# COM_2015_0558_FIN.ENG.xhtml.1_EN_ACT_part1_v3.docx

european flagEUROPEAN COMMISSION

Brussels, 10.11.2015

COM(2015) 558 final

2015/0258(NLE)

Proposal for a

COUNCIL IMPLEMENTING DECISION

authorising the Republic of Lithuania to extend the application of a measure derogating from Article 193 of Council Directive 2006/112/EC on the common system of value added tax

EXPLANATORY MEMORANDUM

1.CONTEXT OF THE PROPOSAL

•Reasons for and objectives of the proposal

Pursuant to Article 395 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax
  1
  (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 1 April of 2015, the Republic of Lithuania (hereafter 'Lithuania') 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 18 May 2015 of the request made by Lithuania. By letter dated 20 May 2015, the Commission notified Lithuania that it had all the information it considered necessary for appraisal of the request.

The Lithuanian government asks to extend the validity of the current application of a reverse charge mechanism in relation to supplies of timber and supplies by taxable persons under judicial insolvency or restructuring procedures.

As regards the supplies of timber, Lithuania was confronted with a considerable number of traders that failed to comply with their obligations. Businesses in this sector are frequently small resellers and intermediaries, which often disappear without paying to the tax authorities the tax they charged on their supplies but leaving their customers in receipt of a valid invoice for VAT deduction.

Taxable persons under judicial insolvency or restructuring procedures often did not pay the VAT they have received from their customers to the tax authorities. However, the purchaser can, as a compliant trader, still deduct the VAT incurred.

Under the reverse charge mechanism, by derogating from a general rule provided in Article 193 of the VAT Directive, the customer becomes liable for the payment of the VAT on domestic transactions.

This derogating measure had initially been granted by Council Decision 2006/388/EC of 15 May 2006
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  , which also included supplies of ferrous waste and scrap and construction work. The application of the derogating measure for supply of timber and supplies by taxable persons under judicial insolvency or restructuring procedures was extended by Council Implementing Decision 2010/99/EU of 16 February 2010
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  . A last extension of the derogating measure has been granted by Council Implementing Decision 2012/704/EU of 13 November 2012
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  .

From the report submitted by the Lithuanian Tax Authorities, together with the request to continue to apply the derogating measure, the Commission understands that the situation, on which the initial derogation was based, continues to exist. Lithuania claims that, based on the results of tax investigations, the derogation proved to be effective both for supply of timber and supplies by taxable persons under judicial insolvency or restructuring procedures.

In these particular cases, the reverse charge mechanism shifts the liability for the payment of the VAT, as well as the corresponding obligations, from smaller or less reliable taxable suppliers to larger and more reliable taxable customers. This supports the tax authorities which are confronted with difficulties of VAT collection in these specific sectors.

The derogation should therefore be granted for another limited period.

•Consistency with existing policy provisions in the policy area

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

•Consistency with other Union policies

•

Consistency with other Union policies

Not applicable.

2.LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY

2.

LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY

•Legal basis

•

Legal basis

Article 395 of the VAT Directive.

•Subsidiarity (for non-exclusive competence)

•

Subsidiarity (for non-exclusive competence)

Considering the provision of the VAT Directive on which the proposal is based, the proposal falls under the exclusive competence of the Union. The subsidiarity principle therefore does not apply.

•Proportionality

•

Proportionality

The proposal complies with the proportionality principle for the following reasons.

The proposal complies with the proportionality principle for the following reasons.

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

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

Furthermore, the measure is targeted and restricted to a limited number of taxable suppliers in relation to which the VAT collection has proven to be problematic. Given the limited scope of the derogation, the special measure is proportionate to the aim pursued.

Furthermore, the measure is targeted and restricted to a limited number of taxable suppliers in relation to which the VAT collection has proven to be problematic. Given the limited scope of the derogation, the special measure is proportionate to the aim pursued.

•Choice of the instrument

•

Choice of the instrument

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 Implementing Decision is the most suitable instrument since it can be addressed to individual Member States.

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 Implementing Decision is the most suitable instrument since it can be addressed to individual Member States.

3.RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS

3.

RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS

•Stakeholder consultations

•

Stakeholder consultations

Not relevant.

•Collection and use of expertise

•

Collection and use of expertise

There was no need for external expertise.

•Impact assessment

•

Impact assessment

The Decision proposal aims at simplifying the procedure for charging the tax and at combating possible VAT evasion or avoidance and has therefore a potential positive economic impact.

The Decision proposal aims at simplifying the procedure for charging the tax and at combating possible VAT evasion or avoidance and has therefore a potential positive economic impact.

Impact will in any case be limited because of the narrow scope of the derogation.

Impact will in any case be limited because of the narrow scope of the derogation.

4.BUDGETARY IMPLICATIONS

4.

BUDGETARY IMPLICATIONS

The proposal has no implication for the Union budget.

5.OTHER ELEMENTS

5.

OTHER ELEMENTS

•Implementation plans and monitoring, evaluation and reporting arrangements

The proposal includes a sunset clause; an automatic time limit which is set at 31 December 2018.

In case Lithuania would consider another extension of the derogating measure beyond 2018, an evaluation report should be submitted to the Commission together with the extension request no later than 1 April 2018.

2015/0258 (NLE)

2015/0258 (NLE)

Proposal for a

Proposal for a

COUNCIL IMPLEMENTING DECISION

COUNCIL IMPLEMENTING DECISION

authorising the Republic of Lithuania to extend the application of a measure derogating from Article 193 of Council Directive 2006/112/EC on the common system of value added tax

authorising the Republic of Lithuania to extend the application of a measure derogating from Article 193 of Council Directive 2006/112/EC on the common system of value added tax

THE COUNCIL OF THE EUROPEAN UNION,

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Article 291 (2) thereof,

Having regard to the Treaty on the Functioning of the European Union, and in particular Article 291 (2) thereof,

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

Having regard to Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax

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, and in particular Article 395(1) thereof,

Having regard to the proposal from the European Commission,

Having regard to the proposal from the European Commission,

Whereas:

Whereas:

(1)By letter registered with the Commission on 1 April 2015, the Republic of Lithuania (hereafter 'Lithuania') requested authorisation to continue to apply a measure derogating from the provisions of Directive 2006/112/EC which govern the person liable for the payment of the value added tax (VAT) to tax authorities.

(1)

By letter registered with the Commission on 1 April 2015, the Republic of Lithuania (hereafter 'Lithuania') requested authorisation to continue to apply a measure derogating from the provisions of Directive 2006/112/EC which govern the person liable for the payment of the value added tax (VAT) to 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 Lithuania in a letter dated 18 May 2015. By a letter dated 20 May 2015, the Commission notified Lithuania that it had all the information necessary to consider the request.

(2)

In accordance with Article 395(2) of Directive 2006/112/EC, the Commission informed the other Member States of the request made by Lithuania in a letter dated 18 May 2015. By a letter dated 20 May 2015, the Commission notified Lithuania that it had all the information necessary to consider the request.

(3)Council Decision 2006/388/EC
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  authorized Lithuania inter alia to make the recipient liable for the VAT due on the supply of goods and services in the case of insolvency procedures or restructuring procedures subject to judicial oversight and on the supply of timber.

(3)

Council Decision 2006/388/EC

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authorized Lithuania inter alia to make the recipient liable for the VAT due on the supply of goods and services in the case of insolvency procedures or restructuring procedures subject to judicial oversight and on the supply of timber.

(4)The time period for the application of the derogating measure was extended twice by Council Implementing Decision 2010/99/EU of 16 February 2010
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  and Council Implementing Decision 2012/704/EU of 13 November 2012
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  .

(4)

The time period for the application of the derogating measure was extended twice by Council Implementing Decision 2010/99/EU of 16 February 2010

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and Council Implementing Decision 2012/704/EU of 13 November 2012

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.

(5)The tax investigations and the appropriate analysis of the application of the mechanism carried out by the Lithuanian tax authorities have revealed the effectiveness of the derogating measure.

(5)

The tax investigations and the appropriate analysis of the application of the mechanism carried out by the Lithuanian tax authorities have revealed the effectiveness of the derogating measure.

(6)The Commission understands that the legal and factual situation which has justified the application of the derogating measure has not changed and continues to exist. Lithuania should therefore be authorised to apply the measure during a further limited period.

(6)

The Commission understands that the legal and factual situation which has justified the application of the derogating measure has not changed and continues to exist. Lithuania should therefore be authorised to apply the measure during a further limited period.

(7)If Lithuania were to require a further extension of the derogating measure beyond 2018, an evaluation report should be submitted to the Commission together with the extension request no later than 31 March 2018.

(7)

If Lithuania were to require a further extension of the derogating measure beyond 2018, an evaluation report should be submitted to the Commission together with the extension request no later than 31 March 2018.

(8)The derogating measure will have no adverse impact on the Union's own resources accruing from VAT,

(8)

The derogating measure will have no adverse impact on the Union's own resources accruing from VAT,

HAS ADOPTED THIS DECISION:

Article 1

In Article 2 of Implementing Decision 2010/99/EU, the second paragraph is replaced by the following:

‘It shall apply until 31 December 2018. Any request for the extension of the measure provided for in this Decision shall be submitted to the Commission no later than 31 March 2018 and shall be accompanied by a report which includes a review of the application of this measure.’

Article 2

This decision is addressed to the Republic of Lithuania.

Done at Brussels,

For the Council

The President