•it * COMMISSION OF THE EUROPEAN COMMUNITIES 
Brussels, 25.07.1997 
COM(97)405 final 
Proposal for a 
COUNCIL DECISION 
authorizing the United Kingdom to extend application 
of a measure derogating from Article 28e(l) of the 
Sixth Council Directive (77/388/EEC) of 17 May 1977 
on the harmonization of the laws of the Member States 
relating to turnover taxes 
(presented by the Commission) 

EXPLANATORY MEMORANDUM 
By letter registered by the Commission's Secretariat-General on 21 February 1997, the 
United Kingdom Government requested authorization, pursuant to Article 27 of the 
Sixth Council Directive (77/388/EEC) of 17 May 1977 on the harmonization of the laws 
of the Member States relating to turnover taxes - Common system of value-added tax: 
uniform basis of assessment,1 to extend application of the derogation granted to it by 
Council Decision 92/546/EEC of 23 November 1992.2 
The United Kingdom was authorizied by that Decision to introduce a special measure 
allowing the appropriate authorities to direct that the open-market value be taken as the 
taxable amount for intra-Community acquisitions of goods where the person acquiring the 
goods is not a fully taxable person and there are family, legal or business ties, specified in 
national legislation, between the person acquiring the goods and the supplier. 
In accordance with the above-mentioned Article 27, the other Member States were 
informed of the United Kingdom's request by letter dated 6 May 1997. 
According to the normal rules of the common VAT system, and in particular 
Article 28e(l) of the Sixth Directive, the taxable amount for the intra-Community 
acquisition of goods is established on the basis of the same elements as those used in 
accordance with Article 11(A) to determine the taxable amount for the supply of the same 
goods within the country. 
Article 11(A) establishes the principle that the taxable amount for supplies of goods and 
services is everything which constitutes the consideration which has been or is to be 
obtained by the supplier from the purchaser, the customer or a third party for such 
supplies. 
However, by Council decision deemed to have been adopted on 11 April 19873 in 
accordance with Article 27(4) of the Sixth Directive, the United Kingdom was authorized 
to derogate from Article 11. 
The United Kingdom is empowered by that decision to direct that the open-market value 
be taken as the taxable amount for supplies of goods or services or imports where the 
recipient is a totally or partially exempt person and there are family, legal or business ties, 
specified in national legislation, between the person effecting the supply of goods or 
services and the recipient or between the person importing the goods and the person to 
whom payment for them must be made. 
1 OJ No L 145, 13.6.1977, p.l. Directive as last amended by Directive 96/95/EC (OJNoL338, 
28.12.1996, p. 89). 
2 OJNoL 351, 2.12.1992, p. 34. 
3 OJNoL 132, 21.5.1987, p. 22. 
The transitional arrangements for taxing intra-Community trade introduced, with effect 
from 1 January 1993, the concept of the intra-Community acquisition as a taxable 
transaction under the common VAT system. The United Kingdom was accordingly 
authorized by Decision 92/546/EEC to supplement the special measure by derogating 
from Article 28e(l) of the Sixth Directive concerning the taxable amount for the 
intra-Community acquisition of goods. 
The special measure in question is an anti-avoidance provision directed towards 
preventing a taxable person from artificially depressing the price charged to a person 
connected with him. For example, the measure is designed to combat tax avoidance in a 
situation where an exempt or partially exempt company sets up or uses a connected 
wholly taxable company, which buys large quantities of goods, recovers the input tax, and 
then makes a minimal charge for some or all of those goods or part of those goods to the 
totally or partially exempt company. 
Decision 92/546/EEC was adopted on a temporary basis. As it is a specific measure 
covering only intra-Community acquisitions - taxable transactions characteristic of the 
transitional arrangements- the expiry date (31 December 19996) coincides with that 
scheduled for the introduction of the definitive VAT system and, therefore, for the 
abolition of the transitional arrangements. 
As the transitional arrangements are still being applied, the Commission considers that the 
United Kingdom should be authorized to extend application of the measure derogating 
from Article 28e(l) of the Sixth Directive until 31 December 1999. 
On 10 July 1996 the Commission adopted a work programme for introducing a common 
VAT system,4 which provides for stage-by-stage progress towards the new system. As 
presentation of the final package of proposal is scheduled for mid-1999, it would seem 
appropriate to limit the period of validity of this decision to 31 December 1999 so as to 
enable an assessment to be made at that time as to whether the derogation is consistent 
with the approach adopted under the new common VAT system. 
4 COM(96) 328 final, 22.7.1996. 
Proposal for a 
COUNCIL DECISION 
authorizing the United Kingdom to extend application 
of a measure derogating from Article 28e(l) of the 
Sixth Council Directive (77/388/EEC) of 17 May 1977 
on the harmonization 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 
harmonization of the laws of the Member States relating to turnover taxes - Common 
system of value-added tax: uniform basis of assessment,1 and in particular Article 27 
thereof, 
Having regard to the previous Council Decision 92/546/EEC of 23 November 1992,2 
Having regard to the proposal from the Commission, 
Whereas, pursuant to Article 27(1) of the Sixth VAT Directive, the Council, acting 
unanimously on a proposal from the Commission, may authorize any Member State to 
introduce or extend 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 and 
avoidance; 
Whereas, by letter officially received by the Commission's Secretariat-General on 
21 February 1997, the United Kingdom Government requested authorization to extend 
application of the derogation previously granted to it by Council Decision 92/546/EEC 
until 31 December 1996; 
Whereas the other Member States were informed on 6 May 1997 of the 
United Kingdom's request; 
Whereas, pursuant to Decision 92/546/EEC, the United Kingdom is authorized to 
introduce a special measure allowing the appropriate authorities to direct that the 
open-market value be taken as the taxable amount for intra-Community acquisitions of 
l OJ No L 145, 13.6.1977, p.l. Directive as last amended by Directive 96/95/EC (OJNoL 338, 
28.12.19%, p. 89). 
2 OJNoL 351, 2.12.1992, p. 34. 
goods where the person acquiring the goods is not a fully taxable person and there are 
family, legal or business ties, specified in national legislation, between the person acquiring 
the goods and the supplier; 
Whereas Decision 92/546/EEC empowered the United Kingdom to supplement a special 
measure authorized by Council decision,3 deemed to have been adopted on 11 April 1987, 
permitting the United Kingdom to direct that the open-market value be taken as the 
taxable amount for supplies of goods and services or imports where the recipient is a 
totally or partially exempt person and there are family, legal or business ties, specified in 
national legislation, between the person supplying the goods or services and the recipient 
or between the person importing the goods and the person to whom payment for them has 
to be made; 
Whereas the purpose of the measure in question is to prevent persons with family, legal or 
business ties, specified in national legislation, from artificially reducing the prices of 
taxable transactions; 
Whereas according to the case law of the Court of Justice of the European Communities4, 
national derogation measures which are intended to prevent fraud or tax avoidance are to 
be interpreted strictly and can be used to derogate from the rules for determining the 
taxable amount only within the limits strictly necessary to achieve this objective; 
Whereas, the special measure is to apply only in cases where the administration is able, 
based on the facts, to conclude that the determination of the taxable amount provided for 
in article 28e(l) is influenced by family, business or legal ties between the person who 
acquires the goods and the supplier; whereas the administration may not act on mere 
presumptions, and the parties concerned must be allowed to adduce evidence to the 
contrary where they dispute the level of the open market value established by the 
administration; 
Whereas the measure is limited in scope in so far as k will apply only to taxable 
transactions where the recipient is a totally or partially exempt person; 
Whereas, given the limited scope of the derogation, the special measure is proportionate 
to the aim pursued; 
Whereas the Commission adopted on 10 July 1996 a work programme,5 accompanied by 
a schedule of proposals, providing for gradual, stage-by-stage progress towards a 
common VAT system for the single market; 
Whereas, as the final package of proposals is scheduled for mid-1999, the authorization is 
being granted until 31 December 1999 so as to enable an assessment to be made at that 
time as to whether the derogation is consistent with the overall approach adopted under 
the new common VAT system; 
Whereas this derogation will have no impact on the European Communities' own 
resources arising from VAT, 
OJ No L 132, 21.5.1987, p. 22. 
4 See judgements of 10 April 1984, the Commission / Belgium (324/82, Reports 1984, p. 1861, item 29) 
and of 29 May 1997, Werner Skripalle (63/96, Reports 1997, p.0000). 
5 COM(96) 328 final, 22.7.1996 
HAS ADOPTED THIS DECISION: 
Article 1 
By way of derogation from Article 28e(l) of Directive 77/388/EEC, the United Kingdom 
is hereby authorized, until 31 December 1999, to apply a special measure allowing the 
appropriate authorities to direct that the open-market value be taken as the taxable 
amount for intra-Community acquisitions of goods when the following two conditions are 
met: 
- the person who acquires the goods is not a fully taxable person and there are 
family, legal or business ties specified in national legislation, between the person 
acquiring the goods and the supplier; 
a number of facts make it possible to conclude that these family, business or legal 
ties have influenced the determination of the taxable amount provided for in article 
28e(l) referred to above; 
Article 2 
This Decision is addressed to the United Kingdom. 
Done at Brussels, 
For the Council 
The President 
S 
ISSN 0254-1475 
COM(97) 405 final 
DOCUMENTS 
EN 09 06 
Catalogue number : CB-CO-97-405-EN-C 
ISBN 92-78-23535-0 
Office for Official Publications of the European Communities 
L-2985 Luxembourg