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 derogating 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, Romania requested to continue the application of the measure derogating from Article 287 of the VAT Directive allowing the exemption from VAT of taxable persons with an annual turnover not exceeding a specific threshold. At the same time Romania requested to increase the exemption threshold from the equivalent in national currency of EUR 65 000 to the equivalent in national currency of EUR 88 500.

In accordance with Article 395(2) of the VAT Directive, the Commission informed the other Member States by letter dated 9 June 2017 of the request made by Romania. By letter dated 12 June 2017, the Commission notified Romania 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.

Based on Article 287(18) of the VAT Directive, Romania may exempt from VAT taxable persons whose annual turnover is no higher than the equivalent in national currency of EUR 35 000 at the conversion rate on the day of its accession. By virtue of Council Implementing Decision 2012/181/EU Romania is authorised to apply a higher threshold and thus to exempt from VAT taxable persons with an annual turnover not exceeding EUR 65 000. This measure was extended by Council Implementing Decision 2014//931/EU which expires on 31 December 2017. Romania requested to extend the measure for a further limited period and at the same to increase the exemption threshold to EUR 88 500.

Raising the threshold is expected to reduce VAT-related obligations for a number of small enterprises with reduced economic activity and to stimulate the activity of these small enterprises, as they will be relieved from a number of tax obligations such as filing of VAT returns or keeping VAT records. It is also anticipated that the increase of the threshold will reduce the burden of the tax authorities by removing the need to monitor the collection of a small volume of revenues from a larger number of small enterprises.

According to Romania, the increase of the threshold will have no important impact on state revenues. It is estimated that the increase of the threshold would lead to the reduction of state budget revenues of approximately 0.60% of total VAT receipts.

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

•Consistency with existing policy provisions in the policy area

Similar derogations have been granted to other Member States. Belgium was granted a threshold of EUR 25 000, Luxembourg was granted a threshold of EUR 30 000, Poland and Estonia a threshold of EUR 40 000, Lithuaniaa threshold of EUR 45 000, Latviaand Sloveniaa threshold of EUR 50 000 and Italy a 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 allow for the raising of the threshold by Romania up to the equivalent in national currency of EUR 88 500 as from 1 January 2018 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

Although the threshold is rather high compared to the level of thresholds granted to the other Member States, 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