EEC - Value-Added Tax (VAT) and Threshold

Other titles

EEC VAT and Threshold (Source: GATT Analytical Index)


Third Parties

Products at Issue

Products at issue
Type of product
Not specified
Product sub-type

Related disputes


Key legal aspects

Legal basis
  • GPR Article VII:3
  • GPR Article VII:6
Claims raised
  • GPR Article I:1(b)
Defences raised
  • n.a.


Type Panel
Chairperson K. Berger (Norway)
Other members Sivam Subramaniam (Singapore), Elvezio Contestabile (Switzerland)


Type Panel
Legal basis at issue
  • GPR Article VII:3
  • GPR Article VII:6
Claims at issue
  • GPR Article I:1(b)
Defences at issue
  • n.a.
No of Pages (total / legal reasoning) 10
  • -
  • -
  • Inconsistency found
  • -


Request for consultations
Request for establishment
Adoption of report
Mutually agreed solution


Outcome of the proceedings
Report adopted, mutually agreed solution
Additional Info GPR/21 (26/06/1984) Panel on Value-Added Tax and Threshold: The Panel examined whether the EEC practice of excluding value-added taxes from the contract price in relation to the determination of whether government purchases fall under the Agreement was in conformity with Article I:1(b) of the Agreement on Government Procurement, according to which the Agreement applies to "any procurement contract of a value of SDR 150,000 or more". The Panel noted that the case before it dealt with the value of contracts as estimated for the purpose of determining whether a procurement contract would fall above or below the threshold of the Agreement. The Panel noted that no reference was made in Article I:1(b) or elsewhere in the Agreement to the inclusion or exclusion of value-added taxes in the calculation of the value of a procurement contract for the purpose of threshold determinations. In view of the silence of the Agreement and the absence of a negotiating history concerning this term, the Panel analysed the meaning of the term contract value. The Panel first noted that the value of a contract, as signed between a procuring entity and a winning supplier, might or might not include the element of indirect taxes, depending on how the procurement was carried out. However, for the purchasing entity, what counted was the total price which the entity would have to pay in order to obtain the product in question. If the entity was to pay the VAT, this element would form part of the total price whether it was included in the supplier's bill or whether it would be paid in another way by the entity. Against this background and as Article I:1(b) did not expressly provide for the deduction of any taxes, the Panel found that the natural interpretation of the term contract value would be the full cost to the entity, taking into account all the elements that would normally enter into the final price, and would therefore include any VAT payable, unless the entity was exempted from paying VAT. The Panel further noted that, while Article I:1(b) was silent on the question of how to treat value-added taxes for this purpose, the corresponding part of the relevant EEC Directive had explicitly excluded the VAT. The Panel considered that the EEC legislation on this point could be taken as an indication that the term contract value in Article I:1(b) did not automatically exclude the VAT element. The Panel also considered that the existence of different VAT rates in the Community was not of decisive relevance for the interpretation of the provisions of the Agreement applying between the Parties to it. The Panel noted in this context that VAT rates as well as other elements that went into the total contract price differed between the Parties to the Agreement other than the EEC. The Panel considered that the fact that elements which went into the total contract price differed from Party to Party was no justification for excluding particular cost elements in the absence of provisions specifically excluding them. The Panel concluded, therefore, that the present EEC practice of excluding the VAT was not in conformity with this interpretation of the existing Agreement when the entity was not exempted from paying VAT.

At the 12 February 1987 meeting of the Tokyo Round Committee on Government Procurement, the EEC circulated a proposal for a systemic solution to the matters raised in the dispute, which also served as a mutually agreed solution to settle the dispute between the disputing parties. After a short discussion, the Committee agreed that this solution will be considered as being accepted by the Committee if by 27 February 1987 no Party had stated objections (See GPR/M/25, Item E, "Follow-up on VAT Panel Report"). See also BISD 28S/80 and L/5113 (title: Article XVI:1 Discussions - Report to the Council - adopted on 10 March 1981) (document date: 20 Feb 1981)

A discussion of the US request (GPR/Spec/18 took place in the Committee on 6 July 1982 (see document GPR/M/Spec/1 of 20 September 1982).