# IMMC.COM%282022%29520%20final.ENG.xhtml.1_EN_ACT_part1_v6.docx

european flagEUROPEAN COMMISSION Brussels, 13.10.2022 COM(2022) 520 final 2022/0322(NLE) Proposal for a COUNCIL IMPLEMENTING DECISION authorising Bulgaria to introduce a special measure derogating from Article 287 of Directive 2006/112/EC on the common system of value added tax
EXPLANATORY MEMORANDUM Pursuant to Article 395(1) of Council Directive 2006/112/EC of 28 November 2006 on the co mmon system of valued added tax 1 (‘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 the provisions of that Directive in order to simplify the procedure for collecting VAT or to prevent certain forms of tax evasion or avoidance. By letter registered with the Commission on 17 May 2022, Bulgaria requested an authorisation to apply, until 31 December 2024, a measure derogating from Article 287 of the VAT Directive, allowing Bulgaria to exempt from VAT taxable persons whose annual turnover is no higher than the equivalent in national currency of EUR 51 130. In accordance with Article 395(2), second subparagraph, of the VAT Directive, the Commission informed the other Member States by letter dated 26 July 2022 of the request made by Bulgaria. The Commission notified Bulgaria by letter dated 27 July 2022 that it had all the information necessary to consider the request. 1. CONTEXT OF THE PROPOSAL • Reasons for and objectives of the proposal Chapter 1 of Title XII of the VAT Directive allows for the possibility for Member States to apply special schemes for small enterprises, including the possibility of exempting taxable persons below a certain annual turnover. This exemption implies that taxable persons do not have to charge VAT on their supplies and, consequently, they cannot deduct the VAT on their inputs. Under Article 287 of the VAT Directive, particular Member States which acceded after 1 January 1978 may exempt taxable persons whose annual turnover is no higher than the equivalent in national currency of the amounts at the conversion rate on the day of their accession as specified in that provision. Under point (17) of Article 287 of the VAT Directive, Bulgaria may exempt from VAT taxable persons whose annual turnover is no higher than the equivalent in national currency of EUR 25 600. An authorisation to raise the threshold of annual turnover from EUR 25 600 to EUR 51 130 would significantly simplify the administrative burden on businesses eligible for the exemption and would stimulate the development of such small businesses by releasing them from the VAT obligation under normal VAT arrangements, such as keeping VAT records or submitting VAT returns. Further, the introduction of such a special measure would result in a smaller burden on the tax administration by lowering the requirement to manage and inspect taxable persons with a turnover under the threshold. In addition, there would be a positive effect on the general level of compliance with VAT obligation for these taxable persons. The special measure is fully optional for taxable persons. Therefore, small businesses whose turnover does not exceed the threshold would still have the possibility to exercise their right to apply the normal VAT arrangements. According to estimates provided by Bulgaria, the introduction of the special measure would lead to a decrease in VAT revenue collection of approximately 1 % and would therefore not significantly affect the total amount of revenue from VAT or the overall amount of tax revenue collected at the stage of final consumption. More specifically, Bulgaria reported that, in 2020, out of 319 666 registered taxable persons, 32 619 (i.e. 1 %) taxable persons had an annual turnover between EUR 25 600 and EUR 51 130 and could have benefited from the special measure. The special measure, simplifying the obligations of small operators, is in line with the objectives set out by the European Union for small businesses. Given the positive impact on the reduction of administrative burden for businesses and the tax administration without a major impact on the total VAT revenue, it is appropriate to authorise Bulgaria to apply the special measure until 31 December 2024.
• Consistency with existing policy provisions in the policy area The derogating measure is in line with the objectives of Directive (EU) 2020/285 amending Articles 281 to 294 of the VAT Directive on a speci al scheme for small enterprises 2 , which re sulted from the VAT action plan 3 , and aims to create a modern, simplified scheme for those businesses. In particular, it seeks to reduce VAT compliance costs and distortions of competition both domestically and at EU level, reduce the negative impact of the threshold effect, and facilitate business compliance as well as monitoring by tax administrations. Moreover, the threshold of EUR 51 130 is consistent with Directive (EU) 2020/285, insofar as it allows Member States to set the annual turnover threshold required for an exemption from VAT at a level no higher than EUR 85 000 (or the equivalent in national currency). Similar derogations, exempting from VAT taxable persons whose annual turnover is below a certain threshold, as provided for in Articles 285 and 287 of the VAT Directive, have been granted to other Member States. The Netherlands 4 and Belgium 5 have been granted a threshold of EUR 25 000; Italy 6 a threshold of EUR 30 000; Luxembourg 7 a threshold of EUR 35 000; Poland 8 , Latvia 9 and Estonia 10 have been granted a th reshold of EUR 40 000; Hungary 11 a thre shold of EUR 48 000; Lithuania 12 a threshold of EUR 55 000; C roatia 13 a threshold of EUR 45 000; Malta 14 a thr eshold of EUR 30 000; Slovenia 15 a thresh old of EUR 50 000; Czechia 16 a threshold of EUR 85 000; and Romania 17 a threshold of EUR 88 500. Derogations from the VAT Directive should always be limited in time so that their effects can be assessed. In addition, the inclusion of an expiry date of the special measure until 31 December 2024 is aligned with the requirements of Directive (EU) 2020/285. That directive provides for 1 January 2025 as the date on which Member States will have to apply the national provisions, which they are required to adopt, to comply with it.
The proposed measure is therefore consistent with the provisions of the VAT Directive.
• Consistency with other Union policies The Commission has been consistently stressing the need for simpler rules for small enterprises. In this respect, the Commission adopted in March 2020 an SME Strategy for a sustainable and digital Europe 18 , where it committed to continue to work on reducing the burden on SMEs. The objective to reduce the regulatory burden for SMEs is one of the pillars of that strategy. This special measure is in line with such objectives, as far as fiscal rules are concerned. It is also consistent with the 2020 Action Plan on fair and simple taxation su pporting the recovery strategy 19 , which acknowledges that tax compliance costs remain high in the EU, and that compliance costs are typically substantially higher for small than for large companies.
2. LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY • Legal basis Article 395 of the VAT Directive.
• Subsidiarity (for non-exclusive competence) Considering the provision of the VAT Directive on which it is based, the proposal falls under the exclusive competence of the European Union. Hence, the subsidiarity principle does not apply.
• Proportionality 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, i.e. to simplify the tax collection for small taxable persons and for the tax administration.
• Choice of the instrument The instrument proposed is a Council Implementing Decision. Under Article 395 of the VAT Directive, a derogation from the common VAT rules is only possible upon authorisation by the Council, which is 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.
3. RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS • Stakeholder consultations No stakeholder consultation has been conducted. The present proposal is based on a request made by Bulgaria and concerns only this particular Member State.
• Impact assessment The proposal for a Council Implementing Decision aims at increasing the current exemption threshold from EUR 25 600 to EUR 51 130 (the equivalent in national currency). This increase is a simplification measure, which removes many of the VAT obligations for businesses operating with an annual turnover no higher than EUR 51 130. It will therefore have a positive impact on the reduction of administrative burden for both businesses and the tax administration without a major impact on the total VAT revenue. Because of the narrow scope of the derogation and its limited application in time, the impact of the measure will in any case be limited. Currently, based on data available from 2020, there are approximately 175 000 small enterprises exercising their right to be exempted from VAT. The increase in threshold to EUR 51 130 would benefit around 32 000 additional enterprises, leading to a decrease in VAT revenue of approximately 1 %.
The derogating measure will be optional for taxable persons. Taxable persons will be able to opt for the regular VAT arrangements in accordance with Article 290 of Directive 2006/112/EC. The budgetary impact in terms of VAT revenue for Bulgaria is estimated at approximately EUR 56 million (1 % of the overall VAT revenue), which can be considered negligible.
• Fundamental rights The proposal does not have any consequences for the protection of fundamental rights.
4. BUDGETARY IMPLICATIONS Following entering into force of Council Regulation (EU, Euratom) 2021/769 of 30 April 2021 amending Regulation (EEC, Euratom) No 1553/89 on the definitive uniform arrangements for the collection of own resources accruing from value added tax 20 , there will be no compensation calculation carried out by Bulgaria as of VAT own resource state ment for the financial year 202 2 onwards.
2022/0322 (NLE) Proposal for a COUNCIL IMPLEMENTING DECISION authorising Bulgaria to introduce a special measure derogating from Article 287 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 21 , and in particular Article 395(1) thereof, Having regard to the proposal from the European Commission, Whereas: (1) Pursuant to Article 287, point (17), of Directive 2006/112/EC Bulgaria may exempt from value added tax (VAT) taxable persons whose annual turnover is no higher than the equivalent in national currency of EUR 25 600 at the conversion rate on the day of its accession. (2) By letter registered with the Commission on 17 M ay 2022, Bulgaria requested an authorisation to introduce a special measure derogating from Article 287, point (17), of Directive 2006/12/EC and thus to exempt from VAT taxable persons whose annual turnover is no higher than the equivalent in national currency of EUR 51 13 0 at the conversion rate on the day of its accession (‘the special measure’). The special measure would be applicable until 31 December 2024 , the date by which Member States are to transpose Council Directive (EU) 2020/285 22 . It follows from that Directive that, from 1 January 2025, Member States will be allowed to exempt from VAT the supply of goods and services made by taxable persons whose annual turnover in a given Member State does not exceed a threshold of EUR 85 000 or the equivalent in national currency. (3) Pursuant to Article 395(2), second subparagraph, of Directive 2006/112/EC, the Commission transmitted the request made by Bulgaria to the other Member States, by letter of 26 July 2022. By letter o f 27 July 2022, the Commission notified Bulgaria that it had all the information necessary for the appraisal of the request. (4) The special measure is in line with Directive (EU) 2020/285, which seeks to reduce the compliance burden of small enterprises and avoid distortions of competition in the internal market. (5) The special measure will remain optional for taxable persons as they may still opt for the normal VAT arrangements pursuant to Article 290 of Directive 2006/112/EC. (6) According to the information provided by Bulgaria, the special measure will only have a negligible effect on the overall amount of tax revenue Bulgaria collects at the stage of final consumption.
(7) Following the entry into force of Council Regu lation (EU, Euratom) 2021/769 23 , there is to be no compensation calculation carried out by Bulgaria with regard to the VAT -based own resource state ment for the financial year 2022 onwards . (8) Given that the special measure is expected to reduce VAT obligations and thus the administrative burden and compliance costs for both small enterprises and the tax authorities, and given the lack of any major impact on the total VAT revenue generated, Bulgaria should be authorised to introduce the special measure . (9) The authorisation to appl y the special measure should be limited in time. The time limit should be sufficient to allow for the evaluati on of the effectiveness and appropriateness of the threshold. Moreover, pursuant to Article 3(1) of Directive (EU) 2020/285, Member States are to adopt and publish, by 31 December 2024, the laws, regulations and administrative provisions necessary to comply with Article 1 of that Directive, which amends Directive 2006/112/EC and lays down simpler VAT rules for small enterprises , and apply those provisions from 1 January 2025. It is therefore appropriate to authorise Bulgaria to apply the special measure until 31 December 2024, HAS ADOPTED THIS DECISION: Article 1 By way of derogation from Article 287, point (17), of Directive 2006/112/EC, Bulgaria is authorised to exempt from VAT taxable persons whose annual turnover is no higher than the equivalent in national currency of EUR 51 130 at the conversion rate on the day of its accession. Article 2 This Decision shall take effect on the date of its notification. It shall apply until 31 December 2024. Article 3 This Decision is addressed to Bulgaria. Done at Brussels, For the Council The President
(1) OJ L 347, 11.12.2006, p.1.
(2) Council Directive (EU) 2020/285 of 18 February 2020 amending Directive 2006/112/EC on the common system of value added tax as regards the special scheme for small enterprises and Regulation (EU) No 904/2010 as regards the administrative cooperation and exchange of information for the purpose of monitoring the correct application of the special scheme for small enterprises (OJ L 62, 2.3.2020, p. 13).
(3) Communication from the Commission to the European Parliament, the Council and the European Economic and Social Committee on an action plan on VAT – Towards a single EU VAT area – Time to decide COM(2016)148 final.
(4) Council Implementing Decision (EU) 2018/1904 of 4 December 2018 authorising the Netherlands to introduce a special measure derogating from Article 285 of Directive 2006/112/EC on the common system of value added tax (OJ L 310, 6.12.2018, p. 25).
(5) Council Implementing Decision (EU) 2022/88 of 18 January 2022 amending Implementing Decision 2013/53/EU as regards authorisation to the Kingdom of Belgium to apply for a further period the special measure derogating from Article 285 of Directive 2006/112/EC on the common system of value added tax (OJ L 14, 21.1.2022, p. 23)
(6) Council Implementing Decision (EU) 2020 / 647 of 11 May 2020 authorising the Italian Republic to apply a special measure derogating from Article 285 of Directive 2006/112/EC on the common sys tem of value added tax (OJ L 151 , 14 . 5 .20 20 , p. 7 ).
(7) Council Implementing Decision (EU) 2019/2210 of 19 December 2019 amending Implementing Decision 2013/677/EU authorising Luxembourg to introduce a special measure derogating from Article 285 of Directive 2006/112/EC on the common system of value added tax (OJ L 332, 23.12.2019, p. 155).
(8) Council Implementing Decision (EU) 2021 / 1780 of 5 October 20 21 amending Decision 2009/790/EC authorising the Republic of Poland to apply a measure derogating from Article 287 of Directive 2006/112/EC on the common system of value added tax (OJ L 3 60 , 11 .1 0 .20 21 , p. 122 ).
(9) Council Implementing Decision (EU) 2020/1261 of 4 September 2020 amending Implementing Decision (EU) 2017/2408 authorising the Republic of Latvia to apply a special measure derogating from Article 287 of Directive 2006/112/EC on the common system of value added tax (OJ L 296, 10.9.2020, p. 4).
(10) Council Implementing Decision (EU) 2021/358 of 22 February 2021 amending Implementing Decision (EU) 2017/563 authorising the Republic of Estonia to apply a special measure derogating from Article 287 of Directive 2006/112/EC on the common system of value added tax (OJ L 69, 26.2.2021, p. 4).
(11) Council Implementing Decision (EU) 2022 / 73 of 18 January 2022 amending Implementing Decision (EU) 2018/1490 as regards authorisation to Hungary to apply for a further period the special measure derogating from Article 287 of Directive 2006/112/EC on the common sys tem of value added tax (OJ L 12 , 19 .1.20 22 , p. 148 ).
(12) Council Implementing Decision (EU) 2021/86 of 22 January 2021 authorising the Republic of Lithuania to apply a special measure derogating from Article 287 of Directive 2006/112/EC on the common system of value added tax (OJ L 30, 28.1.2021, p. 2).
(13) Council Implementing Decision (EU) 2020/1661 of 3 November 2020 amending Implementing Decision (EU) 2017/1768 authorising the Republic of Croatia to introduce a special measure derogating from Article 287 of Directive 2006/112/EC on the common system of value added tax (OJ L 374, 10.11.2020, p. 4).
(14) Council Implementing Decision (EU) 2021/753 of 6 May 2021 authorising Malta to apply a special measure derogating from Article 287 of Directive 2006/112/EC on the common system of value added tax, and repealing Implementing Decision (EU) 2018/279 (OJ L 163, 10.5.2021, p. 1).
(15) Council Implementing Deci sion (EU) 2022 / 464 of 21 March 20 22 amending Implementing Decision 2013/54/EU as regards the authoris ation granted to the Republic of Slovenia to continue to apply the special measure derogating from Article 287 of Directive 2006/112/EC on the common system of value added tax (OJ L 94, 2 3. 3 .20 22 , p. 4 ).
(16) Council Implementing Decision (EU) 2022/ 865 of 24 May 2022 authorising the Czech Republic to introduce a special measure derogating from Article 287 of Directive 2006/112/EC on the common system of value added tax ( OJ L 151 , 2 . 6 .2022, p. 66 ).
(17) Council Implementing Decision (EU) 2020/1260 of 4 September 2020 amending Implementing Decision (EU) 2017/1855 authorising Romania to apply a special measure derogating from Article 287 of Directive 2006/112/EC on the common system of value added tax (OJ L 296, 10.9.2020, p. 1).
(18) Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions – An SME Strategy for a sustainable and digital Europe (COM(2020) 103 final).
(19) Communication from the Commission to the European Parliament and the Council – An Action Plan for fair and simple taxation supporting the Recovery Strategy (COM(2020) 312 final).
(20) Council Regulation (EU, Euratom) 2021/769 of 30 April 2021 amending Regulation (EEC, Euratom) No 1553/89 on the definitive uniform arrangements for the collection of own resources accruing from value added tax (OJ L 165, 11.5.2021, p. 9).
(21) OJ L 347, 11.12.2006, p. 1.
(22) Council Directive (EU) 2020/285 of 18 February 2020 amending Directive 2006/112/EC on the common system of value added tax as regards the special scheme for small enterprises and Regulation (EU) No 904/2010 as regards the administrative cooperation and exchange of information for the purpose of monitoring the correct application of the special scheme for small enterprises (OJ L 62, 2.3.2020, p. 13).
(23) Council Regulation (EU, Euratom) 2021/769 of 30 April 2021 amending Regulation (EEC, Euratom) No 1553/89 on the definitive uniform arrangements for the collection of own resources accruing from value added tax (OJ L 165, 11.5.2021, p. 9).