EN    EN  COMMISSION OF THE E UROPEAN COMMUNITIES 
Brussels, 28.11.2006 
COM(2006) 736 final 
  
Proposal for a 
COUNCIL DECISION 
authorising Romania to apply a reduced rate of VAT to certain labour-intensive services 
referred to in Article 28(6 ) of Directive 77/388/EEC 
(presented by the Commission) 
 
EN 2   EN EXPLANATORY MEMORANDUM  
1) BACKGROUND  
110 • Grounds for and objectives of the proposal 
This proposal for a Decision is intended to im plement, as far as Romania is concerned, 
the provisions of Direct ive 2006/18/EC, which was adopted on 14 February 2006 (OJ 
L 51, 22.02.2006, p. 12), from Romania's date of  accession to the European Union. The 
Directive extends until 31 December 2010 the experiment of reduced rates for labour-
intensive services and makes it possible for al l Member States to take part in it under 
the same conditions. The purpose of  this proposal is therefore to extend this possibility 
to Romania and authorise it to apply such a reduced rate once it joins the European 
Union, so as to ensure equal tr eatment for all Member States.  
 
120 • General context 
1. On 14 February 2006, the Council adopt ed Directive 2006/18/EC amending 
Directive 77/388/EEC with  regard to reduced ra tes of value added tax,  and in particular 
Article 28(6) thereof. Paragraph 6 was added by Council Directive 1999/85/EC of 
22 October 1999 (OJ L 277, 28.10.1999, p.34) and a pplied initially until 31 December 
2002. The provisions were then extended by  Directive 2002/92/EC of 3 December 
2002 (OJ L 331, 7.12.2002, p.27) until 31 December 2003 and by Directive 2004/15/EC of 10 Febr uary 2004 (OJ L 52, 21.2.2004, p.61) until 
31 December 2005. To achieve a better understanding of the im pact of reduced rates, 
the Council asked the Commission to prepar e an assessment report on the impact of 
reduced rates applied to locally supplied se rvices, notably in te rms of job creation, 
economic growth and the proper func tioning of the internal market.  
2. Pending the outcome of that assessment, Directive 2006/18/EC extends the 
experiment of reduced rates for labour-intensive services until 31 December 2010. It also allows all Member States to take part  in the experiment under the same conditions. 
3. Member States wishing to avail themselves for the first time of the facility 
provided for in Article 28(6) of Directive 77/388/EEC and those wishing to amend the 
list of services to which they had applied that provision in the past had to submit a 
request to the Commission, together with the relevant particulars for the purpose of 
assessment, by 31 March 2006 and comply with the procedure and conditions laid down in Article 1(2) of Directive 2006/18/ EC. On this basis, the Commission has 
presented the Council with a proposal for a Decision authorising 17 Member States to 
apply a reduced rate to cert ain labour-intensive services
1. 
4. By letter dated 31 March 2006, Romania also submitted a request to apply a 
reduced rate for certain services, referred to in points 1 and 4 of Annex K to Directive 
77/388/EEC, supplying the information necessary for an assessment.  
5. Since all the Member States may temporarily apply a reduced rate to certain 
categories of labour-intensive services, the same possibility should be offered to the 
                                                 
1 COM(2006) 410 final. 
 
EN 3   EN accession countries, authorising them to apply the reduced rate from their accession to 
the European Union, if they so request under the same procedure and conditions as the present Member States. Reci tal (3) of Directive 2006/18/EC  states that one of the 
objectives of that Directive is to apply the same conditions to all Member States which 
wish to take part in the expe riment of reduced rates for labo ur-intensive services. It is 
therefore appropriate to appl y the fourth subparagraph of Article 28(6) of Directive 
77/388/EEC by analogy and mutatis mutandis to the accession countries, taking 
account of the specific legal situation of those States in the period leading up to 
accession.  
6. Under Article 55 of the Act concerni ng the conditions of accession of the 
Republic of Bulgaria and Romania and the adjustments to the Treaties on which the 
European Union is founded (OJ L 1 57, 21.06.2005, p. 203), at the duly substantiated 
request of Bulgaria or Romania submitted to the Commission no later than the date of accession, the Council, acting on a proposal fr om the Commission, may take measures 
consisting of temporary derogations from act s of the institutions adopted between 1 
October 2004 and the date of accession. Under the same Article, moreover, the measures shall be adopted according to th e voting rules governing the adoption of the 
act from which a temporary derogation is sought.  
7. As Directive 2006/18/EC was adopted after 1 October 2004, the Council, acting 
on a proposal from the Co mmission, may take a deci sion on Romania's request 
according to the voting rules governing the a doption of the act from which a temporary 
derogation is sought. In the present case, th e voting rules require a unanimous decision 
by the Council. Unanimity is required both by Article 93 of the Tr eaty establishing the 
European Community (the legal basis for the adoption of Directive 2006/18/EC) and 
by the first subparagraph of Article  28(6) of Directive 77/388/EEC.  
ASSESSMENT BY THE COMMISSION  
The Commission considers that Romania's request was presented according to a similar 
procedure to, and under the same conditions as, those laid down in Article 1 of Directive 2006/18/EC, which applies to the current Member States.  
Article 55 of the Act of A ccession of Bulgaria and Romania enables the Council, 
referring to Article 28(6) of Directive 77/388/ EEC, to ensure equal treatment for all the 
Member States, from the date of accession of Bulgaria and Romania, as regards the 
experiment of reduced rates fo r labour-intensive services.  
130 • Existing provisions on the subj ect covered by the proposal 
The exercise involves the implementation of Article 28(6) of Directive 77/388/EEC, as 
last amended by Directive 2006/18/EC with rega rd to reduced rates of VAT for labour-
intensive services. The legal basis for this implementation is Article 55 of the Act of Accession of Bulgaria and Romania.  
140 • Consistency with the other policies and objectives of the Union 
Directive 1999/85/EC formed part of EU  employment policy and was intended, in 
particular, to promote an increase in empl oyment and reduce the level of undeclared 
labour. The problem of unemployment was so  serious that those Member States 
 
EN 4   EN wishing to do so were allowed to experiment  with the operation and impact, in terms of 
job creation, of a reduction in the VAT rate  on labour-intensive services not currently 
listed in Annex H to Directive 77/388/EEC.  
However, the introduction of such a targeted  reduction in the VAT rate entails some 
risk to the proper operation of  the internal market and tax neutrality; it was therefore 
necessary to adopt an experi mental measure which Member States could opt to apply. 
Provision was also made for a specific authorisation procedure and for the scope of the Decision to be made subject to strict condi tions so that it rema ined verifiable and 
limited. This is the background against whic h Directive 2006/18/EC, which extended 
this experiment for the third time, was a dopted and this Decision is being proposed.  
2) CONSULTATION OF INTERESTED PARTIES AND IMPACT ASSESSMENT  
 • Consultation of interested parties 
219 Directive 2006/18/EC is the result of negotiations in the Council on Commission 
proposal COM(2003) 397 final on the review of  reduced rates of VAT. This proposal 
for a Decision is intended to apply the Directive to Romania, following its formal request to take part in the experiment. In terested parties have not therefore been 
consulted again.  
 • Collection and use of expertise 
229 Outside expertise has not been required.  
230 • Impact assessment 
This proposal for a Decision is intended to im plement, as far as Romania is concerned, 
from the date of accession until 31 Dece mber 2010, the provisions of Directive 
2006/18/EC, which provides in particular fo r the extension of an existing provision.  
To achieve a better understanding of the imp act of reduced rates,  the Directive also 
lays down that the Commission must prep are an assessment report by 30 June 2007, on 
the basis of a study carried out by an inde pendent economic think-tank, on the impact 
of reduced rates applied to locally supplied services, notably in terms of job creation, 
economic growth and the proper functioning of th e internal market. At  this stage, there 
is therefore no reason to examine other options.  
3) LEGAL ELEMENTS OF THE PROPOSAL  
305 • Summary of the proposed action 
To enable Romania, which has made a request to this effect, to apply, from the date of 
accession, a reduced rate to certain labour-inten sive services, pursuant to Article 28(6) 
of Directive 77/388/EEC.  
310 • Legal basis 
Article 55 of the Act of Accession of Bulgaria  and Romania, with reference to Article 
28(6) of Directive 77/388/EEC, as amende d by Directive 2006/18/EC of 14 February 
 
EN 5   EN 2006.  
329 • Subsidiarity principle 
The proposal falls under the ex clusive competence of the Co mmunity. The subsidiarity 
principle therefore does not apply.  
 • Proportionality principle 
The proposal complies with the proportiona lity principle for the following reasons.  
331 The Decision authorises Romania, which has specifically so re quested, to apply a 
reduced rate of VAT for certain labour-int ensive services. It therefore imposes no 
obligation.  
332 Given the limited scope of the derogations provided for in the Decision, the special 
measure is proportionate to the aim pursued. The Decision involves no financial cost to 
the Community. Although the reduction in the rates of VAT may involve a reduction in 
revenue for States, those that have submitted requests expect that the effectiveness of 
the measure in increasing employment a nd reducing the scale of the shadow economy 
will offset this loss. VAT places no fina ncial burden on economic operators, and 
consumers should, in principle, benefit from th e reduction in rates, in so far as this will 
be reflected in final prices.  
 • Choice of instruments 
341 Proposed instrument(s): other.  
342 Other means would not be appropriate for the following reasons.  
Under Article 55 of the Act of  Accession of Bulgaria and Ro mania, with reference to 
Article 28(6) of Directive 77/388/EEC, as amended by  Directive 2006/18/EC of 
14 February 2006, derogation from the common  VAT rules is only possible with the 
authorisation of the Council acting unanimously on a prop osal from the Commission. 
A Council Decision is the only suitable instrument.  
4) BUDGETARY IMPLICATIONS  
409 The proposal has no implication for the Community budget.  
5) ADDITIONAL INFORMATION  
 • Review/revision/sunset clause 
533 The proposal includes a sunset cl ause on all or part of the le gislative act if predefined 
conditions are met.  
570 • Detailed explanation of the proposal by chapter or by article 
Article 1  
Article 1 provides that, under Article 55 of  the Act of Accession of Bulgaria and 
 
EN 6   EN Romania and with reference to the first and fourth subparagraphs of Article 28(6) of 
Directive 77/388/EEC, Romania is authorised to apply, from accession to the European 
Union, a reduced rate of VAT for certain labour-intensive services.  
Article 2  
The purpose of Article 2 is to authorise Ro mania to apply the reduced rates laid down 
in the third subparagraph of Article 12(3)(a) of Directive 77/388/EEC to the services 
for which it has submitted a request under a si milar procedure to that provided for in 
the fourth subparagraph of Article 28(6) of  that Directive and which are mentioned 
therein.  
Articles 3 to 4  
These Articles concern the period of appli cation of the provisions  under Article 28(6) 
of Directive 77/388/EEC and th e addressee of the Decision.  
 
 
EN 7   EN Proposal for a 
COUNCIL DECISION 
authorising Romania to apply a reduced rate of VAT to certain labour-intensive services 
referred to in Article 28(6 ) of Directive 77/388/EEC 
THE COUNCIL OF THE EUROPEAN UNION, 
Having regard to the Treaty esta blishing the European Community, 
Having regard to the Treaty of Accession of Bulgaria and Romania2, and in particular Article 
4(3) thereof, 
Having regard to the Act of Acce ssion of Bulgaria and Romania3, and in particular Article 55 
thereof, 
Having regard to the Sixth Council Dir ective (77/388/EEC) of 17 May 1977 on the 
harmonization of the laws of the Member Stat es relating to turnover taxes - Common system 
of value added tax: unif orm basis of assessment4, and in particular Ar ticle 28(6) thereof, 
Having regard to the proposal from the Commission5, 
Whereas: (1) Under Article 28(6) of Directive 77/ 388/EEC, the Council may authorise a Member 
State to apply a reduced rate of VAT to certain labour-intensive services. 
(2) The services concerned must m eet the conditions provided for in 
Directive 77/388/EEC and be included in the list given in Annex K thereto. 
(3) Article 28(6) of Directive 77/388/ EEC, as amended by Directive 2006/18/EC, 
extended the period of applic ation of the reduced rates of VAT to 31 December 2010. 
It also enables Member States wishing to avail themselves for the first time of the facility provided and those which want to change the list of services to which they have applied the said provision in the past  to submit their request to the Commission. 
(4) The said Article is intended to make it possible for all Member States to take part 
under the same conditions in the experiment of reduced rates for labour-intensive 
services. It is therefore appr opriate to grant the acceding States, from their accession to 
                                                
 
2 OJ L 157, 21.6.2005, p. 11. 
3 OJ L 157, 21.6.2005, p. 203. 
4 OJ L 145, 13.6.1977, p.1. Directive as last amended by Directive No 2006/69/EC (OJ L 221, 12.8.2006, 
p. 9).  
5 OJ C […], […], p. […]. 
 
EN 8   EN the European Union, the same possibility of applying a reduced rate of VAT to certain 
labour-intensive services.  
(5) By letter dated 31 March 2006, Romania submitte d a request to apply a reduced rate of 
VAT to certain labour-intensive services re ferred to in the fourth subparagraph of 
Article 28(6) of Directive 77/388/EEC. 
(6) To ensure equality among the Member States, this Decision should apply from the 
date of entry into force of the Treaty of Accession of Bulgaria and Romania. 
(7) This Decision will have no impact on th e Communities' own resources derived from 
VAT, 
HAS ADOPTED THIS DECISION: 
Article 1 
Under Article 55 of the Act of Accession of Bulgaria and Romania read in conjunction with 
the first and fourth subparagr aphs of Article 28(6) of Di rective 77/388/EEC, Romania is 
authorised to apply, from the entry into for ce of the Treaty of Acce ssion of Bulgaria and 
Romania until 31 December 2010, the reduced rates provided for in the third subparagraph of 
Article 12(3)(a) to the servi ces mentioned in Article 2. 
Article 2 
Romania is authorised for the following two servi ces, referred to in points 1 and 4 of Annex K 
to Directive 77/388/EEC: 
(a) small services of repairing clothi ng and household line n (including mending 
and alteration), 
(b) domestic care services. 
Article 3 
This Decision shall apply subject to, and from th e date of entry into force of, the Treaty of 
Accession of Bulgaria and Romania and shall cease to have effect on 31 December 2010. 
Article 4 
This Decision is addressed to Romania. 
Done at Brussels,  
 For the Council 
 The President