Dear Mr F.,

On 22 December 1999 you made a complaint on behalf of the National University of Ireland to the European Ombudsman concerning alleged failure by the Commission to pay refund of VAT on research contracts for the National University of Ireland.

On 8 February 2000, I forwarded the complaint to the President of the European Commission. The Commission sent its opinion on 27 April 2000 and I forwarded it to you with an invitation to make observations, which you sent on 29 June 2000.

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

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.

THE COMPLAINT

The complainant complains on behalf of the National University of Ireland that 200.000 ECU are due to it in respect of VAT refunds. The complainant explains that all Irish Universities have, for a number of years, large amounts of VAT due to them from various European Union departments.

THE INQUIRY

The Commission's opinion

As the complainant rightly pointed out, the outstanding refund by the Commission of VAT payments made by the National University of Ireland, Galway for work conducted in the EC funded Research Projects is a general problem of all Irish Universities. Therefore, the Commission would like to refer mainly to its comments addressed to European Ombudsman in reply to complaint by Mr Logan on behalf of Trinity College Dublin (ref. 990/99/IJH):

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

In accordance to 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 arrive at 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. »

With letter of 16 February 2000, Commissioner Busquin informed the complainant on the situation concerning the VAT refund to the three universities in Dublin and announced that the claim of the National University of Ireland, Galway would be dealt with as expeditiously as possible in accordance with the principles governing repayments to the Universities in Dublin.

It should however be pointed out that the proper treatment of all individual VAT refund claims calls for an extremely heavy administrative procedure. It involves just within DG Research and for the three Dublin Universities alone the verification of 171 contracts under 11 district Research programmes of the Third Framework Programme alone. A first batch of 13 of 171 contracts has now been fully processed for VAT refund to Trinity College. The file was completed by DG Research on 28 February 2000 and is presently under consideration in DG Budget. As soon as this first batch of VAT refunds has been successfully concluded, all remaining VAT refund claims will and can then be processed in a similar procedure. For that purpose, the National University of Ireland, Galway has meanwhile been asked to provide the Commission with a list of all EC funded Research projects for which VAT refund is claimed.

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.

The complainant's observations

The complainant provided the Ombudsman with a list of National University of Ireland, Galway, Research Contracts Details together with the related element of unpaid VAT. Furthermore, he explained that VAT is outstanding from the Third and Fourth Framework Programme and made some suggestions on means to reduce the current extremely heavy administrative procedure.

THE DECISION

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

1.1 The complainant complains on behalf of the National University of Ireland that 200.000 ECU are due to it in respect of VAT refunds. The complainant explains that all Irish Universities have, for a number of years, large amounts of VAT due to them from various European Union departments.

1.2 In its opinion the Commission acknowledged that the outstanding refund by the Commission of VAT payments made by the National University of Ireland 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 to 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 to 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 Member 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 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 to 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 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.