Answer given by Mr Cioloş on behalf of the Commission
As regards direct taxation, and in the absence of specific harmonisation measures Member States remain in principle free to design their tax systems as they see fit, provided only that they comply with the general rules set out in the Treaties. The same would apply in regard to a system in which subsidies are subject to direct tax in regard to some taxpayers, but not in regard to others. Since there are no specific European Union rules on the treatment of EU subsidies for direct taxation purposes, the mere fact that subsidies are subject to direct taxation is not contrary to EC law.
The VAT Directive(1) offers a broad definition of the term ‘taxable person’(2) as ‘any person who, independently, carries out in any place any economic activity’, thus not distinguishing between natural and legal persons. The concept of ‘economic activity’ encompasses agricultural activities.
The VAT treatment of subsidies depends on the type of subsidy. Given that the Honourable Member did not mention the type of subsidies concerned, the Commission is not in a position to provide a specific answer on this aspect. Note, however, that in accordance with the provisions of the VAT Directive(3) as interpreted by the Court of Justice(4), subsidies can under certain conditions be subject to VAT.