# EUR-Lex - 52013PC0831 - EN

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# 52013PC0831

**Proposal for a COUNCIL IMPLEMENTING DECISION authorising Poland to introduce measures derogating from Articles 26(1)(a) and 168 of Directive 2006/112/EC on the common system of value added tax /* COM/2013/0831 final - 2013/0411 (NLE) */**

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EXPLANATORY MEMORANDUM

1.           CONTEXT OF THE PROPOSAL

Grounds and objectives of the proposal

Pursuant to paragraph 1 of Article 395
of Directive 2006/112/EC of 28 November 2006 on the common system of
value added tax, the Council, acting unanimously on a proposal from the
Commission, may authorise any Member State to apply special measures derogating
from the Directive in order to simplify the procedure for charging the tax or
to prevent certain types of tax evasion or avoidance.

By letter registered with the Commission on
18 June 2013, Poland requested an authorisation to introduce measures
derogating from paragraph 1 point (a) of Article 26 and Article 168
of Directive 2006/112/EC in order to limit to 50% the right of deduction with
respect to the purchase, hire, rent or lease of certain types of motor vehicles
which are not exclusively used for business purposes and the purchase of goods
and services related to those vehicles, including the purchase of fuel.

In accordance with paragraph 2 of Article 395
of Directive 2006/112/EC, the Commission informed the other Member States by
letter dated 10 October 2013 of the request made by Poland. By letter dated 14
October 2013, the Commission notified Poland that it had all the information
necessary to consider the request.

General context

Article 168 of Directive 2006/112/EC
provides that a taxable person is entitled to deduct the VAT charged on
purchases made for the purpose of his taxed transactions. Paragraph 1
point (a) of Article 26 of that Directive requires the use of goods
forming part of the assets of a business for non-business purposes to be a
supply of services for a consideration if the VAT on the purchase of those goods
was eligible for deduction.

In the case of motor vehicles, this system can
be difficult to apply for a number of reasons, notably because it is difficult
to identify accurately the split between business and non-business use. Where
records are kept, they add an additional burden to both the business and the
administration in maintaining and checking them. The number of vehicles
concerned means that even small-scale individual evasion has the capacity to
grow into significant sums.

As an alternative to the system set out in
the Directive, Poland has requested that it is allowed to limit the initial
deduction to a set percentage and in turn relieve businesses from accounting
for VAT on the private use. This has the benefit of simplifying the system for
all concerned and ensuring that a percentage of the tax, which might have
otherwise been evaded, is collected.

The percentage restriction requested is
50%. This is based on Poland's own assessment and, under the terms of the
proposal, would be reviewed upon any request by Poland for extension beyond
2016.

Poland is currently authorised on the basis
of Council Implementing Decision 2010/581/EU[1]
to restrict to 60 % the right to deduct VAT on the purchase, intra-Community
acquisition, import, hire or lease of certain motor vehicles other than
passenger cars, up to a maximum of PLN 6 000. That Decision shall
expire on 31 December 2013.

The new restriction to the right of
deduction will apply as from 1 January 2014 to motor vehicles used by
a taxable person not exclusively for business purposes. However, certain types
of motor vehicles would be excluded from that restriction and would therefore
be subject to the normal rules, namely any vehicle with more than 9 seats
(including the driver's) and with a total maximum weight of more than 3 500 kilograms.
This mainly restricts the field of application to passenger cars, vans,
pick-ups and motorbikes.

The restriction also applies to VAT charged
on any expenditure, including purchase of fuel, related to motor vehicles
covered by this special measure, provided that the expenditure is not entirely
related to the taxable persons’ business, which is e.g. the case with the
installation of taximeters.

Derogations are normally granted for a
limited time as to allow an assessment whether the special measure is
appropriate and effective. Any extension should therefore be limited in time in
order to assess whether the conditions, on which the derogation is based, would
still be valid. Poland has requested authorisation to apply the special measure
subject to this proposal until 31 December 2018.

It is however common practice to grant a
three year period in similar cases (see e.g. Council Implementing Decisions
2012/232/EU[2]
and 2013/191/EU[3]).
Therefore, it is proposed that this decision shall expire by the end of 2016
and to request Poland to present a report by 1 April 2016 including a
review of the percentage restriction applied in case a further extension would
be envisaged beyond 2016.

Existing provisions in the area of the
proposal

Article 176 of Directive 2006/112/EC
stipulates that the Council shall determine the expenditure on which the VAT is
not deductible. Until such time, it authorises Member States to maintain exclusions,
which were in place on 1 January 1979. There are therefore a number
of "stand still" provisions restricting the right to deduct in
relation to motor vehicles.

In 2004, the Commission made a proposal to
- inter alia - establish rules on which categories of expenditure may be
subject to a restriction on the right to deduct (COM(2004) 728 final[4]). The Council has not yet
reached an agreement on that proposal.

Consistency
with other policies and objectives of the Union

Not applicable.

2.           RESULTS OF CONSULTATIONS
WITH THE INTERESTED PARTIES AND IMPACT ASSESSMENTS

Consultation of interested parties

Not relevant.

Collection and use of expertise

There was no need for external expertise.

Impact assessment

The proposal is designed to counter VAT
evasion and to simplify the procedure for charging tax and has, therefore, a
potential positive impact for both businesses and administrations. The solution
has been identified by Poland as a suitable measure and is comparable to other
past and present derogations.

3.           LEGAL ELEMENTS OF THE
PROPOSAL

Summary of the proposed action

The proposal aims to authorise Poland to
apply a measure derogating from Article 168 of Directive 2006/112/EC so as to
restrict the right of a taxable person to deduct VAT on the purchase, hire,
rent or lease of certain motorised road vehicles and expenditure related
thereto when the vehicle is not used exclusively for business purposes and the
expenditure is not entirely related to the taxable person’s business. Where the
right to deduct has been limited, a derogation from point (a) of
paragraph 1 of Article 26 of Directive 2006/112/EC will relieve the
taxable person from accounting for tax on the non-business use of that vehicle.
The measure is restricted to vehicles under a certain seating capacity and
under a certain total weight.

The restriction is set at a flat rate of
50%. This rate and the necessity for the derogating measures are to be reviewed
and reported on by Poland upon any request for an extension. The Decision will apply
until the earlier of the date specified in the Decision or the date on which
Union rules come into force governing restrictions on the right to deduct in
this area.

Legal basis

Article 395 of Council Directive
2006/112/EC.

Subsidiarity principle

The proposal falls under the exclusive
competence of the European Union. The subsidiarity principle therefore does not
apply.

Proportionality principle

The proposal complies with the
proportionality principle as this Decision concerns an authorisation granted to
a Member State on its own request and does not constitute any obligation.

Given the limited scope of the derogation,
the special measure is proportionate to the aim pursued.

Choice of instruments

Proposed instrument: Council Implementing Decision.

Other means would not be adequate for the
following reason(s):

Under Article 395 of Council Directive
2006/112/EC, a derogation from the common VAT rules is only possible upon
authorisation of the Council acting unanimously on a proposal from the
Commission. A Council Implementing Decision is the most suitable instrument
since it can be addressed to an individual Member State.

4.           BUDGETARY IMPLICATION

The proposal will not adversely affect the European
Union’s own resources accruing from VAT.

5.           OPTIONAL ELEMENTS

The proposal includes a review clause and a
sunset clause.

2013/0411 (NLE)

Proposal for a

COUNCIL IMPLEMENTING DECISION

authorising Poland to introduce measures derogating
from Articles 26(1)(a) and 168 of Directive 2006/112/EC on the common system of
value added tax

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the
Functioning of the European Union,

Having regard to Council Directive
2006/112/EC of 28 November 2006 on the common system of value added tax[5], and in particular paragraph 1
of Article 395 thereof,

Having regard to the proposal from the
European Commission,

Whereas:

(1)       By letter registered with
the Commission on 18 June 2013, Poland requested authorisation to
introduce special measures concerning certain motorised road vehicles and
expenditure related thereto, derogating from those provisions laid down in
Directive 2006/112/EC which govern a taxable person's right to deduct VAT paid on
the purchase of goods and services and those which require tax to be accounted
for on business assets used for non-business purposes.

(2)       In accordance with the
second subparagraph of paragraph 2 of Article 395 of Directive
2006/112/EC, the Commission informed the other Member States of the request
made by Poland by letter dated 10 October 2013. By letter dated 14 October 2013,
the Commission notified Poland that it had all the information necessary to
consider the request.

(3)       Article 168 of
Directive 2006/112/EC establishes a taxable person's right to deduct VAT
charged on supplies of goods and services received by him for the purposes of
his taxed transactions. Point (a) of paragraph 1 of Article 26
of that Directive contains a requirement to account for VAT when a business
asset is put to use for the private purposes of the taxable person or his staff
or, more generally, for purposes other than those of his business.

(4)       The measure requested by
Poland deviates from those provisions so as to restrict the right to deduct VAT
on the purchase, hire, rent or lease of certain motorised road vehicles and
expenditure related thereto and to relieve the taxable person from accounting
for VAT on the non-business use of vehicles covered by the restriction.

(5)       The non-business use of motor
vehicles is difficult to identify accurately and even where it is possible, the
mechanism for doing so is often burdensome. Under the requested measures, the
amount of VAT on expenditure eligible for deduction concerning motor vehicles,
which are not used entirely for business purposes should, with some exceptions,
be set at a flat percentage rate. Based on currently available information, Poland believes that a rate of 50% is justifiable. At the same time, to avoid double
taxation, the requirement for accounting for VAT on the non-business use of a
motor vehicle should be suspended where it has been subject to this
restriction. These measures can be justified by the need to simplify the
procedure for charging VAT and to prevent evasion through incorrect record
keeping and false tax declaration.

(6)       The restriction to the
right of deduction under the special measures should apply to VAT paid on the
purchase, intra-Community acquisition, importation, hire or leasing of
specified motorised road vehicles and on expenditure related thereto, including
the purchase of fuel.

(7)       Certain types of motor
vehicles should be excluded from the scope of the special measures as - due to
their nature or the type of business they are used for - any non-business use
is considered as negligible. Therefore, the special measures should not apply
to vehicles with more than 9 seats (including the driver's) and with a
total maximum weight of more than 3 500 kilograms. In addition, the
restriction to the right of deduction shall not apply to VAT charged on any
expenditure that is entirely related to the taxable person’s business.

(8)       These derogating measures
should be limited in time to allow for an evaluation of their effectiveness and
of the appropriate percentage, since the proposed percentage is based on
initial findings regarding business use.

(9)       Where Poland considers a further extension of the derogating measures beyond 2016 is necessary, a report
on the application of the measures in question, which includes a review of the
percentage applied, should be submitted to the Commission together with the
extension request no later than 1 April 2016.

(10)     On 29 October 2004, the
Commission adopted a proposal[6]
for a Council Directive amending Directive 77/388/EEC, now Directive
2006/112/EC that includes the harmonisation of the categories of expenses for
which exclusions from the right of deduction may apply. Under that proposal,
exclusions from the right to deduct could be applied to motorised road
vehicles. The derogating measures provided for in this Decision should expire
on the date of the entry into force of such an amending Directive, if that date
is earlier than the date of expiry provided for in this Decision.

(11)     The derogation will only
have a negligible effect on the overall amount of tax collected at the stage of
final consumption and will not adversely affect the European Union’s own
resources accruing from VAT,

HAS ADOPTED THIS DECISION:

Article 1

By way of derogation from Article 168 of
Directive 2006/112/EC, Poland is hereby authorised to limit to 50% the right to
deduct the VAT on the purchase, intra-Community acquisition, importation, hire
or leasing of motorised road vehicles as well as the VAT charged on expenditure
related to those vehicles, where the vehicle is not entirely used for business
purposes.

The restriction set out in the first subparagraph
shall not apply to motor vehicles with a total maximum weight of more than
3 500 kilograms or motor vehicles with more than nine seats including
the driver's seat.

The restriction set out in the first subparagraph
shall not apply to VAT charged on any expenditure that is entirely related to
the taxable person’s business.

Article 2

By way of derogation from point (a) of
paragraph 1 of Article 26 of Directive 2006/112/EC, Poland is
authorised not to treat as a supply of services for consideration the private
use by a taxable person or his staff or, more generally, for purposes other
than those of his business, of a vehicle to which the restriction referred to
in Article 1 of this Decision applies.

Article 3

1. This Decision shall take effect on the
day of its notification.

This Decision shall apply as of
1 January 2014. It shall expire on the date of entry into force of
Union rules determining the expenditure relating to motorised road vehicles
that is not eligible for full deduction of VAT, or on 31 December 2016,
whichever is the earlier.

2. Any request for the extension of the
measures provided for in this Decision shall be submitted to the Commission no
later than 1 April 2016. Such request shall be accompanied by a
report which includes a review of the percentage restriction applied on the
right to deduct VAT on the basis of this Decision.

Article 4

This Decision is addressed to the Republic of Poland.

Done at Brussels,

For
the Council

The
President

[1]               Council Implementing Decision of 27 September 2010 authorising
the Republic of Poland to introduce a special measure derogating from Article
26(1)(a) and Article 168 of Directive 2006/112/EC on the common system of value
added tax, OJ L 256, 30.9.2010, p. 24

[2]               Council Implementing Decision of 26 April 2012
authorising Romania to apply measures derogating from Article 26(1)(a) and
Article 168 of Directive 2006/112/EC on the common system of value added tax, OJ
L 117, 1.5.2012, p. 7

[3]               Council Implementing Decision of 22 April 2013 authorising
Latvia to introduce a special measure derogating from point (a) of Article
26(1) and Articles 168 and 168a of Directive 2006/112/EC on the common system
of value added tax, OJ L 113, 25.4.2013, p. 11

[4]               http://eur-lex.europa.eu/LexUriServ/site/en/com/2004/com2004_0728en01.pdf

[5]               OJ L 347 11.12.2006, p.1.

[6]               COM (2004) 728 final (OJ C 24, 29.1.2005, p.10)