COMMISSION OF THE EUROPEAN COMMUNITIES 
COM(89) 240 final 
Brussels, 16 May 1989 
Proposal for a 
COUNCIL DECISION 
authorizing the United Kingdom to apply in respect of certain supplies 
to unregistered resellers a measure derogating from Article 11(A)(1)(a) 
of the Sixth Directive (77/388/EEC) on the harmonization of the laws of 
the Member States relating to turnover taxes 
(presented by the Commission) 
EXPLANATORY HEHORAMDUH 
1. On 15 March 1985 the United Kingdom submitted to the Commission a re­
quest for a derogation under Article 27 of the Sixth VAT Directive in 
respect of a special measure to counter tax avoidance in connection 
with the collection of VAT at the retail stage in situations where, by 
virtue of the pattern of distribution, tax is avoided. The derogation 
was authorized for an initial two-year period with effect from 13 Ju­
ne 1985C1>. 
2. By Council Decision of 25 May 1987e2>, the United Kingdom was autho­
rized to extend the measure for a further two-year period. The period 
of validity of the measure was limited in this way because of two ca­
ses before the European Court of Justice (Joined Cases 138 and 139/86 
"Direct Cosmetics Ltd" and "Laughtons Photographs Ltd") in which the 
taxable persons concerned were challenging the validity of the deroga­
tion granted. In its judgment of 12 July 1988, the Court confirmed the 
validity of the Council Decision of 13 June 1985 authorizing the dero­
gation requested by the United Kingdom"'. 
3. Following the judgment of the Court of Justice and in order to main­
tain its domestic law, under which it is able to combat tax avoidance 
in the situations described above, the United Kingdom, by letter re­
ceived by the Commission on 24 February 1989, requested an extension 
of the measure for an indefinite period. 
4. By letter dated 22 March 1989, the Commission informed the other Mem­
ber States of the united Kingdom's request. 
<1> OJ H° L 199, 31.07.1985, p. 60 and 
L 93, 07;04;1987, p. 17 
<a> OJ N° L 188, 08.07.1987, p. 52 
<•> OJ N° C 205, 06.08.1988, p. 5 
<L 
Proposal for a 
COUNCIL DECISION 
authorizing the United Kingdom to apply in respect of 
certain supplies to unregistered resellers 
a measure derogating from Article 11(A)(1)(a) 
of the Sixth Directive (77/388/EEC) on the 
harmonization of the laws of the Member 
States relating to turnover taxes 
THE COUNCIL OF THE EUROPEAN COMMUNITIES, 
Having regard to the Treaty establishing the European Economic Community, 
Having regard to the Sixth Council Directive (77/388/EEC) of 17 May 1977 
on the harmonization of the laws of the Member States relating to turn­
over taxes - Common system of value added tax : uniform basis of assess­
ment41 », hereinafter referred to as the "Sixth Directive1^ and in particu­
lar Article 27 thereof, 
Having regard to the proposal from the Commission, 
Uhereas, under Article 27(1) of the Sixth Directive, the Council, acting 
unanimously on a proposal from the Commission, may authorize any Member 
State to introduce special measures for derogation from that Directive, 
in order to simplify the procedure for charging the tax or to prevent 
certain types of tax evasion or avoidance; 
(2) Whereas the United Kingdom was authorized by Council Decision 85/369/EEC , 
in accordance with the procedure laid down by Article 27(4) of the Sixth 
Directive, to introduce for a two-year period a derogation to combat tax 
avoidance; 
C1> OJ N° L 145, 13.06.1977, p. 1. 
C2> OJ N° L 199, 31.07.1985, p. 6a 
Whereas certain marketing structures based on sales of goods effected by 
taxable persons to non-taxable persons with a view to their resale at the 
retail stage result in avoidance of tax at the stage of final consump­
tion; 
Whereas, in order to prevent such tax avoidance, the United Kingdom 
applies a measure permitting the tax authorities to adopt administrative 
decisions the effect of which is to tax supplies made by taxable persons 
operating such marketing structures on the basis of the open market value 
of the goods at the retail stage; 
Whereas that measure constitutes a derogation from Article 11(A)(1)(a) of 
the Sixth Directive, which stipulates that, within the territory of the 
country, the taxable amount in respect of supplies of goods is everything 
which constitutes the consideration which has been or is to be obtained 
by the supplier from the purchaser or a third party for such supplies; 
Whereas the United Kingdom was authorized by the Council Decision of 
25 May 1987c1> to extend for two years the derogation authorized by 
Decision 85/369/EEC; 
Whereas the United Kingdom's application for that extension was limited 
to two years because of the proceedings in Joined Cases 138 and 139/86 : 
reference to the Court of Justice by the "London Value Added Tax Tribu­
nal" for a preliminary ruling in the proceedings pending before that Tri­
bunal between "Direct Cosmetics Ltd" and "Laughtons Photographs Ltd" 
against "Commissioners of Customs and Excise" on the interpretation of 
Article 27 of the Sixth Directive and on the validity of Decision 
(2) 85/369/EEC; whereas, in its judgment of 12 July 1988 , the Court of 
Justice confirmed the validity of that Decision; 
Whereas the United Kingdom, by letter received by the Commission on 
24 February 1989, requested authorization to extend the measure for an 
indefinite period; 
"> OJ N° L 188, 08.07.1987, p. 52. 
<a> OJ N° C 205, 06.08.1988, p. 5-
4 
Whereas, in its ludgment of 12 July 1988, the Court of Justice ruled 
inter alia that Article 27 of the Sixth Directive permitted the adoption 
of a derogating measure such as that at issue on condition that the re­
sultant difference in treatment was justified by objective circumstances; 
Whereas, in order to satisfy itself that this condition is met the Com­
mission must be informed of any administrative decisions adopted by the 
tax authorities in connection with the derogation in question; 
Whereas the other Member States were notified of the United Kingdom1s re­
quest on 22 March 1989; 
Whereas this measure will not have a negative effect on the European Com­
munities' own resources accruing from value added tax, 
HAS ADOPTED THIS DECISION : 
Article 1 
By way of derogation from Article 11(A)(1)(a) of the Sixth Directive, the 
United Kingdom is hereby authorized to prescribe, in cases where a mar­
keting structure based on the supply of goods through non-taxable persons 
results in non-taxation at the stage of final consumption, that the 
taxable amount for supplies to such persons is to be the open market 
value of the goods as determined at that stage. 
Article 2 
The United Kingdom shall inform the Commission of any administrative 
decisions subsequently adopted in connection with the derogation. 
Article J 
This Decision is addressed to the United Kingdom. 
Done at Brussels, For the Council 
The President 

Commission of the European Communities 
COM(89) 240 final 
Proposal for a 
COUNCIL DECISION 
authorizing the United Kingdom to apply in respect of certain supplies to 
unregistered resellers a measure derogating from Article 11(A)(1)(a) of 
the Sixth Directive (77/388/EEC) on the harmonization of the laws of the 
Member States relating to turnover taxes 
16.5.1989 
Office for Official Publications of the European Communities 
L - 2985 Luxembourg 
Series: DOCUMENTS 
1989 - 6 pp. — Format: 21.0 x 29.7 cm 
EN 
ISSN 0254-1475 
ISBN 92-77-49640-1 
Catalogue number: CB-CO-89-191-EN-C 
ISSN 0254-1475 
COM(89) 240 final 
DOCUMENTS 
Proposal for a 
COUNCIL DECISION 
authorizing the United Kingdom to apply in 
respect of certain supplies to unregistered 
resellers a measure derogating from 
Article 11(A)(1)(a) of the Sixth Directive 
(77/388/EEC) on the harmonization of the laws 
of the Member States relating to turnover taxes 
09 
Catalogue number: CB-CO-89-191-EN-C 
ISBN 92-77-49640-1 16.5.1989 
€ 
COMMISSION OF THE EUROPEAN COMMUNITIES