COMMISSION OF THE EUROPEAN COMMUNITIES 
C0M(89) 312 final 
Brussels, 20 June 1989 
Proposal for a 
COUNCIL DECISION 
authorizing the United Kingdom to apply a measure derogating 
from Article 11(A)(1)(b) of the Sixth Council Directive 
(77/388/EEC) on the harmonization of the laws of the Member States 
relating to turnover taxes 
(presented by the Commission) 
- 6 -
EXPLANATORY MEMORANDUM 
By letter received by the Commission on 9 January 1989, the United 
Kingdom Government submitted a request for a derogation based on 
1 
Article 27 of the Sixth VAT Directive in respect of a special measure 
described as being aimed at simplifying the procedure for charging 
VAT on supplies of building land intended for commercial or industrial 
use. 
In accordance with Article 27(3) of the Sixth Directive, the other 
Member States were informed, by letter dated 9 February 1989, of the 
United Kingdom's request. 
Having concluded that it had fundamental objections to the 
United Kingdom's request, the Commission requested, by way of a 
communication dated 10 April 1989 and in accordance with Article 27(4) 
of the Sixth Directive, that the matter be raised by the Council. 
Following this referral request, the United Kingdom Government 
informed the Council that it intended to modify the scope of the 
measure so as to limit it to a derogation from Article 11(A)(1)(b) 
of the Sixth Directive. 
In the light of the Court of Justice's* ruling in case 416/85, the 
United Kingdom has decided to tax supplies of buildings used for 
commercial or industrial purposes at the standard rate. 
10J No 145, 13.6.1977. 
- 7 -
In addition, the United Kingdom has decided to make use of the option 
provided for in the Sixth Directive of defining buildings as including 
the land on which they stand, while at the same time maintaining a 
general exemption for supplies of building land based on the transitional 
provision in Article 28(3)(b) read in conjunction with point 16 of 
Annex F to the said Directive. 
To that end and in order not to overcomplicate control of the use (commercial, 
industrial or housing use) of the land (simplification measure) 
and in particular to prevent tax avoidance through separate acquisition 
of land followed by development of it, the United Kingdom plans to 
tax commercial or industrial buildings and the land on which they 
stand when they go into consumption. For that purpose, it is using 
the option provided for in Article 5(7)(a) and (b) of the Sixth Directive 
by taxing the self-supply of the building and the land on which it 
stands on the basis of the open market value at that time. However, 
use of this option is necessary only where the building is occupied 
by a taxable person who has constructed it and who is not entitled 
to full deduction of the tax or where that taxable person lets it 
on an exempt basis. The United Kingdom argues that, where the 
building is sold or its letting is taxed, the price received for the 
sale or letting necessarily includes the value of the building and 
the land on which it stands at the time either of those transactions 
takes place. 
The use of the open market value as the taxable amount for the self-
supply therefore constitutes the special measure in respect of which 
the United Kingdom is currently requesting a derogation. 
- 8 -
Article 11(A)(1)(b) of the Sixth Directive stipulates that, where 
use is made of the option provided for in Article 5(7)(a) and (b), 
the purchase price of the goods or the cost price determined at the 
time of supply should serve as the basis for determining the taxable 
amount. 
The Commission notes that the derogation now submitted by the 
United Kingdom is fairly limited in scope in relation to the 
provisions of the Sixth Directive. It is also convinced that the 
measure in question is designed to simplify the procedure for 
charging tax and to prevent tax avoidance or evasion within the meaning 
of Article 27 of the Sixth Directive. 
The Commission therefore considers it appropriate for the United Kingdom 
to be authorized to introduce the planned special measure. It 
nevertheless takes the view that the situation should be re-examined 
when the transitional provision in point 16 of Annex F, read in 
conjunction with that in Article 28(3)(b) of the Sixth Directive, 
is abolished and accordingly proposes that the authorization be limited 
as to duration. 
4 
Proposal for a 
COUNCIL DECISION 
authorizing the United Kingdom to apply, 
a measure derogating from Article 11(A)(1)(b) 
of the Sixth Council Directive (77/388/EEC) 
on the harmonization of the laws of the If ember States 
relating to turnover taxes 
THE COUNCIL OF THE EUROPEAN COMMUNITIES, 
Having regard to the Treaty establishing the European Economic Community, 
Having regard to the Sixth Council Directive (77/388/EEC) on the harmoni­
zation of the laws of the Member States relating to turnover taxes - Com­
mon system of value added tax : uniform basis of assessment*1», hereinaf­
ter referred to as the "Sixth Directive", and in particular Article 27 
thereof, 
Having regard to the proposal from the Commission, 
O.J. N. L 145, 13.6.1977, p. 1 
10 
Whereas, under Article 27(1) of the Sixth Directive, the Council, acting 
unanimously on a proposal from the Commission, may authorize any Member 
State to introduce special measures for derogation from that Directive in 
order to simplify the procedure for charging the tax or to prevent cer­
tain types of tax evasion or avoidance; 
Whereas the United Kingdom, by letter received by the Commission on 9 Ja­
nuary 1989, requested authorization to introduce a special measure dero­
gating from Article 11 of the said Directive; 
Whereas the other Member States were informed of the United Kingdom's re­
quest on 9 February 1989; 
Whereas, by letter dated 10 April 1989, the Commission, having decided 
that it had fundamental objections to the United Kingdom Government's re­
quest, asked, in -accordance with Article 27(4) of the Sixth Directive, 
that the matter be raised by the Council; 
Whereas, by a note dated 10 May 1989, the United Kingdom informed the 
Council that it was modifying and narrowing the scope of the derogation 
notified to the Commission on 9 January 1989; 
Whereas the United Kingdom currently exempts all building land under Ar­
ticle 28(3)(b), read in conjunction with point 16 of Annex F to the Sixth 
Directive; 
11 
Whereas, in order to comply with the spirit of the Court of Justice ru­
ling in Case 416/85, the United Kingdom wishes to tax supplies of buil­
dings and the land on which they stand where these are used for commer­
cial or industrial purposes, while retaining zero rating for supplies of 
residential buildings and exemption for supplies of building land; 
Whereas, in order to simplify the procedure for charging the tax and to 
prevent certain types of tax evasion or avoidance, the United Kingdom 
wishes to apply the tax to transactions relating to commercial or indus­
trial buildings and to the land on which they stand before first occupa­
tion on the basis of the open market value at the time they are taken in­
to use; whereas, in the case of supply or letting with the developer op­
tion for taxation under Article 13(C)(a) of the Sixth Directive, this ob­
jective is achieved because the price of the supply or the rent necessa­
rily reflects the value of the land at the time of such supply or let­
ting; 
Whereas, in order to achieve the objective in question where the building 
is to be occupied by a taxable person who has constructed it and who is 
not entitled to full deduction of the tax or where the same taxable per­
son lets the building on an exempt basis under Article 13(B)(b) of the 
Sixth Directive, the United Kingdom intends to make use of the option 
provided for in Article 5(7)(a) and (b) of the said Directive to tax such 
occupation or letting of the property on the basis of its open market va­
lue; 
? 
1 2 
Whereas, as a result of the taxable amount being determined by reference 
to the open market value in this way, the amended request derogates from 
Article 11(A)(1)(b) of the Sixth Directive, which stipulates that, for 
supplies referred to in Article 5(6) and (7), the taxable amount is the 
purchase price of the goods or of similar goods or, in the absence of a 
purchase price, the cost price, determined at the time of supply; 
Whereas it is appropriate to accede to this request pending abolition of 
point 16 of the above-mentioned Annex F, which permits Member states to 
exempt temporarily supplies of new buildings and building land; 
Whereas the above-mentioned special measure will not have a negative ef­
fect on the European Communities' own resources accruing from value added 
tax, 
HAS ADOPTED THIS DECISION : 
{ 
1 3 
Article 1 
By way of derogation from Article 11(A)(1)(b) of the Sixth Directive, the 
united Kingdom Is hereby authorized to use the open market value as the 
taxable amount for the supply, within the meaning of Article 5(7)(a) and 
(b) oi the said Directive, of buildings or parts of buildings before 
first occupation and of the land on which they stand. 
Article 2 
This authorization shall be granted pending the abolition of the transi­
tional provision in point 16 of Annex F together with that of Arti­
cle 28(3)(b) of the Sixth Directive. 
Article J 
This Decision is addressed to the United Kingdom. 
Done at Brussels, For the Council, 
The President 
1 
•9 
Commission of the European Communities 
COM(89) 312 final 
Proposal for a 
COUNCIL DECISION 
authorizing the United Kingdom to apply a measure derogating from 
Article 11(A)(1)(b) of the Sixth Council Directive (77/388/EEC) on the 
harmonization of the laws of the Member States relating to turnover 
taxes 
(submitted by the Commission) 
20.6.1989 
Office for Official Publications of the European Communities 
L - 2985 Luxembourg 
Series: DOCUMENTS 
1989 — 9 pp. — Format: 21.0 * 29.7 cm 
EN 
ISSN 0254-1475 
ISBN 92-77-51216-4 
Catalogue number: CB-CO-89-267-EN-C 
ISSN 0254-1475 
COM(89) 312 final 
DOCUMENTS 
Proposal for a 
COUNCIL DECISION 
authorizing the United Kingdom to apply a 
measure derogating from Article 11(A)(1)(b) of 
the Sixth Council Directive (77/388/EEC) on the 
harmonization of the laws of the Member States 
relating to turnover taxes 
(submitted by the Commission) 
09 
Catalogue number: CB-CO-89-267-EN-C 
ISBN 92-77-51216-4 20.6.1989 
€ 
COMMISSION OF THE EUROPEAN COMMUNITIES