# EUR-Lex - 52012PC0356 - EN

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# 52012PC0356

**Proposal for a COUNCIL DECISION authorising Hungary to introduce a special measure derogating from Article 193 of Directive 2006/112/EC on the common system of value added tax (only the Hungarian text is authentic) /* COM/2012/0356 final - 2012/0173 (NLE) */**

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EXPLANATORY MEMORANDUM

1.           CONTEXT OF THE PROPOSAL

Pursuant to Article 395 of Directive
2006/112/EC of 28 November 2006 on the common system of value added tax[1] (hereafter: 'VAT Directive'), the Council, acting unanimously on a
proposal from the Commission, may authorise any Member State to apply special
measures for derogation from the provisions of that Directive, in order to
simplify the procedure for collecting value added tax (VAT) or to prevent
certain forms of tax evasion or avoidance.

By letter registered with the Commission on 3
February 2012, Hungary requested, for a period of 2 years, to be authorised to
introduce a measure derogating from Article 193 of the VAT Directive in order
to designate the taxable recipient of supplies of wheat and meslin, rye,
barley, oats, maize, triticale, soya beans, rape or colza seeds and sunflower
seeds as the person liable to pay VAT to the tax authorities instead of the
supplier (the so-called 'reverse charge').

In accordance with Article 395(2) of the VAT
Directive, the Commission informed the other Member States by letter dated 26
April 2012 of the request made by Hungary. By letter dated 2 May 2012, the
Commission notified Hungary that it had all the information necessary for
appraisal of the request.

Hungary explained that it has been confronted
with several types of tax evasion which, in essence, involves the invoicing of
supplies followed by the disappearance of the supplier without paying tax to
the tax authorities but leaving the taxable customer in receipt of a valid
invoice in respect of which he can claim a tax deduction. Evasion schemes have been
discovered at national level as well as in relation to Intra-Community trade.

On the basis of information provided by
Hungary, about 20% of all VAT deducted or reclaimed as regards the
above-mentioned agricultural products would be of a fraudulent nature and,
calculated at year 2010 prices, result in an estimated VAT loss for the
Treasury of HUF 13,5 billion.

In reaction, Hungary would like to apply a
reverse charge procedure, thus eliminating the possible fraud insofar as, in
the absence of VAT being charged, the potential 'missing' trader would not be
able to keep the VAT received from his customer. The taxable recipient, insofar
as being a taxable person with a full right of deduction, would declare and
deduct the VAT in the same VAT return. This would have the effect of instantly
preventing further significant revenue losses.

At the same time, Hungary should establish
appropriate control measures and reporting obligations for taxable persons who
are engaged in supplies of agricultural products to which the derogation
applies in order to ensure the proper functioning of the measure and to prevent
a shift of evasion to other stages (e.g. when the raw products are processed), agricultural
products or sectors. The Commission should be notified of these measures.

During the 2-years application period of the measure,
Hungary will be able to introduce conventional and more definitive control
measures that are compatible with the VAT Directive and designed to combat this
type of VAT evasion after expiry of the authorisation. In fact, Hungary has committed
itself not to seek renewal of the measure.

The goods targeted by the derogating measure
should be determined as accurately as possible as to avoid legal uncertainty
and, therefore, the combined nomenclature laid down in Council Regulation (EEC)
No 2658/87 should be used. The measure will only apply to unprocessed goods,
which are normally not used in unaltered state for final consumption.

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

There was no need for consultation or external
expertise.

The Decision proposal aims at combating VAT
evasion in the agricultural market in Hungary and has therefore a potential
positive impact.

Because of the narrow scope of the derogation,
and its limited application in time, the impact will in any case be limited.

3.           LEGAL ELEMENTS OF THE
PROPOSAL

The Decision authorises Hungary to apply a
derogating measure from the VAT Directive as regards the shifting of the VAT
liability from the supplier to the taxable customer in relation to certain
supplies of agricultural products.

This Decision is based on Article 395 of the
VAT Directive.

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

This Decision concerns an authorisation granted
to a Member State upon its own request and does not constitute any obligation.

Given the strict limitation in time and scope,
the special measure appears to be proportionate to the aim pursued.

Under Article 395 of the VAT Directive,
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 implications for the Union
budget.

5.           ADDITIONAL INFORMATION

The proposal includes a sunset clause.

2012/0173 (NLE)

Proposal for a

COUNCIL DECISION

authorising Hungary to introduce a special
measure derogating from Article 193 of Directive 2006/112/EC on the common
system of value added tax

(only the Hungarian text is
authentic)

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 at
the Commission on 3 February 2012, Hungary requested authorisation to derogate,
for a period of 2 years, from the provisions of Article 193 of Directive
2006/112/EC governing the person liable for the payment of value added tax
(VAT) to the tax authorities. In that letter, Hungary has mentioned that it
will not seek renewal of that authorisation.

(2)       In accordance with the
second paragraph of Article 395(2) of Directive 2006/12/EC, the Commission
informed the other Member States by letter dated 26 April 2012 of the request
made by Hungary. By letter dated 2 May 2012, the Commission notified Hungary
that it had all the information it considered necessary for the appraisal of
the request.

(3)       The person liable for
payment of VAT is, as a general rule, the taxable person supplying the goods,
in accordance with Article 193 of Directive 2006/112/EC. The purpose of the
derogation requested by Hungary is to place that liability, for a limited
period, on that taxable person to whom supplies of certain unprocessed agricultural
products in the sectors of cereals and oilseeds are made.

(4)       Within those sectors,
Hungary has noted that a number of traders engage in different forms of tax
evasion, both domestically and in Intra-Community trade, by not paying the VAT
to the tax authorities they have charged on their supplies. Their customers,
insofar as they are taxable persons with a full right of deduction, remain
entitled to deduct the VAT.

(5)       Designating the taxable
person to whom the goods are supplied as liable for payment of VAT instead of
the supplier, would be a temporary emergency measure that would remove the
opportunity to engage in that form of tax evasion. Application of that measure
for 2 years should give Hungary the time to introduce in the agricultural
sector definitive measures compatible with Directive 2006/112/EC that would
prevent and combat this form of tax evasion.

(6)       To prevent tax evasion
being transferred to the processing stage of the products, to other products or
sectors, Hungary should introduce suitable control measures and reporting
obligations and notify the Commission thereof.

(7)       In order to ensure that
the derogation measure only applies to certain specific agricultural products and
to guarantee its legal certainty, the goods covered by this measure should be
determined by using the combined nomenclature laid down in Council Regulation
No 2658/87 of 23 July 1987 on the tariff and statistical nomenclature and on
the Common Custom Tariff[3].

(8)       The measure is
proportionate to the objectives pursued since it is limited in time and not
intended to apply generally but only to a number of carefully specified products
that are normally not destined for final consumption in unaltered state, and in
relation to which tax evasion has caused substantial loss of VAT revenue.

(9)       The special measure will
not affect the overall amount of VAT revenue collected at the stage of final
consumption in Hungary and will have no adverse impact on the Union's own
resources accruing from VAT,

HAS ADOPTED THIS DECISION:

Article 1

By way of derogation from Article 193 of
Directive 2006/112/EC, Hungary is hereby authorised to designate the taxable person
to whom the following supplies of goods, as set out in the combined
nomenclature established by Regulation (EEC) No 2658/87, are made, as the
person liable for payment of VAT:

CN code || Product

1001 || Wheat and meslin

1002 || Rye

1003 || Barley

1004 || Oats

1005 || Maize (corn)

1008 60 00 || Triticale

1201 || Soya beans, whether or not broken

1205 || Rape or colza seeds, whether or not broken

1206 00 || Sunflower seeds, whether or not broken

Article 2

The authorisation provided for in Article 1
is subject to Hungary introducing appropriate and effective control measures
and reporting obligations with respect to taxable persons that supply goods to which
this Decision applies.

Hungary shall notify the Commission of the
introduction of the measures and obligations referred to in the first
paragraph.

Article 3

This Decision shall apply for two years from
the date of its notification.

Article 4

This Decision is addressed to Hungary.

Done at Brussels,

For
the Council

The
President

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

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

[3]               OJ L 256, 7.9.1987, p. 1.