EU To Suspend VAT On Medical Supplies Amid Pandemic

By Matt Thompson
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Law360 (April 1, 2020, 3:41 PM EDT) -- The European Commission will temporarily suspend value-added tax and tariffs on imported protective medical equipment to help deal with the COVID-19 pandemic, according to a letter to national tax authorities seen by Law360 on Wednesday.

The relief will apply across the European Union retroactively and cover a range of essential medical products such as protective masks and clothing. The move comes after several EU governments asked the commission to authorize the suspension of tariffs and VAT at the national level in response to the global outbreak of the novel coronavirus, which causes the respiratory disease COVID-19.

The letter, which was sent March 26, said the commission, the European Union's executive arm, will examine as quickly as possible any proposals to make the import of items intended for disaster relief free of VAT and customs duties.

EU import duties and taxes on medical equipment vary from zero for items such as ventilators to 12% for protective face masks — although that is significantly lower than the average rate of VAT on other items.

When the medical items are not coming from outside the EU, governments could temporarily allow hospitals to defer VAT on them to a later date, and at the same time suppliers should be able to deduct the VAT to mitigate any cash flow problems, the letter says.

EU countries can also apply a reduced rate of VAT to pharmaceutical products, and the commission will use its discretion when applying the rules in the light of the "exceptional circumstances," the letter says.

The letter invites member states and the U.K. to indicate any additional measures that the commission should undertake to counter what it calls an "unprecedented threat" and to avoid queues forming at the union's external borders.

"The commission is committed to use all economic policy tools at its disposal to support member states in protecting their citizens and mitigating the pandemic's severely negative socioeconomic consequences," the letter says.

The letter also asks that, despite the difficult working conditions, national tax authorities continue to provide administrative support to one another in VAT collection and tax recovery assistance.

The United Kingdom announced Tuesday evening that it would be taking advantage of the flexibility that the commission was giving to EU countries. Though the U.K. left the bloc on Jan. 31, it remains bound by its laws until the end of the year.

The U.K. chancellor of the Exchequer announced he would waive import taxes on medical equipment crucial to the fight against the pandemic — "reducing red tape to ensure equipment gets to front-line health workers faster," according to HMRC.

"National Health Service suppliers will no longer have to pay customs duty and import VAT on specific medical goods coming from outside the EU, including ventilators, coronavirus testing kits and protective clothing," HMRC said.

The measures in the U.K. will remain in place until July 31, according to HMRC. It is unclear how long the discretion will be applied at EU level.

The European Commission and HMRC did not immediately respond to requests for comment.

--Editing by John Oudens.

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