amending Implementing Decision (EU) 2018/1904 authorising the Netherlands to introduce a special measure derogating from Article 285 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 introduce 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 23 August 2022, the Netherlands requested an authorisation to extend a measure derogating from Article 285 of the VAT Directive allowing the exemption from VAT of taxable persons whose annual turnover does not exceed EUR 25 000.

In accordance with Article 395(2) of the VAT Directive, the Commission informed all Member States, except Spain, on 25 August 2022 and Spain on 26 August 2022, of the request made by the Netherlands. By letter dated 29 August 2022 the Commission notified the Netherlands 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 Member States to apply special schemes to small enterprises, including the possibility to exempt taxable persons whose annual turnover does not exceed a certain threshold from VAT. This exemption implies that a taxable person does not have to charge VAT on his supplies and, consequently, cannot deduct VAT on the inputs.

Under the first paragraph of Article 285 of the VAT Directive, Member States which have not exercised the option under Article 14 of the Second Council Directive 67/228/EEC may exempt from VAT taxable persons whose annual turnover does not exceed EUR 5 000. Pursuant to the second paragraph of Article 285 of the VAT Directive, those Member States may also grant graduated tax relief to taxable persons whose annual turnover exceeds the ceiling fixed by them for its application.

The Netherlands were authorised to introduce such a special measure by Council Implementing Decision (EU) 2018/1904. The measure which will end on 31 December 2022 is optional for taxable persons.

In that context, the Netherlands requested an extension of the special measure for two additional years.

The Netherlands indicated that the special measure reduces administrative burden for both taxable persons and the tax authority and that it contributes to the simplification of tax collection. According to the Netherlands, the effect on the State budget of the special measure is around 0,1%. It also indicated that the extension of the special measure would only have a negligible impact on total VAT-revenue collected at the stage of final consumption. Such effects being in line with the requirements of the second subparagraph of Article 395(1) of the VAT Directive.

Furthermore, the extension of the special measure until 31 December 2024 complies with the requirements of Council Directive (EU) 2020/285 of 18 February 2020 amending Directive 2006/112/EC on the common system of value added tax as regards the special scheme for small enterprises which set a maximum VAT turnover threshold for small businesses across the EU as from 1 January 2025.

It is therefore proposed to allow the Netherlands to extend the special measure until 31 December 2024.

•Consistency with existing policy provisions in the policy area

Similar derogations exempting from VAT taxable persons whose annual turnover is below a certain threshold, as provided for in Articles 285 and 287 of the VAT Directive, have been granted to other Member States. Recently, for example, Slovenia was granted the right to extend the use of a threshold of EUR 50 000, Poland a threshold of EUR 40 000, Hungary a threshold of EUR 48 000, Belgium a threshold of EUR 25 000, Malta a threshold of EUR 30 000, and Czech Republic was granted a threshold of EUR 85 000.

The derogating measure is in line with the objectives of Directive (EU) 2020/285 amending Articles 281 to 294 of the VAT Directive on a special scheme for small enterprises, which resulted from the VAT action plan, and aims to create a modern, simplified scheme for those businesses. In particular, it seeks to reduce VAT compliance costs and distortions of competition both domestically and at EU level, reduce the negative impact of the threshold effect, and facilitate business compliance as well as monitoring by tax administrations. Moreover, the threshold of EUR 25 000 is consistent with Directive (EU) 2020/285, insofar as it allows Member States to set the annual turnover threshold required for an exemption from VAT at a level no higher than EUR 85 000 (or the equivalent in national currency).

•Consistency with other Union policies