COMMISSION OF THE EUROPEAN COMMUNITIES 
Brussels, 05.02.1997 
COM(97) 42 final 
Proposals for 
COUNCIL DECISIONS 
authorizing the 15 Member States to apply a measure derogating from Article 9 
of the Sixth VAT Directive (77/388/EEC) on the harmonization of the 
laws of the Member States relating to turnover taxes 
(presented by the Commission) 

Proposal for a 
COUNCIL DECISION 
authorizing the Kingdom of Belgium to apply a measure derogating from Article 9 
of the Sixth VAT Directive (77/388/EEC) on the harmonization of the 
laws of the Member States relating to turnover taxes 
(presented by the Commission) 
-2-
EXPLANATORY MEMORANDUM 
By registered letter to the Commission's Secretariat-General dated 10 September 1996, the 
government of the Kingdom of Belgium requested authorization, under Article 27 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 - common system of value added tax: uniform basis 
of assessment,1 to apply a measure derogating from Article 9 of that Directive. 
In accordance with Article 27(3) of the Sixth Directive, the other Member States were 
informed by letter dated 20 December 1996 of the request made by the Kingdom of Belgium. 
That request involves a change to the rules governing the place of taxation of the supply of 
telecommunications services. 
According to the legislation in force (Article 9(1) of the Sixth Directive), the place where 
telecommunications services are supplied is deemed to be the place where the supplier has 
established his business or has a fixed establishment from which the services are supplied or, in 
the absence of such a place of business or fixed establishment, the place where he has his 
permanent address or usually resides. 
This rule poses problems regarding the effective taxation of telecommunications services 
consumed within the Community. Its application means that telecommunications services 
provided by a supplier established outside the European Union are outside the scope of the tax 
even if those services are actually consumed within the Union. Community consumers are 
increasingly turning to suppliers of services established outside the European Union in order to 
avoid payment of VAT. The problem of the effective taxation of telecommunications services 
arose following the development of technical means of providing such services without the 
supplier needing to use a network belonging to him or another form of fixed establishment in 
his customer's country. This development is leading to tax revenue losses for Member States' 
public finances and is also undermining the competitiveness of European telecommunications 
companies. The situation in this activity sector is simply one of tax avoidance. 
In order to remedy this situation, the Kingdom of Belgium wishes to be able to apply different 
rules regarding the place of taxation and for that place to be regarded as that where the 
customer has established his business or has a fixed establishment for which the service is 
provided or, failing that, the place where he has his permanent address or usually resides. In 
this way, the aim of VAT, which is to tax all consumption within the Community, would be 
fully achieved as regards telecommunications services. 
OJ No L 145, 13.6.1977, p. 1. Directive as last amended by Directive 96/95/EC (OJ No L 338, 
28.12.1996, p. 89). 
i-
Since the aim of the derogation requested is to alter the place of taxation and that same 
derogation is required by all the Member States, the Council's authorization would have an 
effect equivalent to an amendment of the Sixth Directive itself. However, such an amendment 
can be made only in accordance with the Treaty rules safeguarding the rights of the 
European Parliament and the Economic and Social Committee. Accordingly, the measure 
envisaged can be authorized only as an interim measure that meets the legitimate interests of 
the Member States, namely the need to combat tax avoidance, and pending approval of a 
proposal for a directive amending the Sixth Directive, that would be presented to the Council 
at the same time. Similarly, the duration of the derogation must be limited to what is necessary 
for the adoption of Community legislation and its transposai into national law. A period of 
approximately two years would be sufficient in this regard, which Would limit the validity of 
the derogation to 31 December 1998. 
As this is a safeguard measure, it is necessary to limit it to what is strictly needed for combating 
tax avoidance and, notwithstanding the proposal for a ;directive amending the 
Sixth VAT Directive, to use a tax mechanism that is already well known and that is therefore 
easy to apply. 
It is therefore necessary, first of all, to restrict the effects of the1 authorization to services 
provided by a supplier established outside the Community, since only those services currently 
escape taxation and lead to tax avoidance. ! 
As regards the definition of the place of taxation, a mechanism must be chosen which creates 
the least number of specific tax obligations for suppliers established outside the Community 
and thus does not prejudge the tax arrangements to be adopted in connection with the 
amendment of the Sixth Directive. These objectives can best be achieved by applying the rules 
in Article 9(2)(e) of the Sixth Directive, under which the person liable for payment of the tax is 
the taxable recipient of the service. 
However, it is not sufficient to provide a tax solution purely for services supplied to taxable 
persons. Such a solution would cover only the final consumption of taxable persons not 
benefiting from a full deduction entitlement, notably banks and insurance companies, and 
would not cover services purchased by individuals. In order to fill this gap, application of 
Article 9(3)(b) must be made compulsory for telecommunications services supplied to 
non-taxable persons. j 
i 
For the introduction of a specific rule governing the location of telecommunications services 
provided by suppliers established outside the Community, it is essehtial to define the services 
covered. The best solution is to use a definition which is already well established at 
international level. Such a definition is provided by the Melbourne Convention. 
Even though a growing number of services, such as advertising, information, recreational and 
leisure services, are currently supplied through telecommunications networks, it is not 
appropriate to include them in the definition of telecommunications services. These 
H-
other services can be supplied other than through telecommunications networks, and the 
development of tax rules which differ according to the medium of transmission used might well 
distort competition. It is therefore preferable to distinguish between the transmission of 
messages and their content. 
This proposal for a Council decision is identical to the proposals presented by the Commission 
to the Council on the same date in respect of the fourteen other Member States. 
- b -
Proposal for a 
COUNCIL DECISION 
Authorizing the Kingdom of Belgium to apply a measure derogating from Article 9 of 
the Sixth Directive (77/388/EEC) on the harmonization of the laws of the Member States 
relating to turnover taxes j 
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, and in particular Article 27 thereof, 
Having regard to the proposal from the Commission, 
Whereas, pursuant to Article 27(1) of Directive 77/388/EEC, the Council, acting unanimously 
on a proposal from the Commission, may authorize any Member State to introduce 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 registered letter to the Commission dated 10 September 1996, the Kingdom of 
Belgium requested authorization to introduce a measure derogating from Article 9 of 
Directive 77/388/EEC; f 
Whereas the other Member States were informed on 20 December 1996 of the request made 
by the Kingdom of Belgium; 
Whereas the measure is necessaiy to counter the tax avoidance effects that have led a growing 
number of Community taxable and non-taxable persons to purchase telecommunications 
services outside the Community solely in order to avoid payment of VAT; 
i 
Whereas it is desirable that the derogation should be granted until 31 December 1998, in order 
to allow the Council to adopt a general Community solution based on the Commission 
proposal, : 
HAS ADOPTED THIS DECISION: ! 
-c -
Article 1 
By way of derogation from Article 9(1) of Directive 77/388/EEC, tie Kingdom of Belgium is" 
hereby authorized to include, within Article 9(2)(e) of the Directive, telecommunications 
services provided by suppliers not established in the Community tp customers established in 
the Community. In the case of a Member State making use of thi^ facility, the provisions of 
Article 9(3)(b) of the Directive will also apply to these services. 
Telecommunications services shall be deemed to be services relating to the transmission, 
emission or reception of signs, signals, writing, images and sounds or information of any nature 
by wire, radio, optical or other electromagnetic systems, including the transfer or assignment of 
the right to use capacity for such transmission, emission or reception'. 
Article 2 
The authorisation specified in this decision shall expire on 31 Decern 
Article 3 
This Decision is addressed to the Kingdom of Belgium. ber 1998. 
Done at Brussels, 
For the Council 
The President 
1- -
FINANCIAL STATEMENT 
Once adopted, this proposal for a Council decision will have the effect of increasing the 
Community's VAT own resources base since the change in ihe place of taxation of 
telecommunications services should provide better coverage of consumption of this type of 
service within the European Union. I 
However, it is impossible to quantity this increase in own resources. 
s-
Proposal for a 
COUNCIL DECISION 
authorizing the Kingdom of Denmark to apply a measure derogating from Article 9 
of the Sixth VAT Directive (77/388/EEC) on the harmonization of the 
laws of the Member States relating to turnover taxes 
(presented by the Commission) 
-^-
EXPLANATORY MEMORANDUM 
By registered letter to the Commission's Secretariat-General dated 6 December 1996, the 
government of the Kingdom of Denmark requested authorization, under Article 27 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 - common system of value added tax: uniform basis 
of assessment,1 to apply a measure derogating from Article 9 of that Directive. 
In accordance with Article 27(3) of the Sixth Directive, the other Member States were 
informed by letter dated 20 December 1996 of the request made by the Kingdom of Denmark. 
That request involves a change to the rules governing the place of taxation of the supply of 
telecommunications seryices. 
According to the legislation in force (Article 9(1) of the Sixth Directive), the place where 
telecommunications services are supplied is deemed to be the place where the supplier has 
established his business or has a fixed establishment from which the services are supplied or, in 
the absence of such a place of business or fixed establishment, the place where he has his 
permanent address or usually resides. 
This rule poses problems regarding the effective taxation of telecommunications services 
consumed within the Community. Its application means that telecommunications services 
provided by a supplier established outside the European Union are outside the scope of the tax 
even if those services are actually consumed within the Union. Community consumers are 
increasingly turning to suppliers of services established outside the European Union in order^o 
avoid payment of VAT. The problem of the effective taxation of telecommunications services 
arose following the development of technical means of providing such services without the 
supplier needing to use a network belonging to him or another form of fixed establishment in 
his customer's country. This development is leading to tax revenue losses for Member States' 
public finances and is also undermining the competitiveness of European telecommunications 
companies. The situation in this activity sector is simply one of tax avoidance. 
In order to remedy this situation, the Kingdom of Denmark wishes to be able to apply different 
rules regarding the place of taxation and for that place to be regarded as that where the 
customer has established his business or has a fixed establishment for which the service is 
provided or, failing that, the place where he has his permanent address or usually resides. In 
this way, the aim of VAT, which is to tax all consumption within the Community, would be 
fully achieved as regards telecommunications services. 
OJ No L 145. 13.6.1977, p. 1. Directive as last amended by Directive 96/95/EC (OJ No L 338, 
28.12.1996. p. 89). 
- \o 
Since the aim of the derogation requested is to alter the place 6f taxation and that same 
derogation is required by all the Member States, the Council's authorization would have an 
effect equivalent to an amendment of the Sixth Directive itself. However, such an amendment 
can be made only in' accordance with the Treaty rules safeguarding the rights of the 
European Parliament and the Economic and Social Committee. Accordingly, the measure 
envisaged can be authorized only as an interim measure that meets the legitimate interests of 
the Member States, namely the need to combat tax avoidance, aid pending approval of a 
proposal'for a directive amending the Sixth Directive, that would hi presented to the Council 
at the same time. Similarly, the duration of the derogation must be limited to what is necessary 
for the adoption of Community legislation and its transposai into national law. A period of 
approximately two years would be sufficient in this regard, which would limit the validity of 
the derogation to 31 December 1998. 
As this is a safeguard measure, it is necessary to limit it to what is strictly needed for combating 
tax avoidance and, notwithstanding the proposal for a 'directive amending the 
Sixth VAT Directive, to use a tax mechanism that is already well known and that is therefore 
easy to apply. , 
i 
It is therefore necessary, first of all, to restrict the effects of the! authorization to services 
provided by a supplier established outside the Community, since only those services currently 
escape taxation and lead to tax avoidance. 
As regards the definition of the place of taxation, a mechanism must be chosen which creates 
the least number of specific tax obligations for suppliers established outside the Community 
and thus does not prejudge the tax arrangements to be adopted in connection with the 
amendment of the Sixth Directive. These objectives can best be achieved by applying the rules 
in Article 9(2)(e) of the Sixth Directive, under which the person liab 
the taxable recipient of the service. e for payment of the tax is 
However, it is not sufficient to provide a tax solution purely for services supplied to taxable 
persons. Such a solution would cover only the final consumption of taxable persons not 
benefiting from a Mill deduction entitlement, notably banks and insurance companies, and 
would not cover services purchased by individuals. In order to fill this gap, application of 
Article 9(3)(b) must be made compulsory for telecommunications services supplied to 
non-taxable persons. 
For the introduction of a specific rule governing the location of telecommunications services 
provided by suppliers established outside the Community, it is essential to define the services 
covered. The .best solution is to use a definition which is already well established at 
international level. Such a definition is provided by the Melbourne Convention. 
Even though a growing number of services, such as advertising, information, recreational and 
leisure services, are currently supplied through telecommunications networks, it is not 
appropriate to include them in the definition of telecommunications services. These 
l\ 
other services can be supplied other than through telecommunications networks, and the 
development of tax rules which differ according to the medium of transmission used might well 
distort competition. It is therefore preferable to distinguish between the transinission of 
messages and their content. 
This proposal for a Council decision is identical to the proposals presented by the Commission 
to the Council on the same date in respect of the fourteen other Member States. 
- \1 
Proposal for a 
COUNCIL DECISION 
Authorizing the Kingdom of Denmark to apply a measure derogating from Article 9 of 
the Sixth Directive (77/388/EEC) on the harmonization of the lajws of the Member States 
relating to turnover taxes 
(presented by the Commission) 
THE COUNCIL OF THE EUROPEAN UNION, j 
Having regard to the Treaty establishing the European Community, ! 
Having regard to the Sixth Council Directive (77/388/EEC) j 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, and in particular Article 27 thereof, 
Having regard to the proposal from the Commission, ! 
Whereas, pursuant to Article 27(1) of Directive 77/388/EEC, the Cpuncil, acting unanimously 
on a proposal from the Commission, may authorize any Member jState to introduce 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; j 
Whereas, by registered letter to the Commission dated 6 December 1996, the Kingdom of 
Denmark requested authorization to introduce a measure derogating from Article 9 of 
Directive 77/388/EEC; 
Whereas the other Member States were informed on 20 December 11996 of the request made 
by the Kingdom of Denmark; j 
Whereas the measure is necessary to counter the tax avoidance effects that have led a growing 
number of Community taxable and non-taxable persons to purchase telecommunications 
services outside the Community solely in order to avoid payment of VAT; 
Whereas it is desirable that the derogation should be "ranted until 31 December 1998, in order 
to allow the Council to adopt a general Community solution based on the Commission 
proposal, 
HAS ADOPTED THIS DECISION: 
- \2>' 
Article 1 
By way of derogation from Article 9(1) of Directive 77/388/EEC, the Kingdom of Denmark is 
hereby authorized to include, within Article 9(2)(e) of the Directive, telecommunications 
services provided by suppliers not established in the Community to customers established in 
the Community. In the case of a Member State making use of this facility, the provisions of 
Article 9(3)(b) of the Directive will also apply to these services. 
Telecommunications services shall be deemed to be services relating to the transmission, 
emission or reception of signs, signals, writing, images and sounds or information of any nature 
by wire, radio, optical or other electromagnetic systems, including the transfer or assignment of 
the right to use capacity for such transmission, emission or reception. 
Article 2 
The authorisation specified in this decision shall expire on 31 December 1998. 
Article 3 
This Decision is addressed to the Kingdom of Denmark. 
Done at Brussels, 
For the Council 
The President 
- VH-
FINANCIAL STATEMENT 
Once adopted, this proposal for a Council decision will have th|e effect of increasing the 
Community's VAT own resources base since the change in {he place of taxation of 
telecommunications services should provide better coverage of consumption of this type of 
service within the European Union. 
However, it is impossible to quantify this increase in own resources. 
- l^ -
Proposal for a 
COUNCIL DECISION 
authorizing the Federal Republic of Germany to apply a measure derogating from 
Article 9 of the Sixth VAT Directive (77/388/EEC) on the harmonization of the 
laws of the Member States relating to turnover taxes 
(presented by the Commission) 
- [it> 
EXPLANATORY MEMORANDUM 
By registered letter to the Commission's Secretariat-General dated 6 December 1996, the 
government of the Federal Republic of Germany requested authorization, under Article 27 of 
the Sbcth 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 to apply a measure derogating from Article 9 of that Directive. 
In accordance with Article 27(3) of the Sixth Directive, the other Member States were 
informed by letter dated 20 December 1996 of the request made by the Federal Republic bf 
Germany. 
That request involves a change to the rules governing the place of taxation of the supply of 
telecommunications services. 
According to the legislation in force (Article 9(1) of the Sixth Directive), the place wherje 
telecommunications services are supplied is deemed to be the place where the supplier has 
established his business or has a fixed establishment from which the services are supplied or, in 
the absence of such a place of business or fixed establishment, the place where he has his 
permanent address or usually resides. 
This rule poses problems regarding the effective taxation of telecommunications services 
consumed within the Community. Its application means that telecommunications services 
provided by a supplier established outside the European Union are outside the scope of the tax 
even if those services are actually consumed within the Ur.ion. Community consumers are 
increasingly turning to suppliers of services established outside the European Union in order to 
avoid payment of VAT. The problem of the effective taxation of telecommunications services 
arose following the development of technical means of providing such services without the 
supplier needing to use a network belonging to him or another form of fixed establishment in 
his customer's country. This development is leading to tax revenue losses for Member States" 
public finances and is also undermining the competitiveness of European telecommunications 
companies. The situation in this activity sector is simply one of tax avoidance. 
In order to remedy this situation, the Federal Republic of Germany wishes to be able to apply 
different rules regarding the place of taxation and for that place to be regarded as that vvhere 
the customer has established his business or has a fixed establishment for which the service is 
provided or, failing that, the place where he has his permanent address or usually resides. In 
this way, the aim of VAT, which is to tax all consumption within the Community, would be 
fully achieved as regards telecommunications services. 
OJ No L 145. 13.6.1977. p. 1. Directive as last amended by Directive 96/95/EC (OJ No L 338, 
28.12.1996, p. 89). 
- 0-
Since the aim of the derogation requested is to alter the place o 
derogation is required by all the Member States, the Council's autl >f taxation and that same 
required by all the Member States, the Council's authorization would have an 
effect equivalent to an amendment of the Sixth Directive itself. However, such an amendment 
can be made only in accordance with the Treaty ailes safeguarding the rights of the 
European Parliament and the Economic and Social Committee. Accordingly, the measure 
envisaged can be authorized only as an interim measure that meets the legitimate interests of 
the Member States, namely the need to combat tax avoidance, aid pending approval of a 
proposal for a directive amending the Sixth Directive, that would b ï presented to the Council 
at the same time. Similarly, the duration of the derogation must be limited to what is necessary 
for the adoption of Community legislation and its transposai into national law. A period of 
approximately two years would be sufficient in this regard, which would limit the validity of 
the derogation to 3 1 December 1998. 
As this is a safeguard measure, it is necessary to limit it to what is strictly needed for combating 
tax avoidance and, notwithstanding the proposal for a jdirective amending the 
Sixth VAT Directive, to use a tax mechanism that is already well known and that is therefore 
easy to apply. 
It is therefore necessaiy, first of all, to restrict the effects of the; authorization to sei'vices 
provided by a supplier established outside the Community, since only those services currently 
escape taxation and lead to tax avoidance 
As regards the definition of the place of taxation, a mechanism must be chosen which creates 
the least number of specific tax obligations for suppliers established outside the Community 
and thus does not prejudge the tax arrangements to be adopted in connection with the 
amendment of the Sixth Directive. These objectives can best be achieved by applying the rules 
in Article 9(2)(e) of the Sixth Directive, under which the person liab 
the taxable recipient of the service. e for payment of the tax is 
However, it is not sufficient to provide a tax solution purely for sei'vices supplied to taxable 
persons. Such a solution would cover only the final consumption of taxable persons not 
benefiting from a lull deduction entitlement, notably banks and insurance companies, and 
would not cover sei'vices purchased by individuals. In order to fill this gap, application of 
Article 9(3)(b) must be made compulsory for telecommunications services supplied to 
non-taxable persons. 
For the introduction of a specific rule governing the location of telecommunications sei'vices 
provided by suppliers established outside the Community, it is essential to define the services 
covered. The best solution is to use a definition which is already well established at 
international level. Such a definition is provided by the Melbourne Convention. 
Even though a growing number of services, such as advertising, information, recreational and 
leisure services, are currently supplied through telecommunications networks, it is not 
appropriate to include them in the definition of telecommunications services. These 
is 
other services can be supplied other than through telecommunications networks, and the 
development of tax rules which differ according to the medium of transmission used might well 
distort competition. It is therefore preferable to distinguish between the transmission of 
messages and their content. 
This proposal for a Council decision is identical to the proposals presented by the Commission 
to the Council on the same date in respect of the fourteen other Member States. 
- H-
Proposal for a 
COUNCIL DECISION 
Authorizing the Federal Republic of Germany to apply a measure derogating from 
Article 9 of the Sixth Directive (77/388/EEC) on the harmonization of the laws of the 
Member States relating to turnover taxes 
(presented by the Commission) 
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, and in particular Article 27 thereof, 
Having regard to the proposal from the Commission, 
Whereas, pursuant to Article 27(1) of Directive 77/388/EEC, the Council, acting unanimously 
on a proposal from the Commission, may authorize any Member jState to introduce 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; | 
i 
Whereas, by registered letter to the Commission dated 6 December 1996, the Federal Republic 
of Germany requested authorization to introduce a measure derogating from Article 9 of 
Directive 77/388/EEC; 
Whereas the other Member States were informed on 20 December! 1996 of the request made 
by the Federal Republic of Germany; | 
Whereas the measure is necessaiy to counter the tax avoidance effects that have led a growing 
number of Community taxable and non-taxable persons to purchase telecommunications 
services outside the Community solely in order to avoid payment of y AT; 
Whereas it is desirable that the derogation should be granted until 31 December 1998, in order 
to allow the Council to adopt a general Community solution based on the Commission 
proposal, 
HAS ADOPTED THIS DECISION: 
-Jo 
Article 1 
By way of derogation from Article 9(1) of Directive 77/388/EEC 
Germany is hereby authorized to include, within Article 9 
telecommunications services provided by suppliers not established 
customers established in the Community. In the case of a Member 
facility, the provisions of Article 9(3 )(b) of the Directive will also the Federal Republic of 
2)(e) of the Directive, 
in the Community to 
State making use of this 
to these sei'vices. apply 
Telecommunications sei'vices shall be deemed to be seivices relating to the transmission, 
emission or reception of signs, signals, writing, images and sounds of information of any nature 
by wire, radio, optical or other electromagnetic systems, including the transfer or assignment of 
the right to use capacity for such transmission, emission or reception. 
Article 2 
The authorisation specified in this decision shall expire on 3 1 December 1998. 
Article 3 : 
This Decision is addressed to the Federal Republic of Germany. 
Done at Brussels, 
For the Council 
The President 
~2\ 
FINANCIAL STATEMENT 
Once adopted, this proposal for a Council decision will have the effect of increasing the 
Community's VAT own resources base since the change in the place of taxation of 
telecommunications services should provide better coverage of consumption of this type of 
service within the European Union. 
However, it is impossible to quantify this increase in own resources. 
21 
Proposal for a 
COUNCIL DECISION 
authorizing the Hellenic Republic to apply a measure derogating from Article 9 
of the Sixth VAT Directive (77/388/EEC) on the harmonization of the 
laws of the Member Stales relating to turnover taxes 
(presented by the Commission) 
-lb-
EXPLANATORY MEMORANDUM 
By registered letter to the Commission's Secretariat-General dated 2 September 1996, the 
government of the Hellenic Republic requested authorization, under Article 27 of the 
Sbcth 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 to apply a measure derogating from Article 9 of that Directive. 
In accordance with Article 27(3) of the Sixth Directive, the other Member States were 
informed by letter dated 20 December 1996 of the request made by the Hellenic Republic. 
That request involves a change to the rules governing the place of taxation of the supply of 
telecommunications services. 
According to the legislation in force (Article 9(1) of the Sixth Directive), the place where 
telecommunications services are supplied is deemed to be the place where the supplier has 
established his business or has a fixed establishment from which the services are supplied or, in 
the absence of such a place of business or fixed establishment, the place where he has his 
permanent address or usually resides. 
This rule poses problems regarding the effective taxation of telecommunications services 
consumed within the Community. Its application means that telecommunications services 
provided by a supplier established outside the European Union are outside the scope of the tax 
even if those services are actually consumed within the Union. Community consumers are 
increasingly turning to suppliers of services established outside the European Union in order to 
avoid payment of VAT. The problem of the effective taxation of telecommunications services 
arose following the development of technical means of providing such services without the 
supplier needing to use a network belonging to him or another form of fixed establishment in 
his customer's country. This development is leading to tax revenue losses for Member States' 
public finances and is also undermining the competitiveness of European telecommunications 
companies. The situation in this activity sector is simply one of tax avoidance. 
In order to remedy this situation, the Hellenic Republic wishes to be able to apply different 
rules regarding the place of taxation and for that place to be regarded as that where the 
customer has established his business or has a fixed establishment for which the service is 
provided or, failing that, the place where he has his permanent address or usually resides. In 
this way, the aim of VAT, which is to tax all consumption within the Community, would be 
fully achieved as regards telecommunications services. 
OJ No L 145, 13.6.1977, p. 1. Directive as last amended by Directive 96/95/EC (OJ No L 338, 
28.12.1996, p. 89). 
2l\-
Accordingly, the measure 
the legitimate interests of Since the aim of the derogation requested is to alter the place of taxation and that same 
derogation is required by all the Member States, the Council's authorization would have an 
effect equivalent to an amendment of the Sixth Directive itself. However, such an amendment 
can be made only in accordance with the Treaty 1*11 les safeguarding the rights of the 
European Parliament and the Economic and Social Committee, 
envisaged can be authorized only as an interim measure that meets 
the Member States, namely the need to combat tax avoidance, aid pending approval of a 
proposal for a directive amending the Sixth Directive, that would be presented to the Council 
at the same time. Similarly, the duration of the derogation must be limited to what is necessary 
for the adoption of Community legislation and its transposai into national law. A period of 
approximately two years would be sufficient in this regard, which would limit the validity of 
the derogation to 3 1 December 1998. 
As this is a safeguard measure, it is necessary to limit it to what is strictly needed for combating 
the directive amending tax avoidance and, notwithstanding the proposal for a 
Sixth VAT Directive, to use a tax mechanism that is already well kjiown and that is therefore 
easy to apply. 
It is therefore necessaiy, first of all, to restrict the effects of the; authorization to services 
provided by a supplier established outside the Community, since only those services currently 
escape taxation and lead to tax avoidance. ! 
As regards the definition of the place of taxation, a mechanism must be chosen which creates 
the least number of specific tax obligations for suppliers established outside the Community 
and thus does not prejudge the tax arrangements to be adopted in connection with the 
amendment of the Sixth Directive. These objectives can best be achieved by applying the rules 
in Article 9(2)(e) of the Sixth Directive, under which the person liable for payment of the tax is 
the taxable recipient of the service. 
However, it is not sufficient to provide a tax solution purely for services supplied to taxable 
persons. Such a solution would cover only the final consumption of taxable persons not 
benefiting from a full deduction entitlement, notably banks and insurance companies, and 
would not cover sei'vices purchased by individuals. In order to fill this gap, application of 
Article 9(3)(b) must be made compulsory for telecommunications sei'vices supplied to 
non-taxable persons. 
For the introduction of a specific rule governing the location of telecommunications semces 
provided by suppliers established outside the Community, it is essential to define the sei'vices 
covered. The best solution is to use a definition which is already well established at 
international level. Such a definition is provided by the Melbourne Convention. 
Even though a growing number of services, such as advertising, information, recreational and 
leisure semces, are currently supplied through telecommunications networks, it is not 
appropriate to include them in the definition of telecommunications services. These 
is 
other services can be supplied other than through telecommunications 
development of tax rules which differ according to the medium of 
distort compétition. It is therefore preferable to distinguish betlween 
messages and their content. networks, and the 
transmission used might well 
the transmission of 
This proposal for a Council decision is identical to the proposals presented by the Commission 
to the Council on the same date in respect of the fourteen other Member States. 
i 
- 2t 
Proposal for a 
COUNCIL DECISION 
iting from Article 9 of the 
s of the Member States Authorizing the Hellenic Republic to apply a measure derog: 
Sixth Directive (77/388/EEC) on the harmonization of the law 
relating to turnover taxes 
(presented by the Commission) 
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) jof 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, and in particular A(ticle 27 thereof, 
i 
Having regard to the proposal from the Commission, 
Whereas, pursuant to Article 27(1) of Directive 77/388/EEC, the Council, acting unanimously 
on a proposal from the Commission, may authorize any Member State to introduce 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 registered letter to the Commission dated 2 September 1996, the Hellenic 
Republic requested authorization to introduce a measure derogating from Article 9 of 
Directive 77/388/EEC; r 
Whereas the other Member States were informed on 20 December 
by the Hellenic Republic; 996 of the request made 
Whereas the measure is necessary to counter the tax avoidance effects that have led a growing 
number of Community taxable and non-taxable persons to purchase telecommunications 
services outside the Community solely in order to avoid payment of VAT; 
Whereas it is desirable that the derogation should be granted until 3 1 December 1998, in order 
to allow the Council to adopt a general Community solution based on the Commission 
proposal, 
HAS ADOPTED THIS DECISION: 
-&-
Article 1 
By way of derogation from Article 9(1) of Directive 77/388/EEC, the Hellenic Republic is 
hereby authorized to include, within Article 9(2)(e) of the Directive, telecommunications 
services provided by suppliers not established in the Community to customers established in 
the Community. In the case of a Member State making use of thi^ facility, the provisions of 
Article 9(3)(b) of the Directive will also apply to these sei'vices. 
Telecommunications services shall be deemed to be sei'vices relating to the transmission, 
emission or reception of signs, signals, writing, images and sounds or information of any nature 
by wire, radio, optical or other electromagnetic systems, including the transfer or assignment of 
the right to use capacity, for such transmission, emission or reception. 
Article 2 
The authorisation specified in this decision shall expire on 31 December 1998 
Article 3 
This Decision is addressed to the Hellenic Republic. 
Done at Brussels, 
For the Council 
The President 
- 2& 
FINANCIAL STATEMENT 
Once adopted, this proposal for a Council decision will have the effect of increasing the 
Community's VAT own resources base since the change in the place of taxation of 
telecommunications sei'vices should provide better coverage of consumption of this type of 
service within the European Union. I 
i 
However, it is impossible to quantify this increase in own resources. ! 
- 2°\ 
Proposal for a 
COUNCIL DECISION 
authorizing the Kingdom of Spain to apply a measure derogating from Article 9 
of the Sixth VAT Directive (77/388/EEC) on the harmonization of the 
laws of the Member States relating to turnover taxes 
(presented by the Commission) 
- 3o-
EXPLANATORY MEMORANDUM 
By registered letter to the Commission's Secretariat-General dated 6 December 1996, the 
government of the Kingdom of Spain requested authorization, under Article 27 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 - common system of value added tax: uniform basis 
of assessment,1 to apply a measure derogating from Article 9 of that Directive. 
In accordance with Article 27(3) of the Sbcth Directive, the other Member States were 
informed by letter dated 20 December 1996 of the request made by the Kingdom of Spain. 
That request involves a change to the rules governing the place of taxation of the supply of 
telecommunications services. 
According to the legislation in force (Article 9(1) of the Sixth Directive), the place where 
telecommunications services are supplied is deemed to be the place where the supplier has 
established his business or has a fixed establishment from which the services are supplied or, in 
the absence of such a place of business or fixed establishment, the place where he has his 
permanent address or usually resides. 
This rule poses problems regarding the effective taxation of telecommunications services 
consumed within the Community. Its application means that telecommunications services 
provided by a supplier established outside the European Union are outside the scope of the tax 
even if those services are actually consumed within the Union. Community consumers are 
increasingly turning to suppliers of services established outside the European Union in order to 
avoid payment of VAT. The problem of the effective taxation of telecommunications services 
arose following the development of technical means of providing such services without the 
supplier needing to use a network belonging to him or another form of fixed establishment in 
his customer's country. This development is leading to tax revenue losses for Member States' 
public finances and is also undermining the competitiveness of European telecommunications 
companies. The situation in this activity sector is simply one of tax avoidance. 
In order to remedy this situation, the Kingdom of Spain wishes to be able to apply different 
rules regarding the place of taxation and for that place to be regarded as that where the 
customer has established his business or has a fixed establishment for which the service is 
provided or, failing that, the place where he has his permanent address or usually resides. In 
this way, the aim of VAT, which is to tax all consumption within the Community, would bfc 
fully achieved as regards telecommunications services. 
OJ No L 145. 13.6.1977, p. 1. Directive as last amended by Directive 96/95/EC (OJ No L 338, 
28.12.1996. p. 89). 
' ^> °l-
*, 
Since the aim of the derogation requested is to alter the place if taxation and that same 
derogation is required by all the Member States, the Council's authorization would have an 
effect equivalent to an amendment of the Sixth Directive itself. However, such an amendment 
can be made only in accordance with the Treaty rules safeguarding the rights of the 
European Parliament and the Economic and Social Committee. Accordingly, the measure 
envisaged can be authorized only as an interim measure that meets! the legitimate interests of 
the Member States, namely the need to combat tax avoidance, and pending approval of a 
proposal for a directive amending the Sixth Directive, that would be presented to the Council 
at the same time. Similarly, the duration of the derogation must be limited to what is necessary 
for the adoption of Community legislation and its transposai into national law. A period of 
approximately two years would be sufficient in this regard, which would limit the validity of 
the derogation to 31 December 1998. j 
i j 
As this is a safeguard measure, it is necessaiy to limit it to what is strictly needed for combating 
tax avoidance and, notwithstanding the proposal for a directive amending the 
Sixth VAT Directive, to use a tax mechanism that is already well known and that is therefore 
easy to apply. 
It is therefore necessary, first of all, to restrict the effects of the authorization to services 
provided by a supplier established outside the Community, since only those sei'vices currently 
escape taxation and lead to tax avoidance. i 
i 
I 
As regards the definition of the place of taxation, a mechanism must be chosen which creates 
the least number of specific tax obligations for suppliers established outside the Community 
and thus does not prejudge the tax arrangements to be adopted in connection with the 
amendment of the Sixth Directive. These objectives can best be achieved by applying the rules 
in Article 9(2)(e) of the Sixth Directive, under which the person liable for payment of the tax is 
the taxable recipient of the seivice. ! 
I 
However, it is not sufficient to provide a tax solution purely for services supplied to taxable 
persons. Such a solution would cover only the final consumption of taxable persons not 
benefiting from a full deduction entitlement, notably banks and insurance companies, and 
would not cover sei'vices purchased by individuals. In order to fill this gap, application of 
Article 9(3)(b) must be made compulsory for telecommunications services supplied to 
non-taxable persons. ( 
i 
I For the introduction of a specific rule governing the location of telecommunications services 
provided by suppliers established outside the Community, it is essential to define the services 
covered. The best solution is to use a definition which is already well established at 
international level. Such a definition is provided by the Melbourne Convention. 
»• • • I 
L Even though a growing number of services, such as advertising, information, recreational and 
leisure services, are currently supplied through telecommunications networks, it is not 
appropriate to include them in the definition of telecommunications sei'vices. These 
-2,2 
other services can be supplied other than through telecommunications networks, and the 
development of tax rules which differ according to the medium of transmission used might well 
distort competition. It is therefore preferable to distinguish between the transmission of 
messages and their content. 
This proposal for a Council decision is identical to the proposals presented by the Commission 
to the Council on the same date in respect of the fourteen other Member States. 
- 33 ~ 
Proposal for a 
COUNCIL DECISION 
Authorizing the Kingdom of Spain to apply a measure derogating from Article 9 of the 
Sixth Directive (77/388/EEC) on the harmonization of the laws of the Member States 
relating to turnover taxes 
(presented by the Commission) 
THE COUNCIL OF THE EUROPEAN UNION, 
Having regard to the Treaty establishing the European Community, i 
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, and in particular Article 27 thereof, 
Having regard to the proposal from the Commission, 
Whereas, pursuant to Article 27(1) of Directive 77/388/EEC, the Council, acting unanimously 
on a proposal from the Commission, may authorize any Member State to introduce 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 registered letter to the Commission dated 6 December 1996, the Kingdom of 
Spain requested authorization to introduce a measure derogating from Article 9 of 
Directive 77/388/EEC; ] 
Whereas the other Member States were informed on 20 December 
by the Kingdom of Spain; 996 of the request made 
Whereas the measure is necessary to counter the tax avoidance effects that have led a growing 
number of Community taxable and non-taxable persons to purchase telecommunications 
services outside the Community solely in order to avoid payment of VAT; 
Whereas it is desirable that the derogation should be granted until 3 1 December 1998, in order 
to allow the Council to adopt a general Community solution based on the Commission 
proposal, | 
i 
HAS ADOPTED THIS DECISION: 
-&r 
Article 1 
By way of derogation from Article 9(1) of Directive 77/388/EEC, the Kingdom of Spain is 
hereby authorized to include, within Article 9(2)(e) of the Directive, telecommunications 
services provided by suppliers not established in the Community to customers established in 
the Community. In the case of a Member State making use of this facility, the provisions of 
Article 9(3)(b) of the Directive will also apply to these sei'vices. 
Telecommunications services shall be deemed to be sei'vices relating to the transmission, 
emission or reception of signs, signals, writing, images and sounds or information of any nature 
by wire, radio, optical or other electromagnetic systems, including the transfer or assignment of 
the right to use capacity for such transmission, emission or reception!. 
Article 2 
The authorisation specified in this decision shall expire on 31 December 1998 
Article 
This Decision is addressed to the Kingdom of Spain. 
Done at Brussels, 
For the Council 
The President 
2»^" 
FINANCIAL STATEMENT 
Once adopted, this proposal for a Council decision will have the effect of increasing the 
Community's VAT own resources base since the change in the place of taxation of 
telecommunications sei'vices should provide better coverage of consumption of this type of 
service within the European Union. 
However, it is impossible to quantify this increase in own resources. 
-36' 
Proposal for a 
COUNCIL DECISION 
authorizing the French Republic to apply a measure derogating from Article 9 
of the Sixth VAT Directive (77/388/EEC) on the harmonization of the 
laws of the Member States relating to turnover taxes 
(presented by the Commission) 
- 2>1-
EXPLANATORY MEMORANDUM 
By registered letter to the Commission's Secretariat-General dated 6 December 1996, the 
government of the French Republic requested authorization, under Article 27 of the 
Sbcth 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 to apply a measure derogating from Article 9 of that Directive. 
In accordance with Article 27(3) of the Sbcth Directive, the other Member States were 
informed by letter dated 20 December 1996 of the request made by the French Republic. 
That request involves a change to the rules governing the place of taxation of the supply of 
telecommunications services. * 
According to the legislation in force (Article 9(1) of the Sixth Directive), the place where 
telecommunications services are supplied is deemed to be the place where the supplier has 
established his business or has a fixed establishment from which the services are supplied or, in 
the absence of such a place of business or fixed establishment, the place where he has his 
permanent address or usually resides. 
This rule poses problems regarding the effective taxation of telecommunications services 
consumed within the Community. Its application means that telecommunications services 
provided by a supplier established outside the European Union are outside the scope of the tax 
even if those services are actually consumed within the Union. Community consumers are 
increasingly turning to suppliers of services established outside the European Union in order to 
avoid payment of VAT. The problem of the effective taxation of telecommunications service^ 
arose following the development of technical means of providing such services without the 
supplier needing to use a network belonging to him or another form of fixed establishment in 
his customer's country. This development is leading to tax revenue losses for Member States' 
public finances and is also undermining the competitiveness of European telecommunications 
companies. The situation in this activity sector is simply one of tax avoidance. 
In order to remedy this situation, the French Republic wishes to be able to apply different rules 
regarding the place of taxation and for that place to be regarded as that where the customer 
has established his business or has a fixed establishment for which the service is provided or, 
failing that, the place where he has his permanent address or usually resides. In this way, the 
aim of VAT, which is to tax all consumption within the Community, would be fully achieved as 
regards telecommunications services. 
OJ No L 145, 13.6.1977, p. 1. Directive as last amended by Directive 96/95/EC (OJ No L 338, 
28.12.1996, p. 89). 
3s-
Since the aim of the derogation requested is to alter the place of taxation and that same 
derogation is required by all the Member States, the Council's authorization would have an 
effect equivalent to an amendment of the Sixth Directive itself. Hov/ever, such an amendment 
can be made only in accordance with the Treaty rules safeguarding the rights of the 
European Parliament and the Economic and Social Committee. Accordingly, the measure 
envisaged can be authorized only as an interim measure that meets the legitimate interests of 
the Member States, namely the need to combat tax avoidance, aid pending approval of a 
proposal for a directive amending the Sixth Directive, that would bp presented to the Council 
at the same time. Similarly, the duration of the derogation must be limited to what is necessary 
for the adoption of Community legislation and its transposai into national law. A period of 
approximately two years would be sufficient in this regard, which would limit the validity of 
the derogation to 31 December 1998. 
As this is a safeguard measure, it is necessary to limit it to what is strictly needed for combating 
tax avoidance and, notwithstanding the proposal for a directive amending the 
Sixth VAT Directive, to use a tax mechanism that is already well known and that is therefore 
easy to apply. 
It is therefore necessary, first of all, to restrict the effects of thej authorization to services 
provided by a supplier established outside the Community, since only those services currently 
escape taxation and lead to tax avoidance. ! 
As regards the definition of the place of taxation, a mechanism must be chosen which creates 
the least number of specific tax obligations for suppliers established outside the Community 
and thus does not prejudge the tax arrangements to be adopted in connection with the 
amendment of the Sixth Directive. These objectives can best be achieved by applying the rules 
in Article 9(2)(e) of the Sixth Directive, under which the person liable for payment of the tax is 
the taxable recipient of the service. 
However, it is not sufficient to provide a tax solution purely for sei'vices supplied to taxable 
persons. Such a solution would cover only the final consumption of taxable persons not 
benefiting from a full deduction entitlement, notably banks and jnsurance companies, and 
would not cover services purchased by individuals. In order to fill this gap, application of 
Article 9(3)(b) must be made compulsory for telecommunications services supplied to 
non-taxable persons. 
For the introduction of a specific rule governing the location of telecommunications services 
provided by suppliers established outside the Community, it is essential to define the services 
covered. The best solution is to use a definition which is already well established at 
, . i . 
international level. Such a definition is provided by the Melbourne Convention. 
Even though a growing number of services, such as advertising, information, recreational and 
leisure sei'vices, are currently supplied through telecommunications networks, it is not 
appropriate to include them in the definition of telecommunications services. These 
3iï-
other services can be supplied other than through telecommunications 
development of tax rules which differ according to the medium of transmi 
distort competition. It is therefore preferable to distinguish between 
messages and their content. networks, and the 
ission used might well 
the transmission of 
This proposal for a Council decision is identical to the proposals presented by the Commission 
to the Council on the same date in respect of the fourteen other Member States. 
14.0 
Proposal for a 
COUNCIL DECISION 
from Article 9 of the 
of the Member States Authorizing the French Republic to apply a measure derogating 
Sixth Directive (77/388/EEC) on the harmonization of the lawjs 
relating to turnover taxes 
(presented by the Commission) 
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) j 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, and in particular Article 27 thereof, 
i 
Having regard to the proposal from the Commission, ! 
Whereas, pursuant to Article 27(1) of Directive 77/388/EEC, the Council, acting unanimously 
on a proposal from the Commission, may authorize any Member iState to introduce 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 registered letter to the Commission dated 6 December 
requested authorization to introduce a measure derogatin 
Directive 77/388/EEC; 
Whereas the other Member States were informed on 20 December 
by the French Republic; 996, the French Republic 
from Article 9 of 
1996 of the request made 
Whereas the measure is necessary to counter the tax avoidance effects that have led a growing 
number of Community taxable and non-taxable persons to purchase telecommunications 
services outside the Community solely in order to avoid payment of VAT; 
Whereas it is desirable that the derogation should be granted until 3 j December 1998, in order 
to allow the Council to adopt a general Community solution bjased on the Commission 
proposal, ! 
FIAS ADOPTED THIS DECISION: j 
- 4-1 
Article 
By way of derogation from Article 9(1) of Directive 77/388/EEC 
hereby authorized to include, within Article 9(2)(e) of the Directive 
services provided by suppliers not established in the Community to 
the Community. In the case of a Member State making use of thi$ 
Article 9(3 )(b) of the Directive will also apply to these sei'vices. the French Republic is 
telecommunications 
customers established in 
facility, the provisions of 
Telecommunications sei'vices shall be deemed to be sei'vices relating to the transmission, 
emission or reception of signs, signals, writing, images and sounds or information of any nature 
by wire, radio, optical or other electromagnetic systems, including the transfer or assignment of 
the right to use capacity for such transmission, emission or reception^ 
Article 2 j 
The authorisation specified in this decision shall expire on 3 1 December 1998. 
Article 3 
This Decision is addressed to the French Republic. 
Done at Baissels, 
For the Council 
The President 
cv2-
FINANCIAL STATEMENT 
Once adopted, this proposal for a Council decision will have the effect of increasing the 
Community's VAT own resources base since the change in he place of taxation of 
telecommunications sei'vices should provide better coverage of consumption of this type of 
service within the European Union. 
However, it is impossible to quantify this increase in own resources. 
M-3 
Proposal for a 
COUNCIL DECISION 
authorizing Ireland to apply a measure derogating 
of the Sixth VAT Directive (77/388/EEC) on the han 
laws of the Member States relating to tin 
(presented by the Commission) from Article 9 
«ionization of the 
nover taxes 
LV^ 
EXPLANATORY MEMORANDUM 
By registered letter to the Commission's Secretariat-General dated 6 December 1996, the 
government of Ireland requested authorization, under Article 27 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 - common system of value added tax: uniform basis of assessment,1 to apply 
a measure derogating from Article 9 of that Directive. 
In accordance with Article 27(3) of the Sixth Directive, the other Member States were 
informed by letter dated 20 December 1996 of the request made by Ireland. 
That request involves a change to the rules governing the place of taxation of the supply of 
telecommunications services. 
According to the legislation in force (Article 9(1) of the Sixth Directive), the place where 
telecommunications services are supplied is deemed to be the place where the supplier has 
established his business or has a fixed establishment from which the services are supplied or, in 
the absence of such a place of business or fixed establishment, the place where he has his 
permanent address or usually resides. 
This rule poses problems regarding the effective taxation of telecommunications services 
consumed within the Community. Its application means that telecommunications services 
provided by a supplier established outside the European Union are outside the scope of the tax 
even if those services are actually consumed within the Union. Community consumers are 
increasingly turning to suppliers of services established outside the European Union in order to 
avoid payment of VAT. The problem of the effective taxation of telecommunications services 
arose following the development of technical means of providing such services without the 
supplier needing to use a network belonging to him or another form of fixed establishment in 
his customer's country. This development is leading to tax revenue losses for Member States' 
public finances and is also undermining the competitiveness of European telecommunications 
companies. The situation in this activity sector is simply one of tax avoidance. 
In order to remedy this situation, Ireland wishes to be able to apply different rules regarding the 
place of taxation and for that place to be regarded as that where the customer has established 
his business or has a fixed establishment for which the service is provided or, failing that, the 
place where he has his permanent address or usually resides. In this way, the aim of VAT, 
which is to tax all consumption within the Community, would be fully achieved as regards 
telecommunications services. 
OJ No L 145, 13.6.1977, p. 1. Directive as last amended by Directive 96/95/EC (OJ No L 338, 
28.12.1996, p. 89). 
4-^ 
Since the aim of the derogation requested is to alter the place of taxation and that same 
derogation is required by all the Member States, the Council's authorization would have an 
effect equivalent to an amendment of the Sixth Directive itself. However, such an amendment 
can be made only in accordance with the Treaty rules safeguarding the rights of the 
European Parliament and the Economic and Social Committee. Accordingly, the measure 
envisaged can be authorized only as an interim measure that meets the legitimate interests of 
the Member States, namely the need to combat tax avoidance, aid pending approval of a 
proposal for a directive amending the Sixth Directive, that would b i presented to the Council 
at the same time. Similarly, the duration of the derogation must be limited to what is necessary 
for the adoption of Community legislation and its transposai into national law. A period of 
approximately two years would be sufficient in this regard, which would limit the validity of 
the derogation to 31 December 1998. 
As this is a safeguard measure, it is necessaiy to limit it to what is strictly needed for combating 
tax avoidance and, notwithstanding the proposal for a idirective amending the 
Sixth VAT Directive, to use a tax mechanism that is already well known and that is therefore 
easy to apply. j 
It is therefore necessaiy, first of all, to restrict the effects of thé authorization to services 
provided by a supplier established outside the Community, since only those services currently 
escape taxation and lead to tax avoidance. 
As regards the definition of the place of taxation, a mechanism must be chosen which creates 
the least number of specific tax obligations for suppliers established outside the Community 
and thus does not prejudge the tax arrangements to be adopted in connection with the 
amendment of the Sixth Directive. These objectives can best be achieved by applying the rules 
in Article 9(2)(e) of the Sixth Directive, under which the person liable for payment of the tax is 
the taxable recipient of the service. 
However, it is not sufficient to provide a tax solution purely for services supplied to taxable 
persons. Such a solution would cover only the final consumption of taxable persons not 
benefiting from a full deduction entitlement, notably banks and insurance companies, and 
would not cover sei'vices purchased by individuals. In order to fill this gap, application of 
Article 9(3)(b) must be made compulsory for telecommunications sei'vices supplied to 
non-taxable persons. : 
For the introduction of a specific rule governing the location of telecommunications services 
provided by suppliers established outside the Community, it is essential to define the services 
covered. The best solution is to use a definition which is already well established at 
international level. Such a definition is provided by the Melbourne Convention. 
Even though a growing number of services, such as advertising, information, recreational and 
leisure sei'vices, are currently supplied through telecommunications networks, it is not 
appropriate to include them in the definition of telecommunications services. These 
- Mr<o 
other services can be supplied other than through telecommunications networks, and the 
development of tax rules which differ according to the medium of transmission used might well 
distort competition. It is therefore preferable to distinguish between the transmission of 
messages and their content. 
This proposal for a Council decision is identical to the proposals presented by the Commission 
to the Council on the same date in respect of the fourteen other Member States. 
-^ 
Proposal for a 
COUNCIL DECISION 
Authorizing Ireland to apply a measure derogating from Article 9 of the Sixth Directive 
(77/388/EEC) 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, and in particular Article 27 thereof, 
Having regard to the proposal from the Commission, 
Whereas, pursuant to Article 27(1) of Directive 77/388/EEC, the Council, acting unanimously 
on a proposal from the Commission, may authorize any Member jState to introduce 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 registered letter to the Commission dated 6 December 1996, Ireland requested 
authorization to introduce a measure derogating from Article 9 of Directive 77/388/EEC; 
Whereas the other Member States were informed on 20 December 11996 of the request made 
by Ireland; 1 
Whereas the measure is necessaiy to counter the tax avoidance effects that have led a growing 
number of Community taxable and non-taxable persons to purchase telecommunications 
services outside the Community solely in order to avoid payment of VAT; 
Whereas it is desirable that the derogation should be granted until 3 December 1998, in order 
to allow the Council to adopt a geneial Community solution based on the Commission 
proposal, 
HAS ADOPTED THIS DECISION: 
H:% ' 
Article 1 
By way of derogation from Article 9(1) of Directive 77/388/EEC, Ireland is hereby authorized 
to include, within Article 9(2)(e) of the Directive, telecommunications services provided by 
suppliers not established in the Community to customers established in the Community. In the 
case of a Member State making use of this facility, the provisions of Article 9(3)(b) of the 
Directive will also apply to these sei'vices. 
Telecommunications services shall be deemed to be sei'vices relating to the transmission, 
emission or reception of signs, signals, writing, images and sounds or information of any nature 
by wire, raclio, optical or other electromagnetic systems, including the transfer or assignment of 
the right to use capacity for such transmission, emission or reception^ 
Article 2 
The authorisation specified in this decision shall expire on 31 December 1998. 
Article 3 
This Decision is addressed to Ireland. 
Done at Brussels, 
For the Council 
The President 
- 4-1-
FINANCIAL STATEMENT 
Once adopted, this proposal for a Council decision will have the effect of increasing the 
Community's VAT own resources base since the change in ihe place of taxation of 
telecommunications sei'vices should provide better coverage of consumption of this type of 
service within the European Union. 
However, it is impossible to quantify this increase in own resources. 
SO -
Proposal for a 
! 
COUNCIL DECISION I 
authorizing the Italian Republic to apply a measure derogating from Article 9 
of the Sixth VAT Directive (77/388/EEC) on the harmonization of the 
laws of the Member States relating to turnover taxes 
(presented by the Commission) 
- Si 
EXPLANATORY MEMORANDUM 
By registered letter to the Commission's Secretariat-General dated 6 December 1996, the 
government of the Italian Republic requested authorization, under Article 27 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 - common system of value added tax: uniform basis 
of assessment,1 to apply a measure derogating from Article 9 of that Directive. 
In accordance with Article 27(3) of the Sixth Directive, the other Member States were 
informed by letter dated 20 December 1996 of the request made by the Italian Republic. 
That request involves a change to the rules governing the place of taxation of the supply of 
telecommunications services. 
According to the legislation in force (Article 9(1) of the Sixth Directive), the place where 
telecommunications services are supplied is deemed to be the place where the supplier has 
established his business or has a fixed establishment from which the services are supplied or, in 
the absence of such a place of business or fixed establishment, the place where he has his 
permanent address or usually resides. 
This rule poses problems regarding the effective taxation of telecommunications services 
consumed within the Community. Its application means that telecommunications services 
provided by a supplier established outside the European Union are outside the scope of the tax 
even if those services are actually consumed within the Union. Community consumers are 
increasingly turning to suppliers of services established outside the European Union in order to 
avoid payment of VAT. The problem of the effective taxation of telecommunications services 
arose following the development of technical means of providing such services without the 
supplier needing to use a network belonging to him or another form of fixed establishment in 
his customer's country. This development is leading to tax revenue losses for Member States' 
public finances and is also undermining the competitiveness of European telecommunications 
companies. The situation in this activity sector is simply one of tax avoidance. 
In order to remedy this situation, the Italian Republic wishes to be able to apply different rules 
regarding the place of taxation and for that place to be regarded as that where the customer 
has established his business or has a fixed establishment for which the service is provided or, 
failing that, the place where he has his permanent address or usually resides. In this way, the 
aim of VAT, which is to tax all consumption within the Community, would be fully achieved as 
regards telecommunications services. 
OJ No L 145, 13.6.1977, p. 1. Directive as last amended by Directive 96/95/EC (OJ No L 338, 
28.12.1996, p. 89). 
- SZ' 
Since the aim of the derogation requested is to alter the place of taxation and that same 
derogation is required by all the Member States, the Council's authorization would have an 
effect equivalent to an amendment of the Sixth Directive itself. However, such an amendment 
can be made only in accordance with the Treaty ailes safeguarding the rights of the 
European Parliament and the Economic and Social Committee. Accordingly, the measure 
envisaged can be authorized only as an interim measure that meets the legitimate interests of 
the Member States, namely the need to combat tax avoidance, aid pending approval of a 
proposal for a directive amending the Sixth Directive, that would hi presented to the Council 
at the same time. Similarly, the duration of the derogation must be limited to what is necessary 
for the adoption of Community legislation and its transposai into national law. A period of 
approximately two years would be sufficient in this regard, which would limit the validity of 
the derogation to 3 1 December 1998. 
As this is a safeguard measure, it is necessaiy to limit it to what is strictly needed for combating 
tax avoidance and, notwithstanding the proposal for a .directive amending the 
Sixth VAT Directive, to use a tax mechanism that is already well known and that is therefore 
easy to apply. j 
It is therefore necessaiy, first of all, to restrict the effects of the! authorization to services 
provided by a supplier established outside the Community, since only those sei'vices currently 
escape taxation and lead to tax avoidance. ! 
As regards the definition of the place of taxation, a mechanism must be chosen which creates 
the least number of specific tax obligations for suppliers established outside the Community 
and thus does not prejudge the tax arrangements to be adopted in connection with the 
amendment of the Sixth Directive. These objectives can best be achieved by applying the rules 
in Article 9(2)(e) of the Sixth Directive, under which the person liable for payment of the tax is 
the taxable recipient of the service. 
i 
However, it is not sufficient to provide a lax solution purely for services supplied to taxable 
persons. Such a solution would cover only the final consumption of taxable persons not 
benefiting from a full deduction entitlement, notably banks and insurance companies, and 
would not cover services purchased by individuals. In order to fill this gap, application of 
Article 9(3)(b) must be made compulsory for telecommunications sei'vices supplied to 
non-taxable persons. ! 
For the introduction of a specific rule governing the location of telecommunications services 
provided by suppliers established outside the Community, it is essential to define the services 
covered. The best solution is to use a definition which is already well established at 
international level. Such a definition is provided by the Melbourne Convention. 
Even though a growing number of services, such as advertising, information, recreational and 
leisure sei'vices, are currently supplied through telecommunications networks, it is not 
appropriate to include them in the definition of telecommunications sei'vices. These 
53 
other services can be supplied other than tlnough telecommunications networks, and the 
development of tax rules which differ according to the medium of transmission used might well 
distort competition. It is therefore preferable to distinguish betjween the transmission of 
messages and their content. 
This proposal for a Council decision is identical to the proposals presented by the Commission 
to the Council on the same date in respect of the fourteen other Member States. 
s*-
Proposal for a 
COUNCIL DECISION 
Authorizing the Italian Republic to apply a measure derogating from Article 9 of the 
Sixth Directive (77/388/EEC) on the harmonization of the laws of the Member States 
relating to turnover taxes 
(presented by the Commission) 
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, and in particular Article 27 thereof, 
i 
Having regard to the proposal from the Commission, i 
| 
Whereas, pursuant to Article 27(1) of Directive 77/388/EEC, the Cbuncil, acting unanimously 
on a proposal from the Commission, may authorize any Member (State to introduce 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; i 
Whereas, by registered letter to the Commission dated 6 December 
requested authorization to introduce a measure 
Directive 77/388/EEC; derogating 996, the Italian Republic 
from Article 9 of 
Whereas the other Member States were informed on 20 December; 1996 of the request made 
by the Italian Republic; 
Whereas the measure is necessaiy to counter the tax avoidance effects that have led a growing 
number of Community taxable and non-taxable persons to purbhase telecommunications 
services outside the Community solely in order to avoid payment of VAT; 
Whereas it is desirable that the derogation should be granted until 3 1 December 1998, in order 
to allow the Council to adopt a general Community solution based on the Commission 
proposal, 
HAS ADOPTED THIS DECISION: 
- 5S-
Article 
By way of derogation from Article 9(1) of Directive 77/388/EEC 
hereby authorized to include, within Article 9(2)(e) of the Directive 
services provided by suppliers not established in the Community to 
the Community. In the case of a Member State making use of this 
Article 9(3)(b) of the Directive will also apply to these sei'vices. 
Telecommunications services shall be deemed to be services relating to the transmission, 
emission or reception of signs, signals, writing, images and sounds or information of any nature 
by wire, radio, optical or other electromagnetic systems, including the transfer or assignment of 
the right to use capacity for such transmission, emission or reception[ the Italian Republic is 
telecommunications 
customers established in 
facility, the provisions of 
Article 2 
The authorisation specified in this decision shall expire on 3 1 Decern 
Article ber 1998. 
This Decision is addressed to the Italian Republic. 
Done at Brussels, 
For the Council 
The President 
SL' 
FINANCIAL STATEMENT 
Once adopted, this proposal for a Council decision will have the effect of increasing the 
Community's VAT own resources base since the change in he place of taxation of 
telecommunications sei'vices should provide better coverage of consumption of this type of 
service within the European Union. 
However, it is impossible to quantify this increase in own resources. 
SV 
Proposa! for a 
COUNCIL DECISION 
authorizing the Grand Duchy of Luxemburg to apply a measure derogating from 
Article 9 of the Sixth VAT Directive (77/388/EEC) on the harmonization of the 
laws of the Member Stales relating to turnover taxes 
(presented by the Commission) 
ss 
EXPLANATORY MEMORANDUM 
By registered letter to the Commission's Secretariat-General dated 6 December 1996, the 
government of the Grand Duchy of Luxemburg requested authorization, under Article 27 of 
the Sbcth 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 to apply a measure derogating from Article 9 of that Directive. 
In accordance with Article 27(3) of the Sixth Directive, the other Member States were 
informed by letter dated 20 December 1996 of the request made by the Grand Duchy of 
Luxemburg. 
That request involves a change to the rules governing the place of taxation of the supply of 
telecommunications services. 
According to the legislation in force (Article 9(1) of the Sixth Directive), the place where 
telecommunications services are supplied is deemed to be the place where the supplier has 
established his business or has a fixed establishment from which the services are supplied or, in 
the absence of such a place of business or fixed establishment, the place where he has his 
permanent address or usually resides. 
This rule poses problems regarding the effective taxation of telecommunications services 
consumed within the Community. Its application means that telecommunications services 
provided by a supplier established outside the European Union are outside the scope of the tax 
even if those services are actually consumed within the Union. Community consumers are 
increasingly turning to suppliers of services established outside the European Union in order to 
avoid payment of VAT. The problem of the effective taxation of telecommunications services 
arose following the development of technical means of providing such services without the 
supplier needing to use a network belonging to him or another form of fixed establishment in 
his customer's country. This development is leading to tax revenue losses for Member States' 
public finances and is also undermining the competitiveness of European telecommunications 
companies. The situation in this activity sector is simply one of tax avoidance. 
In order to remedy this situation, the Grand Duchy of Luxemburg wishes to be able to apply 
different rules regarding the place of taxation and for that place to be regarded as that where 
the customer has established his business or has a fixed establishment for which the service is 
provided or, failing that, the place where he has his permanent address or usually resides. In 
this way, the aim of VAT, which is to tax all consumption within the Community, would be 
fully achieved as regards telecommunications services. 
OJ No L 145, 13.6.1977, p. 1. Directive as last amended by Directive 96/95/EC (OJ No L 338, 
28.12.1996, p. 89). 
^ 5^ 
Since the aim of the derogation requested is to alter the place if taxation and that same 
derogation is required by all the Member States, the Council's authorization would have an 
effect equivalent to an amendment of the Sixth Directive itself However, such an amendment 
can be made only in accordance with the Treaty rules safeguarding the rights of the 
European Parliament and the Economic and Social Committee. Accordingly, the measure 
envisaged can be authorized only as an interim measure that meets the legitimate interests of 
the Member States, namely the need to combat tax avoidance, and pending approval of a 
proposal for a directive amending the Sixth Directive, that would be presented to the Council 
at the same time. Similarly, the duration of the derogation must be limited to what is necessary 
for the adoption of Community legislation and its transposai into national law. A period of 
approximately two years would be sufficient in this regard, which would limit the validity of 
the derogation to 31 December 1998. 
As this is a safeguard measure, it is necessaiy to limit it to what is strictly needed for combating 
tax avoidance and, notwithstanding the proposal for a -directive amending the 
Sixth VAT Directive, to use a tax mechanism that is already well known and that is therefore 
easy to apply. . 
It is therefore necessaiy, first of all, to restrict ihe effects of the! authorization to sei'vices 
provided by a supplier established outside the Community, since onjy those services currently 
escape taxation and lead to tax avoidance. 
As regards the definition of the place of taxation, a mechanism mu$t be chosen which creates 
the least number of specific tax obligations for suppliers established outside the Community 
and thus does not prejudge the tax arrangements to be adopted in connection with the 
amendment of the Sixth Directive. These objectives can best be achieved by applying the rules 
in Article 9(2)(e) of the Sixth Directive, under which the person liable for payment of the tax is 
the taxable recipient of the service. ! 
However, it is not sufficient to provide a tax solution purely for services supplied to taxable 
persons. Such a solution would cover only the final consumption of taxable persons not 
benefiting from a full deduction entitlement, notably banks and insurance companies, and 
would not cover sei'vices purchased by individuals. In order to fill this gap, application of 
Article 9(3)(b) must be made compulsory for telecommunications services supplied to 
non-taxable persons. 
For the introduction of a specific rule governing the location of te ecommunications sei'vices 
provided by suppliers established outside the Community, it is essential to define the sei'vices 
covered. The best solution is to use a definition which is already well established at 
international level. Such a definition is provided by the Melbourne Convention. 
Even though a growing number of services, such as advertising, information, recreational and 
leisure sei'vices, are currently supplied through telecommunications networks, it is not 
appropriate to include them in the definition of telecommunications services. These 
- Go -
other services can be supplied other than through telecommunications networks, and the 
development of tax rules which differ according to the medium of transmission used might well 
distort competition. \t is therefore preterable to distinguish between the transmission of 
messages and their content. 
This proposal for a Council decision is identical to the proposals presented 
to the Council on the same date in respect of the fourteen other Member by the Commission 
States. 
- <L\-
Proposal for a 
COUNCIL DECISION 
Authorizing the Grand Duchy of Luxemburg to apply a me; sure derogating from 
Article 9 of the Sixth Directive (77/388/EEC) on the harmonization of the laws of the 
Member States relating to turnover taxes 
(presented by the Commission) 
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, and in particular Article 27 thereof, 
Having regard to the proposal from the Commission, ; 
Whereas, pursuant to Article 27(1) of Directive 77/38S/EEC, the Cbuncil, acting unanimously 
on a proposal from the Commission, may authorize any Member (State to introduce 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; ' 
Wliereas, by registered letter to the Commission dated 6 December 11996, the Grand Duchy of 
Luxemburg requested authorization to introduce a measure derogating from Article 9 of 
Directive 77/388/EEC; 
Whereas the other Member States were informed on 20 December 1996 of the request made 
by the Grand Duchy of Luxemburg; 
Whereas the measure is necessaiy to counter the tax avoidance effects that have led a growing 
number of Community taxable and non-taxable persons to pur:hase telecommunications 
services outside the Community solely in order to avoid payment of VAT; 
Whereas it is desirable that the derogation should be granted until 31 December 1998, in order 
to allow the Council to adopt a général Community solution based on the Commission 
proposal, | 
HAS ADOPTED THIS DECISION: I 
- CZ' 
Article 1 
By way of derogation from Article 9(1) of Directive 77/388/EEC, the Grand Duchy of 
Luxemburg is hereby authorized to include, within Article 9(2)(e) of the Directive, 
telecommunications services provided by suppliers not established in the Community to 
customers established in the Community. In the case of a Member State making use of this 
facility, the provisions of Article 9(3 )(b) of the Directive will also apply to these services. 
Telecommunications services shall be deemed to be sei'vices relating to the transmission, 
emission or reception of signs, signals, writing, images and sounds or information of any nature 
by wire, radio, optical or other electromagnetic systems, including the transfer or assignment of 
the right to use capacity for such transmission, emission or reception. 
Article 2 
The authorisation specified in this decision shall expire on 3 1 December 1998. 
Article 3 
This Decision is addressed to the Grand Duchy of Luxemburg. 
Done at Brussels, 
For the Council 
The President 
- 43 
FINANCIAL STATEMENT 
Once adopted, tliis proposal for a Council decision will have the effect of increasing the 
Community's VAT own resources base since the change in ihe place of taxation of 
telecommunications services should provide better coverage of consumption of tliis type of 
service within the European Union. 
However, it is impossible to quantify this increase in own resources, j 
(&<+ 
Proposal for a 
COUNCIL DECISION 
authorizing the Kingdom of the Netherlands to apply a measure derogating from Article 
9 of the Sixth VAT Directive (77/388/EEC) on the harmonization of the 
laws of the Member States relating to turnover taxes 
(presented by the Commission) 
fcS-
EXPLANATORY MEMORANDUM 
By registered letter to the Commission's Secretariat-General dated 30 September 1996, the 
government of the Kingdom of the Netherlands requested authorization, under Article 27 of 
the Sbcth 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 to apply a measure derogating from Article 9 of that Directive. 
In accordance with Article 27(3) of the Sixth Directive, the other Member States were 
informed by letter dated 20 December 1996 of the request made by the Kingdom of the 
Netherlands. 
That request involves a change to the rules governing the place of taxation of the supply of 
telecommunications services 
According to the legislation in force (Article 9(1) of the Sixth Directive), the place where 
telecommunications services are supplied is deemed to be the place where the supplier has 
established his business or has a fixed establishment from which the services are supplied or, in 
the absence of such a place of business or fixed establishment, the place where he has his 
permanent address or usually resides. 
This rule poses problems regarding the effective taxation of telecommunications services 
consumed within the Community. Its application means that telecommunications services 
provided by a supplier established outside the European Union are outside the scope of the tax 
even if those services are actually consumed within the Union. Community consumers are 
increasingly turning to suppliers of services established outside the European Union in order to 
avoid payment of VAT. The problem of the effective taxation of telecommunications services 
arose following the development of technical means of providing such services without the 
supplier needing to use a network belonging to him or another form of fixed establishment ifi 
his customer's country. This development is leading to tax revenue losses for Member States' 
public finances and is also undermining the competitiveness of European telecommunications 
companies. The situation in this activity sector is simply one of tax avoidance. 
In order to remedy this situation, the Kingdom of the Netherlands wishes to be able to apply 
different rules regarding the place of taxation and for that place to be regarded as that where 
the customer has established his business or has a fixed establishment for which the service is 
provided or, failing that, the place where he has his permanent address or usually resides. In 
this way, the aim of VAT, which is to tax all consumption within the Community, would be 
fully achieved as regards telecommunications services. 
OJ No L 145, 13.6.1977, p. 1. Directive as last amended by Directive 96/95/EC (OJ No L 338, 
28.12.1996, p. 89). 
- GG -
Accordingly, the measure 
the legitimate interests of Since the aim of the derogation requested is to alter the place of taxation and that same 
derogation is required by all the Member States, the Council's authorization would have an 
effect equivalent to an amendment of the Sixth Directive itself. However, such an amendment 
can be made only in accordance with the Treaty rules safeguarding the rights of the 
European Parliament and the Economic and Social Committee 
envisaged can be authorized only as an interim measure that meets 
the Member States, namely the need to combat tax avoidance, aid pending approval of a 
proposal for a directive amending the Sixth Directive, that would be presented to the Council 
at the same time. Similarly, the duration of the derogation must be limited to what is necessary 
for the adoption of Community legislation and its transposai into national law. A period of 
approximately two years would be sufficient in this regard, which would limit the validity of 
the derogation to 31 December 1998. 
As this is a safeguard measure, it is necessaiy to limit it to what is strictly needed for combating 
tax avoidance and, notwithstanding the proposal for a directive amending the 
Sixth VAT Directive, to use a tax mechanism that is already well kiown and that is therefore 
easy to apply. 
It is therefore necessary, first of all; to restrict the effects of thej authorization to services 
provided by a supplier established outside the Community, since only those services currently 
escape taxation and lead to tax avoidance. 
As regards the definition of the place of taxation, a mechanism must be chosen which creates 
the least number of specific tax obligations for suppliers established outside the Community 
and thus does not prejudge the tax arrangements to be adopted in connection with the 
amendment of the Sixth Directive. These objectives can best be achieved by applying the rules 
in Article 9(2)(e) of the Sixth Directive, under which the person liable for payment of the tax is 
the taxable recipient of the service. \ 
However, it is not sufficient to provide a tax solution purely for sei'vices supplied to taxable 
persons. Such a solution would cover only the final consumption of taxable persons not 
benefiting from a flill deduction entitlement, notably banks and insurance companies, and 
would not cover sei'vices purchased by individuals. In order to fill this gap, application of 
Article 9(3)(b) must be made compulsory for telecommunications services supplied to 
non-taxable persons. I 
For the introduction of a specific rule governing the location of telecommunications services 
provided by suppliers established outside the Community, it is essential to define the services 
covered. The best solution is to use a definition which is already well established at 
international level. Such a definition is provided by the Melbourne Convention. 
i 
Even though a growing number of services, such as advertising, information, recreational and 
leisure services, are currently supplied through telecommunications networks, it is not 
appropriate to include them in the definition of telecommunications sei'vices. These 
- CT-
other services can be supplied other than through telecommunications 
development of tax rules which differ according to the medium of transmission 
distort competition. It is therefore preferable to distinguish between 
messages and their content. networks, and the 
used might well 
the transmission of 
This proposal for a Council decision is identical to the proposals presented by the Commission 
to the Council on the same date in respect of the fourteen other Member States. 
- £& 
Proposal for a 
COUNCIL DECISION 
Authorizing the Kingdom of the Netherlands to apply a measure derogating from 
Article 9 of the Sixth Directive (77/388/EEC) on the harmonization of the laws of the 
Member States relating to turnover taxes 
(presented by the Commission) 
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) jof 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, and in particular Article 27 thereof, 
Having regard to the proposal from the Commission, 
Whereas, pursuant to Article 27(1) of Directive 77/388/EEC, the Council, acting unanimously 
on a proposal from the Commission, may authorize any Member (State to introduce 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; j 
I 
Whereas, by registered letter to the Commission dated 30 September 1996, the Kingdom of 
the Netherlands requested authorization to introduce a measure derogating from Article 9 of 
Directive 77/388/EEC; ; 
Whereas the other Member States were informed on 20 December 
by the Kingdom of the Netherlands; 996 of the request made 
Whereas the measure is necessaiy to counter the tax avoidance effects that have led a growing 
number of Community taxable and non-taxable persons to purchase telecommunications 
services outside the Community solely in order to avoid payment of y AT; 
i 
Whereas it is desirable that the derogation should be granted until 3 I December 1998, in order 
to allow the Council to adopt a general Community solution based on the Commission 
proposal, 
HAS ADOPTED THIS DECISION: I 
- G^ 
Article 1 
By way of derogation from Article 9(1) of Directive 77/388/EEC, the Kingdom of the 
Netherlands is hereby authorized to include, within Article 9(2)(e) of the Directive, 
telecommunications sei'vices provided by suppliers not established in the Community to 
customers established in the Community. In the case of a Member State making use of this 
facility, the provisions of Article 9(3 )(b) of the Directive will also apply to these services. 
Telecommunications sei'vices shall be deemed to be sei'vices relating to the transmission, 
emission or reception of signs, signals, writing, images and sounds or information of any nature 
by wire, radio, optical or other electromagnetic systems, including the transfer or assignment of 
the right to use capacity for such transmission, emission or reception. 
Article 2 
The authorisation specified in this decision shall expire on 31 December 1998. 
Article 3 
This Decision is addressed to the Kingdom of the Netherlands. 
Done at Brussels, 
For the Council 
The President 
- 3o-
FINANCIAL STATEMENT 
Once adopted, this proposal for a Council decision will have the effect of increasing the 
Community's VAT own resources base since the change in the place of taxation of 
telecommunications sei'vices should provide better coverage of consumption of this type of 
service within the European Union. 
However, it is impossible to quantify this increase in own resources. 
- =H~ 
Proposal for a 
COUNCIL DECISION 
authorizing the Republic of Austria to apply a measure derogating from Article 9 
of the Sixth VAT Directive (77/388/EEC) on the harmonization of the 
laws of the Member States relating to turnover taxes 
(presented by the Commission) 
=12-
EXPLANATORY MEMORANDUM 
By registered letter to the Commission's Secretariat-General dated 6 September 1996, the 
government of the Republic of Austria requested authorization, under Article 27 of the 
Sbcth 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 to apply a measure derogating from Article 9 of that Directive. 
In accordance with Article 27(3) of the Sbcth Directive, the other Member States were 
informed by letter dated 20 December 1996 of the request made by the Republic of Austria. 
That request involves a change to the rules governing the place of taxation of the supply of 
telecommunications services. 
t 
According to the legislation in force (Article 9(1) of the Sixth Directive), the place where 
telecommunications services are supplied is deemed to be the place where the supplier has 
established his business or has a fixed establishment from which the services are supplied or, in 
the absence of such a place of business or fixed establishment, the place where he has his 
permanent address or usually resides. 
This rule poses problems regarding the effective taxation of telecommunications services 
consumed within the Community. Its application means that telecommunications services 
provided by a supplier established outside the European Union are outside the scope of the tax 
even if those services are actually consumed within the Union. Community consumers are 
increasingly turning to suppliers of services established outside the European Union in order to 
avoid payment of VAT. The problem of the effective taxation of telecommunications services 
arose following the development of technical means of providing such services without tfye 
supplier needing to use a network belonging to him or another form of fixed establishment in 
his customer's country. This development is leading to tax revenue losses for Member States' 
public finances and is also undermining the competitiveness of European telecommunications 
companies. The situation in this activity sector is simply one of tax avoidance. 
In order to remedy this situation, the Republic of Austria wishes to be able to apply different 
rules regarding the place of taxation and for that place to be regarded as that where the 
customer has established his business or has a fixed establishment for which the service is 
provided or, failing that, the place where he has his permanent address or usually resides. In 
this way, the aim of VAT, which is to tax all consumption within the Community, would be, 
fully achieved as regards telecommunications services. 
OJ No L 145, 13.6.1977, p. 1. Directive as hist amended by Directive 96/95/EC (OJ No L 338, 
28.12.1996. p. 89). 
- 73-
Since the aim of the derogation requested is to alter the place of taxation and that same 
derogation is required by all the Member States, the Council's authorization would have an 
effect equivalent to an amendment of the Sixth Directive itself. Hoyever, such an amendment 
can be made only in accordance with the Treaty rules safeguarding the rights of the 
European Parliament and the Economic and Social Committee. Accordingly, the measure 
envisaged can be authorized only as an interim measure that meets the legitimate interests of 
the Member States, namely the need to combat tax avoidance, and pending approval of a 
proposal for a directive amending the Sixth Directive, that would be presented to the Council 
af the same time. Similarly, the duration of the derogation must be limited to what is necessary 
for the adoption of Community legislation and its transposai into national law. A period of 
approximately two years would be sufficient in this regard, which would limit the validity of 
the derogation to 31 December 1998. 
As this is a safeguard measure, it is necessaiy to limit it to what is strictly needed for combating 
directive amending the tax avoidance and, notwithstanding the proposal for a 
Sixth VAT Directive, to use a tax mechanism that is already well known and that is therefore 
easy to apply. 
It is therefore necessaiy, first of all, to restrict the effects of the! authorization to services 
provided by a supplier established outside the Community, since only those services currently 
escape taxation and lead to tax avoidance. | 
As regards the definition of the place of taxation, a mechanism must be chosen which creates 
the least number of specific tax obligations for suppliers established outside the Community 
and thus does not prejudge the tax arrangements to be adopted in connection with the 
amendment of the Sixth Directive. These objectives can best be achieved by applying the rules 
in Article 9(2)(e) of the Sixth Directive, under which the person liah 
the taxable recipient of the service. e for payment of the tax is 
However, it is not sufficient to provide a tax solution purely for services supplied to taxable 
persons. Such a solution would cover only the final consumption of taxable persons not 
benefiting from a full deduction entitlement, notably banks and insurance companies, and 
would not cover services purchased by individuals. In order to fill this gap, application of 
Article 9(3)(b) must be made compulsory for telecommunications sei'vices supplied to 
non-taxable persons. j 
For the introduction of a specific rule governing the location of telecommunications services 
provided by suppliers established outside the Community, it is essential to define the services 
covered. The best solution is to use a definition which is already well established at 
international level. Such a definition is provided by the Melbourne Convention. 
! 
Even though a growing number of services, such as advertising, information, recreational and 
leisure services, are currently supplied through telecommunications networks, it is not 
appropriate to include them in the definition of telecommunications services. These 
*v-
other services can be supplied other than through telecommunications 
development of tax rules which differ according to the medium of 
distort competition. It is therefore preferable to distinguish between 
messages and their content. networks, and the 
transmission used might well 
the transmission of 
This proposal for a Council decision is identical to the proposals presented by the Commission 
to the Council on the same date in respect of the fourteen other Member States. 
- ^fs-
Proposal for a 
COUNCIL DECISION 
Authorizing the Republic of Austria to apply a measure deroga 
Sixth Directive (77/388/EEC) on the harmonization of the h ilWS 
relating to turnover taxes 
(presented by the Commission) ing from Article 9 of the 
of the Member States 
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, and in particular Article 27 thereof, 
i 
Having regard to the proposal from the Commission, I 
i 
Whereas, pursuant to Article 27(1) of Directive 77/388/EEC, the Cbuncil, acting unanimously 
on a proposal from the Commission, may authorize any Member iState to introduce 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 registered letter to the Commission dated 6 September 1996, the Republic of 
Austria requested authorization to introduce a measure derogating from Article 9 of 
Directive 77/388/EEC; ] 
Whereas the other Member States were informed on 20 December 11996 of the request made 
by the Republic of Austria; 
Whereas the measure is necessaiy to counter the tax avoidance effects that have led a growing 
number of Community taxable and non-taxable persons to purchase telecommunications 
services outside the Community solely in order to avoid payment of VAT; 
Whereas it is desirable that the derogation should be granted until 3 
to allow the Council to adopt a général Community solution 
proposal, 
HAS ADOPTED THIS DECISION: December 1998, in order 
biased on the Commission 
TG>-
Article 1 
By way of derogatiomfrom Article 9(1) of Directive 77/388/EEC, the Republic of Austria is 
hereby authorized to include, within Article 9(2)(e) of the Directive, telecommunications 
services provided by suppliers not established in the Community to customers established in 
the Community. In the case of a Member State making use of thi^ facility, the provisions of 
Article 9(3)(b) of the Directive will also apply to these services. 
information of any nature 
transfer or assignment of Telecommunications sei'vices shall be deemed to be sei'vices relating to the transmission, 
emission or reception of signs, signals, writing, images and sounds or 
by wire, radio, optical or other electromagnetic systems, including the 
the right to use capacity for such transmission, emission or reception 
Article 2 
The authorisation specified in this decision shall expire on 31 December 1998 
Article 3 
This Decision is addressed to the Republic of Austria. 
Done at Brussels, 
For the Council 
The President 
TÏ 
FINANCIAL STATEMENT 
Once adopted, tliis proposal for a Council decision will have the effect of increasing the 
Community's VAT own resources base since the change in the place of taxation of 
telecommunications semces should provide better coverage of consumption of tliis type of 
service within the European Union. 
However, it is impossible to quantity this increase in own resources. 
38-
Proposal for a 
COUNCIL DECISION 
authorizing the Portuguese Republic to apply a measure der 
of the Sixth VAT Directive (77/388/EEC) on the harmpniz 
laws of the Member Stales relating to turnover 
(presented by the Commission) ogating from Article 9 
ation of the 
taxes 
^ 
EXPLANATORY MEMORANDUM 
By registered letter to the Commission's Secretariat-General dated 6 December 1996, the 
government of the Portuguese Republic requested authorization, under Article 27 of the 
Sbcth 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 to apply a measure derogating from Article 9 of that Directive. 
• * 
In accordance with Article 27(3) of the Sbcth Directive, the other Member States were 
informed by letter dated 20 December 1996 of the request made by the Portuguese Republic. 
That request involves a change to the rules governing the place of taxation of the supply of 
telecommunications services. 
According to the legislation in force (Article 9(1) of the Sixth Directive), the place where 
telecommunications services are supplied is deemed to be the place where the supplier has 
established his business or has a fixed establishment from which the services are supplied or, in 
the absence of such a place of business or fixed establishment, the place where he has his 
permanent address or usually resides. 
This rule poses problems regarding the effective taxation of telecommunications services 
consumed within the Community. Its application means that telecommunications services 
provided by a supplier established outside the European Union are outside the scope of the tax 
even if those services are actually consumed within the Union. Community consumers are 
increasingly turning to suppliers of services established outside the European Union in order to 
avoid payment of VAT. The problem of the effective taxation of telecommunications service^ 
arose following the development of technical means of providing such services without the 
supplier needing to use a network belonging to him or another form of fixed establishment in 
his customer's country. This development is leading to tax revenue losses for Member States' 
public finances and is also undermining the competitiveness of European telecommunications 
companies. The situation in this activity sector is simply one of tax avoidance. 
In order to remedy this situation, the Portuguese Republic wishes to be able to apply different 
rules regarding the place of taxation and for that place to be regarded as that where the 
customer has established his business or has a fixed establishment for which the service is 
provided or, failing that, the place where he has his permanent address or usually resides. In 
this way, the aim of VAT, which is to tax all consumption within the Community, would be 
fully achieved as regards telecommunications services. 
OJ No L 145, 13.6.1977, p. 1. Directive as last amended by Directive 96/95/EC (OJ No L 338, 
28.12.1996. p. 89). 
-So ' 
Since the aim of the derogation requested is to alter the place of taxation and that same 
derogation is required by all the Member States, the Council's authorization would have an 
effect equivalent to an amendment of the Sixth Directive itself. However, such an amendment 
can be made only in accordance with the Treaty rules safegiarding the rights of the 
European Parliament and the Economic and Social Committee. Accordingly, the measure 
envisaged can be authorized only as an interim measure that meets the legitimate interests of 
the Member States, namely the need to combat tax avoidance, aid pending approval of a 
proposal for a directive amending the Sixth Directive, that would b^ presented to the Council 
at the same time. Similarly, the duration of the derogation must be limited to what is necessary 
for the adoption of Community legislation and its transposai into national law. A period of 
approximately two years would be sufficient in this regard, which would limit the validity of 
the derogation to 31 December 1998. 
As this is a safeguard measure, it is necessaiy to limit it to what is strictly needed for combating 
tax avoidance and, notwithstanding the proposal for a 'directive amending the 
Sixth VAT Directive, to use a tax mechanism that is already well kpown and that is therefore 
easy to apply. ! 
It is therefore necessaiy, first of all, to restrict the effects of the authorization to services 
provided by a supplier established outside the Community, since only those sei'vices currently 
escape taxation and lead to tax avoidance. 
i 
As regards the definition of the place of taxation, a mechanism must be chosen which creates 
the least number, of specific tax obligations for suppliers established outside the Community 
and thus does not prejudge the tax arrangements to be adopted in connection with the 
amendment of the Sixth Directive. These objectives can best be aclueved by applying the rules 
in Article 9(2)(e) of the Sixth Directive, under which the person liable for payment of the tax is 
the taxable recipient of the service. I 
i 
However, it is not sufficient to provide a tax solution purely for services supplied to taxable 
persons. Such a solution would cover only the final consumption of taxable persons not 
benefiting from a full deduction entitlement, notably banks and insurance companies, and 
would not cover services purchased by individuals. In order to fill this gap, application of 
Article 9(3)(b) must be made compulsory for télécommunications services supplied to 
non-taxable persons. 
For the introduction of a specific rule governing the location of telecommunications sei'vices 
provided by suppliers established outside the Community, it is essential to define the sei'vices 
covered. The best solution is to use a definition which is already well established at 
international level. Such a definition is provided by the Melbourne Convention. 
Even though a growing number of sei'vices, such as advertising, information, recreational and 
leisure sei'vices, are currently supplied through telecommunications networks, it is not 
appropriate to include them in the definition of telecommunications services. These 
€1-
other services can be supplied other than through telecommunications networks, and the 
development of tax rules which differ according to the medium of transmission used might well 
distort competition. It is therefore preferable to distinguish between the transmission of 
messages and their content. 
This proposal for a Council decision is identical to the proposals presented by the Commission 
to the Council on the same date in respect of the fourteen other Member States. 
-82 
Proposal foi- a 
COUNCIL DECISION 
Authorizing the Portuguese Republic to apply a measure derogating from Article 9 of 
the Sixth Directive (77/388/EEC) on the harmonization of the laws of the Member States 
relating to turnover taxes 
(presented by the Commission) 
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, and in particular Article 27 thereof, 
Having regard to the proposal from the Commission, ! 
Whereas, pursuant to Article 27(1) of Directive 77/388/EEC, the Council, acting unanimously 
on a proposal from the Commission, may authorize any Member iState to introduce 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 registered letter to the Commission dated 6 December 1996, the Portuguese 
Republic requested authorization to introduce a measure derogating from Aiticle 9 of 
Directive 77/388/EEC; j 
Whereas the other Member States were informed on 20 December: 1996 of the request made 
by the Portuguese Republic; j 
Whereas the measure is necessaiy to counter the tax avoidance effects that have led a growing 
number of Community taxable and non-taxable persons to pur:hase telecommunications 
services outside the Community solely in order to avoid payment of VAT; 
Whereas it is desirable that the derogation should be granted until 3 December 1998, in order 
to allow the Council to adopt a geneial Community solution based on the Commission 
proposal, | 
i 
j 
HAS ADOPTED THIS DECISION: I 
- S3 
Article 1 
By way of derogation from Article 9(1) of Directive 77/388/EEC, the Portuguese Republic is 
hereby authorized to include, within Article 9(2)(e) of the Directive, telecommunications 
services provided by suppliers not established in the Community to customers established in 
the Community. In the case of a Member State making use of this facility, the provisions of 
Article 9(3)(b) of the Directive will also apply to these sei'vices. 
Telecommunications services shall be deemed to be sei'vices relating to the transmission, 
emission or reception of signs, signals, writing, images and sounds or information of any nature 
by wire, radio, optical or other electromagnetic systems, including the transfer or assignment of 
the right to use capacity for such transmission, emission or reception. 
Article 2 j 
The authorisation specified in this decision shall expire on 31 December 1998. 
Article 3 
Tliis Decision is addressed to the Portuguese Republic. ; 
Done at Brussels, 
! 
i For the Council 
i 
i 
i The President 
- *Si\. 
FINANCIAL STATEMENT 
Once adopted, tliis proposal for a Council decision will have the 
Community's VAT own resources base since the change in 
telecommunications services should provide better coverage of consum 
service within the European Union. 
However, it is impossible to quantity this increase in own resources. effect of increasing the 
:he place of taxation of 
ption of this type of 
- gs-
Proposal for a 
COUNCIL DECISION 
authorizing the Republic of Finland to apply a measure derogating from Article 9 
of the Sixth VAT Directive (77/388/EEC) on the harmonization of the 
laws of the Member States relating to turnover taxes 
(presented by the Commission) 
- s& -
EXPLANATORY MEMORANDUM 
By registered letter to the Commission's Secretariat-General dated 6 December 1996, the 
government of the Republic of Finland requested authorization, under Article 27 of the 
Sbcth 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 to apply a measure derogating from Article 9 of that Directive. 
In accordance with Article 27(3) of the Sbcth Directive, the other Member States were 
informed by letter dated 20 December 1996 of the request made by the Republic of Finland. 
That request involves a change to the rules governing the place of taxation of the supply of 
telecommunications services. 
According to the legislation in force (Article 9(1) of the Sixth Directive), the place where 
telecommunications services are supplied is deemed to be the place where the supplier has 
established his business or has a fixed establishment from which the services are supplied or, in 
the absence of such a place of business or fixed establishment, the place where he has hi^ 
permanent address or usually resides. 
This rule poses problems regarding the effective taxation of telecommunications services 
consumed within the Community. Its application means that telecommunications seivices 
provided by a supplier established outside the European Union are outside the scope of the tax 
even if those services are actually consumed within the Union. Community consumers are 
increasingly turning to suppliers of services established outside the European Union in order to 
avoid payment of VAT. The problem of the effective taxation of telecommunications services 
arose following the development of technical means of providing such services without the 
supplier needing to use a network belonging to him or another form of fixed establishment in 
his customer's country. This development is leading to tax revenue losses for Member States' 
public finances and is also undermining the competitiveness of European telecommunications 
companies. The situation in this activity sector is simply one of tax avoidance. 
In order to remedy this situation, the Republic of Finland wishes to be able to apply different 
rules regarding the place of taxation and for that place to be regarded as that where the 
customer has established his business or has a fixed establishment for which the service is 
provided or, failing that, the place where he has his permanent address or usually resides. la 
this way, the aim of VAT, which is to tax all consumption within the Community, would be 
fully achieved as regards telecommunications services. 
OJ No L 145. 13.6.1977. p. 1. Directive as last amended by Directive 96/95/EC (OJ No L 338, 
28.12.1996. p. 89). 
- 8Ï 
Since the aim of the derogation requested is to alter the place of taxation and that same 
derogation is required by all the Member States, the Council's authorization would have an 
effect equivalent to an amendment of the Sixth Directive itself. However, such an amendment 
can be made only in accordance with the Treaty rules safeguarding the rights of the 
European Parliament and the Economic and Social Committee. Accordingly, the measure 
envisaged can be authorized only as an interim measure that meets the legitimate interests of 
the Member States, namely the need to combat tax avoidance, and pending approval of a 
proposal for a directive amending the Sixth Directive, that would be presented to the Council 
at the same time. Similarly, the duration of the derogation must be limited to what is necessary 
for the adoption of Community legislation and its transposai into national law. A period of 
approximately two years would be sufficient in this regard, which would limit the validity of 
the derogation to 31 December 1998. j 
As this is a safeguard measure, it is necessaiy to limit it to what is strictly needed for combating 
tax avoidance and, notwithstanding the proposal for a directive amending the 
Sixth VAT Directive, to use a tax mechanism that is already well kpown and that is therefore 
easy to apply. 
It is therefore necessaiy, first of all, to restrict the effects of the authorization to services 
provided by a supplier established outside the Community, since only those services currently 
escape taxation and lead to tax avoidance. j 
As regards the definition of the place of taxation, a mechanism must be chosen which creates 
the least number of specific tax obligations for suppliers established outside the Community 
and thus does not prejudge the tax arrangements to be adopted in connection with the 
amendment of the Sixth Directive. These objectives can best be achieved by applying the rules 
in Article 9(2)(e) of the Sixth Directive, under which the person liable for payment of the tax is 
the taxable recipient of the service. j 
i 
However, it is not sufficient to provide a tax solution purely for sei'vices supplied to taxable 
persons. Such a solution would cover only the final consumption of taxable persons not 
benefiting from a full deduction entitlement, notably banks and insurance companies, and 
would not cover sei'vices purchased by individuals. In order to fill this gap, application of 
Article 9(3)(b) must be made compulsory for telecommunicatipns services supplied to 
non-taxable persons. j 
For the introduction of a specific rule governing the location of telecommunications services 
provided by suppliers established outside the Community, it is essential to define the sei'vices 
covered. The best solution is to use a definition which is already well established at 
international level. Such a definition is provided by the Melbourne Convention. 
Even though a growing number of sei'vices, such as advertising, information, recreational and 
leisure services, are currently supplied through telecommunications networks, it is not 
appropriate to include them in the definition of telecommunications sei'vices. These 
other services can be supplied other than through telecommunications networks, and the 
development of tax rules wliich differ according to the mediLim of transmission used might well 
distort competition. It is therefore preferable to distinguish betjween the transmission of 
messages and their content. 
This proposal for a Council decision is identical to the proposals presented by the Commission 
to the Council on the same date in respect of the fourteen other Member States. 
- <§°[-
Proposal for a 
COUNCIL DECISION 
Authorizing the Republic of Finland to apply a measure derogating from Article 9 of the 
Sixth Directive (77/388/EEC) on the harmonization of the laws of the Member States 
relating to turnover taxes 
(presented by the Commission) 
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, and in particular Article 27 thereof, 
Having regard to the proposal from the Commission, 
I 
Whereas, pursuant to Article 27(1) of Directive 77/388/EEC, the Council, acting unanimously 
on a proposal from the Commission, may authorize any Member iState to introduce 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; j 
Whereas, by registered letter to the Commission dated 6 December 1996, the Republic of 
Finland requested authorization to introduce a measure derogating from Article 9 of 
Directive 77/388/EEC; 
Whereas the other Member States were informed on 20 December 
by the Republic of Finland; 996 of the request made 
Whereas the measure is necessaiy to counter the tax avoidance effects that have led a growing 
number of Community taxable and non-taxable persons to purchase telecommunications 
services outside the Community solely in order to avoid payment of VAT; 
Whereas it is desirable that the derogation should be granted until 31 December 1998, in order 
to allow the Council to adopt a general Community solution based on the Commission 
proposal, | 
i 
HAS ADOPTED THIS DECISION: 
- ^O -
Article 1 
By way of derogation from Article 9(1) of Directive 77/388/EEC, the Republic of Finland is 
hereby authorized to include, within Article 9(2)(e) of the Directive, telecommunications 
services provided by suppliers not established in the Community to customers established in 
the Community. In the case of a Member State making use of tliis facility, the provisions of 
Article 9(3)(b) of the Directive will also apply to these sei'vices. 
Telecommunications services shall be deemed to be sei'vices relating to the transmission, 
emission or reception of signs, signals, writing, images and sounds or information of any nature 
by wire, radio, optical or other electromagnetic systems, including the transfer or assignment of 
the right to use capacity for such transmission, emission or reception!. 
Article 2 
The authorisation specified in this decision shall expire on 31 December 1998 
Article 3 
This Decision is addressed to the Republic of Finland. 
Done at Brussels, 
For the Council 
The President 
- ^\-
FINANCIAL STATEMENT 
Once adopted, this proposal for a Council decision will have the effect of increasing the 
Community's VAT own resources base since the change in ihe place of taxation of 
telecommunications sei'vices should provide better coverage of consumption of tliis type of 
service within the European Union. j 
However, it is impossible to quantify this increase in own resources. 
- 92-
Proposal for a 
COUNCIL DECISION 
authorizing the Kingdom of Sweden to apply a measure derogating from Article 9 
of the Sixth VAT Directive (77/388/EEC) on the harmonization of the 
laws of the Member States relating to turnover taxes 
(presented by the Commission) 
^3 
EXPLANATORY MEMORANDUM 
By registered letter to the Commission's Secretariat-General dated 6 December 1996, the 
government of the Kingdom of Sweden requested authorization, under Article 27 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 - common system of value added tax: uniform basis 
of assessment,1 to apply a measure derogating from Article 9 of that Directive. • 
In accordance with Article 27(3) of the Sbcth Directive, the other Member States were 
informed by letter dated 20 December 1996 of the request made by the Kingdom of Sweden. 
That request involves a change to the rules governing the place of taxation of the supply of 
telecommunications services. 
According to the legislation in force (Article 9(1) of the Sixth Directive), the place where 
telecommunications services are supplied is deemed to be the place where the supplier has 
established his business or has a fixed establishment from which the services are supplied or, in 
the absence of such a place of business or fixed establishment, the place where he has his 
permanent address or usually resides. 
This rule poses problems regarding the effective taxation of telecommunications services 
consumed within the Community. Its application means that telecommunications services 
provided by a supplier established outside the European Union are outside the scope of the tax 
even if those services are actually consumed within the Union. Community consumers are 
increasingly turning to suppliers of services established outside the European Union in order to 
avoid payment of VAT. The problem of the effective taxation of telecommunications services 
arose following the development of technical means of providing such services without thje 
supplier needing to use a network belonging to him or another form of fixed establishment in 
his customer's country. This development is leading to tax revenue losses for Member States' 
public finances and is also undermining the competitiveness of European telecommunications 
companies. The situation in this activity sector is simply one of tax avoidance. 
In order to remedy this situation, the Kingdom of Sweden wishes to be able to apply different 
rules regarding the place of taxation and for that place to be regarded as that where the 
customer has established his business or has a fixed establishment for which the service is 
provided or, failing that, the place where he has his permanent address or usually resides. In 
this way, the aim of VAT, which is to tax all consumption within the Community, would be 
fully achieved as regards telecommunications services. 
OJ No L 145, 13.6.1977, p. 1. Directive as last amended by Directive 96/95/EC (OJ No L 338, 
28.12.1996, p. 89). 
*H 
Since the aim of the derogation requested is to alter the place of taxation and that same 
derogation is required by all the Member States, the Council's authorization would have an 
effect equivalent to an amendment of the Sixth Directive itself. However, such an amendment 
can be made only in accordance with the Treaty ailes safeguarding the rights of the 
European Parliament and the Economic and Social Committee. Accordingly, the measure 
envisaged can be authorized only as an interim measure that meets! the legitimate interests of 
the Member States, namely the need to combat tax avoidance, and pending approval of a 
proposal for a directive amending the Sixth Directive, that would be presented to the Council 
at the same time. Similarly, the duration of the derogation must be limited to what is necessary 
for the adoption of Community legislation and its transposai into national law. A period of 
approximately two years would be sufficient in this regard, which would limit the validity of 
the derogation to 31 December 1998. 'ol 
As this is a safeguard measure, it is necessaiy to limit it to what is strictly needed for combating 
tax avoidance and, notwithstanding the proposal for a directive amending the 
Sixth VAT Directive, to use a tax mechanism that is already well known and that is therefore 
easy to apply. 
It is therefore necessaiy, first of ail, to restrict the effects of the authorization to services 
provided by a supplier established outside the Community, since only those services currently 
escape taxation and lead to tax avoidance. 
As regards the definition of the place of taxation, a mechanism must be chosen which creates 
the least number of specific tax obligations for suppliers established outside the Community 
and thus does not prejudge the tax arrangements to be adopted in connection with the 
amendment of the Sixth Directive. These objectives can best be achieved by applying the rules 
in Article 9(2)(e) of the Sixth Directive, under which the person liable for payment of the tax is 
the taxable recipient of the service. . j 
I 
However, it is not sufficient to provide a tax solution purely for sei'vices supplied to taxable 
persons. Such a solution would cover only the final consumption of taxable persons not 
benefiting from a full deduction entitlement, notably banks and jnsurance companies, and 
would not cover sei'vices purchased by individuals. In order to fill tliis gap, application of 
Article 9(3)(b) must be made compulsory for telecommunications services supplied to 
non-taxable persons. 
For the introduction of a specific rule governing the location of telecommunications services 
provided by suppliers established outside the Community, it is essential to define the services 
covered. The best solution is to use a definition which is already well established at 
international level. Such a definition is provided by the Melbourne Convention. 
Even though a srowinsi number of services, such as advertising, information, recreational and 
leisure services, are currently supplied through telecommunications networks, it is not 
appropriate to include them in the definition of telecommunications sei'vices. These 
^s 
other services can be supplied other than through telecommunidations 
development of tax rules which differ according to the medium of transmission 
distort competition. It is therefore preferable to distinguish between 
messages and their content. networks, and the 
used might well 
the transmission of 
This proposal for a Council decision is identical to the proposals presented by the Commission 
to the Council on the same date in respect of the fourteen other Member States. 
e\f0-
Proposal for a 
COUNCIL DECISION 
Authorizing the Kingdom of Sweden to apply a measure derogating from Article 9 of 
the Sixth Directive (77/388/EEC) on the harmonization of the lajws of the Member States 
relating to turnover taxes 
(presented by the Commission) 
THE COUNCIL OF THE EUROPEAN UNION, j 
Having regard to the Treaty establishing the European Community, j 
| 
Having regard to the Sixth Council Directive (77/388/EEC) jof 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, and in particular Article 27 thereof, 
i 
Having regard to the proposal from the Commission, ! 
Whereas, pursuant to Article 27(1) of Directive 77/388/EEC, the Council, acting unanimously 
on a proposal from the Commission, may authorize any Member State to introduce 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; j 
I 
Whereas, by registered letter to the Commission dated 6 December 1996, the Kingdom of 
Sweden requested authorization to introduce a measure derogating from Ailicle 9 of 
Directive 77/388/EEC; ! 
Whereas the other Member States were informed on 20 December1! 1996 of the request made 
by the Kingdom of Sweden; ; 
Whereas the measure is necessaiy to counter the tax avoidance effects that have led a growing 
number of Community taxable and non-taxable persons to purchase telecommunications 
services outside the Community solely in order to avoid payment of VAT; 
j 
Whereas it is desirable that the derogation should be granted until 3 December 1998, in order 
to allow the Council to adopt a general Community solution based on the Commission 
proposal, 
HAS ADOPTED THIS DECISION. 
9r\~ 
Article 
By way of derogation from Ailicle 9(1) of Directive 77/388/EEC, the Kingdom of Sweden is 
hereby authorized to include, within Article 9(2)(e) of the Directive, telecommunications 
services provided by suppliers not established in the Community to customers established in 
the Community. In the case of a Member State making use of tlii^ facility, the provisions of 
Article 9(3)(b) of the Directive will also apply to these services. 
Telecommunications sei'vices shall be deemed to be services relhtin 
emission or reception of signs, signals, writing, images and sounds or 
by wire, radio, optical or other electromagnetic systems, including the 
the right to use capacity for such transmission, emission or reception. 
Article 2 
The authorisation specified in this decision shall expire on 31 December 1998. 
Article 3 g to the transmission, 
information of any nature 
transfer or assignment of 
This Decision is addressed to the Kingdom of Sweden. 
Done at Brussels, 
For the Council 
The President 
- ^8-
FINANCIAL STATEMENT 
Once adopted, this proposal for a Council decision will have the effect of increasing the 
Community's VAT own resources base since the change in the place of taxation of 
telecommujriications sei'vices should provide better coverage of consumption of this type of 
service within the European Union. I 
However, it is impossible to quantify this increase in own resources. 
- ^n 
Proposal for a 
COUNCIL DECISION 
authorizing the United Kingdom to apply a measure derogating from Article 9 
of the Sixth VAT Directive (77/388/EEC) on the harmonization of the 
laws of the Member States relating to turnover taxes 
(presented by the Commission) 
- lOO -
EXPLANATORY MEMORANDUM 
By registered letter to the Commission's Secretariat-General dated 6 December 1996, the 
government of the United Kingdom requested authorization, under Article 27 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 - common system of value added tax: uniform basis 
of assessment,1 to apply a measure derogating from Article 9 of that Directive. 
In accordance with Article 27(3) of the Sixth Directive, the other Member States were 
informed by letter dated 20 December 1996 of the request made by the United Kingdom. 
That request involves a change to the rules governing the place of taxation of the supply of 
telecommunications services. 
According to the legislation in force (Article 9(1) of the Sixth Directive), the place where 
telecommunications services are supplied is deemed to be the place where the supplier has 
established hi?; business or has a fixed establishment from which the services are supplied or, in 
the absence of such a place of business or fixed establisiunent, the place where he has his 
permanent address or usually resides. 
This rule poses problems regarding the effective taxation of telecommunications services 
consumed within the Community. Its application means that telecommunications services 
provided by a supplier established outside the European Union are outside the scope of the tax 
even if those services are actually consumed within the Union. Community consumers are 
increasingly turning to suppliers of services established outside the European Union in order to 
avoid payment of VAT. The problem of the effective taxation of telecommunications services 
arose following the development of technical means of providing such services without the 
supplier needing to use a network belonging to him or another form of fixed establishment in 
his customer's country. This development is leading to tax revenue losses for Member States' 
public finances and is also undermining the competitiveness of European telecommunications 
companies. The situation in tliis activity sector is simply one of tax avoidance. 
In order to remedy this situation, the United Kingdom wishes to be able to apply different rules 
regarding the place of taxation and for that place to be regarded as that where the customer 
has established his business or has a fixed establishment for which the service is provided or, 
failing that, the place where he has his permanent address or usually resides. In this way, the 
aim of VAT, which is to tax all consumption within the Community, would be fully achieved as 
regards telecommunications services. 
OJ No L 145, 13.6.1977, p. 1. Directive as last amended by Directive 96/95/EC (OJ No L 338, 
28.12.1996, p. 89). 
\o[-
Since the aim of the derogation requested is to alter the place Of taxation and that same 
derogation is required by all the Member States, the Council's authorization would have an 
effect equivalent to an amendment of the Sixth Directive itself. However, such an amendment 
can be made only in accordance with the Treaty ailes safeguarding the rights of the 
European Parliament and the Economic and Social Committee. Accordingly, the measure 
envisaged can be authorized only as an interim measure that meets the legitimate interests of 
the Member States, namely the need to combat tax avoidance, a id pending approval of a 
proposal for a directive amending the Sixth Directive, that would hi presented to the Council 
at the same time. Similarly, the duration of the derogation must be limited to what is necessary 
for the adoption of Community legislation and its transposai into national law. A period of 
approximately two years would be sufficient in this regard, which would limit the validity of 
the derogation to 31 December 1998. 
As this is a safeguard measure, it is necessaiy to limit it to what is strictly needed for combating 
tax avoidance and, notwithstanding the proposal for a [directive amending the 
Sixth VAT Directive, to use a tax mechanism that is already well known and that is therefore 
easy to apply. ! 
I 
It is therefore necessaiy, first of all, to restrict the effects of the authorization to services 
provided by a supplier established outside the Community, since only those sei'vices currently 
escape taxation and lead to tax avoidance. 
As regards the definition of the place of taxation, a mechanism must be chosen which creates 
the least number of specific tax obligations for suppliers established outside the Community 
and thus does not prejudge the tax arrangements to be adopted in connection with the 
amendment of the Sixth Directive. These objectives can best be achieved by applying the rules 
in Article 9(2)(e) of the Sixth Directive, under which the person liabi 
the taxable recipient of the service. e for payment of the tax is 
However, it is not sufficient to provide a tax solution purely for sei'vices supplied to taxable 
persons. Such a solution would cover only the final consumption of taxable persons not 
benefiting from a full deduction entitlement, notably banks and insurance companies, and 
would not cover services purchased by individuals. In order to fill this gap, application of 
Article 9(3)(b) must be made compulsoiy for telecommunications services supplied to 
non-taxable persons. j 
For the introduction of a specific rule governing the location of telecommunications services 
provided by suppliers established outside the Community, it is essential to define the services 
covered. The best solution is to use a definition which is already well established at 
international level. Such a definition is provided by the Melbourne Convention. 
i 
i 
Even though a growing number of servicer, such as advertising, information, recreational and 
leisure services, are currently supplied through telecommunications networks, it is not 
appropriate to include them in the definition of telecommunications services. These 
- Vol 
other services can be supplied other than through telecommunications networks, and the 
development of tax rules wliich differ according to the medium of transmission used might well 
distort competition. ,It is therefore preferable to distinguish between the transmission of 
messages and their content. 
This proposal for a Council decision is identical to the proposals presented by the Commission 
to the Council on the same date in respect of the fourteen other Member States. 
- I03-
iitihg from Article 9 of the 
iws of the Member States Proposal for a 
COUNCIL DECISION 
Authorizing the United Kingdom to apply a measure derog; 
Sixth Directive (77/388/EEC) on the harmonization of the h 
relating to turnover taxes 
(presented by the Commission) 
THE COUNCIL OF THE EUROPEAN UNION, 
Having regard to the Treaty establishing the European Community, j 
i 
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, and in particular Article 27 thereof, 
Having regard to the proposal from the Commission, 
Whereas, pursuant to Article 27(1) of Directive 77/388/EEC, the Council, acting unanimously 
on a proposal from the Commission, may authorize any Member State to introduce 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 registered letter to the Commission dated 6 December 1996, the United Kingdom 
requested authorization to introduce a measure derogating from Article 9 of 
Directive 77/388/EEC; 
Whereas the other Member States were informed on 20 December 
by the United Kingdom; 996 of the request made 
Whereas the measure is necessaiy to counter the tax avoidance effects that have led a growing 
number of Community taxable and non-taxable persons to purchase telecommunications 
services outside the Community solely in order to avoid payment of VAT; 
Whereas it is desirable that the derogation should be granted until 31 December 1998, in order 
to allow the Council to adopt a general Community solution based on the Commission 
proposal, 
HAS ADOPTED THIS DECISION: 
- VOi^ 
Article 
By way of derogation from Article 9(1) of Directive 77/388/EEC! 
hereby authorized to include, within Article 9(2)(e) of the Directive 
services provided by suppliers not established in the Community to 
the Community. In the case of a Member State making use of thi$ 
Article 9(3)(b) of the Directive will also apply to these sei'vices. the United Kingdom is 
telecommunications 
customers established in 
facility, the provisions of 
Telecommunications sei'vices shall be deemed to be sei'vices relating to the transmission, 
emission or reception of signs, signals, writing, images and sounds or information of any nature 
by wire, radio, optical or other electromagnetic systems, including the transfer or assignment of 
the right to use capacity for such transmission, emission or reception 
Article 2 ; 
The authorisation specified in this decision shall expire on 31 December 1998. 
Article 3 ! 
This Decision is addressed to the United Kiimdom. 
Done at Brussels, 
For the Council 
The President 
io^> -
FINANCIAL STATEMENT 
Once adopted, tliis proposal for a Council decision will have the effect of increasing the 
Community's VAT own resources base since the change in the place of taxation of 
telecommunications services should provide better coverage of consumption of this type of 
service within the European Union. 
However, it is impossible to quantify this increase in own resources. 
- VOCo 
ISSN 0254-1475 
COM(97) 42 final 
DOCUMENTS 
EN 09 06 10 
Catalogue number : CB-CO-97-038-EN-C 
ISBN 92-78-15521-7 
Office for Official Publications of the European Communities 
L-2985 Luxembourg