied « to both DG's » (i.e. former DGs XII and XIII) on 2 December 1998 and 18 February 1999, but received no reply. Regarding these requests the situations is as follows:

The former DG XIII, having received these general requests from Trinity College Dublin, did not make an over-all answer, specifically referring to these letters, at the time. The relevant services however continued working on the files concerned. On 5 July 1999 the Director General of DG XIII wrote to Dr Fottrell, Chair of the Conference of Heads of Irish Universities, reassuring him on the refund (letter included in the complaint file). On 30 September 1999 a summary of the situation of the contracts under the responsibility of the former DG XIII was forwarded to Trinity College.

Letters from Trinity College under the same dates were received and replied to by DG Research (former DG XII) and by Fisheries DG (former DG XIV).

The Commission regretted the protracted handling of this matter, including delays in replying. Subject to the administrative controls and conditions applicable, appropriate VAT refund to which Trinity College is entitled will be made.

The complainant's observations

The complainant made the following points:

1. When the Commission interrupted payments during 1995, it did not check any of the subsequent VAT claims received from the University. The University is of the view that the Commission should have agreed on the amount due to the contractor pending payment at a later date. In the absence of such an agreement, the European Union finds itself in difficulty in verifying the dormant claims. The Commission's lack of foresight and appreciation of how important the VAT refunds are to the Universities has led to the problems they now have in sanctioning the claims.

2. To date no payments have been received from the Commission in respect of the outstanding refunds due under the Third Framework Agreement. Some minor outstanding claims have been agreed with the Universities but none of the major claims in value have been agreed. The complainant enclosed a list of VAT claims in respect of Trinity College Dublin, which had not yet been agreed on.

3. Annex I: An immediate reply to Trinity College Dublin's letters of 2 December 1998 and 18 February 1999 that the matter was being attended to would have been appreciated.

4. Annex II: When the College received the fax from Mr. Opbrouck dated 9 December 1998 the complainant immediately contacted DG XXII and they quickly forwarded a copy of the internal memorandum dated 21 September 1998 to Mr Opbrouck.;

Annex III: Research Contract MA3.651. The VAT was accepted by the European Union and not paid. The final letter received from the Commission in respect of this contract was 21^st April 1997 and overlaps with the period during which VAT was not being refunded. The College refunded the Commission 423 ECU in respect of their overpayment on the research contract and the College is disappointed that the Commission has not done likewise in refunding the money on the VAT refund due to it.

FURTHER INQUIRIES

After careful consideration of the Commission's opinion and the complainant's observations, it appeared that further inquiries were necessary. The Ombudsman requested the Commission to respond to the four points raised by the complainant in the observations and inform him of its timetable for resolving the problem of outstanding VAT refunds to the complainant.

The Commission's second opinion

I Concerning the points 1 to 4 listed in the the observations of Trinity College Dublin the position of the Commission services is as follows:

1. Lack of foresight: as pointed out in the Commission's comments of 27 April 2000 on a similar complaint (ref. 1577/99/IJH), the problem of VAT refund could have been avoided if the Irish VAT systems were fully consistent with the Sixth VAT Directive. When the Commission stopped its payments covering the VAT, it acted in conformity with the Sixth VAT Directive and on the assumption that the Irish VAT system would be aligned with this Directive. It would have appeared improper to assume that Ireland would not align with the VAT system and to make provisions for VAT refunds.

2. The list of contracts attached to the letter of Trinity College Dublin is helpful as it identifies, at least for the already closed contracts, the individual VAT refund claims. It must however be pointed out that the information provided requires further verification.

3. The Commission acknowledged that an interim reply to the letters of 2 December 1998 and 18 February 1999 should have been addressed to Trinity College Dublin.

4. The relevance of Trinity College Dublin's observations indicated in point 4 of its letter is not clear. It is not contested that the internal memorandum mentioned was quickly forwarded. This memorandum was however only one element of a much wider discussion. As concerns the Research Contract MA3.651, the Commission's services communicated a very clear position i.e. that any refund of VAT was not possible.

II The Commission pointed out the extremely heavy administrative procedure involved: for each contract, the retrieval of the original file from the Commission's central archive storage or from the contractor is required so that invoices be analysed and the amount eligible for VAT refund be assessed.

Furthermore, a new administrative problem arose, due to unsatisfactory documentation in some contracts - missing original invoices or illegible original invoices - which may prevent the Commission from being refunded by the Irish Authorities. On the assumption that a satisfactory solution on the payment conditions and modalities can be found for these contracts, the claims of Trinity College Dublin can be processed by the end of 2000.

The complainant's second observations

The complainant made the following observations on point I:

1. When the Commission suspended refunds of VAT it should have checked the VAT claims. By not checking the VAT claims at the time of submission by the Contractor the Commission now finds that some or all of the documentation submitted by the Contractor is missing.

2. The list of Contracts attached is complete and there will be no further VAT claims in respect of the Third Framework Programme.

3. The complainant acknowledged the Commission's comments on point 3.

4. The complainant was led to believe that the Commission should proceed to make the outstanding refunds of VAT. The complainant does not agree with the Commission's comments on MA3.651 but Trinity College Dublin does not wish to continue seeking a refund of the outstanding VAT on this Contract MA3.651.

On point II:

The Commission should have used caution by checking the VAT claims at the time those were received from the contractor. The complainant was consistent in submitting the documentation required by the Commission or the Co-ordinator.

In summary, the three Dublin universities followed the proper procedures for reclaiming VAT as laid down in Annex II to all contracts under the Third Framework Agreement. There has been a five-year delay in making the refunds to the complainant. The complainant looks forward to receiving the full amount of VAT due under the Third Framework Agreement.

THE DECISION

1 Failure to pay refund of VAT on Research Contracts under the Third Framework Programme

1.1 The complainant alleges that, since 1995, the Commission has failed to pay refunds of VAT, which are due in respect of research projects carried out under the Third Framework programme.

1.2 In its opinion the Commission acknowledged that the outstanding refund by the Commission of VAT payments made by Trinity College Dublin for work conducted in the EC funded Research Projects is a general problem of all Irish Universities. The practice of refunding VAT payments made was interrupted during 1995. In accordance with the Sixth VAT Directive, contractors who undertook research activities on behalf of the Commission should be able to recuperate the VAT payments through National Fiscal Authorities on the grounds that such research activities may be considered 'services' provided to the Commission services. There arose a concern that in some cases the system of VAT refunding could lead to double payment - by the Member State and by the Commission. The Commission services have contacted the University authorities and will continue this interaction to clarify details of payments already made and of outstanding VAT refunds. Payments due will be made on each contract following completion of administrative procedures.

1.3 The Commission very much regretted this situation of VAT refunds, which could have been avoided if the Irish system were fully aligned with the Sixth VAT Directive. It is a fact that in the Irish legislation public Universities are deemed not to make taxable supplies. According to the VAT system, this prevents them from recovering the VAT paid in respect of their purchases. The Commission has launched an infringement procedure against Ireland since it takes the view that, under the terms of the Sixth VAT Directive, only educational services qualify for exemption, the activity of research being taxable. If the Irish system were aligned with the Directive on this point, Universities would be entitled to recover at national level the VAT paid in respect of purchases used for making the research and no need to apply for refunds from the Community would arise.

1.4 The European Ombudsman notes that the relevant provisions are contained in Council Directive 77/388/EEC of 17 May 1977 - the Sixth VAT Directive(1). Article 13 A 1, i of the Directive provides for VAT exemption i.e. "school or university education, vocational training or retraining, including the supply of services and of goods closely related thereto, provided by bodies governed by public law having such as their aim or by other organizations defined by the Members State concerned as having similar objects;".

1.5 The Ombudsman considers that the delay in verifying the entitlement to a VAT refund is regrettable. It appears, however, that universities subject to VAT are normally refunded by their Member State of origin in the research projects. The refund in question has been the subject of diverging interpretation between the Commission and the Irish tax authorities. The Commission is of the view that the Irish legislation is not fully aligned with the Sixth VAT Directive. The Ombudsman acknowledges that the Commission cannot be solely held responsible for the delay in the refund of VAT. Furthermore, the Ombudsman notes that the delay in the handling of applications of VAT refund by the Commission appears to be mainly due to the heavy administrative procedures needed to uncover instances of double payment.

1.6 The Ombudsman observes that the Commission has regretted the situation as regards the VAT refund. It appears that the Commission has acted in accordance with the principles of sound financial management and that it has launched an infringement procedure against Ireland in order to align the Irish legislation with the Sixth VAT Directive. The Ombudsman therefore concludes that there is no evidence of maladministration as regards this aspect of the case.

2 Undue delay in replying to correspondence

2.1 According to the complainant, Trinity College Dublin applied to the Commission for a refund by letter dated 2 December 1998 and sent a reminder on 18 February 1999, but neither letter has received a reply.

2.2 In its opinion the Commission explained that former DG XIII did not make an over-all answer, specifically referring to these letters, at the time. The relevant services however continued working on the files concerned. On 5 July 1999 the Director General of DG XIII wrote to Dr Fottrell, Chair of the Conference of Heads of Irish Universities, reassuring him on the refund. On 30 September 1999 a summary of the situation of the contracts under the responsibility of the former DG XIII was forwarded to Trinity College. The Commission has annexed to its opinion copies of replies sent to the complainant by fax on 9 December 1998 and on 3 March 1999. These replies contain an acknowledgement of receipt with a suggestion to contact another person and an acknowledgement of receipt with a request to provide titles of the projects. In its second opinion the Commission acknowledged that an interim reply to the letters of 2 December 1998 and 18 February 1999 should have been addressed to Trinity College Dublin.

2.3 Principles of good administrative behaviour require that citizens who write to the Commission receive a reply within a reasonable time. The Commission services have sent to the complainant acknowledgements of receipt on 9 December 1998 and on 3 March 1999, and later on 5 July 1999 a detailed reply. Although, it is unfortunate that the complainant did not receive a detailed reply earlier, the Commission has replied to the complainant's letters sent on 2 December 1998 and on 18 February 1999. Therefore, there appears to be no maladministration as regards this aspect of the case.

3 Conclusion

On the basis of the Ombudsman's inquiries into this complaint, there appears to have been no maladministration by the European Commission. The Ombudsman therefore closes the case.

The President of the European Commission will also be informed of this decision.

Yours sincerely,

 

Jacob SÖDERMAN

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(1) Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes - Common system for value added tax: uniform basis of assessment, OJ 1977 L 145/1.