authorising Finland to introduce a special measure derogating from Article 287 of Directive 2006/112/EC on the common system of value added tax

EXPLANATORY MEMORANDUM

Pursuant to Article 395(1) of Council Directive 2006/112/EC of 28 November 2006 on the common system of valued added tax (‘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 6 January 2020, Finland requested an authorisation to apply, as of 1 January 2021, a measure derogating from Article 287 of the VAT Directive, allowing Finland to exempt from VAT taxable persons whose annual turnover is no higher than EUR 15 000. By letter registered with the Commission on 19 February 2020, Finland sent more detailed information on the measure it wants to introduce.

In accordance with Article 395(2) of the VAT Directive, the Commission informed the other Member States by letter dated 10 March 2020 of the request made by Finland. The Commission notified Finland by letter dated 11 March 2020 that it had all the information necessary to consider the request.

1.CONTEXT OF THE PROPOSAL

•Reasons for and objectives of the proposal

Chapter 1 of Title XII of the VAT Directive allows for the possibility for Member States to apply special schemes for small enterprises, including the possibility of exempting taxable persons below a certain annual turnover. This exemption implies that a taxable person does not have to charge VAT on his supplies and, consequently, he or she cannot deduct the VAT on his inputs. Under Article 287(5) of the VAT Directive, Finland may exempt from VAT taxable persons whose annual turnover is no higher than the equivalent in national currency of ECU 10 000 at the conversion rate on the day of its accession. Finland joined the euro on 1 January 2002. By raising the threshold for a person to be identified for VAT purposes from ECU 10 000 to EUR 15 000, it is anticipated that the measure will reduce the administrative burden on businesses eligible for the scheme, and in particular on micro-enterprises, by releasing them from the VAT obligations under the normal VAT arrangements, such as keeping VAT records or submitting VAT returns. Moreover, there will also be a reduction in the workload for the tax authorities. According to the Finnish authorities, the measure will only have a minor impact on the overall amount of VAT revenue collected at the final consumption stage. The measure has an optional character. Therefore, small businesses whose turnover does not exceed the threshold will still have the possibility to exercise their right to apply the normal VAT arrangements. Derogations are normally granted for a limited period to allow an assessment of whether the derogating measure remains appropriate and effective. Moreover, the provisions of Articles 281 to 294 of the VAT Directive on the special scheme for small enterprises have recently been reviewed. The new directive laying down simpler VAT rules for small enterprises requires that Member States adopt and publish the laws, regulations and administrative provisions, which are necessary to comply with the new rules, by 31 December 2024 at the latest. Member States will have to apply those national provisions from 1 January 2025. It is therefore appropriate to authorise Finland to apply the derogating measure until 31 December 2024.

•Consistency with existing policy provisions in the policy area