© 2025 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
K1. General points on reduced rates
- For Member States to determine more precisely which goods and services are subject to reduced rate
"[34] In accordance with the Court’s settled case-law, it is for the Member States, subject to compliance with the principle of fiscal neutrality inherent in the common system of VAT, to determine more precisely which of the supplies of goods and services included in the categories of Annex III to the VAT Directive are subject to the reduced rate (judgment of 22 April 2021, Dyrektor Izby Administracji Skarbowej w Katowicach, C‑703/19, EU:C:2021:314, paragraph 38 and the case-law cited).
[35] In that regard, it should be noted that, under Article 98(3) of the VAT Directive, Member States may use the CN when applying reduced rates to categories which refer to supplies of goods, in order to establish the precise coverage of the category concerned. However, it should be noted that use of the CN is only one of several ways of establishing the precise coverage of the category concerned (judgment of 22 April 2021, Dyrektor Izby Administracji Skarbowej w Katowicach, C‑703/19, EU:C:2021:314, paragraph 39 and the case-law cited).
[36] Accordingly, provided that the transactions to which the reduced rate applies fall within one of the categories in Annex III to the VAT Directive and that the principle of fiscal neutrality is complied with, the national legislature is free, when defining in its domestic law the categories to which it intends to apply that reduced rate, to classify the supplies of goods and services included in the categories in Annex III to the VAT Directive in accordance with the method which it considers to be the most appropriate (judgment of 22 April 2021, Dyrektor Izby Administracji Skarbowej w Katowicach, C‑703/19, EU:C:2021:314, paragraph 40 and the case-law cited)." (YD C-146/22)
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- Not required to apply the reduced rate to everything falling within a category
"[38] Likewise, the Court found that the VAT Directive does not preclude supplies of goods or services falling within the same category of Annex III to that directive from being subject to two different reduced rates of VAT (judgment of 22 April 2021, Dyrektor Izby Administracji Skarbowej w Katowicach, C‑703/19, EU:C:2021:314, paragraph 42 and the case-law cited)." (YD C-146/22)
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"[43] The Court has already held, with regard to the third subparagraph of Article 12(3)(a) of the Sixth Directive, that there is nothing in the text of that provision which requires that it be interpreted as meaning that the reduced rate can be charged only if it is applied to all aspects of a category of supplies covered by Annex H to that directive, with the result that a selective application of the reduced rate cannot be excluded provided that no risk of distortion of competition results (see Case C-94/09 Commission v France [2010] ECR I-4261, paragraph 25 and the case‑law cited). The Court has also held that, since Article 98(1) and (2) of the VAT Directive in essence repeats the wording of Article 12(3)(a) of the Sixth Directive, the interpretation given by the Court to the earlier provision should be extended to the provision replacing it (Commission v France, paragraph 27)." (Pro Med Logistik C-454/12)
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- Fiscal neutrality means reduced rate may only single out concrete and specific aspects of category
"[44] The Court has consequently decided that, subject to compliance with the principle of fiscal neutrality inherent in the common system of VAT, Member States may apply a reduced rate of VAT to concrete and specific aspects of a category of supplies covered by Annex III to the VAT Directive and Annex H to the Sixth Directive respectively (see, to that effect, Commission v France, paragraphs 26 and 27 and the case‑law cited).
[45] It follows that the exercise of the possibility granted to the Member States to apply selectively the reduced rate of VAT is subject to the twofold condition, first, that they isolate, for the purposes of the application of the reduced rate, only concrete and specific aspects of the category of supply at issue and, secondly, that they comply with the principle of fiscal neutrality. Those conditions seek to ensure that Member States make use of that possibility only under conditions which ensure the correct and straightforward application of the reduced rate chosen and the prevention of any possible evasion, avoidance or abuse (see Commission v France, paragraph 30)." (Pro Med Logistik C-454/12)
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- But must comply with fiscal neutrality
"[39] Nevertheless, it must be recalled that, where they choose to apply one or two reduced rates of VAT to one of the categories of supplies of goods or services listed in Annex III to the VAT Directive or, where appropriate, to limit their application selectively to some of the supplies of goods or services in each of those categories, the Member States must comply with the principle of fiscal neutrality (judgment of 22 April 2021, Dyrektor Izby Administracji Skarbowej w Katowicach, C‑703/19, EU:C:2021:314, paragraph 43 and the case-law cited)." (YD C-146/22)
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Concrete and specific aspect​
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- A service which is identifiable separately from the other services in the category
"[47] In order to determine whether the local transport of passengers by taxi constitutes a concrete and specific aspect of the supply of services by undertakings for the transport of passengers and their accompanying luggage, it is necessary to consider whether this involves a service which is, as such, identifiable separately from the other services in that category (see, by analogy, Commission v France, paragraph 35)." (Pro Med Logistik C-454/12)
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- Taxi service distinct from mini-cab services due to regulation and obligations
"[49] A legal framework which, unlike that for minicab services, obliges taxi operators to be on call in order to provide a transport service, which prohibits them from refusing to provide transport in the expectation, in particular, of a more profitable journey or from taking advantage of situations in which they could request a different fare from the official fare is likely to be indicative of separate supplies.
[50] In such circumstances, the activity of local passenger transport by taxi could be considered to be a supply of services which is, as such, identifiable separately from the other supplies covered by the category at issue, namely the transport of passengers and their accompanying luggage. That activity could, therefore, constitute a concrete and specific aspect of that category." (Pro Med Logistik C-454/12)
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. - But not for customer who uses both under indiscriminate and identical agreements
"[63] In that regard, it must be observed that the services at issue in the main proceedings consist, essentially, in the transport of patients carried out pursuant to an agreement such as the agreement between Sickness Insurance Fund A and the Association, which applies indiscriminately to the taxi undertakings and minicab undertakings which are parties to it. It is apparent from the documents before the Court that the transport fare is fixed in that agreement and that it applies in the same way to the two categories of transport. In addition, that agreement does not give rise to any obligation for those two categories of transport to carry on business or to provide transport other than that already existing under the agreement, namely the obligation that the transport is in fact carried out. Taxi undertakings are thus not subject, in the context of such an agreement, to the statutory requirements imposed on them outside the scope of that agreement.
[64] If those facts should be borne out – this being a matter for the referring court to determine – that court would then have to take the view that, under the agreement between Sickness Insurance Fund A and the Association, the transport of passengers by taxi is not a concrete and specific aspect of the category of service of transport of passengers and their accompanying luggage. Furthermore, that activity would therefore have to be considered to be similar, from the point of view of the average user, to the activity of local transport of passengers by minicab. However, this cannot preclude the activity of the transport of patients under agreements concluded between sickness insurance funds and passenger transport undertakings from being able to constitute, as a whole, a concrete and specific aspect of the services supplied by undertakings for the transport of passengers and their accompanying luggage, within the meaning of the case-law cited in paragraph 44 of the present judgment." (Pro Med Logistik C-454/12)
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Directive only permitting distinctions along certain lines​
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- Only permitted to distinguish alcoholic beverages from other beverages, not certain types of alcoholic beverage
"[190] In relation to this question, we should start by saying that, although the parties appeared to be in agreement that the issue between them pertained to the First Condition - which is to say whether cider was a concrete and specific example of the category of supplies set out in paragraph (12a) - we are not at all sure from their respective submissions that that was actually the point on which they were at odds. After all, neither party seemed to be in any doubt about how supplies of cider were to be identified. There was nothing about those supplies which lacked concreteness or specificity. They were no less concrete or specific than the supplies of taxi services in Pro Med or the transportation of bodies by approved service providers in France. Following the phraseology of the CJEU in Pro Med at paragraph [47], they were easily "identifiable separately from the other services in [paragraph (12a)]".
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[193] Turning then to the quite different, but nevertheless important, question of whether the inclusion of cider within the scope of the reduced rate when other alcoholic beverages were excluded was permitted by the terms of paragraph (12a), we are in agreement with the Respondents that it was not. In our view, the better construction of the language used in paragraph (12a) itself, particularly when it is read alongside the terms of recital (3) in the Reduced Rate Directive, which uses the term "alcoholic and/or non–alcoholic beverages" twice, is that a Member State which chose to make use of the derogation in paragraph (12a) was entitled to exclude from the reduced rate either:
(1) all beverages; or
(2) all alcoholic beverages; or
(3) all non–alcoholic beverages.
It was not entitled to exclude some but not all of the types of beverage falling in a particular class whilst leaving other beverages in that class within the reduced rate.
[194] We say that because of the parenthetical phrase "(alcoholic and/or non–alcoholic)" which appears in brackets immediately before the word "beverages". If the Appellant's construction were to be correct, there would have been no need for that phrase to be included at all. The paragraph would simply have said "it being possible to exclude the supply of beverages" or "it being possible to exclude the supply of any beverage".
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[199] For the reasons set out above, we have concluded that the omission of cider from the definition of "alcoholic beverage" in Group 14, with the result that the reduced rate applied to cider but not other alcoholic beverages, was not in accordance with the PVD. It follows that, regardless of whether one describes it as a failure to meet the First Condition or describes it as a failure to comply with the terms of the PVD, Group 14, with the omission of cider from the definition of "alcoholic beverage", did not comply with EU Law." (JD Wetherspoon Plc v. HMRC [2025] UKFTT 658 (TC), Judge Beare)
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