COMMISSION OF THE EUROPEAN COMMUNITIES 
COM (89) 157 final 
Brussels, 7 April 1989 
REQUEST THAT THE COUNCIL RAISE THE MATTER OF A REQUEST FROM THE 
UNITED KINGDOM GOVERNMENT FOR AUTHORIZATION TO INTRODUCE 
A MEASURE DEROGATING FROM THE SIXTH VAT DIRECTIVE IN RESPECT OF BUILDING 
LAND AND BASED ON ARTICLE 27(1) TO (4) OF THAT DIRECTIVE 
(Commission communication to the Council) 
&v^ 4$\ 
REQUEST THAT THE COUNCIL RAISE THE MATTER OF A REQUEST FROM THE 
UNITED KINGDOM GOVERNMENT FOR AUTHORIZATION TO INTRODUCE 
A MEASURE DEROGATING FROM THE SIXTH VAT DIRECTIVE IN RESPECT OF BUILDING 
LAND AND BASED ON ARTICLE 27(1) TO (4) OF THAT DIRECTIVE 
1. INTRODUCTION 
a) Member States are required by the Sixth VAT Directive (77/388/EEC) to 
apply the common system of value added tax. Under the terms of Article 
27(1) of that Directive, the Council may authorize 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. 
b) In a letter received by the Secretariat-General of the Commission on 9 
January 1989 (see annex), the office of the United Kingdom Permanent 
Representative notified the Commission of a measure - to be incorporated 
into United Kingdom legislation - designed to simplify the procedure for 
charging VAT on supplies of building land intended for commercial or 
industrial use. 
c) By letter from the Secretariat-General of the Commission dated 9 February 
1989, the other Member States were informed, in accordance with Article 27(3) 
of the Sixth Vat Directive, of the measure envisaged by the United 
Kingdom. Under the terms of paragraph 4 of that Article, the Commission 
or any Member State may request that the matter be raised by the Council. 
2. DESCRIPTION OF THE PROPOSED MEASURE 
Supplies of building land are currently exempt from VAT in the United Kingdom 
under Article 28(3)(b) of the Sixth Directive (77/388/EEC), read in conjunction 
with Annex F, point 16, to that Directive. 
-2-
The United Kingdom now proposes to abolish the exemption in part and, from 1 
April 1989, to tax supplies of building land intended for commercial or 
industrial use. Building land to be used for housing, however, would continue 
to be exempt. 
The United Kingdom authorities point out that it is very difficult to ascertain 
the final use to which building land is to be put before building work actually 
begins. For this reasons, they are requesting authorization to defer taxation 
to the point in time when construction work commences and to take as the 
taxable amount the open market value fo the land at that time. With a view to 
simplifying matters still further, the united Kingdom also wishes to be able 
to tax transactions in respect of such land only where the building is to be 
occupied by the developer himself or is to be let on an exempt basis. In all 
other cases, the building land would automatically be taxed as part of the selling 
price of the new building or as part of the rent charged if it were let. 
3. OPINION OF THE COMMISSION 
The Commission considers that a special measure may be authorised? pursuant to 
Article 27 of the Sixth Directive only if, white derogating from the arrangements 
for applying the common VAT system, it is consistent with the basic principles 
and key provisions of that system. The measure proposed by the United kingdom 
Government fails to meet those conditions, since it derogates from, the following 
provisions of the Sixth Directive: 
a) point t of Article 2, which defines the scope of VAT as covrfFing the^ supply 
of goods Q.r^ services effected for consideration witl»ii* theater* itfieir &t 
the country by; taxable persons acting as such. 
The aim of the proposed measure is not: t© ta* the supply^of building land 
within the meaning of this provision but to tax only transaction* relating 
to the use of the buildings by the developer himself or to the lettinga 
by him of the buildings on an exempt basis; 
'& 
3 
-3-
b) Article 11(1) (a) and (b), which defines the taxable amount for supplies, 
namely, the consideration or, in the case of self-supplies, the purchase 
price. 
Under the proposed measure, the taxable amount will be the open market value 
at the commencement of construction. Clearly, that value may differ a great 
deal from the taxable amount determined according to Article 11(A)(1)(a) and 
(b) of the Sixth Directive. 
Furthermore, the United Kingdom authorities have failed to explain how the input 
taxes charged on the development of the land would be deducted under their 
tax arrangements. It is therefore questionable whether the provisions of the 
Sixth Directive relating to the right to deduct would be correctly applied. 
4. CONCLUSION 
As the measure in question give rise to fundamental objections, the Commission 
requests that the matter be raised by the Council in accordance with Article 
27(4) of the aforementioned Directive. 
H 
NOTIFICATION BY THE UNITED KINGDOM OF A SPECIAL MEASURE UNDER 
ARTICLE 27 OF THE SIXTH VAT DIRECTIVE (77/388/EEC) 
1. Article 27 of the Sixth VAT Directive provides for member-
states to introduce special measures to simplify the procedure 
for charqinq tho t,i:< or «o pr«'Vi-n» cor la in typos of tax evasion 
or avoidance. Such measures must he authorised by the Council, 
after notification to the Commission under Article 27.2. Tho 
United Kingdom hereby ratifies the Commission that it wishes to 
introduce, on 1 April 1989, the special measure detailed b-ilov:. 
2. The United Kingdom at present exempts from VAT all building 
land relying upon the provisions of Article 28.3(b) Annex F 
Point 16. There has, therefore, been no need for the UK to 
define building land for the purposes of Articles 4.3(b) and 
13B(h) of the Sixth Directive. 
3. In order to comply with the spirit of the European Court of 
Justice ruling in case Mo. 416/85, the United Kingdom now 
wishes to tax, at its standard rate, building land used for 
commercial and industrial developments, whilst retaining an 
exemption for building land for housing developments. The t'K 
intends to allow an option for taxation under Article î 3C in 
respect of supplies within Article 13B(b)(g) and (h). 
4. The price of land in the UK varies enormously according to 
whether the land is likely or unlikely to get planning 
permission, according to whether it has actually received 
planning permission and according to the quantum or type of 
development permitted by the planning authorities. Much land 
that eventually turns out to be building land is acquired by 
developers before it ecu Id be described as building land. Ever, 
if it were possible to frame a definition of building land 
which taxed the real va lue of the land as building land, the 
tax authorities would r.oc. necessarily know - and nor would the 
supplier - to what extent the land was to be used for building 
offices, shops and factories which are to be taxed, cr for 
housing which is to be relieved. 
5" 
The UK wishes to defer the taxation of land as building land to 
the point in time when contruction work actually commences. in 
this way there will be no doubt that the land is building land 
and there will be no doubt as to the proportion of commercial 
buildings as opposed to houses on site. However there will be 
no actual supply of the land at this point of time. The UK 
therefore wishes to deem a self-supply to exist by analogy with 
Articles 5.7(a) and 6.3 of the Sixth Directive at a taxable 
amount which reflects the open market value of the developer's 
interest in the land at the time the development commences. In 
practice, however, it will be necessary only to embrace, within 
this self-supply special measure, that category of cases where 
the developer is going to occupy the building himself or make 
exempt supplies under Article 13B(b). In the case where the 
developer is going to sell the new building and the land on 
which it stands under Article 4.3(a), the sale price and the 
VAT thereon will reflect the open market value of the 
underlying value of the land. Similarly if the developer opts 
to tax his lettings the VAT on the rents charged will also 
reflect the underlying value of the land. There is therefore a 
need only to collect tax on the use of the land as building 
land when the finished building is for own occupation or for 
letting on an exempt rather than taxable basis. 
Member states are given the freedom under Article 4.3(b) to 
have their own definitions of building land. The special 
measure proposed by the UK goes beyond that only to the extent 
of its self-supply element. However, it is only the 
self-supply element that ensures that the proper amount of VAT 
(and Own Resources) is eventually paid on the development. 
The United Kingdom considers that this special measure, which 
prevents tax avoidance arvd simplifies the procedure for 
securing VAT without affecting the amount of tax due at the 
final consumption stage, is jr. accordance with the provisions 
of Article 27.1. It establishes no new principle and precisely 
targets the type of building land it is designed to tax and in 
resDeot of its true value as building land. 
^ 

Commission of the European Communities 
COM(89) 157 final 
Communication from the 
COMMISSION TO THE COUNCIL 
requesting that the Council raise the matter of a request from the United 
Kingdom Government for authorization to introduce a measure dero­
gating from the sixth VAT Directive in respect of building land and based 
on Article 27(1) to (4) of that Directive 
7.4.1989 
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 92-77-48227-3 
Catalogue number: CB-CO-89-135-EN-C 
ISSN 0254-1475 
COM(89) 157 final 
DOCUMENTS 
Communication from the 
COMMISSION TO THE COUNCIL 
requesting that the Council raise the matter of a 
request from the United Kingdom Government 
for authorization to introduce a measure 
derogating from the sixth VAT Directive in 
respect of building land and based on Article 
27(1) to (4) of that Directive 
09 
Catalogue number: CB-CO-89-135-EN-C 
ISBN 92-77-48227-3 7.4.1989 
€ 
COMMISSION OF THE EUROPEAN COMMUNITIES