COMMISSION OF THE EUROPEAN COMMUNITIES 
Brussels, 22.04.1997 
COM(97) 166 final 
COMMISSION REPORT TO THE COUNCIL 
presented in accordance with Article 3 of 
Council Decision 93/110/EEC of 15 February 1993 
(application of a measure derogating from Article 2 and 10 
of the Sixth Council Directive (77/388/EEC) on the harmonization 
of the laws of the Member States 
relating to turnover taxes) 
Proposal for a 
COUNCIL DECISION 
authorizing the French Republic to extend 
the application of a measure derogating from Articles 2 and 10 
of the Sixth Council Directive (77/388/EEC) of 17 May 1977 
on the harmonization of the laws of the Member States 
relating to turnover taxes 
(presented by the Commission) 

COMMISSION REPORT TO THE COUNCIL 
presented in accordance with Article 3 of 
Council Decision 93/110/EEC of 15 February 1993 
(application of a measure derogating from Article 2 and 10 
of the Sixth Council Directive (77/388/EEC) on the harmonization 
of the laws of the Member States 
relating to turnover taxes) 
Z 
I. INTRODUCTION 
By Decision 89/683/EEC of 21 December 1989,1 the Council authorized France, on the 
basis of Article 27 of the Sixth Directive, to take special measures derogating from 
Articles 2 and 10(2) of that Directive. The authorization was valid until 
31 December 1992. 
The authorization enabled France to set up special VAT arrangements for taxable 
transactions concerning fresh industrial waste and récupérable material. 
On the basis of a Commission report on the application of this derogation, the 
authorization was extended until 31 December 1996 by Council Decision 93/110/EEC of 
15 February 1993.2 Under the terms of the authorization, any proposal to extend it has to 
be accompanied by a report on its application. 
The purpose of this report is to give an account of this derogation from the time of its 
extension to the present date and to examine the application for an extension submitted by 
France by letter registered by the Secretariat-General on 19 November 1996. However, 
since the Commission issued a report at the end of 19923 which described in detail the 
background, objectives and operation of the derogation, the present report simply recalls 
the key elements of the special arrangements and highlights a number of developments 
which have occurred since the previous report. 
II. APPLICATION OF THE DEROGATION 
Structure of the special arraneements set up bv France 
These special arrangements combine the following three provisions: 
1. Automatic taxation of fresh industrial waste and récupérable material supplied by 
companies which simultaneously meet the following two conditions: 
- they have a permanent establishment; 
and 
1 OJNoL398, 30.12.1989, p. 31. 
2 OJNoL43, 20.2.1993, p. 44. 
•* COM(92) 582. 22.12.1992. -^ 
- turnover excluding tax in respect of the fresh industrial waste or récupérable 
material that they processed during the previous calendar year was equal to, or in 
excess of, FF 6 000 000. 
2. A "limited" exemption, applicable in this instance only to supplies of fresh 
industrial waste and récupérable material supplied by companies which: 
- either do not have a permanent establishment; 
- or which, although they have a permanent establishment, achieved a turnover 
excluding tax of less than FF 6 000 000 in respect of the fresh industrial waste and 
récupérable material that they processed during the previous calendar year. 
This exemption is linked to an option for taxation on authorization available only 
to companies with a total annual turnover in excess of FF 500 000 inclusive of all 
taxes. In other words, exemption is compulsory only for companies with a total 
annual turnover of less than the threshold of FF 500 000 inclusive of all taxes. 
3. Mandatory suspension of payment of VAT on supplies to taxable persons of fresh 
industrial waste and récupérable material consisting of non-ferrous metals and 
their alloys where such supplies are subject to tax either automatically or by 
authorization, i.e. where they cannot be exempted. 
Companies in the sector which effect supplies under suspension arrangements are 
not entitled to invoice VAT, but they do retain their right to deduct it, either by 
imputation if they are subject to tax in another sector or by way of refund if that is 
not the case. 
All imports of fresh industrial waste and récupérable material are exempt from VAT. 
In addition, commission transactions concerning fresh industrial waste or récupérable 
material are treated as supplies of goods, unlike brokerage transactions, which, as a result, 
are not covered by the derogation. 
Viewpoint of the French authorities on the application of the special arrangements 
France has indicated that the sector in question is set to expand because waste recycling 
and upgrading are becoming increasingly systematic as a result of growing concern for the 
environment. 
The French authorities maintain that the derogation for transactions in fresh industrial 
waste and récupérable material presents undisputed advantages for traders and for the 
authorities. 
In the case of small groups of various types (charities, migrant populations, etc.), the 
exemption for fresh industrial waste and récupérable material which they supply clearly 
V 
reflects a desire to simplify procedures and combat fraud. 
In addition, VAT suspension arrangements for fresh industrial waste and récupérable 
material consisting of non-ferrous metals provide a useful addition to the system in so far 
as the high value of these metals increases the risk of fraud. 
The scope of the arrangements has also become more restrictive over time. Although they 
cover all waste from non-ferrous metals including precious metals, certain goods which 
came under the suspension arrangements prior to 1991 (unprocessed products such as 
lumps, bars, blocks, plate, dust or chippings of certain non-ferrous metals) are 
automatically subject to VAT at the moment. The scope of the suspension arrangements 
has thus been reduced. 
The French authorities take the view that suspension arrangements specifically for waste 
consisting of non-ferrous metals are justified on the grounds that the risks of fraud are 
greater in this sector given the price per tonne of the raw materials (FF 10 000 per tonne 
for copper as against FF 500 per tonne for metal scrap) and the scale of international 
trading in such waste. 
Furthermore, companies welcome these arrangements. Traders have indicated that they 
want them to remain in place as a means of protecting them, among other things, against 
the risks that could result from fraudulent actions by certain companies for which they 
might be held responsible by the authorities. 
III. OPINION OF THE COMMISSION DEPARTMENTS 
Article 27 of the Sixth Directive permits special measures derogating from that Directive 
to be introduced either in order to simplify the procedure for charging the tax or in order 
to prevent certain types of tax evasion or avoidance. 
The Commission departments take the view that the exemption for supplies by small 
enterprises is both a simplification measure and an anti-fraud measure because it enables a 
category of taxable persons for which checks and tax recovery would be disproportionate 
in relation to revenue to be excluded from the VAT system. 
Enabling a certain category of taxpayer to charge VAT on their transactions, which in 
principle are exempt, provided that they are authorized to do so by the authorities and, 
where appropriate, lodge a surety, permits increased monitoring of this category of 
taxpayer by the authorities. 
The VAT suspension arrangements applicable to supplies of non-ferrous metal waste 
make it possible to keep track of transactions that present a higher risk of fraud as a result 
of the value of the goods involved. 
Accordingly, the Commission departments consider that an extension of the special 
measures in question is justified on the basis of Article 27 of the Sixth Directive. 
r 
As regards the period of validity of the authorization, the Commission departments would 
point out that, on 10 July 1996, the Commission adopted a work programme4 for the 
introduction of a common VAT system which provides for step-by-step progress towards 
the new system. 
As the final package of proposals is scheduled for presentation in mid-1999, the 
Commission departments take the view that no derogation should be extended beyond 
31 December 1999. 
It would seem appropriate to assess whether the derogation was consistent with the 
approach adopted under the new common system of VAT at that point in time. 
COM(96)328 final, 22.7.1996. 
Proposal for a 
COUNCIL DECISION 
authorizing the French Republic to extend 
the application of a measure derogating from Articles 2 and 10 
of the Sixth Council Directive (77/388/EEC) of 17 May 1977 
on the harmonization of the laws of the Member States 
relating to turnover taxes 
3-
EXPLANATORY MEMORANDUM 
By letter registered by the Commission's Secretariat-General on 19 November 1996, the 
French Government submitted a request for an extension of the derogation initially 
authorized up to 31 December 1992 by Council Decision 89/683/EEC of 
21 December 19891 and extended until 31 December 1996 by Council 
Decision 93/110/EEC of 15 February 1993.2 
Article 3 of the Decision 93/110/EEC states that, in the light of a Commission report on 
France's application of the Decision, the Council may, on the basis of a Commission 
proposal, authorize extension of its period of validity. 
The Commission report, which covers the period 1993-96, concludes that it is appropriate 
for the application of that Decision to be extended until 31 December 1999. 
On 10 July 1996 the Commission adopted a work programme for the introduction of a 
common VAT system3 which provides for step-by-step progress towards the new system. 
As the final package of proposals is scheduled for presentation in mid-1999, it would 
seem appropriate not to extend the period of validity beyond 31 December 1999, so as to 
enable an assessment to be made at that time of the derogation's consistency with the 
overall approach adopted under the new common system of VAT. 
In accordance with Article 27(3) of the Sixth Directive, the other Member States have 
been informed by letter of 18 December 1996 of the French request. 
1 OJNoL398, 30.12.1989, p. 31. 
2 OJ No L 43, 20.2.1993. p. 44. 
3 COM(96)328 final, 22.7.1996. 
% 
PROPOSAL FOR A COUNCIL DECISION 
AUTHORIZING THE FRENCH REPUBLIC TO EXTEND THE APPLICATION OF A 
MEASURE DEROGATING FROM ARTICLES 2 AND 10 OF THE SIXTH COUNCIL 
DIRECTIVE (77/388/EEC) OF 17 MAY 1977 ON THE HARMONIZATION OF THE 
LAWS OF THE MEMBER STATES RELATING TO TURNOVER TAXES 
THE COUNCIL OF THE EUROPEAN UNION, 
Having regard to the Treaty establishing the European Community, 
Having regard to the Sixth Council Directive (77/388/EEC) of 17 May 1977 on the 
harmonization of the laws of the Member States relating to turnover taxes - Common 
system of value added tax: uniform basis of assessment,1 and in particular Article 27 
thereof, 
Having regard to the previous Council Decisions 89/683/EEC of 21 December 19892 and 
93/110/EEC of 15 February 1993,3 
Having regard to the Commission report on the application of the above-mentioned 
Decision over the period 1993-96, 
Having regard to the Commission proposal which followed, 
Whereas, under Article 27(1) of the Sixth Directive, the Council, acting unanimously on a 
proposal from the Commission, may authorize any Member State to introduce or extend 
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; 
Whereas, by letter registered by the Secretariat-General of the Commission on 
19 November 1996, the French Government requested authorization to extend the 
application of the derogation previously granted to it for limited periods by 
Council Decisions 89/683/EEC and 93/110/EEC; 
Whereas the other Member States were informed on 18 December 1996 of the 
French Government's request; 
1 OJ No L 145, 13.6.1977, p. 1; Directive as last amended by Directive 96/95/EC (OJNoL338, 
28.12.1996, p. 89). 
2 OJ No L 398, 30.12.1989, p. 31. 
3 OJ No L 43, 20.2.1993, p. 44. 
Whereas the Commission report on the application of the said derogation over the 
period 1993-96 has demonstrated the latter's usefulness and effectiveness in the 
waste-recovery sector, which is particularly vulnerable to fraud; 
Whereas the Commission adopted on 10 July 1996 a work programme4 and a timetable of 
proposals providing for gradual, step-by-step progress towards a common VAT system 
for the single market; 
Whereas, as the final package is scheduled for presentation in mid-1999, the authorization 
is to be granted until 31 December 1999 so as to enable an assessment to be made at that 
time of the derogation's consistency with the overall approach of the new common system 
of VAT; 
Whereas this derogation will not have a negative effect on the European Communities' 
own resources accruing from VAT, 
HAS ADOPTED THIS DECISION: 
COM(96) 328 final, 22.7.1996. 
•1o 
Article 1 
By way of derogation from Article 2 of the Sixth Directive (77/388/EEC), the French 
Republic is hereby authorized, until 31 December 1999 and in respect of fresh industrial 
waste and récupérable material, to exempt from value added tax, hereinafter referred to as 
"VAT": 
- on the one hand, supplies made by: 
• companies whose annual turnover is less than FF 500 000; 
• companies which do not have a permanent establishment or which, although they 
have a permanent establishment, have achieved in the previous year a turnover figure in 
respect of such products of less than FF 6 000 000, unless they are authorized to subject 
such transactions to VAT; 
- on the other hand, imports and intra-Community acquisitions. 
Article 2 
By way of derogation from Article 10(2) of the Sixth Directive (77/388/EEC), the French 
Republic is hereby authorized, until 31 December 1999, to introduce in respect of supplies 
to taxable persons of fresh industrial waste and récupérable material in the form of 
non-ferrous metals and their alloys, where these supplies are not exempt from VAT on the 
basis of Article 1, arrangements suspending payment of the tax relating to those 
transactions. 
The taxable persons receiving these supplies shall pay the tax on them where these 
products are intended neither for the export as such nor for the manufacture or resale as 
such of products liable to VAT. 
Article 3 
This Decision is addressed to the French Republic. 
Done at Brussels, 
For the Council 
The President 
A s\ 

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COM(97) 166 final 
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