COMMISSION OF THE EUROPEAN COMMUNITIES 
Brussels, 14.05.1997 
COM(97) 215 final 
COMMISSION REPORT TO THE COUNCIL 
presented in accordance with Article 2 of 
Council Decision 92/544/EEC of 23 November 1992 
(application of measures derogating from Article 17 and Article 22(3), (4) and (5) 
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 French Republic to extend the 
application of measures derogating from Article 17 and Article 22(3), (4) and (5) 
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) 

COMMISSION REPORT TO THE COUNCIL 
presented in accordance with Article 2 of 
Council Decision 92/544/EEC of 23 November 1992 
(application of measures derogating from Article 17 and Article 22(3), (4), (5) 
of the Sixth Directive 77/388/EEC on the harmonization 
of the laws of the Member States 
relating to turnover taxes) 
I. INTRODUCTION 
By Decision 92/544/EEC of 23 November 1992,1 the Council authorized France, on the 
basis of Article 27 of the Sixth Directive, to take special measures derogating from 
Article 17 and Article 22(3), (4) and (5) of that Directive. The authorization was valid 
until 31 December 1996. 
This derogation allowed a special scheme to be applied the purpose of which was to 
reduce the obligations of authors who receive royalties paid by publishers, royalty 
collection and distribution companies or producers. 
The special scheme involves withholding at source the tax payable by authors and the 
calculation of deductible input tax on a flat-rate basis. 
Article 2 of the said Decision lays down that the Commission should present to the 
Council a report on its application accompanied, where appropriate, by a proposal for a 
Decision extending its validity. 
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 France by letter registered by the 
Commission's Secretariat-General on 14 February 1997. 
II. APPLICATION OF THE DEROGATION 
1. Historical background to the derogation 
Up to I October 1991, France made use of the option provided for in Article 28(3)(b) of 
the Sixth Directive to continue exempting the services of authors, artists and performers 
from VAT (Annex F, point 2 of the said Directive). 
Out of a concern to bring its legislation into line with the general rules of the common 
system of VAT, France made the services of authors and performers subject to VAT with 
effect from 1 October 1991. 
However, application of the Community rules governing the collection of tax proved 
difficult, in particular as far as authors were concerned. 
This was because the persons concerned made it known that application of the tax in their 
respect did not procure any revenue to the Treasury because the tax was always 
deductible by publishers, producers, etc., and that the only purpose of the new 
administrative obligations imposed on them would, in the absence of any revenue, be the 
formal one of bringing the rules into line with Community legislation. 
OJ No L 351. 2.12.1992. p. 32. 
J3 
In order to make tax liability more acceptable to authors, France introduced the special 
scheme in question. 
2. Essential characteristics of the scheme 
Under the scheme, the tax payable by authors is charged by being withheld at source 
where royalties are paid by publishers, royalty collection and distribution companies or 
producers. In other words, it does not apply unless the payer is a taxable person identified 
by the tax authorities. 
Authors' deductible input tax is calculated by applying a 0.80% flat rate to their royalties. 
The amount determined in this way is exclusive of any other deduction. 
An enterprise paying royalties to an author must pay to the Treasury the VAT due on 
royalties minus the VAT deductible from that amount calculated on the basis of this flat 
rate. 
For transactions carried out under this scheme, authors are exempted from the obligation 
to issue an invoice, submit a return and pay the tax. 
Finally, any author may waive his inclusion in the scheme by opting for application of 
VAT in accordance with the general rules. 
3. Opinion of the French administration on the application of the scheme 
The French authorities consider that the scheme offers the best guarantees for the proper 
charging of VAT owed by persons who can be expected to know little about the 
formalities relating to turnover taxes (musicians, writers, composers, etc.). 
In addition, the scheme has the massive support of authors since only 5% of them have 
expressed a wish to be excluded from it by exercising the option referred to above. 
Finally, the French authorities note that the tax authorities have observed no anomaly in 
the scheme's application. 
HI. OPINION OF THE COMMISSION 
Article 27 of the Sixth Directive permits special measures derogating from it 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 scheme in question allows administrative 
obligations to be reduced in a very specific sector and that, consequently, it meets the 
criterion of simplification of the procedure for charging the tax laid down by Article 27. 
M 
Moreover, the possibility which authors have of opting for taxation in accordance with the 
general rules allows them to exercise fully their right to deduction where they consider 
that the flat-rate deduction provided for under the special scheme is not appropriate to 
their specific situation. 
The Commission therefore considers that it would be justified to extend application of the 
special scheme on the basis of Article 27 of the Sixth Directive. 
As regards the period of validity of the authorization, the Commission's 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 assess then whether the derogation is consistent with the 
approach adopted under the new common system of VAT. 
2 COM(96) 32X Final. 22.07.1996. 
S 
Proposal for a 
COUNCIL DECISION 
authorizing the French Republic to extend the 
application of measures derogating from Article 17 and Article 22(3), (4) and (5) 
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 
EXPLANATORY MEMORANDUM 
By letter registered with the Commission's Secretariat-General on 14 February 1997, the 
French Government submitted a request for an extension of the derogation authorized by 
Council Decision 92/544/EEC of 23 November 1992.1 
Article 2 of the above-mentioned Decision states that, in the light of a Commission report 
on France's application of the derogation, 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 to be made at that time 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 by letter of 13 March 1997 of the French request. 
1 OINoL 35J, 2.12.1992, p. 32. 
2 COM(96) 328 final, 22.07.1996. 
3 
-•"•"Proposal for a 
COUNCIL DECISION 
authorizing the French Republic to extend the 
application of measures derogating from Article 17 and Article 22(3), (4) and (5) 
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 92/544/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 
14 February 1997, the French Government requested authorization to extend the 
application of the derogation previously granted to it for a limited period by 
Council Decision 92/544/EEC; 
Whereas the other Member States were informed on 13 March 1997 of the request for an 
extension submitted by the French Government; 
1 OJ No L 145. 13.06.1977. p. 1; Directive last amended by Directive 96/95/EC (OJ No L 338, 
28.12.1996. p. 89). 
2 OJ No L 351. 2.12.1992. p. 32 
8 
Whereas the Commission's report on the application of the derogation indicates that the 
special measures meet the conditions for application of Article 27 of the said Directive; 
Whereas the Commission adopted on 10 July 1996 a work programme' and a timetable of 
proposals providing for gradual, step-by-step progress towards a common VAT system 
for the single market; 
Whereas, as presentation of 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 to be 
made at that time of the derogation's consistency with the overall approach of the new 
common system of VAT; 
Whereas this derogation will not have any effects on the European Communities' own 
resources accruing from VAT, 
HAS ADOPTED THIS DECISION: 
COM(96) 328 final. 22.07.1996. 
Article I 
By way of derogation from Article 17 and Article 22(3), (4) and (5) of Directive 
77/388/EEC, the French Republic is hereby authorized, until 31 December 1999, 
- to apply arrangements for withholding at source the tax payable by authors where the 
royalties they receive are paid by publishers, royalty collection and distribution 
companies or producers, 
- to calculate authors' deductible input tax by applying a flat rate of 0,80 % to their 
royalties. The amount determined in this way shall be exclusive of any other deduction. 
Article 2 
This Decision is addressed to the French Republic. 
Done at Brussels, 
For the Council 
The President 
A<$ 
ISSN 0254-1475 
COM(97) 215 final 
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