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COM (84) 270 
 
 
 
Vol. 1984/0123 
  
 
Disclaimer  
Conformém ent au règlement (CEE, Euratom) n° 354/83 du Conseil du 1er février 1983 
concernant l'ouverture au public des archives historiques de la Communauté économique 
européenne et de la Communauté européenne de l'énergie atomique (JO L 43 du 15.2.1983, 
p. 1), tel que modifié par le règlement (CE, Euratom) n° 1700/2003 du 22 septembre 2003 
(JO L 243 du 27.9.2003, p. 1), ce dossier est ouvert au public. Le cas échéant, les documents 
classifiés présents dans ce dossier ont été déclassifiés conformément à l'article 5 dudit 
règlem ent. 
In accordance with Council Regulation (EEC, Euratom) No 354/83 of 1 February 1983 
concerning the openi ng to the public of the historical archives of the European Econom ic 
Community and the European Atomic Energy Communit y (OJ L 43, 15.2.1983, p. 1), as 
amended by Regulation (EC, Euratom) No 1700/2003 of 22 September 2003 (OJ L 243, 
27.9.2003, p. 1), this f ile is open to the public. Where necessary, classified documents in this 
file have been declassified in conformity with Article 5 of the aforementioned regulation.  
In Übereinstimmung mit der Verordnung (EWG, Euratom) Nr. 354/83 des Rates vom  1. 
Februar 198 3 über die Freigabe der historischen Archive der Europäischen  
Wirtschaftsgemeinschaft und der Europäischen Atomgem einschaft (ABI. L 43 vom  15.2.1983,  
S. 1), geändert durch die Verordnung (EG, Euratom) Nr. 1700/2003 vom 22. Septem ber 2003  
(ABI. L 243 vom 27 .9.2003, S. 1), ist diese Datei der Öffentlichkeit zugänglich. Soweit  
erforderlich, wurden die Verschlusssachen in dieser Datei in Übereinstimmung mit Artikel 5  
der genannten Verordnung freigegeben.  
COMMISSION  
OF THE
EUROPEAN COMMUNITIES
SecretariatC O M(84) 270 final 
Brussels, 10 M a y  1984
 FOR OFFICIAL USE ONLY
COMMISSION COMMUNICATION TO THE COUNCIL
concerning arrangements for implementing the Community system of
V A T  in Portugal
C O M (84) 270 final

B A C K G R O U N D
In its Communications of 29 January 1981 and 1 1  June 1982, the 
Commission m ade proposals with a view to solving the substantive 
problems which had been identified during the negotiations with 
Portugal on taxation and in respect of which the Portuguese authorities 
had requested temporary derogations.
A t the eighth meeting of the Conference at Ministerial level in 
Luxembourg on 22 June 1982 and at the 21st meeting at Deputy level 
on 16 July 1982, in itia l agreement w as reached between the Community 
and Portuguese delegations to the effect that Portugal w as authorized, 
under a temporary derogation, to defer the introduction of the 
Community system of V A T  for three years from the date of accession.
A  third Commission Communication to the Council, dated 6 September 1982, 
w as drawn up with the aim of solving the remaining questions in 
abeyance at that stage o f the negotiations, namely:
(i) the arrangements applicable with regard to excise duties
on manufactured tobacco produced and consumed in the autonomous 
regions of the Azores and Madeira;
(ii) the arrangements for implementing the Community system of 
V A T  in Portugal w hen the temporary derogation ceases.
This third Commission Communication to the Council enabled further 
agreements to be reached with Portugal on taxation in autumn 1982.
O n  the basis of the record of the conclusions of the ninth meeting 
at Ministerial level,^ which w as approved at the 13th meeting at 
Ministerial level in Brussels on 25 M a y  1983,5  agreements were concluded 
on most of the problems raised by the Portuguese delegation concerning 
taxation, as follows:
*  C O M  C  81)13 final. 
^C0M(82)358 final. 
7C0M(82)570 final. 
^CONF-P/85/82. 
lONF-P/46/83.

-  2 -
granting of a three-year temporary derogation for the introduction 
of the Community V A T  system in Portugal';
agreement on certain arrangements for implementing the Community
• ; . : t, ·
system of V A T , in particular the exemption of certain activities
\
listed in A nnex F  of the Sixth Council Directive 77/388/EEC 
of 17 M a y  1977;
granting of tax exemptions for small undertakings;
adoption of the arrangements concerning excise duties on 
manufactured tobacco;
adjustment of Portugal's legislation on tax exemptions for 
private individuals;
application in Portugal of the Community provisions concerning 
mutual assistance between tax administrations for the prevention 
of tax evasion and avoidance.
N o  agreement was reached during these negotiations, however, on 
two requests Portugal had m ade for derogations concerning V A T .
T he first involves the possibility of granting exemptions with 
refund of the tax paid at the preceding stages, i.e . applying zero 
rates. Furthermore, no agreement w as reached concerning Portugal''s 
request for the setting up of a special system for applying V A T  
to the autonomous regions of Azores and Maderia. O n  the latter 
point, the special system envisaged by the Portuguese authorities 
would involve treating air and sea transport between the islands 
and between the islands and the mainland as international transport.
N o  further details were given concerning Portugal's request for 
special arrangements, however, and in the absence of an undertaking 
from the Portuguese delegation not to extend its request to other 
sectors, the Community delegation w as unable to conclude an agreement 
on this point with the Portuguese authorities.
A t the 29th meeting of the Conference at Deputy level held in Brussels 
on 13 April 1984 the Portuguese delegation presented to the Community 
delegation proposals aimed at solving the first of the two problems 
regarding taxation referred to above, which are s t i l l  in abeyance, 
i.e. the application of zero rates in Portugal.
T he Portuguese authorities have not yet presented their definitive positions, 
however, on the special system for the autonomous regions of the Azores 
and Madeira, so that the problem of this special system is s till in 
abeyance.•Ci)
(ii)
(iii)
(iv)
(v)
(vi)

Portugal's request concerning application of zero Yates
Since the start of the negotiations, the Portuguese authorities have 
requested that they be allowed to apply V A T  zero rates not only 
to a  list of foodstuffs but also to a  li§t of agricultural inputs, 
o n  the basis of Article 2 8  of the Sixth Directive. U nder the said 
Article 28, the M e m b e r States w hich already applied a  V A T  system 
with zero rates of duty w h en  the C om m u n ity  system entered into 
force w ere able to carry on applying their zero rates until the 
tax frontiers were abolished.
In practice Portugal's request is for a  permanent derogation as 
regards the application of the zero rate to a list of products 
o n  the basis of the following m ain arguments:
(i) protection of the final consumption of agricultural products
b y  the farmers themselves or o w n  consumption, and also the
*consumption of products sold direct to consumers outside 
trade channels;
(ii) administrative difficulties involved in establishing a  system 
for reimbursing farmers;
(iii) long tradition of freedom from  taxation in Portugal's agriculture
(iv) in the case of foodstuffs, considerations of social justice 
as regards the least-favoured classes.
U nder the machinery set up by Article 28 of the Sixth Directive, 
the possibility of applying zero rates is confined to essential 
consum er goods, for social reasons, but amounts in practice to 
authorization to apply zero rates for an undetermined period as the 
withdrawal of authorization to apply zero rates requires an unanim ous 
vote b y  the Council.
During the 29th meeting of the Conference at Deputy level held 
in Brussels o n  1 3  April 1984, the Portuguese delegation modified 
its position, and is n o w  modulating its request for the application 
of Article 2 8  of the Sixth Directive according to whether food 
products or agricultural inputs are involved.

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The Portuguese delegation confirms
"its requests for the application of zero rates to foodstuffs
and agricultural inputs listéd in the Annex".*'
\
It also sets out
"its position concerning the procedure for decisions on the 
period of application of zero rates, and on the possible extension 
of this period".
In the case of foodstuffs, Portugal is therefore requesting 
that Article 28 be applied to it in the same w ay as to the 
present M em ber States since the Portuguese delegation has stated 
that
"in respect of "the foodstuffs listed in the Annex, the decisions 
taken by the Council as a result of the reviews carried out 
pursuant to Article 28 of the Sixth Directive will also apply 
to Portugal".
This means that the possibility of applying zero nates to foodstuffs 
in Portugal would cease-only on a unanimous vote by the Council.
For agricultural inputs, however, the Portuguese delegation 
is proposing that a stricter procedure be applied. The Portuguese 
delegation has
"requested the possibility of introducing exemptions for the 
agricultural inputs listed in the A nnex for a period of ten years 
following accession. U pon the expiry of this temporary derogation, 
the application of zero rates to these products should be extended, 
unless the Council, acting on a proposal from the Commission, 
decides by a qualified majority to abolish it".
In the same statement, the Portuguese delegation stressed that 
Portugal's application of zero rates would not affect own resources, 
stating that:
"the Portuguese authorities will take all the necessary measures, 
in good time, to determine V A T  resources, in accordance with the 
first indent of Article 2(2) and Article 4(2) of Council Regulation (E E C ) 
N o  2892/77 of 19 December 1977".
tr a n s la to r 's  note: This and all. the subsequent quotations on this
page are an unofficial translation, owing to the unavailability of 
the official English version of CONF-P/22/84.

The Community's position
1 In its Communication to the Council of 6 September 1982, the Commission 
said it w as in favour of granting the derogation· requested by the 
Portuguese authorities in respect of the food products but w as against 
granting the derogation in respect of agricultural inputs.
The Council for its part had adopted a more restrictive attitude than 
the Commission to Portugal's request for a temporary derogation. At 
the ninth meeting of the Conference at Ministerial level on 
2 1  September 1982, the Community said that it was in a position:
"to state that it does not exclude the possibility of zero rates for 
certain foodstuffs, but that it will have to consider further:
- a more limited coverage for the application of such rates than 
requested by. Portugal,
- the question of duration of such rates.
On the other hand, the Community cannot agree to the exemptions2requested by the Portuguese delegation for agricultural inputs."
Taking into consideration Portugal's insistence on obtaining a derogation 
for essential products owing to the country's increasingly difficult 
economic and social situation, the Community adopted a slightly more 
flexible stance at the 12th meeting of the Conference at Ministerial 
level held in Brussels on 15 M arch 1983. A t the time the Com m unity 
had defined its position as follows in a statement to the Portuguese 
delegation:^
"After a thorough examination of the /aforementioned/ statement by .  
the Portuguese delegation, the Community
(a) is able to propose, as regards food products, that the following
be recorded in A nnex I to the summary of conclusions:
4'For the foodstuffs listed in the Annex, Portugal will have 
the possibility of providing for the application of zero rates 
for a period of nine years after accession.
pC0M(82)570 final, p. 4.
^C0NF-P/83/82, p. 2.
, CONF-P/28/83.
^The Annex to that document and the Annex to this Communication are 
identical.

-  6 -
O n  expiry of this period - and in the light of the results of 
the reviews carried out in the meanwhile pursuant to Article 28 
of the sixth Directive - thè Council, acting on a proposal 
from the C o m m i ss ion*./pay decide by a qualified majority to 
extend the derogation laid dow n fjor Portugal.
Application by Portugal of zero fates must have no effect bn own 
resources, the assessment basis for which will have to be 
reconstituted. The Portuguese authorities will have to adopt 
in good time the measures needed to comply with this obligation,I
in accordance with Council Financial Regulation N o  2892/77. ;
(b) confirms its position that it cannot accept the Portuguese
delegation's requests for exemptions for agricultural inputs."
This Community position, which has not undergone any change since then, 
did not lead to an agreement with the Portuguese authorities. Portugal 
has now made counter-proposals, however, as described above.

- 7 -
Compromise solution:  Commission's proposal
In the face of Portugal's latest request for a temporary derogation 
for application of the zero rate, and given the likelihood of the 
introduction of a V A T  system before accession, it is advisable to 
consider working out a compromise solution between Portugal's present 
position and the one set out by the Community in March 1983.
Account should also be taken of the fact that the three-year temporary 
derogation already agreed on with the Portuguese delegation for the 
entry into force of the Community system of V A T  gives the Portuguese 
authorities complete freedom to apply zero rates during the first 
three years following accession, since Portugal has decided to 
introduce a national V A T  system in 1985.
Account should also be taken of the other arguments put forward by the 
Portuguese authorities.
1. Derogation for foodstuffs
This is a case covered by Article 17 of the Second Council Directive 
of 1 1  April 1967 (Directive 67/228/EEC), i.e. measures taken for 
clearly defined social reasons and for the benefit of the final 
consumer. It must also be acknowledged that:
(i) these products are not at present subject to tax in Portugal; 
(ii) this is a matter of very great importance to Portugal; the 
foodstuffs listed in the A nnex constitute 3 0 %  of final 
consumption;
(iii) there are grounds for Portugal's argument that the procedure 
for abolishing these zero rates must be the same for Portugal 
as for the other M em ber States authorized to apply such rates.
Accordingly it would seem possible to show political goodwill and 
make the major concession of simply agreeing to Portugal's request.

2. Temporary derogation for agricultural' inputs
For agricultural inputs, however, the application of a zero rate would 
represent a serious distortion of Community rules. It should also be 
pointed out that infringement proceedings have been initiated in 
respect of two M em ber States ·   which apply
such provisions to certain agricultural inputs. It is consequently 
impossible simply to agree to Portugal's request. There is no doubt, 
however, that this presents Portugal with a real problem, since there 
is at present no tax on agricultural inputs and farmers themselves 
consume a large proportion of their o w n  products. For this reason 
it is not inconceivable for the Community to show its goodwill and 
m ake a "gesture" towards Portugal. In order to m ake it very clear, 
however, that the derogation is temporary and of a completely different 
kind from the f ir s t, and to ensure that Portugal makes the necessary 
adjustments in reasonable time, it should be authorized to apply zero 
rates to agricultural inputs during a relatively short period only, 
such as fiye years, without any provision for the possibility of 
extension.

- 9 -
The Commission's proposal
T o  conclude, the Commission proposes that Portugal should be authorized:
(1) to apply exemptions, with refund of the taxes paid at the preceding 
stage, in respect of the foodstuffs set· out in Section I of the 
list in the Annex;
(2) from the date of introduction of the Community system of V A T , to 
apply over a period of five years, which cannot be extended, 
exemptions, with refund of the taxes paid at the preceding stage, 
in respect of the agricultural inputs in Section II of the list 
in the Annex.
on condition that the Portuguese authorities accept, in the summary 
of conculsions of the Conference, to implement, immediately, the 
necessary sta tistic a l measures to correctly calculate the V A T  ow n  
resources relating to the above-mentioned zero ratings.
The Commission is requested to approve the above Communication and 
transmit it to the Council. 

Annex
GOODS TO BE EXEMPTED WITH“  REPAYMENT OF THE TAX PAID AT EARLIER STAGES
I. Foodstuffs 
1. Bread and cereal preparations
10.06 Rice
11.01 Cereal flours
19.02 B(ex) Preparations of a kind used as infant food
19.03 Macaroni, spaghetti and similar products
19.07 D(ex) Bread
2. Meat and edible offals
02.01 A II Meat of bovine animals
02.01 A JII Meat of swine
02.01 A IV Meat of sheep or goats
02.01 B Offals
02.02  Dead poultry (that is to say, fowls, ducks, geese,
turkeys and guinea fowls) and poultry cuts (including
 offals)
15.01 A Lard and other pig fat
3.  Fish and molluscs
03.01 Fish, fresh (alive or dead), chilled or frozen
03.02 A I-b) Dried cod
03.03 B IV Molluscs, excluding oysters, mussels and shellfish.

4* Dairy produce, birds 1 eggs
04.01 A II )
04.01 B )
04.02 II
04.04 (ex)
04.05 AMilk and cream, fresh, not concentrated or  
sweetened, excluding fermented or acidified milk
Milk and cream, in powder or granules
"Flamengo" cheese
Eggs in shell, fresh or preserved
5. Fat 8 and oils
15.07 A Olive oil
6. Fruit and vegetables
07.01
07.02
07.05
08.01 B
08.01 C
08.02 (ex)
08.03 A
08.04 A
08.06
08.07
08.08
08.09
7 *  Waters
22.01 BVegetables, fresh or chilled
Vegetables (whether or not cooked), preserved by  
freezing
Drie.d leguminous vegetables, Bhelled, whether or
not skinned or split
Bananas
Pineapples
Citrus fruit, fresh
Fresh figs
Fresh grapes
Apples, pears and quinces, fresh  
Stone fruit, fresh  
Berries, fresh  
Other fruit, fresh
Waters other than spa waters and aerated waters

II. Agricultural input»
1· Fertilizers, insecticides, fungicides and growth regulators
12.07 .Plants and parts of trees, bushes, shrubs or other plants .
for insecticidal, fungioidal or similar purposes
13.03 A V Vegetable saps and extracts of pyrethrum and of the
roots of plants containing rotenone
Chapter Fertilizers
38.11 (ex) Disinfectants, insecticides and fungicides for agricultural
use .
38.19 A Fusel oil and dippel's oil
2. Live animals for human consumption, agricultural work or breeding
Chapter Live animals
3* Animal feed rations and feedingBtuffs
12.09 Cereal straw and husks, unprepared, or chopped but not  
otherwise prepared
12.10 Mangolds, swedes, fodder roots, lupines, vetches and  
similar forage products
23.01 Flours and meals, of meat, offals, fish, crustaceans or
molluscs, unfit for human consumption; greaves
23.06 Products of vegetable origin for animal food
23.07 Sweetened forage and .other preparations
4· Seeds, bulbs and live plants
06.01
06.02Bulbs and tubers
Other live plants, including trees, shrubs, bushes and roots

12.01 A Oil seeds and oleaginous fruit, for sowing
12.03 (ex) See'ds, fruit and spores, of a kind used for sowing,
excluding flower seeds 
5* Tools, implements, machinery and mechanical appliances for use in  
agriculture, forestry and stockfarming
82.01 Hand tools of a kind used in agriculture, horticulture
or forestry-
84.10 (ex) Pumps (including motor pumps) for liquids, used ir
agriculture
84»24 Agricultural and horticultural machinery for soil
preparation or cultivation  
84.25 Harvesting machinery, etc.
 84.26 Dairy machinery (including milking machines)
84*27  Presses, crushers and other machinery of a kind used
in wine, making
84*28 Other machinery (...), including poultry incubators
and brooders
84*29 Machinery of a kind used in the bread grain milling
industry, etc.
87.01 A Agricultural walking tractors, with either a spark
ignition or a compression ignition engine
87.01 B Agricultural tractors and forestry tractors, wheeled
87.O6 (ex) Parts and accessories of the motor vehicles falling
within subheadings 87.01 A and 87.01 B 
87*14 A (ex) Animal-drawn vehicles used in agriculture