# EUR-Lex - 52012PC0063 - EN

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# 52012PC0063

**Proposal for a COUNCIL DECISION authorising Romania to apply measures derogating from Articles 26(1)(a) and 168 of Directive 2006/112/EC on the common system of value added tax /* COM/2012/063 final - 2012/0026 (NLE) */**

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EXPLANATORY MEMORANDUM

1.           CONTEXT OF THE PROPOSAL

Grounds for and objectives of the
proposal

Pursuant to Article 395(1) 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 letters registered with the Commission
on 15 February 2011 and on 22 June 2011, Romania requested an authorisation to
introduce measures derogating from Articles 26(1)(a) and 168 of Directive
2006/112/EC in order to limit to 50% the right of deduction with respect to the
purchase of certain types of motor vehicles and the purchase of goods and
services related thereto. By letter registered with the Commission on 27
September 2011, Romania subsequently replaced its request by a new request to
apply the abovementioned measure only to certain types of motorized road
vehicles, which are not entirely used by the taxable person for business
purposes. In accordance with Article 395(2) of Directive 2006/112/EC, the
Commission informed the other Member States by letter dated 1 December 2011 of
the request made by Romania. By letter dated 5 December 2011, the Commission
notified Romania 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. Article 26(1)(a) of
the same 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 goods was eligible for deduction.

In the case of motor vehicles, this system
is 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, the Romanian tax authorities have requested that they be allowed
to limit the initial deduction to a set percentage and in turn relieve the
business from accounting for tax 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 Romania's own assessment and, under the terms of the
proposal, would be reviewed upon any request by Romania for extension beyond
2014.

The new system will apply to all businesses
in which the vehicles are not used exclusively for business purposes. However,
certain types of motor vehicles would be excluded from the restriction to the
right of deduction and would therefore be subject to the normal rules, namely
any vehicle with more than 9 seats (including the driver's) and with a maximum
permissible laden mass of more than 3 500 kilograms. This mainly restricts the
field of application to cars, vans, pick-ups, motorbikes and mopeds. In
addition, a detailed list of particular vehicles, which are to be excluded from
the restriction, is provided, based on the fact that their non-business use is considered
as negligible.

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[1], which contains rules on which
categories of expenditure may be subject to a restriction on the right to
deduct but the Council, has not been able yet to reach an agreement on that
proposal.

Consistency with other policies and
objectives of the Union

Not applicable.

2.           CONSULTATION OF 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 Romania 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 Romania 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 expenditure related to
certain motorised road vehicles when the vehicle is not used exclusively for
business purposes. Where the right to deduct has been limited, a derogation
from Article 26(1)(a) of Directive 2006/112/EC will relieve the taxable person
from accounting for tax on the non-business use of the vehicle. The measure is
restricted to vehicles under a certain seating capacity and under a certain
weight, and provision is made for a limited number of specified exceptions from
the rule.

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 Romania upon any request for an extension. The Decision will
expire on 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(1) of Council Directive
2006/112/EC of 28 November 2006 on the Common system of value added tax.

Subsidiarity principle

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

Proportionality principle

The proposal complies with the
proportionality principle for the following reason(s):

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 instruments: Council Decision.

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

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

4.           BUDGETARY IMPLICATION

The proposal has no implication for the
Union budget.

5.           OPTIONAL ELEMENTS

The proposal includes a review clause and a
sunset clause.

2012/0026 (NLE)

Proposal for a

COUNCIL DECISION

authorising Romania to apply 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[2], and in particular Article
395(1) thereof,

Having regard to the proposal from the
European Commission,

Whereas:

(1)
By letter registered with the Commission on 27
September 2011, Romania requested authorisation to introduce special measures
concerning certain motorised road vehicles 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
Article 395(2) of Directive 2006/112/EC, the Commission informed the other
Member States of the request made by Romania by letter dated 1 December 2011.
By letter dated 5 December 2011, the Commission notified Romania 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. Article
26(1)(a) 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 non-business use of 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, Romania
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;

(5)
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;

(6)
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 nine seats (including the driver's) or with a maximum permissible
laden mass of more than 3 500 kilograms. In addition, a detailed list of
specific types of vehicles excluded from that restriction should be provided,
based on their particular use;

(7)
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 on
business use;

(8)
Where Romania considers a further extension
beyond 2014 is necessary, a report on the application of the measure, which
includes a review of the percentage applied, should be submitted to the
Commission together with the extension request no later than 31 March 2014;

(9)
On 29 October 2004, the Commission adopted a
proposal[3]
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 of the right of deduction may apply. Under this proposal,
exclusions on the right to deduct may 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 amending Directive, if that date is earlier
than the date of expiry provided for in this Decision;

(10)
The derogation will only have a negligible
effect on the overall amount of tax collected at the stage of final consumption
and will have no impact on the Union’s own resources accruing from value added
tax.

HAS ADOPTED THIS DECISION:

Article 1

By way of derogation from Article 168 of
Directive 2006/112/EC, Romania 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
paragraph shall not apply to motor vehicles with a maximum permissible laden
mass of more than 3 500 kg or with more than nine seats including the driver's
seat.

Article 2

Article 1 shall not apply to the following
categories of motor vehicles:

1)           vehicles used exclusively
for emergencies, security and protection and courier services;

2)           vehicles used by sales
agents and by purchasing agents;

3)           vehicles used for the
transport of passengers for remuneration, including taxi services;

4)           vehicles used to supply
remunerated services, including hire or driving lessons provided by driving
schools;

5)           vehicles used for hire or
leasing;

6)           vehicles used as
commodities for trading purposes.

Article 3

By way of derogation from Article 26(1)(a)
of Directive 2006/112/EC, Romania 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 4

1.
This Decision 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
2014, whichever is the earlier.

2.
Any request for the extension of the measures
provided for in this Decision shall be submitted to the Commission by 31 March
2014.

Any request for extension of those measures
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 5

This
Decision is addressed to Romania.

Done at Brussels, 17.2.2012

For
the Council

The
President

[1]               COM(2004) 728 final

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

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

[3]               COM(2004) 728 final

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