authorising the Kingdom of the Netherlands to introduce a special measure derogating from Article 193 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 (hereafter 'the VAT Directive'), the Council, acting unanimously on a proposal from the Commission, may authorise any Member State to apply 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 11 July 2017, the Netherlands requested a derogation from Article 193 of the VAT Directive in order to apply the reverse charge mechanism to supplies of telecommunication services. In accordance with Article 395(2) of the VAT Directive, the Commission informed the other Member States by letter dated 5 September 2017 of the request made by the Netherlands. By letter dated 6 September 2017, 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

As a general rule, Article 193 of the VAT Directive stipulates that the taxable person supplying goods or services is normally liable to pay value added tax (VAT).

Pursuant to Article 199a of the VAT Directive Member States may provide that the person liable for payment of VAT on supplies listed in this Article is the taxable person to whom the supply is made (the reverse charge mechanism). Under the reverse charge procedure, the taxable person, to whom the supplies are made, becomes liable for the payment of VAT. This taxable person, provided he has a full right of deduction, would simultaneously declare and deduct the VAT corresponding to the supply, thus leading to no effective payment of VAT to the Treasury. Telecommunication services are included in point (g) of Article 199a.

The Netherlands do not make use of the option of Article 199a (g) of the VAT Directive and do not apply the reverse charge mechanism to telecommunication services. However, due to the recently discovered fraud in the sector of telecommunication services in the Netherlands, the latter Member State would like to introduce the reverse charge mechanism to domestic supplies of telecommunication services.

Following Article 199a of the VAT Directive, the reverse charge mechanism may be applied until 31 December 2018 and for a minimum period of two years. As the condition of two year period is not fulfilled, the Netherlands cannot apply the reverse charge mechanism based on this Article.

Consequently, the Netherlands requests a derogation from Article 193 of the VAT Directive to be authorised to apply the reverse charge mechanism to the supplies of telecommunication services based on Article 395 of the VAT Directive.

The aim of the requested derogation is to prevent the VAT fraud in the sector of telecommunication services. Although the supplies of telecommunication services are susceptible to fraud and are being closely monitored by the Netherlands, they recently discovered fraudulent schemes of trade in call minutes involving a number of missing traders and buffer companies, including traders established in third countries. These schemes result in a significant loss of VAT revenue.

Based on the information submitted by the Netherlands, the conventional methods of fraud detection and prevention are not effective, as the services involved are supplied from outside the EU and are not mentioned in any register or listing. The payments are made via payment platforms at bank accounts outside the EU making the transactions more difficult to detect and making it impossible to obtain information from banks. The Netherlands point out that without a reverse charge for the services concerned the tax loss will increase exponentially.

Telecommunication services are considered to be susceptible to fraud and are included in Article 199a (g) of the VAT Directive. If the condition regarding the minimum period of application was fulfilled, the Netherlands would be able to rely on the latter Article for the application of the reverse charge mechanism.

It is proposed to grant the derogation for the period of validity of Article 199a of the VAT Directive. The derogation is thus proposed until 31 December 2018, i.e. the date of expiry of Article 199a of the VAT Directive.

•Consistency with existing policy provisions in the policy area

Based on Article 199a (g) of the VAT Directive the reverse charge mechanism may be applied to the supplies of telecommunication services. A few Member States apply the reverse charge relying on this provision. If the condition of the minimum period of two years was fulfilled, the Netherlands could apply the reverse charge mechanism to telecommunication services without requesting a derogation based on Article 395 of the VAT Directive. The proposed measure is, therefore, consistent with the existing provisions of the VAT Directive.

2.LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY

•Legal basis