Proposal for a COUNCIL DECISION amending Article 3 of Council decision 98/198/EC of 9 March 1998

(presented by the Commission)

EXPLANATORY MEMORANDUM

1. By letter registered with the Commission's Secretariat-General on 16 June 2000, the United Kingdom Government requested authorisation, pursuant to Article 27 of the Sixth Council Directive (77/388/EEC) of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes - Common system of value added tax: uniform basis of assessment, [1] to extend application of the derogation originally granted to it by Council Decision 95/252/EC of 29 June 1995 [2]; Further extended by Council Decision 98/198/EC of 9 March 1998 [3]; And again extended further by Council Decision 1999/79/EC of 18 January 1999 [4].

[1] OJ L 145, 13.6.1977, p. 1. Directive last amended by Directive 2000/17/EC (OJ L 84, 5.4.2000, p. 24).

[2] OJ L 159, 11.7.1995, p. 19.

[3] OJ L 76, 13.3.1998, p. 31.

[4] OJ L 27, 2.2.1999, p. 22.

2. In accordance with the aforementioned Article 27, the other Member States were informed of the United Kingdom's request by letter dated 28 July 2000.

3. The United Kingdom was authorised by the above Decisions to apply a special measure restricting to 50% the right of the hirer or lessee of a passenger car to deduct input tax on charges for its hire or lease where it is used for private purposes. That restriction of the right to deduct replaces the collection of the VAT which would be due in respect of the private use of the car. The current authorisation expires on 31 December 2000.

4. On 17 June 1998 the Commission presented a proposal for a Directive [5] amending the Sixth Directive as regards the rules governing the right to deduct VAT. The aim of that proposal is to bring about an approximation of the rules applicable within the Community on limitations to the right to deduct VAT on certain expenditure, including all expenditure relating to passenger cars. If this Directive is adopted it will mean that the UK Derogation in this area would be superfluous.

[5] OJ C 219, 15.7.1998, p. 16.

5. In view of the time required to finalise the legislative procedure, the Commission considers it unlikely that the provisions of that proposal for a Directive will be implemented before 31 December 2000.

6. Under the circumstances, the Commission considers that Article 3 of Decision 98/198/EC should be amended in such a way as to extend the period of validity of the authorisation until the entry into force of the new Directive, or until 31 December 2003 at the latest, so that an assessment can be made at that time of the necessity for a derogation in the light of the discussions held within the Council.

Proposal for a COUNCIL DECISION amending Article 3 of Council decision 98/198/EC of 9 March 1998

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 harmonisation of the laws of the Member States relating to turnover taxes - Common system of value added tax: uniform basis of assessment, [6] and in particular Article 27 thereof,

[6] OJ L 145, 13.6.1977, p. 1. Directive last amended by Directive 2000/17/EC (OJ L 84, 5.4.2000, p. 24).

Having regard to the proposal from the Commission [7],

[7] OJ C , , p. .

Whereas:

(1) Pursuant to Article 27(1) of the Sixth VAT Directive, the Council, acting unanimously on a proposal from the Commission, may authorise any Member State to introduce or extend special measures for derogation from that Directive in order to simplify the procedure for charging the tax or to prevent certain types of tax evasion or avoidance.

(2) By letter registered with the Commission's Secretariat-General on 16 June 2000, the United Kingdom Government requested authorisation to extend the application of the derogation previously granted to it by Council Decision 95/252/EC of 29 June 1995, Council Decision 98/198/EC of 9 March 1998 and Council Decision 1999/79/EC of 18 January 1999.

(3) The other Member States were informed on 28 July 2000 of the United Kingdom's request.

(4) The derogation in question is designed, firstly, to restrict to 50% the right of the hirer or lessee of a passenger car to deduct the VAT on the hire or leasing transaction where the car is used for private purposes and, secondly, to waive the VAT payable on the private use of the car in question.

(5) The legal and factual circumstances which justified granting authorisation to apply a derogation have not changed and still obtain.

(6) On 17 June 1998 the Commission presented a proposal for a Council Directive [8] amending the Sixth Directive as regards the rules governing the right to deduct VAT.

[8] OJ C 219, 15.7.1998, p. 16.

(7) The objective of that proposal is to bring about an approximation of the limitations of the right to deduct VAT in order to reduce the disparities between the rules applicable in the Community, particularly where expenditure on passenger cars is concerned.

(8) It is appropriate, therefore, to extend the period of the authorisation granted until the entry into force of the above-mentioned Directive; However, this authorisation will expire on 31 December 2003 at the latest if the Directive has not entered into force by that date, enabling an assessment to be made at that time of the necessity for a derogation in the light of the discussions held within the Council.

(9) The derogation has no adverse impact on the European Communities' own resources accruing from VAT,

HAS ADOPTED THIS DECISION:

Article 1

Article 3 of Decision 98/198/EC is replaced by the following:

"This authorisation shall expire on the date of the entry into force of the Community rules determining what expenditure is not to be eligible for the deduction of value added tax, in accordance with the first subparagraph of Article 17(6) of the Sixth Directive, but on 31 December 2003 at the latest."

Article2

This Decision is addressed to the United Kingdom.

Done at Brussels,

For the Council

The President