# EUR-Lex - 52012PC0666 - EN

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# 52012PC0666

**Proposal for a COUNCIL DECISION amending Implementing Decision 2009/1008/EU authorising Latvia to extend the application of a measure derogating from Article 193 of Directive 2006/112/EC on the common system of value added tax /* COM/2012/0666 final - 2012/0315 (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 Council
Directive 2006/112/EC of 28 November 2006 on the common system of value added
tax (hereafter 'the VAT Directive'), the Council, acting unanimously on a
proposal from the Commission, may authorise any Member State to apply special
measures for derogation from that 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
20 April 2012, the Republic of Latvia (hereafter 'Latvia') requested
authorisation to continue to apply a measure derogating from Article 193 of the
VAT Directive. In accordance with Article 395(2) of the VAT Directive, the
Commission informed the other Member States by letter dated 30 July 2012 of
the request made by Latvia (however, Spain was informed by letter dated 31 July
2012). By letter dated 2 August 2012, the Commission notified Latvia that it had
all the information it considered necessary for appraisal of the request.

General context

Latvia requests to be authorised to extend
the current application of a reverse charge mechanism in relation to supplies
of timber. On the basis of information provided by Latvia, it appears that the
timber market in Latvia is still largely dominated by small companies and
individual suppliers which often disappear without paying the tax to the
authorities but leaving the customer in receipt of valid invoice for VAT deduction.

Under the reverse charge mechanism, the
recipient, in so far he qualifies as a taxable person for VAT purposes, becomes
liable for the payment of the VAT to the tax authorities. In practice, this
results in the supplier of timber not charging the VAT to his customer who,
provided he has a full right of deduction, would simultaneously declare and
deduct the corresponding VAT; thus removing the need for an effective payment
to the Treasury. The system is applied on the territory of Latvia and has no
impact on cross-border transactions.

This derogating measure (derogating from
the then applicable Sixth Directive[1]
that has, without substantial modification to the content, been replaced by the
VAT Directive) had initially been granted in the 2003 Act of Accession[2] and, more precisely, in Chapter
7, point 1(b) of Annex VIII for a period until 30 April 2005. Subsequently, the
measure was extended until 31 December 2009 by Council Decision 2006/42/EC of
24 January 2006[3]
and until 31 December 2012 by Council Decision 2009/1008/EU of 7 December 2009[4].

The Commission understands that the
situation, on which the initial derogation was based, continues to exist.
Latvia claims that a number of indicators demonstrate that the risk level for
VAT fraud is still high in this sector. The derogation should therefore be
granted for another limited period.

However, since the derogation has been in
place for a rather long period, an evaluation report should, in case Latvia
would consider another extension beyond 2015, be submitted to the Commission
together with that extension request no later than 1 April 2015.

Existing provisions in the area of the
proposal

Similar derogations in relation to Article
193 of the VAT Directive have been granted to other Member States.

Consistency with the 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 Decision proposal aims at combating VAT
evasion in the timber market of Latvia and has therefore a potential positive
impact.

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

3.           LEGAL ELEMENTS OF THE
PROPOSAL

Summary of the proposed action

Authorisation for Latvia to extend the
application of a measure derogating from Article 193 of the VAT Directive as
regards the use of a reverse charge mechanism for timber transactions.

Legal basis

Article 395 of the VAT Directive.

Subsidiarity principle

In accordance with Article 395 of the VAT
Directive, a Member State wishing to introduce measures derogating from the
said Directive must obtain an authorisation from the Council, which will take
the form of a Council Decision. Therefore, the proposal complies with the
subsidiarity principle.

Proportionality principle

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

The Decision concerns an authorisation
granted to a Member State upon 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

Under Article 395 of the VAT Directive,
derogation from the common VAT rules is only possible with the authorisation of
the Council acting unanimously on a proposal from the Commission. Moreover, a
Council Decision is the most suitable instrument since it can be addressed to
individual Member States.

4.           BUDGETARY IMPLICATION

The proposal has no implication for the
Union budget.

5.           OPTIONAL ELEMENTS

Review/revision/sunset clause

The proposal includes a sunset clause.

2012/0315 (NLE)

Proposal for a

COUNCIL DECISION

amending Implementing Decision
2009/1008/EU authorising Latvia to extend the application of a measure
derogating from Article 193 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 Article
395(1) thereof,

Having regard to the proposal from the
European Commission,

Whereas:

(1)       By letter registered with
the Commission on 20 April 2012, Latvia requested authorisation to continue to
apply a measure derogating from the provisions of Directive 2006/112/EC
governing the person liable for the payment of the value added tax (VAT) to the
tax authorities.

(2)       In accordance with Article
395(2) of Directive 2006/112/EC, the Commission informed the other Member
States of the request made by Latvia in a letter dated 30 July 2012. Spain, however,
was informed of the request by letter dated 31 July 2012. By a letter dated 2
August 2012, the Commission notified Latvia that it had all the information
that it considered necessary for appraisal of the request.

(3)       The timber market in
Latvia remains dominated by small local companies and individual suppliers. The
nature of the market and the businesses involved have generated tax fraud which
the tax authorities have found difficult to control. In order to combat this
abuse, a special provision was included in Latvia's law on VAT, laying down
that, as regards timber transactions, the person liable to pay tax is the
taxable person for whom the taxable supply of goods or services is carried out.
This measure derogates from Article 193 of Directive 2006/112/EC, providing that,
under the internal system, the taxable person supplying goods or services is
normally liable for the payment of the tax.

(4)       The legal and factual
situation which justified the derogating measure under Council Implementing
Decision 2009/1008/EU of 7 December 2009 authorising the Republic of Latvia to
extend the application of a measure derogating from Article 193 of Directive
2006/112/EC on the common system of value added tax[6] has not changed. On the basis
of information provided by Latvia, it appears that the risk level for VAT fraud
in the sector remains high. Latvia should therefore be authorised to apply the
measure during a further limited period.

(5)       In case Latvia would
consider another extension of the derogating measure beyond 2015, it should
submit a report on the application of the measure to the Commission together
with that request by 30 March 2015 at the latest.

(6)       The derogation has no adverse
impact on the Union's own resources accruing from VAT.

(7)       Decision
2009/1008/EU should therefore
be amended accordingly,

HAS ADOPTED THIS DECISION:

Article 1

Decision 2009/1008/EU is amended as follows:

(1)        In Article 2, the date "31
December 2012" is replaced by the date "31 December 2015";

(2)        The following Article 2a is
inserted:

"Article 2a

Any request for the extension of the
measure provided for in this Decision shall be submitted to the Commission by
30 March 2015 at the latest and shall be accompanied by a report on the
application of this measure."

Article 2

This Decision
is addressed to the Republic of Latvia.

Done at Brussels,

For
the Council

The
President

[1]               Council Directive 77/388/EEC of 17 May 1977 on the
harmonisation of the laws of the Member States relating to turnover taxes –
Common system of value added tax: uniform basis of assessment (OJ L 145,
13.6.1977)

[2]               OJ L 236, 23.9.2003, p. 33

[3]               OJ L 25, 28.1.2006, p. 31

[4]               OJ L 347, 24.12.2009, p. 30

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

[6]               OJ L 347, 24.12.2009, p. 30.