it it COMMISSION OF THE EUROPEAN COMMUNITIES 
Brussels, 10.06.1997 
COM(97) 286 final 
REPORT FROM THE COMMISSION TO THE COUNCIL 
presented in accordance with Article 2 of 
Council Decision 92/545/EEC of 23 November 1992 
(application of a measure derogating from Article 21 of 
the Sixth Directive 77/388/EEC on the harmonization 
of the laws of the Member States relating 
to turnover taxes) 
Proposal for a 
COUNCIL DECISION 
authorizing the Kingdom of the Netherlands to extend the 
application of a measure derogating from Article 21 
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) 

REPORT FROM THE COMMISSION TO THF rOHNriT 
presented in accordance with Article 2 of 
Council Decision 92/545/EEC of 23 November 1992 
(application of a measure derogating from Article 21 
of the Sixth Directive 77/388/EEC on the harmonization 
of the laws of the Member States 
relating to turnover taxes) 
z 
I. INTRODUCTION 
By Decision 92/545/EEC of 23 November 1992,' the Council authorized the Netherlands, 
on the basis of Article 27 of the Sixth Directive, to take special measures derogating from 
Article 21 of that Directive. The authorization was valid until 31 December 1996. 
The derogation enabled the Netherlands to apply in the ready-to-wear clothing industry a 
scheme for shifting the obligation to pay over VAT to the tax authorities from the 
subcontractor to the clothing firm (the contractor). 
Article 2 of the Decision provides that the Commission is to present to the Council a 
report on the application of the derogation, accompanied, where appropriate, by a 
proposal for a decision extending it. 
The purpose of this report is to give an account of the application of this derogation and 
to examine the request for an extension submitted by the Netherlands by letter registered 
by the Secretariat-General on 15 November 1996. 
n. APPLICATION OF THE DEROGATION 
1. Reasons for and nature of the scheme 
When it submitted its request for a derogation in 1992, the Dutch Government pointed 
out that it is common in the ready-to-wear clothing industry for retail chains to obtain 
supplies of clothes from ready-to-wear clothing firms, which take responsibility for 
manufacture. These firms often in turn put the work out to small workshops 
(subcontractors). 
Tax evasion occurred in the relationship between the ready-to-wear clothing firms and the 
subcontractors: the subcontractor invoiced VAT to the ready-to-wear clothing firm but 
omitted to pay it over to the tax authorities, while the clothing firm deducted the tax. 
It was difficult to combat this type of evasion by applying the normal rules of the common 
system of VAT since the ready-to-wear clothing workshops are very often small firms 
which barely have their own means of production and are established in rented industrial 
premises or in dwellings. These workshops do not comply with the applicable legislation 
on social insurance, taxation and working conditions; many of them frequently change 
hands. In these circumstances, the tax authorities had little chance of recovering the tax 
when they discovered instances of evasion. 
The Dutch Government therefore requested and obtained authorization to introduce a 
special measure which involves collecting from the contractor the VAT normally due from 
the subcontractor under Article 21 of the Sixth Directive. 
OJ No L 351, 2.12.1992, p. 33. 
3 
The measure forms part of an overall strategy which the Dutch tax authorities have 
developed in order to combat evasion more effectively in sensitive sectors such as the 
ready-to-wear clothing industry. 
2. Views of the Dutch administration on the application of the scheme 
The Dutch authorities state that the scheme for shifting the obligation to pay over VAT 
has proved very effective in the fight against VAT evasion in the ready-to-wear clothing 
industry. 
A survey carried out in the Dutch tax administration has shown that, since the scheme was 
introduced, there is no longer any evidence of large-scale evasion in the industry. 
Two tax offices which are responsible for some 45% of all businesses in the ready-to-wear 
clothing industry have found that VAT evasion has disappeared in the industry since the 
special measure was introduced. Although the resources assigned to tax monitoring have 
not been increased, evasion, which amounted to some HFL 3.4 million over the period 
1989-93, has no longer been detected since 1994. This finding is confirmed by other tax 
offices. 
III. OPINION OF THE COMMISSION 
Article 27 of the Sixth Directive permits special measures derogating from the Directive 
to be introduced either to simplify the procedure for charging the tax or to prevent certain 
types of tax evasion or avoidance. 
The Commission takes the view that the effectiveness of the scheme in combating evasion 
is beyond doubt and that the special measure therefore satisfies the conditions laid down 
in Article 27. 
The scope of the measure is furthermore limited to those transactions where there is a 
genuine risk of evasion. 
The Commission therefore considers that there is good reason for extending the special 
measure under Article 27 of the Sixth Directive. 
As regards the period of validity of the authorization, the Commission would point out 
that on 10 July 1996 it adopted a work programme2 for the introduction of a common 
VAT system which provides for step-by-step progress towards the new system. 
As the final package of proposals is scheduled for presentation in mid-1999, the 
Commission takes the view that no derogation should be extended beyond 
31 December 1999. 
It would seem appropriate to determine at that time whether the derogation is consistent 
with the approach adopted under the new common system of VAT. 
COM(96) 328 final, 22.07.1996. 
Proposal for a 
COUNCIL DECISION 
authorizing the Kingdom of the Netherlands to extend 
the application of a measure derogating from Article 21 
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) 
b 
EXPLANATORY MEMORANDUM 
By letter registered by the Commission's Secretariat-General on 15 November 1996, the 
Dutch Government submitted a request for an extension of the derogation it was granted 
by Council Decision 92/545/EEC of 23 November 1992.1 
Article 2 of the Decision states that, in the light of a Commission report on the application 
of the derogation by the Netherlands, the Council may, on the basis of a Commission 
proposal, authorize the extension of that Decision. 
The Commission's report on the application of the Decision concludes that it is 
appropriate for the application of its provisions to be extended until 31 December 1999. 
On 10 July 1996 the Commission adopted a work programme for the introduction of a 
common VAT system2 which provides for step-by-step progress towards the new system. 
As the final package of proposals is scheduled for presentation in mid-1999, it would 
seem appropriate not to extend the period of validity beyond 31 December 1999 so as to 
enable an assessment then to be made of the derogation's consistency with the overall 
approach adopted under the new common system of VAT. 
In accordance with Article 27(3) of the Sixth VAT Directive, the other Member States 
have been informed of the Dutch request by letter dated 21 April 1997. 
1 OJ No L 351, 2.12.1992, p. 33. 
2 COM(96) 328 final, 22.07.1996. 
Proposal for « 
COUNCIL DECISION 
authorizing the Kingdom of the Netherlands to extend the application of a measure 
derogating from Article 21 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 92/545/EEC of 23 November 1992,2 
Having regard to the Commission report on the application of the above-mentioned 
Decision, 
Having regard to the Commission proposal arising from that report, 
Whereas, under 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 derogating from that Directive in order to simplify 
the procedure for charging tax or to prevent certain types of tax evasion or avoidance; 
Whereas, by letter registered by the Secretariat-General of the Commission on 
15 November 1996, the Dutch Government requested authorization to extend the 
application of the derogation previously granted to it for a limited period by 
Council Decision 92/545/EEC; 
Whereas the other Member States were informed on 21 April 1997 of the Dutch 
Government's request; 
1 OJ No L 145, 13.6.1977, p. 1; Directive last amended by Directive 96/95/EC (OJNoL338, 
28.12.1996, p. 89). 
OJ No L 351, 2.12.1992, p. 33. 
Whereas the derogation involves collecting from the ready-to-wear clothing firm the VAT 
normally due from the subcontractor under Article 2l(l)(a) of the Sixth Directive; 
Whereas the Commission report on the application of (he detonation has shown (hat the 
special measure satisfies the conditions for the application of Article 27 of the Directive; 
Whereas the Commission adopted on 10 July 1996 a work programme3 and a timetable of 
proposals providing for gradual, step-by-step 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 
to be granted until 31 December 1999 so as to enable an assessment then to be made of 
the derogation's consistency with the overall approach of the new common system of 
VAT; 
Whereas this derogation will not have a negative effect on the European Communities' 
own resources accruing from VAT, 
HAS ADOPTED THIS DECISION: 
Article 1 
By way of derogation from Article 21(l)(a) of Directive 77/388/EEC, the Kingdom of the 
Netherlands is hereby authorized to apply until 31 December 1999 in the ready-to-wear 
clothing industry a scheme for shifting the obligation to pay over VAT to the tax 
authorities from the subcontractor to the clothing firm (the contractor). 
Article 2 
This Decision is addressed to the Kingdom of the Netherlands. 
Done at Brussels, 
For the Council 
The President 
3 COM(96) 328 final, 22.07.1996. 
8 
ISSN 0254-1475 
COM(97) 286 final 
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Catalogue number : CB-C0-97-277-EN-C 
ISBN 92-78-21176-1 
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