Proposal for a COUNCIL DECISION authorising Portugal to apply a measure derogating from Articles 21(1)(a) and 22 of the Sixth Directive of 17 May 1977 (77/388/EEC) on the harmonisation of the laws of the Member States relating to turnover taxes

(presented by the Commission)

EXPLANATORY MEMORANDUM

By letter registered at the Commission's Secretariat-General on 19 February 2004, Portugal requested authorisation to introduce a measure in respect of the doorstep sales sector under Article 27 of Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes -- Common system of value added tax: uniform basis of assessment [1] (hereinafter referred to as the Sixth Directive).

[1] JO L 145 of 13.6.1977, p. 1, as last amended by Directive 2004/15/CE (JO L 52 of 21.2.2004, p. 61).

In accordance with the said Article 27(2), in the form adopted in Council Directive 2004/7/EC of 20 January 2004, [2] the other Member States were informed of this request in a letter dated 26.03.2004 and Portugal was notified on 30.03.2004 that the Commission was in possession of all the information it needed to take a decision on the matter.

[2] OJ L 27 of 30.01.2004, p. 44.

The special arrangement submitted to the Commission by Portugal is as follows:

- Certain firms engaged in doorstep selling will be allowed to request authorisation from their tax administration to pay on behalf of their resellers the VAT due on the prices of the products the resellers sell to their customers, provided the following conditions are met:

1. the entire turnover of the firms is obtained from doorstep sales by resellers working in their own name and on their own account;

2. price lists setting out the selling price charged to the public for all the firms' products are established in advance and adhered to.

- The arrangement so requested requires two successive transfers of the products, i.e. first by the selling firm to the reseller and then by the reseller to the consumer.

- Firms fulfilling the above conditions and authorised to apply the derogation must pay to the treasury the tax due on the retail selling price set out in the pre-established price lists.

- The resellers will no longer be liable for VAT on the goods supplied to them and, therefore, may not deduct the proportion of their buying price for these goods that is accounted for by VAT.

According to the Portuguese authorities the purpose of the arrangement is to simplify collection of the tax for the large numbers of doorstep salesmen who do not have the organisational capacities or structures to enable them to meet the various obligations arising out of their tax status and whose particular form of operation increases the risk of prejudicing tax revenues. A further advantage of the measures under consideration is that they would make it easier to keep track of VAT matters in this sector.

The arrangement was authorised by the earlier Council Decision 1999/82/EC of 18 January 1999, [3] which was applicable from 1 January 1999 to 31 December 2000. Portugal considers that the reasons for granting the original derogation still apply and that this request is therefore justified.

[3] OJ L 27 of 02.02.1999, p. 27.

The Commission considers that the payment of VAT - calculated on the basis of the prices charged to end consumers - by the firm supplying the goods to the resellers simplifies the tax regime for the doorstep selling sector which is characterised by the large number of small-scale retailers whose resources do not allow them to fulfil the obligations involved.

Similarly, given the large number and small scale of the resellers, this derogation will make it easier to check up on the sector, which would otherwise be difficult.

The Commission considers that the tax administration must first establish a system of issuing prior authorisations so as to guarantee the effective control of the sector in question.

The Commission considers that the reasons for granting the original derogation remain unchanged.

It therefore considers that this derogation fulfils the conditions set out in Article 27 of the Sixth Directive.

The arrangement represents a derogation from Article 21(1)(a) in that wholesalers are deemed to be liable for the tax payable on goods sold to final consumers by their resellers.

Consequently wholesalers are required to fulfil the obligations regarding tax returns, tax invoicing and payment of tax, etc., in respect of the goods their sellers sell to final consumers. By derogation from Article 22, resellers supplied by the wholesaler are therefore exempted from these obligations in respect of the goods they supply to final consumers.

To allow evaluation of how effective the derogation has been, it should not remain valid beyond 31 December 2008.

Proposal for a COUNCIL DECISION authorising Portugal to apply a measure derogating from Articles 21(1)(a) and 22 of the Sixth Directive of 17 May 1977 (77/388/EEC) on the harmonisation of the laws of the Member States relating to turnover taxes (Only the Portuguese version is authentic)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Sixth Council Directive (77/388/EEC) of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes - common system of value-added tax: uniform basis for assessment, [4] and in particular Article 27(1) thereof,

[4] JO L 145 of 13.6.1977, p. 1, as last amended by Directive 2004/15/CE (OJ L 52 of 21.2.2004, p. 61).

Having regard to the proposal from the Commission, [5]

[5] OJ C of , p.

Whereas:

(1) By letter logged in at the Commission's Secretariat-General on 19 February 2004 Portugal requested authorisation to introduce a derogating measure in respect of the doorstep sales sector.

(2) The other Member States were informed thereof on 26 March 2004.

(3) Portugal was notified on 30 March 2004 that the Commission was in possession of all the information it needed to take a decision on the matter.

(4) The measure is intended to enable certain firms engaged in doorstep selling to pay on behalf of their resellers the VAT due on the prices of the products the resellers sell to their customers, provided that the entire turnover of the firms is obtained from doorstep sales by resellers working in their own name and on their own account and that price lists setting out the selling price charged to the public for all the firms' products are drawn up in advance and adhered to.

(5) The derogation will apply solely to cases where the firm sells its products direct to resellers who, in turn, sell direct to final consumers.

(6) Firms which fulfil the above conditions and have been duly authorised by the tax administration will pay to the treasury the amount of VAT due on the pre-established retail selling price.

(7) The resellers concerned will no longer be required to pay tax on their sales and will therefore not benefit from the right to deduct.

(8) This arrangement constitutes a derogation from Article 21(1)(a) of the Sixth Directive in that the wholesaler will be deemed liable for the tax on goods sold to end consumers by his resellers.

(9) Wholesalers are therefore required to fulfil the obligations regarding tax returns, tax invoicing and payment of tax, etc., in respect of the goods their resellers sell to final consumers and, by derogation from Article 22, their resellers are exempt from these obligations in respect of the goods they supply to final consumers.

(10) The arrangement was authorised by the earlier Council Decision 1999/82/EC of 18 January 1999, which was applicable from 1 January 1999 to 31 December 2000.

(11) The Commission considers that this derogation fulfils the conditions set out in Article 27 of the Sixth Directive.

(12) The derogation should be authorised until 31 December 2008.

(13) The derogation will not alter the amount of VAT collected at the stage of final consumption and will not have a negative effect on the European Communities' own resources obtained from value added tax,

HAS ADOPTED THIS DECISION:

Article 1

Portugal is hereby authorised to apply until 31 December 2008 a special measure for the taxation of doorstep sales that contains provisions derogating from Council Directive 77/388/EEC of 17 May 1977.

A business whose total turnover is derived from doorstep sales made by resellers acting in their own name and on their own account may request the administration for authorisation to apply the provisions of Articles 2 and 3 below on condition that:

- all products sold by the firm are contained in a pre-established price list applicable at the final consumption stage;

- the firm sells its products direct to resellers who, in turn, sell direct to final consumers.

Article 2

By way of derogation from Article 21(1)(a) of the Sixth Directive 77/388/EEC, any firm which has been authorised to apply this special measure shall be liable for the tax payable on goods supplied by its resellers to final consumers.

Article 3

Any reseller supplied by a business authorised to apply this special measure shall be exempt from the obligations laid down in Article 22 of Directive 77/388/EEC regarding goods it supplies to final consumers.

Article 4

This Decision is addressed to Portugal.

Done at Brussels,

For the Council

The President