amending Decisions 2009/791/EC and 2009/1013/EU authorising Germany and Austria respectively to continue to apply a measure derogating from Articles 168 and 168a of 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(1) of Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, the Council, acting unanimously on a proposal from the Commission, may authorise any Member State to apply special measures derogating from the Directive in order to simplify the procedure for charging the tax or to prevent certain types of tax evasion or avoidance.

By letters registered with the Commission on respectively 19 March 2015 and on 16 March 2015, Austria and Germany requested an authorisation to continue applying a measure derogating from Articles 168 and 168a of Directive 2006/112/EC, in order to exclude from the right of deduction the VAT borne on goods and services which are used for more than 90 % for non-business purposes.

In accordance with Article 395(2) of Directive 2006/112/EC, the Commission informed the other Member States by letters dated 15 September 2015 of the requests made by Austria and Germany. The Commission notified Austria and Germany by letters dated 17 September 2015 that it had all the information necessary to consider the requests.

Article 168 of Directive 2006/112/EC provides that a taxable person is entitled to deduct the VAT charged on purchases made for the purpose of his taxed transactions. Article 168a(1) of Directive 2006/112/EC provides that the VAT on expenditure related to immovable property forming part of the business assets of a taxable person and used both for business and non-business purposes shall be deductible only up to the proportion of the property's use for purposes of the taxable person's business. Pursuant to Article 168a(2) of Directive 2006/112/EC Member States may also apply this rule in relation to expenditure related to other goods forming part of the business assets as they specify.

The measure pursued by Austria and Germany deviates from those principles and entirely excludes from the right of deduction the VAT borne on goods and services that are used by a taxable person for more than 90% for private or non-business purposes, including non-economic activities.

The derogating measure for Austria had initially been granted by Council Decision 2004/866/EC of 13 December 2004 for a period until 31 December 2009 and was again granted by Council Implementing Decision 2009/1013/EU of 22 December 2009 until 31 December 2012 and by Council Implementing Decision 2012/705/EU of 13 November 2012 until 31 December 2015.

The derogating measure for Germany had initially been granted by Council Decision 2003/354/EC of 13 May 2003 until 30 June 2004, by Council Decision 2004/817/EC of 19 November 2004 until 31 December 2009, by Council Decision 2009/791/EC of 20 October 2009 until 31 December 2012 and by Council Implementing Decision 2012/705/EU of 13 November 2012 until 31 December 2015.

In their current requests, Austria and Germany informed the Commission that they have been applying this special measure until now successfully, making the experience that it was very useful in terms of simplifying the VAT collection and preventing tax evasion and avoidance.

Derogations are in general granted for a limited time as to allow an assessment whether the special measure is appropriate and effective. In this respect, based on the information provided by Austria and Germany, the Commission understands that the 90%/10% apportionment between business and non-business use still represents a sound basis to sort out transactions in respect of which the business use can be considered as negligible.

As a consequence, the special measure in question provides a facilitation to both tax administrations and businesses as there is no need for any monitoring of the subsequent use of the goods and services to which the exclusion from deduction applied at the time of their acquisition, particularly with respect to a possible taxation of a private use pursuant to Articles 16 or 26 of Directive 2006/112/EC or adjustments to deduction as required under Articles 184 – 192 of that Directive. The amount of tax due at the level of final consumption is only affected to a negligible extent. An extension of the derogating measure is therefore appropriate.

However, any extension should be limited in time in order to assess whether the conditions, on which the derogations are based, would still be valid. Therefore, it is proposed to extend the derogations until the end of 2018 and to request Austria and Germany to present, together with the extension request, a report by 1 April 2018 at the latest including a review of the applied apportionment between business and non-business use on which the exclusion from deduction is based in case a further extension would be envisaged beyond 2018.

•Consistency with existing policy provisions in the policy area

Article 176 of Directive 2006/112/EC stipulates that the Council shall determine the expenditure on which the VAT is not deductible. Until such time, it authorises Member States to maintain exclusions, which were in place on 1 January 1979. There are therefore a number of "stand still" provisions restricting the right to deduct.

2.LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY

•Legal basis