amending Implementing Decision 2011/335/EU authorising the Republic of Lithuania to apply a measure derogating from Article 287 of Directive 2006/112/EC on the common system of value added tax

EXPLANATORY MEMORANDUM

Pursuant to Article 395(1) of Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (‘the VAT Directive’), the Council, acting unanimously on a proposal from the Commission, may authorise any Member State to apply special measures for derogation from the provisions of that Directive in order to simplify the procedure for collecting VAT or to prevent certain forms of tax evasion or avoidance.

By letter registered with the Commission on 26 April 2017, Lithuania requested an authorisation to continue to exempt taxable persons whose annual turnover is no higher than EUR 45 000. In accordance with Article 395(2) of the VAT Directive, the Commission informed the other Member States by letters dated 8 May 2017 and 10 May 2017 of the request made by Lithuania. By letter dated 11 May 2017, the Commission notified Lithuania that it had all the information necessary to consider the request.

1.CONTEXT OF THE PROPOSAL

•Reasons for and objectives of the proposal

Chapter 1 of Title XII of the VAT Directive allows for the possibility for Member States to apply special schemes for small enterprises, including the possibility of exempting taxable persons below a certain annual turnover. This exemption implies that a taxable person does not have to charge VAT on his or her supplies and, consequently, he or she cannot deduct VAT on the inputs.

Under Article 287(11) of the VAT Directive, Lithuania may exempt from VAT taxable persons whose annual turnover is no higher than the equivalent in national currency of EUR 29 000 at the conversion rate on the day of its accession. By virtue of Council Implementing Decision 2011/335/EU, Lithuania is authorised to apply a higher threshold and thus to exempt from VAT taxable persons whose annual turnover is no higher than EUR 45 000. This measure was extended by Council Implementing Decision 2014/795/EU which expires on 31 December 2017. Lithuania requested to extend the measure for a further limited period.

The higher threshold reduces significantly administrative burden and tax compliance costs for small enterprises. According to Lithuania, the EUR 45 000 threshold has not had any substantial impact on the collection of VAT revenues. Furthermore, the data shows that the bulk of taxable persons (approximately 80-90%) who have registered for VAT and who pay VAT did so on a voluntary basis.

Persons whose turnover does not exceed the threshold will still have the option to be registered for VAT purposes.

It is therefore requested to extend the derogation until 31 December 2020.

•Consistency with existing policy provisions in the policy area

Similar derogations have been granted to other Member States. Luxembourg was granted a threshold of EUR 40 000, Belgium was granted a threshold of EUR 25 000, Poland a threshold of EUR 40 000, Latviaand Sloveniaa threshold of EUR 50 000, Italy and Romaniaa threshold of EUR 65 000.

Derogations from the VAT Directive should always be limited in time so that their effects can be assessed. Moreover, the provisions of Articles 281 to 294 of the VAT Directive on a special scheme for small enterprises are currently subject to review. As announced in the VAT Action Plan, and the 2017 Commission Work Programme, the Commission's proposal in the form of a comprehensive simplification package is due to be presented by the end of 2017.

It is therefore proposed to extend the measure until 31 December 2020 or until the entry into force of a Directive amending the provisions of the VAT Directive on a special scheme for small enterprises.

•Consistency with other Union policies

The measure is in line with the Union's objectives for small businesses, as laid out in Commission Communication "Think small first" – a "Small Business Act" for Europe" which calls on the Member States to take account of the special features of SMEs when designing legislation and, therefore, to simplify the existing regulatory environment.

2.LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY

•Legal basis

Article 395 of the VAT Directive.