Proposal for a COUNCIL DECISION amending Article 3 of Decision 98/198/EC authorising the United Kingdom to extend application of a measure derogating from Articles 6 and 17 of the sixth VAT Directive (77/388/EEC) on the harmonisation of the laws of the Member States relating to turnover taxes

(presented by the Commission)

EXPLANATORY MEMORANDUM

1. Under Article 27 of the Sixth Council Directive 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] 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 the Directive, in order to simplify the procedure for charging the tax or to prevent certain types of tax evasion or avoidance.

[1] OJ L 145, 13.6.1977, p.1. As last amended by Directive 2004/15/EC (OJ L 52, 21.2.2004, p. 61).

2. As a rule, such authorisations are given on a temporary basis, so that an assessment can be made after a few years as to whether the special measures are appropriate and effective.

3. Decision 95/252/EC of 29 June 1995 [2] taken by the Council under Article 27 of the Sixth Directive authorised the United Kingdom to apply measures derogating from Articles 6 and 17 of the Directive.

[2] OJ L 159, 11.7.1995, p. 19.

4. The measures authorised under Decision 95/252/EC and subsequently under Decision 98/198/EC [3] enable the United Kingdom first to restrict to 50% the right of the hirer or lessee to deduct input tax on charges for hire or lease of a business passenger car where the car is used for private purposes and, secondly, not to treat as supplies of services for consideration the private use of a business car hired or leased by a taxable person. The derogation removes the need for the hirer / lessee to keep records of private mileage travelled in business cars and to account for tax on the actual mileage of each car and is therefore a simplification. The derogation has been renewed a number of times but is due to expire on 31 December 2004.

[3] OJ L 76, 9.3.1998, p. 37.

5. By letter received by the Secretariat-General on 14 June 2004, the United Kingdom requested authorisation to extend application of these measures by a further three years. The Commission is content with this timescale as it will then be able to review the derogation in the light of future discussions on its proposals to define categories of restrictions to the right to deduct.

6. The derogation was last renewed for a year until 31 December 2004 by virtue of Council Decision 2003/909/EC [4], pending the evaluation of the impact of the ruling in European Court of Justice case number C-17/01. The ruling, delivered on 29 April 2004, confirmed the validity of the equivalent German derogation, authorised by Council Decision 2000/186/EC. The ruling means that the matters of law and of fact which justified the original application of the special measures in question have not changed and still pertain.

[4] OJ L 342, 22.12.2003, p. 49.

7. In accordance with Article 27(2) of the Sixth Directive, the Commission transmitted the United Kingdom's request to the other Member States on 7 July 2004.

Proposal for a COUNCIL DECISION amending Article 3 of Decision 98/198/EC authorising the United Kingdom to extend application of a measure derogating from Articles 6 and 17 of the sixth VAT Directive (77/388/EEC) on the harmonisation 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 harmonisation of the laws of the Member States relating to turnover taxes - Common system of value added tax: uniform basis of assessment, [5] and in particular Article 27 paragraph 1 thereof,

[5] OJ L 145, 13.6.1977, p.1. As last amended by Directive 2004/15/EC (OJ L 52, 21.2.2004, p. 61).

Having regard to the proposal from the Commission [6],

[6] OJ C [...], [...], p. [...].

Having regard to Council Decisions 95/252/EC [7], 98/198/EC [8], 1999/79/EC [9], 2000/747/EC [10] and 2003/909/EC [11],

[7] OJ L 159, 11.7.1995, p. 19.

[8] OJ L 76, 13.3.1998, p. 31.

[9] OJ L 27, 2.2.1999, p. 22.

[10] OJ L 302, 1.12.2000, p. 63.

[11] OJ L 342, 30.12.2003, p. 49.

Whereas:

(1) Pursuant to Article 27(1) of Directive 77/388/EEC, the Council acting unanimously on a proposal from the Commission, may authorise any Member State to introduce or extend special measures for derogation from that Directive in order to simplify the procedure of charging the tax or to prevent certain types of tax evasion or avoidance.

(2) By letter registered with the Commission's Secretariat-General on 14 June 2004, and subsequently circulated to all Member States on 7 July 2004, the United Kingdom government has requested the extension of the derogation previously granted to it by Council Decisions 95/252/EC and 98/198/EC.

(3) The extant derogation allows the United Kingdom to restrict to 50% the right of the hirer or lessee to deduct input tax on charges for the hire or lease of a business passenger car where the car is also used for private purposes. It also allows the United Kingdom not to treat as supplies of services for consideration the private use of a car hired or leased by a taxable person for business purposes. The derogation removes the need for the hirer / lessee to keep records of private mileage travelled in business cars and to account for tax on the actual private mileage of each car. It is therefore a simplification measure but also limits the scope for abuse through incorrect record keeping.

(4) The legal and factual circumstances which justified granting authorisation to apply the original derogation have therefore not changed and are therefore still relevant.

(5) In the light of Commission proposals to amend Directive 77/388/EEC as regards restrictions on the right to deduct VAT, it is appropriate to extend the period of the authorisation until the amending Directive comes into force. However, this authorisation will expire on 31 December 2007 at the latest if the Directive has not entered into force by that date, enabling an assessment to be made at that time of the necessity for a derogation in the light of further discussions on that Directive held in the Council.

(6) An extension will have no impact on the European Communities' own resources accruing from value added tax

HAS ADOPTED THIS DECISION:

Article 1

Article 3 of Decision 98/198/EC shall be replaced by the following:

"Article 3

This authorisation shall expire on the date of entry into force of Community rules determining what expenditure relating to motorised road vehicles is not to be eligible for full deduction of value added tax, but on 31 December 2007 at the latest."

Article 2

This Decision is addressed to the United Kingdom of Great Britain and Northern Ireland.

Done at Brussels, [...]

For the Council

The President