Proposal for a COUNCIL DECISION amending Council Decision 1998/20/EC authorising the Kingdom of the Netherlands to apply a measure derogating from Article 21 of the Sixth Council Directive (77/388/EEC) of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes

(presented by the Commission)

EXPLANATORY MEMORANDUM

1. Under Article 27 of the Sixth Council Directive of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes - Common System of value added tax: uniform basis of assessment, [1] - the Council, acting unanimously on a proposal from the Commission, may authorise any Member State to introduce special measures for derogation from the provisions of the Directive, in order to simplify the procedure for charging the tax or to prevent certain types of tax evasion or avoidance.

[1] OJ L 145, 13.6.1977, p. 1 Directive last amended by Directive 2004/7/EC (OJ L 27, 30.1.2004, p.44).

2. As a rule, such authorisations are given on a temporary basis, so that an assessment can be made after a few years as to whether the special measures are appropriate and effective.

3. Council Decision 1998/20/EC [2] authorised the Kingdom of the Netherlands to apply a measure derogating from Article 21 of the Sixth Directive. The validity of that Decision (31 December 1999), was extended until 31 December 2003 by Council Decision 2000/435/EC [3]. In particular, the decision authorised the Netherlands to introduce in the ready-to-wear clothing industry, a scheme for shifting the obligation to pay over VAT to the tax authorities from the subcontractor to the clothing firm (the contractor).

[2] OJ L 8, 14.1.1998, p. 16

[3] OJ L 172, 12.7.2000, p. 24

4. By letter registered by the Secretariat-General on 26 November 2003, the Kingdom of the Netherlands requested authorisation to extend application of this measure. According to the request, the derogation has proved extremely effective in combatting VAT fraud in this sector.

5. The requested measure is to be considered first and foremost as a measure to prevent certain types of tax evasion in the ready-to wear clothing industry, such as the non-payment of invoiced VAT by subcontractors, who subsequently become untraceable. The measure also has the effect of simplifying the work of the tax authorities, which very frequently face major problems collecting VAT due by subcontractors in that sector.

6. The measure is proportionate to the objectives pursued, since it is not intended to apply to all taxable operations in the sector concerned but only to specific operations which pose considerable problems of tax evasion.

7. This measure does not adversely affect the VAT Communities' own resources, nor does it have any effect on the amount of tax due at the final stage of consumption.

8. In its communication of 7 June 2000 to the Council and the European Parliament on a strategy to improve the operation of the VAT system within the context of the internal market, [4] the Commission undertook to rationalise the large number of derogations currently in force.

[4] COM(2000) 348 final.

9. The Commission accepts that, pending more permanent changes, this derogation significantly counters abuse of the VAT system. It also accepts that the situation in the Netherlands affecting this particular sector which justified the application of the special measures has not changed. In view of its continuing work towards the rationalisation of Article 27 derogations, it considers that the request made by the Kingdom of the Netherlands for an extension of the authorisation contained in Decision 1998/20/EC should be granted until 31 December 2006.

Proposal for a COUNCIL DECISION amending Council Decision 1998/20/EC authorising the Kingdom of the Netherlands to apply a measure derogating from Article 21 of the Sixth Council Directive (77/388/EEC) of 17 May 1977 on the harmonisation 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 harmonisation of the laws of the Member States relating to turnover taxes - Common system of value added tax: uniform basis of assessment, [5] and in particular Article 27 thereof,

[5] OJ L 145, 13.6.1977, p. 1. Directive last amended by Directive 2004/7/EC (OJ L 27, 30.1.2004, p.44).

Having regard to the proposal from the Commission, [6]

[6] OJ C No ...

Whereas:

(1) Pursuant to Article 27(1) of the Sixth VAT Directive, the Council, acting unanimously on a proposal from the Commission, may authorise 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.

(2) By letter registered with the Secretariat-General of the Commission on 26 November 2003, the Dutch Government requested the extension of Decision 1998/20/EC [7] authorising it to apply special tax measures to the ready-to wear clothing industry.

[7] OJ L 8, 14.1.1998, p. 16

(3) The other Member States were informed of the Netherlands's request on 14 January 2004.

(4) Decision 1998/20/EC, authorised the Kingdoms of the Netherlands to introduce in the ready-to-wear clothing industry, a scheme for shifting the subcontractor's obligation to pay over VAT to the tax authorities from the subcontractor to the clothing firm (the contractor).

(5) These arrangements constitute an effective fraud-prevention measure in a sector in which collecting VAT is rendered awkward by the difficulty of identifying and supervising the activities of subcontractors.

(6) On 7 June 2000 the Commission published a strategy to improve the operation of the VAT system in the short term, in which it undertook to rationalise the large number of derogations currently in force. In some cases however, this rationalisation could involve extending certain particularly effective derogations to all Member States. The Commission's communication of 20 October 2003 reiterates this compromise.

(7) The requested measure is to be considered first and foremost as a measure to prevent certain types of tax evasion in the ready-to- wear clothing industry.

(8) The Kingdom of the Netherlands should be granted an extension for the current derogation until 31 December 2006.

(9) The derogation has no adverse impact on the European Communities' own resources accruing from VAT nor does it affect the amount of VAT charged at the final stage of consumption.

HAS ADOPTED THIS DECISION:

Article 1

In Article 1 of Decision 1998/20/EC, the date 31 December 2003 shall be replaced by 31 December 2006.

Article 2

This Decision is addressed to the Kingdom of the Netherlands.

Done at Brussels,

For the Council

The President